Before MEDINA, LUMBARD and WATERMAN, Circuit Judges.
These cases are before us on petitions for review of the decisions of the Tax Court. The findings of fact and conclusions of law are reported at 22 T.C. 612; a supplemental opinion is reported at 23 T.C. 630; additional supplemental memorandum findings of fact and a further supplemental opinion are not reported.
Charles and Beulah Weil in 1940 entered into a separation agreement incident to a divorce. Under this agreement the husband became obligated to make certain periodic payments to the wife, and to pay the premiums on certain life insurance policies of which she was the primary beneficiary. The problem is the extent to which payments made pursuant to this agreement in the taxable years 1947 and 1948 are includible in the wife's taxable income rather than the husband's, by virtue of Sections 22 (k) and 23(u) of the Internal Revenue Code of 1939, 26 U.S.C.A. §§ 22(k) and 23(u).*fn1 Two questions must be answered:
(1) Were the insurance premium payments "received" by the wife?
(2) Do "the terms of the * * * instrument fix [a portion of the payments to the wife] as a sum which is payable for the support of minor children of such husband"?
By Article 12 of the agreement the husband undertook to deliver certain insurance policies to the wife, who agreed she would "promptly put said policies in a safe deposit box for safe keeping," and he further undertook to continue to pay the premiums. The agreement provided that the wife was to cease to have any interest in the policies if she remarried during his lifetime, and that she was to receive only half of the benefits if she remarried after his death. It also recited that, "The Husband agrees that he will not assign, transfer or encumber said policies or any of them and that he will not surrender or in any other manner change the benefits or terms of said policies during the lifetime of the Wife or until her remarriage, without her written consent." Although the policies provided that no assignment was to be binding unless in writing and filed with the company the husband did not execute any written assignment.
The husband contends: (1) that he may deduct premiums paid pursuant to the agreement, if the policies were assigned to his former wife; (2) that an assignment of insurance policies may be accomplished by delivery; and (3) that he did so assign the policies. Assuming arguendo that his first two contentions are correct, we must nevertheless reject his conclusion, because we find that he did not assign the policies. They were delivered to the wife only "for safe keeping." She had no right to change the beneficiary, to assign the policies, or to obtain the cash surrender values. Her interest ceased upon her death or remarriage during his lifetime. While certain restrictions were placed upon the husband's control of the policies, he clearly retained ownership. The Tax Court was correct in refusing to treat the premium payments as constructively received by the wife.
Prior to the Revenue Act of 1942, alimony was not treated as part of the wife's taxable income. By Section 120 of that Act, however, certain alimony payments were included in her gross income and the husband was allowed an equivalent deduction. 56 Stat. 798, 816. But the statute excepts from its coverage that part of such payments "which the terms of the decree or written instrument fix * * * as a sum which is payable for the support of minor children."
The Tax Court has held that the terms of the agreement now before us did "fix" a part of the payments to be made by the husband thereunder as sums "payable for the support of minor children." We disagree.
The cases construing and applying the terms of the statute have been numerous. In the bewildering maze of different types of separation agreements, containing a great variety of clauses requiring payments to the wife for her own maintenance and for the support of minor children, the Tax Court seems gradually to have drifted into a series of decisions, including the one at bar, which conclude that a particular agreement does "fix" sums "payable for the support of minor children," when it plainly does not.
The key words of the statute are "payable for." The context of Section 22 demonstrates that the Congress used this phrase advisedly. The wife is not relieved of taxability on sums which she in fact expends for the support of minor children, but only on such sums as "the terms of the * * * instrument fix * * * as * * * payable for" that purpose. The statute taxes to the wife sums which are available for her own use or benefit - whether or not she has undertaken to support the minor children - and does not tax to the wife sums she is required to devote exclusively to the support of the children. What vitiates the decision of the Tax ...