Estate of Buder v. Commissioner, Docket No. 77659 and 77660.
| Decision Date | 13 March 1963 |
| Docket Number | Docket No. 77659 and 77660. |
| Citation | 22 TCM (CCH) 300,1963 TC Memo 73 |
| Parties | Estate of G. A. Buder, Deceased, G. A. Buder, Jr., Executor v. Commissioner. |
| Court | U.S. Tax Court |
Richard O. Roberts, Esq., Buder Bldg., St. Louis, Mo., and G. A. Buder, Jr., for the petitioner. Robert A. Roberts, Esq., for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined deficiencies in income tax of G. A. Buder, deceased, for the years 1952, 1953, and the period January 1, 1954, to April 14, 1954, and deficiencies in the income tax of the estate of G. A. Buder, deceased, for the period April 15, 1954, to December 31, 1954, and the year 1955 in the respective amounts of $14,011.05, $65,883.93, $12,807.95, $27,410.38, and $65,326.54.
The issues for decision are:
(1) Whether expenditures in each of the years or periods here involved by decedent G. A. Buder or his estate for litigation expenses relating to a lawsuit brought by Oscar E. Buder against G. A. Buder are deductible.
(2) Whether a legal fee of $4,250 paid by G. A. Buder in 1952 in connection with contesting a proceeding seeking his disbarment which finally resulted in a 1-year suspension of his license to practice law is deductible.
(3) Whether an expenditure by G. A. Buder in the amount of $3,548.32 representing expenses assessed by the Court in a lawsuit involving ownership of certain stock is deductible.
(4) Whether G. A. Buder realized additional income of $25,000 in 1953 by reason of collecting a judgment by offsetting such judgment against a liability due the judgment debtor.
(5) Whether an expenditure by G. A. Buder of $800.95, representing the cost of Federal stock transfer taxes is deductible.
Some of the facts have been stipulated and are found accordingly.
G. A. Buder, deceased, resided in St. Louis, Missouri, at all times material hereto prior to April 14, 1954. On April 14, 1954, G. A. Buder died. On or about April 29, 1954, G. A. Buder, Jr., was appointed executor of the estate of G. A. Buder.
G. A. Buder (hereinafter referred to as decedent) filed individual Federal income tax returns for the taxable years 1952 and 1953 with the district director of internal revenue at St. Louis, Missouri. His Federal income tax return for the period January 1, 1954, to April 14, 1954, was filed with the district director of internal revenue at St. Louis, Missouri by the executor of his estate.
Federal income tax returns for the estate of G. A. Buder for the taxable period beginning April 15, 1954, and ending December 31, 1954, and for the taxable year 1955 were filed with the district director of internal revenue at St. Louis, Missouri by the executor of the estate. The individual Federal income tax returns of decedent and the returns for the estate of G. A. Buder were prepared and filed on the cash receipts and disbursements method of accounting.
At all times material hereto, decedent, either alone or in conjunction with his wife, his son, G. A. Buder, Jr., or his immediate family, owned all the outstanding capital stock of Arc Realty Company, Arcadia Realty Company, Lydiade Investment Trust, and Pontiac Realty Company. In addition, at all times subsequent to January 1, 1935, decedent, G. A. Buder, Jr., and Lydiade Investment Trust controlled, by reason of stock ownership, Arcadia Refining Company.
During the year 1919 and for many years prior thereto, decedent and his brother, Leo R. Buder, each owned 46 percent of the common stock of Arcadia Timber Company, a Missouri corporation.
At the time of his death on April 14, 1954, and for a number of years prior thereto, decedent and his brother, Oscar E. Buder, each owned one-half of the outstanding capital stock of Acreage Realty Company, a Missouri corporation.
In 1908 decedent and Oscar E. Buder (hereinafter referred to as Oscar) formed a partnership under the firm name of Buder & Buder for the practice of law. Although no written articles of partnership were ever executed, decedent and Oscar practiced law under the firm name of Buder & Buder from 1908 to January 1, 1946, on which date Oscar formally dissolved the partnership.
The firm of Buder & Buder maintained the books and records of Arcadia Timber Company and Acreage Realty Company and all receipts and disbursements of both companies were made through the bank account of Buder & Buder. The general ledger and accounting journals of Buder & Buder also reflect some of the receipts of corporate income of Lydiade Investment Trust, Pontiac Realty Company and Arc Realty Company. In addition, Arcadia Refining Company had an account on the books of Buder & Buder.
On January 2, 1946, Oscar filed a petition in the Circuit Court of the City of St. Louis, Missouri, in which decedent and the First National Bank in St. Louis, a corporation, were named as defendants. In the petition Oscar alleged generally that decedent had failed to return to Oscar or to the partnership various assets decedent had borrowed from both, and also that decedent had caused the partnership's books to show incorrect entries. By the pleading Oscar stated the partnership to be terminated and requested an accounting of its affairs. The case was given Docket No. 93848-C by which designation it will be hereinafter referred to.
On April 10, 1946, decedent filed an answer in Docket No. 93848-C in which he entered a general denial to the substantive allegations of the petition.
On June 6, 1952, Oscar filed a second amended petition in Docket No. 93848-C wherein he alleged in substance, in the paragraphs designated, as follows:
(4) That decedent has failed to account for $96,500 in bonds of the Evens and Howard Firebrick Company and for $59,000 in proceeds from the redemption of other bonds, all borrowed from Oscar by decedent for his own use on or prior to October 9, 1930.
(5) That in about November 1935, decedent pledged to defendant the First National Bank in St. Louis as collateral for a loan to decedent or to Pontiac Realty Company (a corporation owned by decedent) the $96,500 of Evens and Howard Firebrick Company bonds belonging to Oscar, that decedent's loan was also secured by various notes of Acreage Realty Company (a corporation owned equally by Oscar and decedent), that decedent has not stated by what authority he pledged such collaterals, and that defendant bank should be required to marshal the assets securing the loan and exhaust all collateral belonging to decedent or Pontiac Realty Co. before resorting to Oscar's property.
(6) That Oscar is the owner of 2,412 shares of General Refractories Company stock which decedent received in exchange for the $96,500 Evens and Howard Firebrick Company bonds and Oscar is entitled to the stock with dividends thereon since May 1, 1936, and interest at 6 percent on the dividends.
(7) That prior to December 12, 1936, Oscar requested decedent to sell 2,000 of the 2,412 shares of General Refractories stock when the market price was $60 per share and that decedent failed to do so and is liable to Oscar for the amount that a sale would have brought on that date with interest at 6 percent.
(8) That decedent owes Oscar $23,401.34 with interest at 6 percent from November 8, 1935, resulting from decedent's failure to give Oscar proper credit on payments made by the latter on a consolidated debt owned by the two to the Mercantile Bank & Trust Company.
(9) That Oscar pledged with the Mercantile Bank & Trust Company, in addition to other collateral, 20,000 shares of Burroughs Adding Machine stock and 1,500 shares of General Refractories stock, and that on October 12, 1935, decedent received from this bank a certificate for 800 shares of General Refractories stock which decedent has failed to return to Oscar.
(10) That decedent has failed to account for 1,300 shares of Burroughs stock with dividends thereon from December 4, 1933, and that decedent is entitled to an offsetting credit of $9,333.33.
(11) That decedent has failed to distribute to Oscar, Oscar's share in the estate of Susan R. Buder, which share consists of $20,639.85 principal and $31,771.44 of accrued interest.
(12) That partnership accounts, Clients' Accounts Receivable and Credit Balances Due Clients, have not been properly maintained with the result that actual accounts receivable and payable will probably never be received or paid; therefore, such accounts should be closed and charged one-half to each of the partners with certain exceptions, and that consequently decedent owes the partnership $241,874.51 and the partnership owes Oscar $241,874.51, with interest at 6 percent from January 1, 1946.
(13) That decedent improperly charged Oscar's cash collection account on the partnership's books with the purchase of a $25,000 loan which is worthless; therefore, decedent owes Oscar $25,000 with 6 percent interest from January 1, 1946.
(14) That decedent wrongfully removed a $75,000 credit from Oscar's cash collection account on the partnership's books; therefore, decedent is indebted to Oscar for $75,000 with 6 percent interest from January 1, 1946.
(15) That decedent wrongfully removed $70,000 from a partnership income account and, as a result, decedent is indebted to Oscar for $35,000 with 6 percent interest from January 1, 1946.
(16) That the balance due the partnership from decedent for fees earned is $13,204.57; therefore, Oscar is entitled to one-half such sum, $6,602.28, with 6 percent interest from January 1, 1946.
(17) That decedent hypothecated a $30,000 note belonging to the partnership as collateral for a loan to Pontiac Realty, that decedent has failed to account for the proceeds of the note, being 1,715 shares of Burroughs stock and $2,237.50 paid as interest; therefore, Oscar is entitled to one-half of each item with dividends on the stock and 6 percent interest on the interest payment from the date of receipt.
(18) That decedent improperly caused the partnership's books to show...
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