Court Opinion

ID: 4491488
Source: CourtListenerOpinion
Date Created: 2020-01-17 22:02:54.554949+00
Date Added: 2024-06-11T07:59:18.214863
License: Public Domain

Tbtjssell,
dissenting: I think the item here in question is deductible as a business expense. The authorities cited in the opinion as sustaining the conclusion reached therein are, in my opinion, not in point. Consolidated Mutual Oil Co., 2 B. T. A. 1067, and West End Consolidated Mining Co., 3 B. T. A. 128, are both cases of expenditures by corporations in defense of title to property. Not only is the question in each case one clearly distinguishable from that in the case at bar, but the conclusion reached in each one of those cases, that such expenditures are not deductible business expenses, is in effect squarely overruled by the Supreme Court in Kornhauser v. United States, 276 U. S. 145.
First National Bank of St. Louis, 3 B. T. A. 807, Emerson Electric Manufacturing Co., 3 B. T. A. 932, and Holeproof Hosiery Co., 11 B. T. A. 547, are cases involving attorney fees paid for services in organization or reorganization of the taxpayer corporations. It is well settled that such expenditures are capital in character, and no such expenditure is involved in the case before us. North American Oil Consolidated, 12 B. T. A. 68, involves attorney fees paid to secure Government patents to certain lands upon which the taxpayer merely had claims, and these fees were clearly capital expenditures representing a cost of the title to the land, which the taxpayer up to that time had not possessed, and which he secured through the services for which the payment was made. Marion Stone Burt Lansill et al., 17 B. T. A. 413, quoted from in the foregoing opinion and mainly relied upon, was a decision upon facts, which are, in my *710opinion, clearly distinguishable from those here shown. In that case, as pointed out in the decision, the petitioners were “ merely passive recipients ” of income of a trust, the management and control of the property being in the trustees for their benefit. The litigation in which the attorney fees were paid was voluntarily brought by these beneficiaries not to gain a beneficial interest, for this they already had, but to merely gain the possession, control and management of the corpus of the trust, and these expenses were consequently held not necessary or incident to the business of managing and conserving the property, as that function was the business of- the trustees, but to attain an object representing the personal desire of the beneficiaries in no sense necessary to their enjoyment of beneficial interest and income from the property.
In the case of Marshall Field, 15 B. T. A. 718, we held attorney fees paid by the beneficiary of a trust in litigation through which he secured possession and control of the trust property to be capital expenditures exhaustible over the term of the trust, and these expenses being paid ratably over such term, the effect of the decision was to allow the fee payments as deductions from income as paid to the same extent that they would have been allowed had they been held to be business expenses. On appeal the Circuit Court of Appeals for the Second Circuit in opinion of July 7, 1980 (42 Fed. (2d) 480), reversed the Board on this point, holding that the fees in question were not capital expenditures by which a wasting asset was acquired. This case is, in my opinion, not in point. A materially different situation is presented in the instant case. The Field case is one upon facts similar in many respects to those of the Lansill case heretofore discussed.
. In the present case the petitioner had inherited from her father certain property. For many years she had lived in Europe and employed an attorney to look after her interest in this property, located in this country. She also employed a trust company as her agent to hold the securities, collect the income and make such investment of surplus income from time to time as she might direct. She must necessarily have paid for these services and it seems clear to me, beyond necessity for argument, that the fees paid by her to this attorney and this trust company for the services rendered would represent proper deductions from the gross income received from the property, and I can see no distinction whatsoever between such fees and the one here in question paid the attorney for services necessary to defend her right to possession and control of this property on sequestration of it by the Alien Property Custodian. The property was being held by him. She was denied not only possession and control but was denied the income. The employment of an attorney was assuredly reasonably necessary if she was to secure *711possession and realize the accumulated income of $165,000. The opinion holds that she may not deduct from such income the expense incurred as one necessarily incident to its realization. It does not determine the character of this expenditure but merely holds it not to be a deductible business expense. However, such expenditure must be either a capital, personal or business expense, or a loss. The opinion holds that it is not a loss, and I can not see that it bears any resemblance to a capital expenditure, as petitioner had full title to the property, having taken it by inheritance, and obtained no capital interest in addition to what she already had through payment of the fee, but merely realized the accumulated income and maintained her right to continue to hold the property and enjoy the income in the future.
The item must necessarily, in my opinion, be either a personal or a business expense and the language of the foregoing opinion appears to class it as a personal expense. In Kornhauser v. United States, supra, the Supreme Court had a case of expense incurred in defending the title of capital assets accumulated by the taxpayer in the past through the operation of a business, and held such expenditures to be deductible business expenses.
If the foregoing opinion is to be construed as classing the fee here in question as a personal expense, it draws a distinction between identically similar expenses in respect to property accumulated in business and property inherited. Suppose, for illustration, that the property owned by this petitioner and sequestered by the Alien Property Custodian had been in part accumulated by her in a business operated years before and the balance inherited from her father. Under the Kornhauser case it can not be questioned that any expenditure for attorney fees in respect to the first item of property would be a deductible expense, and I can see no reason for drawing a distinction between the two. Is not the protection of inherited property as much a business as the protection of property accumulated originally in business ? It seems to me that the fallacy of the foregoing opinion is the assumption that this taxpayer was merely, iii so far as this property was concerned, a passive recipient of income, similar to the beneficiaries in the Lansill case. I can not agree with this. I do not think that one, living upon the income of property owned and controlled by him, although he may not be engaged in a vocation, is a passive recipient of the income from his property. We all know that, to enjoy the income from invested property, those investments must be watched and safeguarded and action taken from time to time to conserve the property, and I think that one who is so engaged or who employs. agents for that purpose is carrying on business in the sense in which that term is used, and the expense incident to the conserving and safeguarding of *712the invested property and collection of the income is a deductible business expense. I can see no reason for restricting the meaning of the word “ business ” as used in the section of the act here applicable to business constituting a vocation, and the foregoing opinion in effect so restricts it. This is not a question of an expense of a “ business regularly carried on ” as in the statutory provision for allowance of net losses and in which we have held that such business must amount to a vocation. Any^ one owning property which requires some degree of management and incurring a necessary expense to protect and conserve that property sustains, in my opinion, a business expense thereby, and in the present case it can not be doubted that this expense was necessary and the responsibility upon this taxpayer to carry the burden of the protection of her property, for no one else was charged with that responsibility. It was her property alone and under her control. There was no trustee responsible for its management and for the safeguarding of her interests. Her position was very different from that of a passive recipient of income.
Lansdon, Phillips, ARttndell, Van Fossan, and Seawell agree with this dissent.