Court Opinion

ID: 4472080
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:16:29.606975+00
Date Added: 2024-06-11T14:53:47.205591
License: Public Domain

Van Fossan, J., dissenting: Finding myself in complete disagreement with the holding of the majority of the Court, I shall set forth my views at some length. We are not here concerned with expenses incurred in connection with the disposition of income-producing property by way of gift in trust or otherwise. Nancy Reynolds Bagley, 8 T. C. 130, in so far as it denied the deduction as nonbusiness expenses of fees paid, in connection with the disposition of income-producing property by way of gift in trust, is therefore not controlling. It was stipulated by the parties that the amount of $2,260 was paid for advice and services of attorneys in connection with the gift tax dispute. The gifts had been completed and the fees were incurred only in connection with the amount of gift taxes due as a result of the completed gifts. In the Willmott case, on which the majority rely, the taxpayer claimed a deduction of attorney fees incurred for services rendered in connection with certain income tax litigation which arose principally out of the denial by the Commissioner of the validity, for income tax purposes, of a transfer by taxpayer as á gift to his wife of a one-half interest in certain income-producing property for the purpose of reducing his income taxes. The Court held that since the original transaction, i. e., the transfer of the one-half interest in taxpayer’s property to his wife, was not proximately related to the production, or collection of income or to the management, conservation, or maintenance of property held for the production of income, any litigation arising out of this transaction involving its tax consequences was also not related to the management, conservation, or maintenance of such property, and that, therefore, fees paid in connection with the litigation were not deductible under section 23 (a) (2). The respondent concedes that under the regulations, as amended May 14, 1946, by T. D. 5513, to conform to the decision in Bingham, v. Commissioner, 325 U. S. 365, fees of the type involved in the Willmott case are now deductible. In effect, he thus concedes that the Willmott case was overruled by the Bingham case. However, he argues that the part of the opinion in the Willmott case stating that “expenses of defending any type of litigation” are not “deductible by the owner of property because of the possibility that a judgment lien might attach to it” still stands. The majority have adopted this view. Although section 23 (a) (2) may not be so broad in scope as to permit a deduction to an owner of property of “expenses of defending any type of litigation” merely because of the possibility that a judgment lien might attach to his property, it does permit the deduction to the owner of income-producing property of expenses incurred or paid in resisting the imposition of taxes and defending such property against a lien. Bingham v. Commissioner, supra, which affirmed Mary Lily Bingham Trust, 2 T. C. 853. In that case we stated, in respect to the litigation and resultant expenses therein involved: * * * the sole purpose and object of the litigation and the proximate cause of the expenditure were to relieve the estate from the payment of the deficiency in income tax determined by the Commissioner, which was the subject matter of the litigation. The effort of petitioners in seeking, through this litigation, to give such relief to the estate was, in our\opinion, obviously a factor in the conservation, management, and maintenance of the property of that estate, concededly held for the production of income, since in resisting the imposition of the tax the trustees were performing the required duty of protecting and defending the trust property in their hands against any claim or lien for the tax. * * * Such statement is equally applicable herein, where the subject of the litigation was a deficiency in gift tax determined by the Commissioner and the taxpayer, is an individual instead of a testamentary trust. The difference in tax and taxpayer does not justify a different conclusion. Litigation expenses resulting from a dispute involving a deficiency in gift tax fall within the category of “ordinary and necessary expenses” deductible under section 23 (a) (2), as do expenses resulting from a dispute involving income tax, so long as they proximately result from the management or conservation of property held for the production of income. The additional tax was asserted against taxpayer and, had he not resisted payment, he would have been liable for the payment of the entire amount claimed. It is found as a fact that, if taxpayer had been required to pay the deficiency originally claimed, it would have been necessary for him to sell income-producing securities. His efforts were not directed to the conserving of the property he had transferred as gifts, but to the conservation of the income-producing property which remained after he had made the gifts. Under the circumstances, it is/immaterial that the tax was not an income tax, but a gift tax. I am unable to agree with the majority’s attempt to straight-jacket expenses of the type here involved and to narrow this relief provision (section 23 (a) (2)), nor am I disturbed by the fear that possesses my brothers that to allow the taxpayer to prevail opens wide the door to countless deductions. As said in Hyman T. Josephs., 8 T. C. 583, 588, “Following the Bingham case, this and other courts have taken a noticeably broader view of section 23 (a) (2).” In that case an amount paid by an administrator in compromise of a suit to recover damages for the alleged mismanagement by him of the estate and attorney fees incurred therein were allowed as nonbusiness expenses under section 23 (a) (2). See also David L. Loew, 7 T. C. 363, allowing as nonbusiness expense deductions, amounts paid to two accounting firms for services in keeping books, preparing income tax returns, and taking care of taxpayer’s office during his absence from the country; William Heyman, 6 T. C. 799, allowing as a nonbusiness expense deduction, an amount paid to accountants for services in connection with the examination of taxpayer’s returns as a result of which he paid additional income taxes and in handling a dispute involving a New York emergency tax later repealed; Philip D. Armour, 6 T. C. 359, allowing as nonbusiness expense deductions, attorney fees incurred in connection with litigation over personal holding company surtax deficiencies for which taxpayer was liable as transferee, and other miscellaneous legal fees; Herbert Marshall, 5 T. C. 1032, allowing as nonbusiness expense deductions, legal fees paid in 1940 and 1941 in connection with litigation pertaining to income tax deficiencies for prior years; Howard E. Cammack, 5 T. C. 467, allowing as a non-business expense deduction, legal fees incurred in connection with securing a refund of income taxes; Stoddard v. Commissioner, 152 Fed. (2d) 445, reversing a decision by the same court in 141 Fed. (2d) 76, rendered prior to the Bingham case; and Williams v. McGowan, 152 Fed. (2d) 570. It is my judgment that, so far as section 29.23 (a)-15 (b) of Kegu-lations 111, as amended by T. D. 5513, purports to deny the litigation expenses here involved, it is not in conformity with section 23 (a) (2) and is, to that extent, invalid. The amount of $2,260 paid by petitioner should be allowed as an ordinary and necessary expense paid during the taxable year for the conservation of property held for the production of income under the cited section. Leech and Tyson, JJ., agree with this dissent.