Document: 343 U.S. 118 72 S.Ct. 585 96 L.Ed. 791 LYKESv.UNITED STATES. No. 173. Argued Nov. 29, 30, 1951. Decided March 24, 1952. Rehearing Denied April 28, See 937, 768. Mr. George W. Ericksen, Tampa, Fla., for petitioner. Harry Baum, Washington, D.C., respondent. Justice BURTON delivered the opinion of Court. 1 The question here is whether, federal income tax purposes, an individual taxpayer was entitled to deduct from his gross income, attorney's fee paid contesting amount gift tax. For reasons hereafter stated we hold that he not. 2 In 1940, Joseph T. Lykes, petitioner herein, gave wife and each three children, respectively, 250 shares common stock in Lykes Brothers, Inc., a closely held family corporation. return valued at $120 and, on basis, $13,032.75. 1944, Commissioner Internal Revenue revalued $915.50 notified deficiency $145,276.50. Through attorney, sought redetermination deficiency, forestalled assessment, 1946, $15,612.75 settlement pursuant finding Tax Court based stipulated facts. had attorney $7,263.83 legal services controversy but, return, not deducted expenditure taxable income. claimed refund ground should have been under § 23(a)(2) Code.1 His claim denied by sued refund. On uncontroverted facts District held, as matter law, payment entered judgment 84 F.Supp. 537.2 Appeals reversed. 5 Cir., 188 F.2d 964. Because important statutory issue involved petitioner's this case distinguishable Cobb v. Commissioner, 6 173 711, granted certiorari. 342 810, 48, L.Ed.—. 3 I. Deductions individual's are limited those allowed 23.3 This extent depends upon legislative policy expressed fair natural meaning section.4 4 Section 24 adds 'computing net no deduction shall any be respect of—(1) Personal, living, or expenses * *.' 53 Stat. 16, 56 826, 26 U.S.C. 24(a)(1), U.S.C.A. 24(a)(1). Insofar gifts members donor's nature personal expenses, expenditures accounting, other incurred making like nature. non-deductibility such expenditures, therefore, indicated both absence affirmative allowance their deductibility 23 express denial all 24. If instant made before 1942, it clear would deductible. At time permitted 'ordinary necessary during year carrying trade business. (Emphasis supplied.) 12, (1940 ed.) 23(a)(1), 23(a) (1). It mention nontrade nonbusiness expenses. Accordingly, Higgins 312 212, 61 475, 85 783, when looking after own incomeproducing securities were 'incurred business,' also they deductible.5 To change result, Congress, added present 23(a)(2).6 That provision, demonstrated its history, permits some, but all, taxpayer. specifies (1) 'for production collection income' (2) management, conservation, maintenance property income.' H.R.Rep.No.2333, 77th Cong., 2d Sess.7 Congress might gone further. However, neither decision occasioned amendment, Committee Reports it, nor language adopted indicate make authorize widespread personal, living face Bingham's Trust 325 365, 374, 65 1232, 1237, 89 1670; McDonald 323 57, 61—63, 96, 97—98, 68. 7 Inasmuch ordinary character questioned, turns wholly activities which relate.8 first issue, whether gifts, related them, 'production within 23(a)(2). Generally antithesis because reduces resources producing suggests although purpose love donees, yet part general plan produce himself. support this, points out consisted 1,000 corporation president retained ownership about 2,000 shares, one son, now actively identified with directors.9 did find these facts, anything else record, provided adequate basis reclassifying transfers rather than accompanied treating gifts. Appeals, review entire expressly proximately court then applied interpretation approved supra. We agree applicability disallows income.10 8 Similarly, there substantial factual mere incidents 'management, Even assuming 3,000 Lakes constitute originally him finding, donation one-third actually represented be. Petitioner does itself deductible if principal item transaction deductible, record holding 9 II. Legal do become merely relieve liability. argument carry us too far. mean expense defending almost defense help keep liens whatever income-producing have. example, action injuries caused taxpayer's negligence while driving automobile pleasure never has so interpreted us. immediate purposes remote contributions conservation assets reducing liabilities. supra, pages 62—63, page 98. 10 While threatened assessment nearly $150,000 urgency resistance size determined character. payable finally settled agreed revaluation constituting thus times attributable such, accordingly 11 If, suggested, relative claim, proportion defendant, touchstone resisting uncertainty inequity inhere rule. injury suit negligence, alienation affections, claiming $1,000 damages, probably defendant. hand, same plaintiff asked $5,000, $10,000 $100,000 defendant some property, precisely less well-to-do neighbor pay case. justified, will consume distinction implied Act. 12 III. Treasury Regulations, refer us, consistent position taken.11 Furthermore, since T.D. 5513, CFR 29.23(a)—15(k), unequivocally determination liability appears following language: 'Expenses determining asserted against reason fact may required used sold satisfying Thus, liability, except allocable interest taxes, even though must satisfy though, event refund, received 13 Such regulation weight. South Texas Co., 333 496, 501, 68 695, 698, 92 831; Morrissey 296 344, 355, 289, 294, 80 263; Fawcus Machine Co. United States, 282 375, 378, 51 144, 145, 75 397. Since publication Decision, many amendments Code without revising administrative Act 1948, c. 168, 62 110; 1950, 994, 64 906; 1951, 521, 452; 216, 477; 345, 294. 14 affirmed. 15 Affirmed. 16 BLACK dissents. 17 JACKSON, whom FRANKFURTER joins, dissenting. 18 corporate children. legitimate transaction, duly reported gift-tax over $13,000 thereon. By overvaluing given, $145,276.50, $130,000 found unjustified. But, protect himself Government's unjustified spent services. 19 I am unable understand why being Had yielded demand, depleted capital thenceforward could enjoyed it. Of course, principle significant. Indeed, burden likely inverse asserted. Here only 5% saving. small cases taxpayers percentage far greater exceed 100%. Certainly contest unwarranted exaction, regardless outcome, reasonable cost dedictible. 20 A majority my brethren seem think can escape conclusion going further back chain causation. They say cause gift. course reason, do, tax, contest, expense. And fallacy logic just possible employ prove lawyer's fees having children gift, Hence, due babies. reasoning presented avoid what it? So treacherous kind most fields law rests proximate declines follow winding trail multiple causations. 21 As Regulation, give bit feel good public discourage demands taxes justify penalizing resistance. hard imagine instance stronger self-interest regulation. cannot put finger where said Regulations. But disregarded them statute, seems here. allows estate, Treasury. me tacit slander Nation's credit need money drive casuistry this. '§ 23. 'In computing deductions: '(a) Expenses '(2) Non-trade non-business individual, 819, 23(a)(2), 'To construe giving power assess greatly excess owes denies right expense, isn't justice law. statute gives 537, 539. 'levied, collected, every 5, 11, 11. 'Net means computed section 22, deductions 23.' 9, 21, 21. There expressions placing restrictive allowable virtue 'the familiar rule grace clearly showing taxpayer.' Interstate Transit Lines 319 590, 593, 63 1279, 1281, 87 1607; Deputy Du Pont, 308 488, 493, 60 363, 366, 416; New Colonial Ice Helvering, 292 435, 440, 54 788, 790, 78 1348. relied Griswold, An Argument Doctrine Should Be Narrowly Construed Matter Legislative Grace, Harv.L.Rev. 1142. see States Pyne, 313 127, 893, 1231 (attorney's executors caring investments deductible); City Bank Farmers 121, 896, 1227 (similar testamentary trustee Van Wart 295 112, 55 660, 79 1336 litigation recover ward deductible). note 1, '* Due partly inadequacy decisions, fully subject bill corrects allowing connection business, expended pursuit allowable. however, business carried primarily sport, hobby, recreation 'Expenses, necessary, presupposes bear relation purpose. 'A subject, requirement restrictions limitations apply 23(a)(1) (A) business.' Id., 46, 75. effect, S.Rep.No.1631, Sess., 87—88. resulting nondeductibility e.g., Croker Burnet, App.D.C. 342, 991 (en banc) (defending husband declared incompetent set aside transfer taxpayer); Dickey B.T.A. 1295 (defense malicious prosecution); Joyce 393 validity postnuptial agreement); Oransky 1239 death minor son using automobile). Kornhauser 276 48 219, 505, example ones. shows organized 1910 elder brothers engaged cattle, ranching meat packing Later extensive steamship stevedoring operations through subsidiary. large enterprise numerous stockholders besides petitioner, open market. sons, nephews sons-in-law brothers. practice foster way continuity management. stock, outstanding 25,000 class stock. assessed taxpaying trust up expiration. All integral parts management Treas.Reg. 111, 29.23(a)—15(b).

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