Case Name: ROBERT C. ALSTON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1926-09-28
Citations: 4 B.T.A. 1159
Docket Number: Docket No. 9446
Parties: ROBERT C. ALSTON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Judges: 
Reporter: Reports of the United States Board of Tax Appeals
Volume: 4
Pages: 1159–1160

Head Matter:
ROBERT C. ALSTON, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
Docket No. 9446.
Decided September 28, 1926.
Robert O. Alston, Esq., pro se.
Henry Ravenel, Esq., for the respondent.-

Opinion:
OPINION.
'Smith :
It is the contention of this petitioner that the partnership of which he was a member during the year 1921 did not realize the full amount of income received by it during- that year by reason of the fact that the members of the partnership were subject to a contingent liability in r.espect to certificates of title issued by - it. , The existence of such a liability1", it is alleged, is made clear by the cases of Cox v. Sullivan, 7 Ga. 144-148; and O'Barr v. Alexander & Trammell, 37 Ga. 195. In Lilly v. Boyd, 72 Ga. 83, the Supreme Court of Georgia said of this liability:
When a person who wishes to purchase land retains an attorney to examine the titles, and such attorney reports to his client that the title of the person from whom he wishes to purchase is good, and it would be safe to purchase, and this report of the attorney is false, he is guilty of a breach of duty, and a right of action immediatedly accrues to the client. If no special damage or injury has resulted to the client, then he may nevertheless recover nominal damages; if special damage result from the misconduct of the attorney, it is not of itself a cause of action; the breach of duty imposed by the contract is the cause of action, and not the consequential damage resulting from it. And the statute of limitations begins to run the date of the breach of duty.
The partnership estimated that it might be liable to as much as $10,000 damages in respect of the titles to which it had certified and therefore claimed that amount as a deduction from gross income for the year 1921.
The liability of this petitioner for income tax is governed by section 218 of the Revenue Act of 1921, which provides substantially that a partner must return as income the distributive share of the profits of any partnership of which he was a member, whether distributed or not, and that a partnership like an individual is entitled to deduct from gross income in computing net income only those specific deductions permitted by the Revenue Act in question. These specific deductions do not comprehend any such item as a reserve against a contingent liability. This Board has had occasion to pass upon this question in numerous decisions. In Appeal of Pan-American Hide Co., 1 B. T. A. 1249, it said:
Since tbe statute does not permit a taxpayer to deduct as an expense an amount which he fears he may some day be called upon to spend, there can be no sanction for such a deduction.
See also Appeals of Thatcher Medicine Co., 3 B. T. A. 154; M. C. Stockbridge, 2 B. T. A. 327; Ederheimer-Stein Co., 2 B. T. A. 711; M. I. Stewart & Co., 2 B. T. A. 737; Northwestern Bakers Supply Co., 2 B. T. A. 834; Morrison-Ricker Mfg. Co., 2 B. T. A. 1008.
Judgment for the Commissioner.