Rafter v. Comm'r of Internal Revenue

• Decision Date: 02 April 1973
• Docket Number: Docket Nos. 2044-67,3976-68.
• Citation: 60 T.C. 1
• Parties: ROBERT V. RAFTER, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

60 T.C. 1

ROBERT V. RAFTER, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket Nos. 2044-67

3976-68.

United States Tax Court

Filed April 2, 1973.

Robert V. Rafter, pro se.

Marvin A. Fein, for the respondent.

1. During the years in issue, petitioner was engaged in numerous lawsuits, most of which he initiated. Held, petitioner's expenses relating to such litigation are not deductible under either sec. 162(a) or sec. 212(1), I.R.C. 1954.

2. Held, further, petitioner has not established that he paid business expenses in excess of the amount allowed as a deduction for 1966 within the meaning of sec. 162(a), I.R.C. 1954.

3. petitioner's automobile was seized under a writ of attachment issued pursuant to an action brought against him for nonpayment of rent. While the automobile was in the sheriff's possession, it was repossessed by the bank which financed its purchase by petitioner. Held, further, petitioner is not entitled to a deduction under sec. 165, I.R.C. 1954, for a loss arising from theft.

FEATHERSTON, Judge:

Respondent has determined deficiencies in petitioner's Federal income taxes in the following amounts:

+-----------------------------+
                ¦Docket No.   ¦Year  ¦Amount  ¦
                +-------------+------+--------¦
                ¦             ¦(1963 ¦$350.10 ¦
                +-------------+------+--------¦
                ¦2044-67      ¦(1964 ¦298.37  ¦
                +-------------+------+--------¦
                ¦             ¦(1965 ¦721.40  ¦
                +-------------+------+--------¦
                ¦3976-68      ¦1966  ¦1,497.53¦
                +-----------------------------+
                

Concessions having been made, the following issues are presented for decision:

(1) Whether certain litigation expenses were incurred by petitioner in the carrying on of a trade or business within the meaning of section 162(a) ¹ or in the production or collection of income within the meaning of section 212(1);

(2) With regard to petitioner's representation of two clients in 1966, whether he paid or incurred trade or business expenses in excess of $70 within the meaning of section 162(a); and

(3) Whether petitioner is entitled to a casualty loss deduction for 1966 under section 165 as a result of the attachment of his automobile by a sheriff.

FINDINGS OF FACT

GENERAL

Petitioner filed his Federal income tax returns for 1963 through 1966 with the district director of internal revenue, Hartford, Conn. He resided in Weston, Conn., when his petitions were filed.

For 1964, 1965, and 1966, petitioner, in preparing his Federal income tax returns, used the accrual method of accounting with respect to his purported practice of law. Previously, petitioner had used the cash receipts and disbursements method, and this change in method of accounting was made without the permission of the Commissioner of Internal Revenue.

Petitioner is an attorney admitted to practice before the Supreme Court of the State of New York and the U.S. District Court for the Southern District of New York. Throughout the years in issue, petitioner paid annual rent of $60 for a mail drop and answering service at 150 Broadway, New York, N.Y. The record does not show that, during the period here in controversy, he maintained a law office or represented any clients until December of 1966.

During the designated time periods, petitioner was employed as follows:

+----------------------------------------------------------+
                ¦1961—September 1963        ¦Insurance Co. of North America¦
                +---------------------------+------------------------------¦
                ¦                           ¦                              ¦
                +---------------------------+------------------------------¦
                ¦September 1963—October 1963¦Law firm of Dominick Cornella ¦
                +---------------------------+------------------------------¦
                ¦                           ¦                              ¦
                +---------------------------+------------------------------¦
                ¦February 1964 (1 or 2 days)¦Zurich Insurance Co.          ¦
                +---------------------------+------------------------------¦
                ¦                           ¦                              ¦
                +---------------------------+------------------------------¦
                ¦April 1964—December 1965   ¦Nationwide Insurance Co.      ¦
                +---------------------------+------------------------------¦
                ¦                           ¦                              ¦
                +---------------------------+------------------------------¦
                ¦February 1966—November 1966¦Legal Aid Society, Westchester¦
                +---------------------------+------------------------------¦
                ¦                           ¦County, New York              ¦
                +---------------------------+------------------------------¦
                ¦                           ¦                              ¦
                +---------------------------+------------------------------¦
                ¦April 1967—June 1967       ¦Matthew Bender & Co.          ¦
                +----------------------------------------------------------+
                

On his Federal income tax returns for 1963 through 1966, petitioner listed his principal business activity as the practice of law and claimed as expenses related thereto deductions ranging in total amounts from $2,420 up to $3,669. For 1963 through 1965, petitioner reported no income from the practice of law, and, in 1966, he reported $1,670. Also on his 1966 return, petitioner claimed he discovered on November 21, 1966, a ‘loss by theft’ in the amount of $3,500, such amount representing the adjusted cost basis of his 1964 Ford, ‘wrongfully taken 12-64 pursuant to falsified writ.’

In the notice of deficiency covering 1963 through 1965, respondent disallowed all the claimed expenses relating to the practice of law. In the notice of deficiency for 1966, respondent allowed petitioner a $70 deduction for law practice expenses but disallowed all business expense deductions in excess of that amount. Petitioner's casualty loss deduction for 1966 was disallowed on the ground that the alleged theft was not shown to be a theft or casualty within the meaning of section 165 or, alternatively, that no deductible loss was sustained during 1966.

Litigation Expenses and Theft Loss Issues

During the years here in controversy, petitioner was the plaintiff in six lawsuits and was the defendant in two others. In these suits, petitioner incurred certain automobile, rent, court fee, printing, stationery, stenographic, and telephone expenses, some of which remained unpaid at the time of the trial of this case. This litigation falls within three generally unrelated categories6 (1) The conspiracy litigation involving primarily Donald C. Hays and Alexander R. Kellegrew, (2) a complaint filed against Zurich Insurance Co., and (3) the litigation involving the Spiegelmans' claims against petitioner and related matters. The claim to a casualty loss deduction (issue (3), above) is based on certain facts involved in this last category of litigation, the Spiegelman suits.

1. The conspiracy litigation.— While petitioner was employed as a general attorney for the Carrier Corp., a Delaware corporation with offices in New York, he filed a complaint on April 9, 1951, against Mary T. Wilson (sometimes hereinafter Wilson) in the Supreme Court of the State of New York, County of New York. The complaint demanded payment of legal fees, in addition to $8,000 petitioner had already received, for settling the estate of Wilson's deceased husband. In an answer and amended answer, prepared by attorneys Donald C. Hays and Alexander R. Kellegrew (Hays and Kellegrew), Wilson denied liability for any further fees and counterclaimed and demanded judgment for fees already paid to petitioner, allegedly in excess of the reasonable value of his services. The amended answer also requested an accounting for sums allegedly paid to petitioner during the administration of the Wilson estate. A jury verdict was ultimately rendered against petitioner, and judgment was entered on October 29, 1951, with only costs awarded in favor of Wilson.

At some time prior to August 15, 1953, petitioner filed a lawsuit against Anglo-Iranian Oil Co., Ltd., and other parties. On November 27, 1953, petitioner filed a complaint in the U.S. District Court for the Southern District of New York, under the Sherman Antitrust Act, against Anglo-Iranian Oil Co., Ltd., Lloyd's of London, W. R. Grace & Co., and Alexander Kellegrew. The details of this action are not shown. An order of dismissal as to all defendants in the antitrust suit was entered on September 16, 1954.

In 1953, when the above suit was filed, Lloyd's of London was a client of the law firm of Mendes & Mount, by whom petitioner was then employed. As a result of petitioner's having brought suit against one of his firm's clients, his employment was terminated by Mendes & Mount on August 15, 1953.

On March 24, 1961, petitioner initiated an action against Hays and Kellegrew before the Supreme Court of the State of New York, County of Westchester. Petitioner subsequently amended his complaint to join Manufacturers (Hanover) Trust Co. (MTC) as another defendant. This action related back to Hays' and Kellegrew's representation of Mary T. Wilson in 1951. Petitioner joined MTC as a defendant, alleging that MTC had arranged for Wilson's defense in the prior lawsuit and had referred her to Hays' and Kellegrew's law firm. According to an allegation contained in petitioner's second amended complaint:

Eighth: Defendants and others, in pursuance of a conspiracy or combination for that purpose, fraudulently made use of said action at law to injure plaintiff in his profession and to effect an unjustifiable interference with plaintiff's right to pursue his lawful occupation and to receive the earnings of his industry.

Petitioner alleged that as a result of false statements and two false counterclaims made in the answer and amended answer in the Wilson suit, petitioner's employment with the Carrier Corp. was terminated on October 12, 1951. Petitioner further alleged that he had been damages in his profession and reputation, and therefore demanded ‘such sums of money as the facts evidence and circumstances warrant.’

The complaint against Hays and Kellegrew was...