Kalodner and Smith, Circuit Judges, and Kirkpatrick, District Judge.
Were life insurance premiums here paid by the taxpayer*fn1 under the provisions of a divorce decree deductible under Section 215 of the Internal Revenue Code of 1954?*fn2
The District Court held*fn3 that the taxpayer was entitled to deduct 69.14 per cent of the premiums*fn4 on its view that the taxpayer was under a
On this appeal the Government contends that the issue of deductibility of the premium payments turns on the single question as to whether they constituted income to the wife, via the inurement of an ascertainable economic benefit under the policy involved.
The undisputed facts, critical to our disposition, are as follows:
The taxpayer divorced his wife on July 29, 1936. The divorce decree provided he was to pay her $2600.00 a year during her lifetime or until she remarried and to make provision in his will for similar payments in the event that he predeceased her at a time when she was unmarried.*fn5
The divorce decree contained this further provision:
" IT IS FURTHER ORDERED, ADJUDGED AND DECREED that during the lifetime of the defendant he shall keep and continuously maintain good and sufficient life insurance upon his life, of which the plaintiff shall be sole beneficiary in the event of his death, in the sum of Twenty-five Thousand ($25,000.00) Dollars, same to be in the form of term or continuing policy insurance, and to be maintained during the lifetime of the plaintiff, and so long as she shall remain unmarried, the policies evidencing such insurance to be delivered to and to remain in the possession of the plaintiff; * * *."
Pursuant to this provision, the taxpayer obtained a life insurance policy which he delivered to his wife. It has remained in her possession. The policy reserved to the taxpayer the right to change his beneficiary, and inter alia, the right to assign it; to borrow on it, etc. It specifically provided that the wife, as revocable beneficiary, obtained "* * * no vested interest hereunder, and the Insured may exercise every right, receive every benefit and enjoy every privilege conferred by this policy. * * *"
The Commissioner disallowed the taxpayer's claimed deductions for the premiums paid on the policy during the years 1957 to 1959, inclusive. The taxpayer then paid the assessed deficiency and brought the instant action for refund in the District Court.
Pertinent here are these provisions of the Internal Revenue Code of 1954:
"Decree of divorce or separate maintenance. -- If a wife is divorced or legally separated from her husband under a decree of divorce or of separate maintenance, the wife's gross income includes periodic payments (whether or not made at regular intervals) received after such decree in discharge of * * * a legal obligation which, because of the marital or family relationship, is imposed on or incurred ...