Court Opinion

ID: 9420712
Source: CourtListenerOpinion
Date Created: 2023-08-02 22:55:46.461484+00
Date Added: 2024-06-11T17:22:26.751105
License: Public Domain

Mr. Justice Jackson,
whom Mr. Justice Frankfurter joins,
dissenting.
Lykes made a gift of corporate stock to his children. It was a legitimate transaction, duly reported for gift-tax purposes and a tax of over $13,000 paid thereon. By overvaluing the stock which had been given, the Commissioner asserted a gift-tax deficiency of $145,276.50, of which about $130,000 was found by the Tax Court to be unjustified. But, to protect himself against the Government’s unjustified claim, Lykes spent $7,263.83 for legal services.
I am unable to understand why this payment was not deductible as being an expense incurred “for the management, conservation, or maintenance of property held for the production of income.” Had the taxpayer yielded to *128the Government’s unjustified demand, it would have depleted his capital by about $130,000 and thenceforward he could not have enjoyed income from it. Of course, it is not the amount but the principle that is significant. Indeed, the burden of legal expense is likely to be in inverse proportion to the amount of the deficiency asserted. Here the expense was only about 5% of the saving. In small cases of small taxpayers the percentage will be far greater and in many may exceed 100%. Certainly contest against unwarranted exaction, regardless of its amount or outcome, is for the conservation of property and its reasonable cost is deductible.
A majority of my brethren seem to think they can escape this conclusion by going further back in the chain of causation. They say the cause of this legal expense was the gift. Of course one can reason, as my brethren do, that if there had been no gifts there would have been no tax, if there had been no tax there would have been no deficiency, if there were no deficiency there would have been no contest, if there were no contest there would have been no expense. And so the gifts caused the expense. The fallacy of such logic is that it would be just as possible to employ it to prove that the lawyer’s fees were caused by having children. If there had been no children there would have been no gift, and if no gift no tax, and if no tax no deficiency, and if no deficiency no contest, and if no contest no expense. Hence, the lawyer’s fee was not due to the contest at all but was a part of the cost of having babies. If this reasoning were presented by a taxpayer to avoid a tax, what would we say of it? So treacherous is this kind of reasoning that in most fields the law rests its conclusion only on proximate cause and declines to follow the winding trail of remote and multiple causations.
As for the Treasury Regulation, I would not give it one bit of weight. The Treasury may feel that it is good *129public policy to discourage taxpayers from contesting its unjustified demands for taxes and thus justify penalizing resistance. It is hard to imagine any instance in which the Treasury could have a stronger self-interest in its regulation. I cannot put my finger on a case where we have said that this reason would avoid Treasury Regulations. But we have disregarded them when they were not consistent with the statute, and that seems to be the case here. I think Congress allows a taxpayer to protect his estate, even against the Treasury. It seems to me a tacit slander of the Nation’s credit that need for money should drive us to such casuistry as this.