Document: 372 U.S. 39 83 S.Ct. 623 9 L.Ed.2d 570 UNITED STATES, Petitioner,v.Don GILMORE et al. No. 21. Reargued Dec. 5, 6, 1962. Decided Feb. 18, 1963. Wayne G. Barnett, Washington, D.C., for petitioner. Eli Freed, San Francisco, Cal., respondents. Mr. Justice HARLAN delivered the opinion of Court. 1 In 1955 California Supreme Court confirmed award to respondent taxpayer a decree absolute divorce, without alimony, against his wife Dixie Gilmore.1 Gilmore v. Gilmore, 45 Cal.2d 142, 287 P.2d 769. The case before us involves deductibility federal income tax purposes that part husband's legal expense incurred in such proceedings as is attributable successful resistance wife's claims certain assets asserted by her be community property under law.2 claim deduction, which has been upheld Claims, 290 F.2d 942, founded on § 23(a)(2) Internal Revenue Code 1939, 26 U.S.C. (1952 ed.) 23(a)(2), allows deductions from gross 2 '* * ordinary and necessary expenses during taxable year3 conservation held production income.' 3 Because conflict views among Courts Appeals, Tax regarding proper application this provision,4 continuing importance question administration laws, we granted certiorari Government's petition. 368 816, 82 57, 7 22. was first argued at last Term set reargument one. 369 835, 864, 841. 4 At time divorce proceedings, instituted but husband also cross-claimed respondent's consisted primarily controlling stock interests three corporations, each franchised General Motors automobile dealer.5 As president principal managing officer he received salaries them aggregating about $66,800 annually, recent years total annual dividends had averaged $83,000. His derived corporations thus approximately $150,000. other sources negligible.6 5 found overriding concern litigation protect these wife. Those two aspects: first, earnings accumulated retained Gilmores' marriage (representing an aggregate increase corporate net worth some $600,000) were product personal services, not result accretion capital values, rendering stockholdings enterprises pro tanto law;7 second, extent property, wife, allegedly innocent party proceeding, entitled law more than one-half interest property.8 6 wished defeat those important reasons. First, loss interests, particularly event their transfer substantial hostile might well cost him positions, means livelihood. Second, there danger if guilty sensational reputation-damaging charges marital infidelity, Corporation find it expedient exercise its right cancel dealer franchises. end bitterly fought complete victory husband. He, cross-claim; denied entirety; she no alimony. 8 Respondent's connection with amounted $32,537.15 1953 $8,074.21 1954—a $40,611.36 question. Commissioner all expenditures 'personal' or 'family' none deductible. s 24(a)(1).9 ensuing refund suit, however, Claims 80% (some $32,500) defense respecting hence deductible 1939 'incurred so holding stated: 'Of course true every amount are purpose obtaining effort conserve estate necessarily section when facts particular clearly indicate (as here) around controversy evolves, litigant only itself earning livelihood, then must come provisions *. allocation phase proceedings.'10 F.2d, 947. 10 Government does formula made Claims. Its sole contention here court below misconceived test governing deductions, turns, argued, upon consequences failure origin nature themselves. So viewing Gilmore's claims, whether relating existence division contended resisting deemed nondeductible 24(a)(1), 23(a)(2). For reasons given hereafter think position sound sustained. I. 11 Congress seen fit regard individual having personalities: 'one (as) seeker after profit who can deduct search; creature satisfying needs human family cannot consumption related expenditures.'11 regards embodying category embraced roles. 12 Initially, may observed wording readily fits view provision context 'conservation property' seems refer operations performed respect itself, safeguarding unkeep, rather taxpayer's retention ownership it.12 But illuminating mere language history provision. 13 Prior 1942 23 allowed 'in carrying any trade business,' deduction presently authorized 23(a)(1). Higgins Commissioner, 312 212, 61 475, 85 L.Ed. 783, gave narrow construction, activities supervising own securities investments did constitute 'carrying business', Similar results reached United States Pyne, 313 127, 893, 1231, City Bank Farmers Trust Co. Helvering, 121, 896, 1227. Act (56 Stat. 798, 121), adding what now sought remedy inequity inherent disallowance profit-seeking activities, nonetheless taxable.13 14 noted McDonald 323 62, 65 96, 98, 89 68, amendment merely enlarge 'the incomes reference deductible.' And committee reports make clear new subject same limitations restrictions applicable allowable 23(a)(1).14 Further, said 'is comparable pari materia 23(a)(1),' providing class 'coextensive business 23(a)(1), except for' requirement income-producing activity qualify business. Bingham 325 365, 373, 374, 1232, 1237, 1670. 15 A basic restriction availability 23(a)(1) item involved one origin. That inheres confining 'expenses follows expressly (p)ersonal, living, expenses.' See note 9, supra. light already advent thrust '(p)ersonal expenses' 24(a)(1) impose limitation reach 23(a)(2)—in words kind relate 'business,' is, profit-seeking, purpose. pivotal issue becomes: costs 'business' expense? 16 answer indicated prior cases. Lykes States, 343 118, 72 585, 96 791, rejected contesting assessment gift liability required pay original deficiency would have forced liquidate stockholdings, main source income, therefore 'conservation' 'deductibility (of expenses) turns wholly they relate' (343 U.S., 123, S.Ct., 588, 791), 17 'Legal do become because paid services relieve liability. argument carry too far. It mean defending almost ground help keep liens whatever incomeproducing have. example, suggests action based injuries caused negligence while driving pleasure should Section never interpreted us. 18 'While threatened added urgency petitioner's it, neither size nor determined character. payable gifts times gifts, such, accordingly 19 'If, suggested, relative claim, proportion resources defendant, touchstone uncertainty inhere rule. (deduction) justified, will consume defendant.' 125 126, 589, 590, 791. 20 Kornhauser 276 145, 48 219, 505, considered former partner fees rendered partnership. even though longer formulated rule 'where suit directly connected with, proximately resulted from, business, *.' 153, 220, 505. Similarly, involving obligation (though expense), 'it out accrues' transaction arose (is) crucial controlling.' Deputy du Pont, 308 488, 494, 496, 60 363, 366, 367, 368, 84 416. 21 principle derive cases characterization, 'personal,' depends arises activities. depend for, teaches, 'would far'15 compatible lines drawn Congress.16 Moreover, lead capricious results. If taxpayers sued accident pleasure, turn circumstance character happened possess, judgments stood satisfied income- nonincome-producing property. We slow attribute producing unequal treatment taxpayers, resting rational foundation. 22 Confirmation conclusions incongruities follow acceptance Claims' reasoning case. Had conducted automobile-dealer proprietorship, form, claimed 23(a)(1),17 potential impact different present situation. Yet supposed afforded since expenditures, litigation, could hardly ncurred business.' Thus, less instead activity. manifestly Congress' place equal footing. surely surprising change designed achieve equality fact served reverse inequality treatment. reasons, resolve lower courts (note 4, supra) favor incurred, fortunes taxpayer, underlying taking 'consequences' unpersuasive. 24 Baer Cir., 196 646, relied case, leading authority side question.18 There Appeals Eighth Circuit attorney's proceeding alimony settlement effect preserving intact corporation, reasoned evidence showed relatively unconcerned '(t)he go (his) (for alimony)19 manner (that liability) met greatly disturbing financial structure'; 'for conserving maintaining' 649—650, 651. 25 difficult perceive significant difference between 'question liability' manner' discharge, both instances avoid losing valuable Indeed most followed placed little reliance distinction, tended confine situations where successful, completely destroyed capacity earn living.20 Such situation control corporation threatened, contrast support diversified holdings securities.21 rationale unsatisfactory. security 'property income' large block single company. pointed Lykes, supra, determine deductibility, 'uncertainty rule.' determinative case: arise activities? II. 27 classifying distinguish Supra, p. 41-42. Nor break-down disposition enough say aspects stemmed entirely relationship, not, tenable things, This obviously exist. depended making good infidelity conclusion existed relationship.22 Thus expenses, 28 unnecessary consider further suggested Government: portion payments litigating expenditure expense. income. 29 judgment reversed remanded consistent opinion. ordered. 30 Judgment remanded. 31 BLACK DOUGLAS believe reverses unjustifiably interpretation affirm Despite referred throughout 'wife.' Although second Mrs. returns here, herein respondent. 1954. year 1954 governed Code. Since relevant provisions, §§ 212 262, substantially identical Code, sake clarity shall Compare Lewis 253 821 (C.A.2d Cir.), Douglas 33 T.C. 349, 942 (Ct.Cl.)—the case—and 646 (C.A.8th Cir.). He owned 100% outstanding Don Gilmore-San 73 1/3% Gilmore-Hayward, 60% Gilmore-Riverside. $1,024.90 1953, $516.60 Pereira Pereira, 156 Cal. 1, 103 P. L.R.A.,N.S., 880; Lenninger Lenninger, 167 297, 139 679; Huber Huber, 784, 708. Under grounds extreme cruelty adultery may, court's discretion, awarded up marriage. Cal.Civ.Code, 146. Barham Barham, 416, 202 289; Wilson Wilson, 159 Cal.App.2d 330, 1017. alleged spouses other. provides: 'In computing of—(1) Personal, Several issues assessments 1954, decided Surrey Warren, Cases Federal Income Taxation, 272 (1960). Mertens, Law Taxation (rev. ed. 1960), 25A.09, 19—20. H.R.Rep. 2333, 77th Cong., 2d Sess. 46. 75: 'A subject, being apply 23(a)(1)(A) S.Rep. 1631, 88. Treasury Regulations long provided: 'An (not otherwise deductible) determining reason used sold liability.' Treas.Reg. (1954 Code) 1.212—1(m); see 118 (1939 39.23(a)—15(k). Expenses liabilities 212(3) represents policy non-deductible, like extraordinary medical cast doubt structure Congress. indication intended include expenses. Besides effect, e.g., Patrick 288 292 (C.A.4th 22, today, 53, 618; Owens 273 251 (C.A.5th Cir.); Bowers 243 904 (C.A.6th McMurtry 132 F.Supp. 114, Ct.Cl. 418. generally nondeductible. See, Richardson 234 248 Smith's Estate 208 349 (C.A.3d Joyce B.T.A. 393. 1.262—1(b)(7): 'Generally, separation, either wife.' 947; Tressler 228 356, 361 (C.A.9th Howard 28, Compare, Davis 168, 152 805, grounds, 370 65, 1190, 335, threat essential employment. attempted analogy 'partnership' partnership unavailing. relationship

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