MEMORANDUM FINDINGS OF FACT AND OPINION
DRENNEN, Judge: Respondent determined deficiencies in petitioners' income taxes for the taxable years 1970 and 1971, in the amounts of $2,055.29 and $1,705.62, respectively.
After certain concessions made by the parties, the following issues remain for our consideration: (1) Whether certain payments made in 1970 and 1971 by petitioners to petitioner-husband's former wife were periodic alimony payments deductible under section 215, I.R.C. 1954; 1 (2) whether petitioners were entitled to deduct claimed business automobile expenses in 1970 and 1971 in excess of the amounts allowed by respondent; (3) whether petitioners were entitled to deduct expenditures for travel and entertainment in 1971 in excess of the amount allowed by respondent; and (4) whether petitioners were entitled to deduct expenditures allegedly incurred in 1971 for membership dues and entertainment expenses. 2
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation together with exhibits attached thereto are incorporated herein by this reference.
Petitioners are David M. Stock and Janet B. Stock, husband and wife. At the time of filing the petition herein their legal residence was Dug Gap Road, Dalton, Ga.
Petitioners were married May 10, 1970, and filed joint Federal income tax returns for both calendar years 1970 and 1971 with the Internal Revenue Service Center, Chamblee, Ga.
Janet B. Stock is a party herein solely by virtue of filing joint returns and hereafter petitioner will refer only to David M. Stock.
Prior to his marriage to Janet, petitioner had been married to the former Shara L. Stock, now Shara L. Moss. Petitioner and Shara had two children by their marriage, Morris Craig Stock and Samuel Allen Stock.
On or about July 1969 petitioner commenced a civil action against Shara in the Superior Court of Whitfield County, Ga., in which he sought a decree of divorce. Shara, as a defendant in said suit, answered and counterclaimed against petitioner seeking relief by way of temporary and permanent alimony for herself and her children.
In furtherance of her counterclaim, on October 29, 1969, Shara filed a "Notice for Record of Lis Pendens" with the Superior Court of Whitfield County, Ga. Included in the real property described in the notice of lis pendens was a parcel owned equally by petitioner and Joseph H. Ginsburg as tenants in common, which will hereinafter be referred to as the Stock-Ginsburg property. Sometime in 1969 petitioner and Ginsburg received an offer to buy the aforementioned real property. In order to effectuate a sale thereof, petitioner entered into an agreement with Shara dated November 29, 1969. Under the terms of this agreement Shara agreed to release her claim of lis pendens on the concerned parcel in return for which petitioner agreed to enter into an escrow agreement with the Bank of Dalton, Dalton, Ga. The escrow agreement, in pertinent part, provided that the bank was to hold in escrow the portion of the proceeds from the sale of the Stock-Ginsburg property which was due petitioner, pending a final determination of the divorce proceeding. Under the escrow agreement the bank was to distribute the funds in accordance with the provisions of said final divorce decree. The Stock-Ginsburg property was thereafter sold pursuant to a contract of sale calling for a 29-percent downpayment and installment payments over a period of 5 years; pursuant to the aforementioned agreements, petitioner's share of the proceeds were held in escrow by the Bank of Dalton.
On April 16, 1970, petitioner and Shara entered into an agreement (hereafter settlement agreement) which purported to represent a final agreement between the parties with regard to any and all legal rights existing between them as a result of their marital relationship including their respective property rights, rights of support and maintenance of the wife and the children, and all dower and homestead rights. Both parties were represented by counsel in negotiating and drafting the agreement. Under the terms of the agreement petitioner made various provisions for the support and maintenance of the children; he conveyed to Shara all of his interest in all items of personal property located in their home; and he agreed to convey to Shara all his interest in two West Lakeshore Drive lots, without incumberance. In addition the agreement contained the following pertinent provisions:
5- As partial alimony, David M. Stock shall simultaneously with the execution of this agreement, convey his interest in and to all jointly held stocks, bonds and securities of any type whatsoever to Shara L. Stock.
* * *
9- As further alimony, David M. Stock agrees to pay Shara L. Stock one-half of all proceeds as he has received and is entitled to receive from the sale of his one-half undivided interest in the tract of land which he owned jointly with Joseph H. Ginsberg, less the note payment to the Bank of Dalton in the amount of $10,794.86. Said conveyance being the subject matter of the escrow agreement made and entered into between the parties hereto as well as the Bank of Dalton, Dalton, Georgia, as escrow agent, on November 29, 1969, and being a part of the record in this case. It is stipulated that contemporaneously with the execution of this instrument that David M. Stock shall pay to Shara L. Stock one-half of the remainder of the down-payment on said property less the Bank of Dalton note, said one-half interest being one-half of $2,864.63, or $1,432.32. It is further stipulated that on the first of December in the years 1970, 1971, 1972, 1973, and 1974, David M. Stock shall pay to Shara L. Stock as further alimony the following sums and amounts, to-wit:
December 1, 1970, 1/2 of $10,613.50, or $5,307.25
December 1, 1971, 1/2 of $10,124.60, or $5,062.30
December 1, 1972, 1/2 of $ 9,634.70, or $4,817.35
December 1, 1973, 1/2 of $ 9,144.80, or $4,572.40
December 1, 1974, 1/2 of $ 8,654.90, or $4,327.45
It being stipulated that over the period and at the times specified David M. Stock shall pay to Shara L. Stock the total sum of $25,519.07. Further, as security for the said payments, David M. Stock does herewith transfer an one-half undivided interest in these promissory notes and security deed which he holds jointly with the said Joseph H. Ginsberg. *
11- David M. Stock shall pay alimony at the rate of One Hundred ($100.00) Dollars per month commencing on the first day of May, 1970 and continuing monthly thereafter to Shara L. Stock for a period of five (5) years or until her remarriage, whichever occurs first, however, David M. Stock may terminate said alimony payments if he pays the full principal and interest amount owing to the Dalton Federal Savings and Loan Association on the property of the parties on Hardwick Circle in The City of Dalton, Georgia. Said alimony shall be deductible to David M. Stock for federal and state tax purposes and shall be included as income to Shara L. Stock for federal and state income tax purposes for such period of time as said alimony is paid.
On the same day the settlement agreement was executed, April 16, 1970, a final judgment and decree granting a "total divorce" viz., divorce a vinculo matrimonii, was rendered by the Superior Court for the County of Whitfield, Ga. Said decree specifically incorporated the terms of the settlement agreement:
The Court awards custody and support for the children of the parties and alimony for the wife in accordance with the agreement of the parties dated April 16, 1970, which agreement is hereby incorporated as a part of this judgment and each of the parties is directed to obey each and every provision thereof.
The following amounts were paid by petitioner to Shara in 1970 and 1971:
| 1970 |
| Alleged Authority |
| Source of Payment | for Payment |
| From down payment in | Article 9 |
| Stock-Ginsburg sale | of settlement agreement | $1,432.32 |
| From 1970 installment | Article 9 |
| proceeds of Stock- | of settlement agreement | 5,307.25 |
| Ginsburg sale |
| Monthly alimony payments | Article 11 |
| of settlement agreement | 800.00 |
| Total payments in 1970 | | $7,539.57 |
| 1971 |
| From 1971 installment | Article 9 of |
| proceeds of Stock- | settlement agreement | $5,062.30 |
| Ginsburg sale |
| Interest on installment |
| proceeds of Stock- |
| Ginsburg sale | | 970.85 |
| Monthly alimony payments | Article 11 of |
| settlement agreement | 1,800.00 |
| Total payments in 1971 | | $7,833.15 |
On petitioner's income tax returns for 1970 and 1971, the above-indicated payments made to Shara were deducted in full as alimony payments under section 215.
In a statutory notice dated August 6, 1974, respondent allowed only $800 of the deduction claimed for 1970 and $1,200 of that claimed for 1971 for the stated reason that payments claimed in excess of these amounts "represented non-deductible installment payments."
At all times pertinent to this proceeding, petitioner was engaged in a cleaning supply business known as Stock's Sales and Services. It is stipulated that there were no employees in the business during the years in question and that the business was primarily one of sales.
On the 1970 and 1971 Federal income tax returns various expenses allegedly incurred in carrying on petitioner's business were claimed as deductions. In his August 6, 1974, statutory notice respondent disallowed some of these claimed deductions due to lack of substantiation. Certain concessions having been made by the petitioner, the following items remain at issue herein.
Automobile Expenses
During the years in question petitioner owned two automobiles, a 1966 Mercury stationwagon and a 1964 Pontiac Catalina. On the tax returns for both 1970 and 1971 petitioner listed all expenses allegedly incurred on account of both automobiles, subtracted 10 percent thereof as personal expenses, and deducted 90 percent of the respective amounts as business expenditures. The amounts claimed on the returns were $2,269.55 for 1970, and $1,558.80 for 1971. Respondent allowed $1,276.03 and $921.68, respectively. The amounts in issue are $993.52 for 1970 and $637.12 for 1971.
At trial petitioner conceded that the Pontiac Catalina was used exclusively by his son who was a full-time student at a nearby junior college during the years in question. But petitioner testified that in addition to personal use, his son used the Pontiac for making deliveries and picking up supplies for petitioner's business.
Petitioner kept no records indicating business and/or personal use of either automobile; his claimed deduction represented merely an unsubstantiated estimate of business use.
Travel and Entertainment Expenses
For 1971, petitioner claimed a deduction of $236.16 for expenses allegedly incurred on a trip with his family to Nantahala Village, N.C. Petitioner testified that his 3-or 4-day visit was a combined business and pleasure trip and that "probably" 3 or 4 hours of each day were spent conducting business-related activities.Petitioner stated that none of the claimed expenses were related to personal expenses; however, no record was kept of expenses allegedly incurred during said trip. Petitioner has conceded that $110 of the claimed expenses are not deductible; the remaining amount in issue is $126.16.
Dues Expenses
On petitioner's 1971 return $162 was claimed as a deduction for "Dues and subscriptions." At trial petitioner explained that the claimed deduction consisted of $80 for annual Elks Club membership dues, $20 for use of the club swimming pool, and $62 for client entertainment expenses. Petitioner testified that he and his family made little personal use of the club facilities but was unable to estimate what percentage of time the club facilities were used for business-related activities as opposed to such personal use. Petitioner kept no records indicating when, for whom, or for what purpose the $62 allegedly allocable to entertainment of clients was incurred. The entire $162 claimed is in issue.
OPINION
The principal issue we must decide is whether certain payments made in 1970 and 1971 by petitioner to his former wife, Shara, were periodic alimony payments deductible by him under section 215. We must also decide whether petitioner may deduct certain unsubstantiated business expenditures in the years they were allegedly incurred.
The payments claimed as deductible alimony were made pursuant to two separate paragraphs, paragraphs numbered 9 and 11, of the settlement agreement between David and Shara executed in contemplation of their divorce.
Paragraph 9 of the settlement agreement provided that David agreed to pay to Shara "as further alimony" (emphasis added) one-half of the gross proceeds 3 already received and to be received by David from the sale of his one-half interest in the Stock-Ginsburg property less an outstanding indebtedness of $10,794.86. The amounts of the payments and the dates thereof, being December 1 of each of the years 1970-74, were specified in the agreement. The dates coincided precisely with the dates on which petitioner was to receive installment payments from the sale of the property and the amounts were one-half of each payment petitioner was to receive. The total to be paid, including the initial payment, was stated to be $25,519.07.
Paragraph 11 of the divorce agreement provided that David was to pay Shara alimony at the rate of $100 per month for a period of 5 years or until her remarriage, should that occur first. However, he could terminate his obligation under this paragraph by paying in full the indebtedness outstanding against the parties' former home which was transferred to Shara under another paragraph of the agreement.
Petitioner paid to Shara the amounts specified in paragraph 9 of the agreement in 1970 and 1971; petitioner also paid Shara $800 in 1970 and $1,800 in 1971 under paragraph 11 of the agreement. Petitioner claimed these amounts as deductions for alimony on his returns. Respondent disallowed all of the amounts paid under paragraph 9 and $600 of the amount paid under paragraph 11 for the year 1971.
In order for petitioner to properly claim deductions under section 2154 for the amounts paid pursuant to the settlement agreement he must prove said amounts were includable in Shara's income under section 71 in the years paid.
Section 71(a)(1) 5 provides that in the case of a divorce the wife's gross income will include periodic payments received in discharge of the husband's legal obligation imposed under a divorce decree or a written instrument incident to such divorce, in recognition of the family or marital relationship of the parties.
The payments made under paragraph 9 were incident to a decree and written instrument but it is for us to determine whether such payments were periodic and were made because of the family or marital relationship. We find it unnecessary to decide whether the payments made pursuant to paragraph 9 were made because of the family or marital relationship or were part of an overall property settlement agreement because we hold that the payments were not periodic and thus could not be deductible in any event. 6
At first blush it would appear that section 71(c) 7 which deals with the definition of periodicity, would apply to the paragraph 9 payments and that subsection (c)(1) would preclude any possible finding of the required periodicity. Each of the installment payments described under paragraph 9 was required to discharge part of petitioner's obligation to pay Shara the total amount of $25,519.07 specified in the agreement over a period of less than 10 years. However, petitioner contends that he is saved from the application of this subsection by the regulatory exception created by section 1.71-1(d)(3), Income Tax Regs. Pertinent to this case the regulation essentially provides that even though the payments are to be made over a period of less than 10 years, they may still qualify as "periodic" payments if:
(i) * * *
(a) Such payments are subject to any one or more of the contingencies of death of either spouse, remarriage of the wife, or change in the economic status of either spouse, and
(b) Such payments are in the nature of alimony or an allowance for support.
(ii) Payments meeting the requirements of subdivision (i) are considered periodic payments for the purposes of section 71(a) regardless of whether--
(a) The contingencies described in subdivision (i)(a) are set forth in the terms of the decree, instrument, or agreement, or are imposed by local law, * * *.
First, petitioner argues that the payments are contingent within the meaning of (i)(a) because David's obligation to pay Shara was conditioned upon his receiving the installment payments from the purchasers of the Stock-Ginsburg property. We disagree with petitioner. We note that subsection (a) does not refer to such type of contingency. Moreover it is obvious from the agreement, even if not clearly articulated, that the parties did not intend the payments to be conditional. Furthermore, David agreed to transfer a one-half undivided interest in the promissory notes and security deed received on the sale of the Stock-Ginsburg property and consequently Shara would receive an undivided one-fourth interest in this property in the case of default by the purchasers. Thus, the possibility of default did not constitute a contingency.
We also reject petitioner's argument that, although the agreement is vague and ambiguous when examined paragraph by paragraph, when viewed as a whole it is clear that paragraph 9 should be read together with paragraph 11 and that the statements contained in paragraph 11 to the effect that the payments therein were intended to be deductible by David and includable by Shara and that the payments would stop at her remarriage were also applicable to the paragraph 9 payments.If the parties had intended these two paragraphs to be one, they would have so provided. 8Jean Cattier,17 T.C. 1461 (1952); Edward Bartsch,18 T.C. 65 (1952), affd. 203 F.2d 715 (2d Cir. 1953); Coker v. United States,327 F.Supp. 169 (D.Neb. 1971), affd. per curiam 456 F.2d 676 (8th Cir. 1972). Also, it is apparent from the provision in paragraph 9 that petitioner was to pay the gains tax on the sale of the property, that taxes were considered with reference to each paragraph separately, and that the provisions in paragraph 11 were applicable only to the payments made thereunder.
We also have some doubt that the payments under paragraph 9 qualify as "payments * * * in the nature of alimony or an allowance for support" as required by subparagraph (i)(b) of the regulation. While paragraph 9 starts with the words "As further alimony," paragraph 5, under which petitioner agreed to convey his interest in jointly held securities to Shara, also starts with the words "As partial alimony;" yet both of these provisions smack more of property settlement agreements than provisions for alimony. 9 But even if the use of the word "alimony" was meaningful, we believe the reference was to lump sum alimony in both contexts. 10
Next, petitioner argues that all of the contingencies referred to in section 1.71-1(d)(3)(i)(a) of the regulations are present in this case by virtue of Georgia law. Petitioner cites Ga. Code Ann., Title 30, sections 201, 11 209, 12 and 220, 13 (1969), as imposing contingencies of death of the wife, 14 remarriage of the wife, and change in economic status of the husband, respectively. Petitioner contends that these contingencies render the paragraph 9 payments "periodic" within the meaning of section 71 and thus deductible to petitioner under section 215. We disagree.
Petitioner has correctly interpreted section 1.71-1(d)(3) and its validity has been upheld. See Salapatos v. Commissioner,446 F. 2d 79 (7th Cir. 1971), affirming a Memorandum Opinion of this Court; George B. Kent, Jr.,61 T.C. 133 (1973). However, petitioner's interpretation of Georgia law is erroneous. First, Ga. Code Ann., Title 30, section 222 (1969) 15 specifically provides that there can be no modification of alimony where the award was made from the corpus of the husband's estate, as was the case here. See Parker v. Parker,224 Ga. 54, 159 S.E. 2d 412 (1968); and Daniel v. Daniel,216 Ga. 567, 118 S.E. 2d 369 (1961). Furthermore, the settlement agreement specifically waived any right to modify the alimony award which waiver would be recognized by the Georgia courts. Eddings v. Eddings,230 Ga. 743, 199 S.E. 2d 255 (1973); Johnson v. Johnson,232 Ga. 103, 205 S.E. 2d 270 (1974); Grizzard v. Grizzard,224 Ga. 42, 159 S.E. 2d 400 (1968); and Ferris v. Ferris,227 Ga. 465, 181 S.E. 2d 371 (1971).
Neither would the other contingencies of death of the wife or her remarriage apply to the payments under paragraph 9. Paragraph 9 makes no reference to such contingencies. This same situation was presented to this Court in the case of George B. Kent, Jr.,supra at p. 138. At issue there was the application of an Arizona statute creating a contingency for alimony payments to a lump-sum alimony award. In that case we found that Arizona case law precluded the application of the statutory contingencies to payments of lump-sum alimony. Georgia case law does likewise. See Eastland v. Chandler,226 Ga. 588, 176 S.E. 2d 89 (1970), which held that an award of lump sum alimony granted a fixed and vested right in the recipient. 16
As a result of the foregoing, the payments required by paragraph 9 were unconditional and did not fall within the above-cited regulatory exception. Consequently, said payments were not periodic, sec. 71(c), and thus were not includable in Shara's income, sec. 71(a)(1), nor deductible by petitioner, sec. 215.
We next focus upon the payments made in 1971 by petitioner allegedly pursuant to paragraph 11 of the divorce agreement. Petitioner paid Shara $1,800 in 1971 and claimed an alimony deduction for the entire amount. Respondent disallowed $600 of that amount on the basis that the obligation imposed by paragraph 11 was to pay $100 per month and thus no more than $1,200 was includable in Shara's income for that year under section 71(a)(1).
Petitioner's only argument with respect to this issue is that the payments called for under paragraph 11 were expressly contingent upon Shara's remaining single and thus periodic within the purview of section 1.71-1(d)(3), Income Tax Regs.
Petitioner apparently misunderstood the basis for the respondent's disallowance. 17 Section 71(a)(1) requires the payments made to the wife be pursuant to "a legal obligation." Under paragraph 11 petitioner was obligated to pay $100 per month or $1,200 per year; Shara's inclusion and thus David's deduction was limited to that amount. The additional $600 paid by petitioner constituted nondeductible gratuity paid "without compulsion of any legal obligation arising out of a marital relationship," Frederick S. Dauwalter,9 T.C. 580, 585 (1947), and were not paid under a decree or written instrument; George R. Joslyn,23 T.C. 126, 133 (1954), affd. in part and revd. in part, Joslyn v. Commissioner,230 F. 2d 871 (7th Cir. 1956).
Petitioner claimed a deduction of $126.16 18 for travel and entertainment expense allegedly incurred in 1971 in connection with a "combined business and pleasure trip" to Natahala Village, N.C. The only evidence submitted by petitioner to support this claimed deduction was his own testimony that he called on the people who owned the establishment at which he stayed as well as some other people in nearby towns in an effort to sell janitorial supplies. He claimed to have spent "abour 3 or 4 hours" of each day of the "3- or 4-day" trip engaged in such business activities.
Petitioner's evidence is wholly inadequate to support the deduction claimed herein. Section 274(d), 19 in pertinent part, specifically provides that no deduction shall be allowed under section 162 for any traveling expenses unless the taxpayer substantiates, by adequate records or by sufficient evidence corroborating his own statement, the amount of the expenses, the time and place of the travel, and the business purpose of the travel. 20 Petitioner has failed to meet his statutory burden with respect to these expenses. Bernard Goss,59 T.C. 594, 597 (1973).
Similarly, with respect to the $162 claimed deductible in 1971 by petitioner as business expenses and identified on the 1971 return as "Dues and subscriptions," no evidence other than David's testimony was offered in support thereof. Section 274(d)(2) precludes a deduction of this alleged expenditure 21 for lack of substantiation by adequate records or sufficient evidence corroborating David's statement. 22
The last items for our discussion are the automobile expenses disallowed by respondent. Petitioner claimed $2,269.55 as a deduction for automobile expenses in 1970 and claimed $1,558.80 therefor in 1971. These amounts represented an allocation of the total cost allegedly incurred in operating two automobiles in both years on the basis that 90 percent of their use was business and 10 percent personal. Of these amounts respondent allowed $1,276.03 in 1970 and $921.68 in 1971 as deductible business expenses and disallowed the remainder as personal expenses.
Petitioner has the burden of proving to what extent the automobile expenses incurred are properly allocable to business and personal purposes. Emil J. Michaels,53 T.C. 269, 275 (1969). David's testimony, which was the only evidence on this issue presented by petitioner, clearly indicates that the deductions claimed were based on mere estimates as he kept no records which would establish the amount of business use of the automobiles. Such evidence is not sufficient to justify an allocation different from that made by respondent. Emil J. Michaels,supra: see Wilhelm v. United States,257 F. Supp. 16, 21 (D.Wyo. 1966). 23
In accordance with our findings herein and with the stipulations and concessions of the parties,
Decision will be entered under Rule 155.*