Court Opinion

ID: 4618395
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:38:31.575491+00
Date Added: 2024-06-11T07:55:27.489481
License: Public Domain

FRANK C. HERMANN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Hermann v. CommissionerDocket No. 41902.United States Board of Tax Appeals20 B.T.A. 899; 1930 BTA LEXIS 2009; September 19, 1930, Promulgated *2009  The amount of a fee paid in the defense of a proposed income-tax assessment disallowed as a deduction in the absence of proof that the sum was paid in the conduct of a trade or business.  Clyde A. Morwood, Esq., for the petitioner.  W. Frank Gibbs, Esq., for the respondent.  ARUNDELL*899  Proceeding for the redetermination of a deficiency of $742.21 in income tax for the year 1926.  The issue is whether the sum of $2,313.77 paid to an accountant for services rendered by him in connection with a proposed income-tax assessment against petitioner for 1921 is deductible from gross income.  FINDINGS OF FACT.  Petitioner's income during 1926 was derived principally from salaries paid to him by corporations of which he was a director, and from rentals, dividends, and interest on investments.  In 1921 petitioner exchanged certain stock for stock and the revenue agent who made an examination of petitioner's books and records for that year in connection with an audit of his return recommended that petitioner be taxed on a gain of $48,807.20 on the transaction.  Thereafter petitioner employed an accountant to prepare a protest to the proposed deficiency*2010  resulting from this increase in income, as well as to other items which were satisfactorily adjusted prior to the mailing of the deficiency letter for 1921.  After conferences had been held in the office of the revenue agent in charge at St. Louis, Mo., respondent's representative conceded that the exchange did not result in taxable gain within the meaning of section 202(c) of the Revenue Act of 1921.  Accordingly the alleged gain of $48,807.20 was eliminated from petitioner's income by respondent in his determination of the deficiency against the former for 1921.  Thereafter, in June, 1926, the case for 1921 was closed after petitioner had executed an agreement consenting to a deficiency in tax of $4,655.56 resulting from other adjustments.  In his return for 1926 the petitioner claimed as a deduction from gross income the sum of $2,313.17 representing a fee paid to the accountant for services rendered petitioner in connection with the proposed deficiency against him for 1921.  The respondent disallowed the claimed deduction on the ground that the item did not constitute an ordinary and necessary expense paid or incurred in carrying on a trade or business within the meaning of section*2011  214(a)(1) of the Revenue Act of 1926.  *900  OPINION.  ARUNDELL: If the amount paid by petitioner in the defense of the proposed assessment against him was incurred in carrying on any trade or business, or proximately resulted from any trade or business carried on by him, it is an allowable deduction under section 214(a) of the 1926 Act, the provisions of which permit as a deduction in computing net income "All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, * * *." ; ; ; . Section 215(a) of the same act provides against the deduction from gross income of "personal expenses" of taxpayers.  In the early case of , we held, without opinion, that an amount paid to a firm of accountants for services rendered to the taxpayer in connection with the preparation of his individual income-tax return was not a deductible expense.  We have only the facts that were*2012  stipulated and they fail to establish that petitioner was engaged in any trade or business in 1921.  Certainly the mere filing of an income-tax return can not be said to constitute a trade or business in the sense that those terms are used in the taxing act.  That the sum paid was an expense of petitioner can not be denied.  But all expenses of a taxpayer are not deductible from gross income under the taxing statutes.  In our opinion the item is not deductible.  Reviewed by the Board.  Decision will be entered for the respondent.