APPEAL FROM THE UNITED STATES TAX COURT (T.D. Nos. 3786-75 and 5112-75)
Before Gibbons and Hunter, Circuit Judges, Meanor,*fn* District Judge.
After a considerable legal battle through the New Jersey courts, appellant Lilley bCapodanno was held to be entitled to an award of separate maintenance from her husband, R. T. Capodanno. At the conclusion of their litigation, Lilley received from her husband during 1971 a lump sum payment representing arrearages on the award and monthly payments thereafter. When Lilley filed her 1971 federal income tax return, she reported as income the total of the monthly payments received that year but did not report the lump sum arrearage payment. She also sought to file her return as an unmarried individual. The Tax Court held that Lilley and R. T. were not legally separated under the separate maintenance decree and that Lilley could not, therefore, file as an unmarried person. It also held that the lump sum arrearage payment constituted 1971 income to Lilley. The consequence of the latter ruling was that R. T. could deduct the lump sum payment from his gross income. Lilley's appeal challenges the Tax Court rulings that forbid her to file as an unmarried person and require her to report as income the lump sum arrearage payment. The Commissioner supports the Tax Court judgment in all respects, but has filed a protective cross-appeal from that part of the judgment authorizing R. T. to deduct the lump sum arrearage payment. If Lilley is successful in her appeal from being forced to include that lump sum payment as income, the consequence is that R. T. will be unable to deduct it and will be subject to an additional income tax assessment. We affirm the Tax Court in all respects and, hence, dismiss the Commissioner's cross-appeal.
The Capodannos were married in 1938. In October 1964, Lilley left her husband, R. T., and has lived apart from him since that date. On July 8, 1965, Lilley instituted an action for separate maintenance, N.J.S.A. 2A:34-24.*fn1 The theory of the action was the constructive abandonment of Lilley by R. T. because of his extreme cruelty toward her. Although R. T. conceded that his wife was compelled to leave because of his extreme cruelty, the trial court refused to make an award to Lilley. The Superior Court of New Jersey, Appellate Division, affirmed in an unreported opinion, but the New Jersey Supreme Court reversed. Capodanno v. Capodanno, 58 N.J. 113, 275 A.2d 441 (1971). The result of the Supreme Court's decision was an award to Lilley of $400 per month retroactive to July 8, 1965, the date upon which her separate maintenance action was instituted. R. T. thus paid Lilley the following sums in 1971:
(a) $19,880 (retroactive lump sum payment representing $400 per month from July 8, 1965 to April 5, 1971).
(b) $3,100 (monthly payments of $400 from April 5, 1971 to November 30, 1971).
On her 1971 federal income tax return, Lilley reported only the $3,100 as income and did not report the lump sum of $19,880 which represented accrued monthly payments. She filed an individual return claiming the status of an unmarried person. R. T. deducted the full amount of his payments on his individual return, and also claimed the tax status of an unmarried person.
On audit, the IRS determined that the arrearage payment of $19,880 was includable as income to Lilley as well as the $3,100 total of monthly payments made following the Supreme Court decision. The IRS also insisted that neither Lilley nor R. T. could file as an unmarried person. The Tax Court*fn2 agreed with the IRS and held:
1. That the total amount of payments (both the arrearage lump sum and the monthly payments) were income to Lilley;
2. Neither Lilley nor R. T. were entitled to file as an unmarried individual.*fn3
The following issues flow from this fact complex and will be discussed and ...