Before BIGGS, Chief Judge, and MARIS and McLAUGHLIN, Circuit Judges.
This case comes before us on a petition to review a decision of the Tax Court, 1958, 29 T.C. 1095. The issue presented is: Is the taxpayer, Faber, entitled to deduct under Section 23(u), Internal Revenue Code of 1939, 56 Stat. 817, 26 U.S.C. § 23(u), a portion of an annual $5,000 payment, made to his divorced wife, Ada, namely $2,700, designated in the separation agreement incorporated in the divorce decree for the support of his divorced wife's son?
The taxpayer and his wife, Ada, were divorced in 1952. The former Ada Faber had been previously married and had a son by this former marriage, William Black, who adopted his stepfather's surname but was never legally adopted by his stepfather. The taxpayer and his wife entered into a separation agreement which was made part of the final decree of divorce. The agreement provided in pertinent part:
"The Husband covenants and agrees to pay to the Wife in settlement of her property rights and the obligation of the Husband for her future care, support and maintenance, and for the care of the Wife's child, William, the sum of Fiftyfive thousand dollars ($55,000), payable Five thousand dollars ($5,000) annually, beginning the first day of January, 1952, to and including the first day of July, 1962, or for a period of eleven years. * * * Receipt is hereby acknowledged by the Wife of payment by the Husband of Two thousand five hundred dollars ($2,500) due and payable on January 1, 1952. Payments as above set forth shall be at such place or places as the Wife may, from time to time, designate in writing.
"Said payment or payments are to be allocated Two thousand three hundred dollars ($2,300) annually for the Wife, and Two thousand seven hundred dollars ($2,700) annually for the support and care of his Wife's son, William.
"In the event that the Wife or her son die before all payments have been made, then the allocated part of the payment, as above set forth, shall cease, and the future payments reduced, and the estate of the one so dying shall have no claim against the Husband for future 'payments'."*fn1
The taxpayer paid Ada $5,000 in 1952. He deducted the $5,000 as an alimony payment in his individual tax return for that calendar year. The Commissioner allowed $2,300 but disallowed the remaining $2,700 as a deduction on the ground that this amount represented "payment for care, support and maintenance of William Faber, under Section 23(u) of the Internal Revenue Act of 1939."
The pertinent statutory provisions of the Internal Revenue Code of 1939 are set out in the footnote.*fn2
Whether the taxpayer may deduct, under Section 23(u), the amount of any payment to his wife depends on whether the payment is properly includible in the wife's income under Section 22(k).Eisinger v. C.I.R., 9 Cir., 1957, 250 F.2d 303, certiorari denied, 1958, 356 U.S. 913, 78 S. Ct. 670, 2 L. Ed. 2d 586.
The taxpayer contends that the second sentence of Section 22(k) is exclusionary in effect and meaning and that William Faber is not within the classification of "minor child." We agree. William was a stepchild of the taxpayer and was not the taxpayer's child.*fn3 But it does not follow, as the taxpayer contends, relying on our decision in Feinberg v. C.I.R., 3 Cir., 1952, 198 F.2d 260, that since the exception contained in the second sentence of Section 22(k) does not apply, the full amount of $5,000 automatically must be included in the wife's income and hence must be deducted from the husband's. The Feinberg decision does not support the taxpayer's view for if the whole payment is to be considered as income to the wife the requirements of the first sentence of Section 22(k) must be satisfied independently. The Feinberg decision does not hold that those requirements do not have to be met. The second sentence of Section 22(k) deals only with one specific type of payment which is not includible in the wife's income.
It remains to be determined whether under the first sentence of 22(k) the entire $5,000 should constitute income to Ada Faber. The Tax Court has concluded that "the amounts paid to William were purely voluntary on the part of the petitioner so far as this record shows, and therefore not within the intendment of Subsection 22(k)." With this conclusion we cannot agree.
Suppose that in this case it was clear that Ada had the legal obligation to support William*fn4 and the agreement had recited that the amount for William's care was for and in Ada's behalf. It would then be apparent that $2,700 would have been includible in Ada's income and deductible from the taxpayer's. Robert Lehman, 1951, 17 T.C. 652.*fn5 Here, a recital to such effect is missing but the mere absence of the appropriate language from the agreement does not resolve the issue and it becomes pertinent to inquire whether the payment of the $2,700 was made for and in behalf of Ada. Relevant to this inquiry is the answer to the question whether Ada acquired an economic benefit of such nature that the payment may be said to be for and in her behalf. In Mandel v. C.I.R., 7 Cir., 1956, 229 F.2d 382, the taxpayer-husband agreed to pay his wife $18,000 a year, the separation agreement further providing that should she remarry, the payment would be reduced to $833.33 per month, $10,000 a year, and that if a child, there being two children of the marriage, should marry, or on reaching 21 live apart from the wife, the husband could elect to pay directly to the child $416.66 per month, $5,000 per year.
Before the tax years in question, Mandel's wife remarried, and the two children of Mandel had married and were living apart from their mother, the wife. Mandel paid to his former wife amounts as specified in the separation agreement which she in turn paid to the two children. The court did not allow the taxpayer to deduct the amounts so paid, since the amounts were not income to the wife. The court stressed the point that, by the terms of the agreement and under the circumstances, the wife had received no economic or personal benefit from the payments made to her after her remarriage and the emancipation of the two children. "No legal obligation to support the children after they arrived at their majority was imposed upon Edna." 229 F.2d at page 387. In the case at bar the existence of a legal obligation of the wife to support her son has been assumed by us to be present.*fn6 Under this assumption aid in the satisfaction of Ada's obligation by the payments of the separation agreement was for her benefit and hence was "for and in behalf of" Ada. Lehman, supra, 17 T.C. at page 653. That the payment also benefits another person, William, does not remove it from the ambiency of Section ...