Court Opinion

ID: 9447144
Source: CourtListenerOpinion
Date Created: 2023-08-03 22:26:44.966484+00
Date Added: 2024-06-11T17:30:54.931074
License: Public Domain

JONES, Circuit Judge
(dissenting).
For the reasons here given I cannot agree with the majority. The taxpayer, Shelby Owens, and his then wife, Margaret Owens, were equal owners, as husband and wife, by virtue of the Texas community property law, of a half interest in a lumber business. The majority speaks of the taxpayer making the questioned payment for the “protection of income-producing property.” The majority talks of “saving his interest”, “retaining his full interest”, and “keeping the lumber business.” It might more accurately have spoken of acquiring the wife’s interest. The interest in the lumber business was as much the property of the wife as of the taxpayer. The settlement agreement did not provide that the interest in the lumber business should be saved, retained or kept by the taxpayer. It provided that it should “become the property of” the taxpayer. The judgment of the court which entered the divorce decree provided that the taxpayer “have and recover from” his then wife who was divorcing him, “all of the remainder of the community property and all property standing in the name of Shelby Owens, including, but not exclusively, interest in Stuckert-Owens Lumber Company,” etc. The taxpayer, of course, had the right of control of the community property during the marriage. If the payment which the taxpayer made was in fact made for services rendered to the taxpayer, of which more will be hereafter said, such payment was made primarily for the purpose of effecting the acquisition of his wife’s interest in the lumber business rather than protecting his own. Legal fees paid for the acquisition of property, whether income producing or not, are usually not deductible but are treated as capital expenditures which become a part of the cost. Mertens Law of Federal Income Taxation, §§ 25.26, 25 A. 15.
The property settlement in the divorce decree provided that the taxpayer should pay “attorney’s fees and costs of suit in the divorce proceedings to be filed.” The divorce decree approved the settlement and recited “that the attorney’s fees decreed are reasonable and have been incurred.” The closing paragraph of the decree stated “that all of the above decreed has been performed except as to the attorney’s fees to be paid to H. S. Lattimore.” This is the extent of the references to attorney’s fees in the divorce proceeding in so far as the record before us discloses. From the testimony of Lattimore it is quite clear *258that he applied to the court for an attorney’s fee for representing the wife and the court fixed that fee, to be paid by the husband, in the amount of $7,500. There was no reason for any reference to attorneys’ fees in the settlement agreement and in the divorce decree if each party paid his and her own attorney, and it would seem that any such reference would usually be out of place in such instruments.
The majority does not feel that it is this Court’s function “in this tax case” “to consider or determine any question of professional ethics.” Nor do I feel any necessity for so doing. But if there should be a question as to whether the payment was made for representing the wife or the taxpayer, the conduct of the attorney might be material. An attorney can only represent conflicting interests with the “express consent of all concerned.” Here the wife’s lawyer “told her what the arrangement was with him, that he would pay the fee that the court would assess to be paid by him and would not contest the amount.” No express consent by her is shown. This seems to me important only in considering the question as to whether the fee was paid for representing the husband, a question which the Tax Court did not consider. Even though an attorney represents conflicting interests with the express consent of both parties, he cannot properly be paid a fee by both. Easley v. Brookline Trust Co., Tex.Civ.App., 256 S.W.2d 983; Norman v. Wilson, Tex.Civ.App., 41 S.W.2d 331; Bryant v. Lewis, Tex. Civ.App., 27 S.W.2d 604. I think that since the fee here involved was treated in the divorce suit as a payment of an attorney’s fee for representing the wife, and I believe the record compels the conclusion that it was so paid, it should be treated as such in this case; and this would be my view regardless of which counsel undertook the preparation of the settlement agreement and the divorce decree. I would rather rely upon the representations to the state court in the divorce proceedings than upon the taxpayer’s present position. I cannot reconcile them.
I agree with the majority that, in a proper case, a deduction may be allowed for an attorney’s fee incurred for the conservation of income-producing property even though the matter arises in connection with a divorce. I do not agree that this is such a case. If there are good grounds shown by the record for the affirmance of a Tax Court decision it should be affirmed even though the reviewing court is in disagreement with the ground adopted by the Tax Court. Helvering v. Gowran, 302 U.S. 238, 58 S.Ct. 154, 82 L.Ed. 224, rehearing denied 302 U.S. 781, 58 S.Ct. 478, 82 L.Ed. 603.
Perhaps, in reaching conclusions upon matters not decided by the Tax Court, I have indulged in factual inferences which should have been first passed upon by it. If so, then I think the cause should be remanded with directions to consider the matters here discussed. I do not think the Tax Court should be directed to enter judgment for the taxpayers. I therefore dissent.