Commissioner v. Lester
Headline: Tax ruling limits when divorced couples can shift child-support tax burden by requiring written agreements to specifically fix amounts, and the Court allowed the husband’s full deduction because the agreement failed to fix child support portions.
Holding: The Court held that a divorce instrument must expressly fix the exact amount or portion for child support to exclude it from the wife’s income, and because this agreement did not, the husband’s full payments remained deductible.
- Requires divorce agreements to specify child-support amounts to shift tax burden
- Makes ambiguous child-support clauses taxable to the wife
- Encourages clearer drafting by lawyers to avoid tax surprises
Summary
Background
The Government sued a husband to recover income taxes for 1951 and 1952 after he deducted periodic payments made to his divorced wife under a written settlement approved by the divorce court. The agreement provided payments for the wife and their three children, reduced payments by one-sixth if any child married, became emancipated, or died, and ended payments on the wife’s remarriage. The Commissioner said the reduction clause effectively fixed half the payments as child support; the Tax Court agreed, but the Court of Appeals reversed, and the Supreme Court took the case to settle conflicting lower-court views.
Reasoning
The central question was whether a written agreement must expressly fix a particular amount or portion for child support before that part can be excluded from the wife’s income. Examining the statute’s language and legislative history, the Court held Congress required a strict rule: the written instrument must
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