Estate of Nemerov v. C. I. R., 071156 FEDTAX, 51303

Docket Nº:51303.
Opinion Judge:HARRON, Judge:
Attorney:Mathan D. Shapiro, Esq., for the petitioners. John James O'Toole, Esq., for the respondent.
Case Date:July 11, 1956
Court:United States Tax Court

15 T.C.M. (CCH) 855 (1956)

T.C. Memo. 1956-164




No. 51303.

United States Tax Court.

July 11, 1956

1. The decedent, a lawyer, agreed to undertake work for clients on a contingent basis. The question involves four of such arrangements. He performed some services in each matter prior to his death but did not complete the required services and at the time of his death the issues involved in each matter had not been determined. More than a year after decedent's death, in some instances several years later, the executors received payments of fees for decedent's services, three of which were fixed by court order. Upon the facts, held, that at the time of decedent's death, the value of the decedent's services, in each instance, could not have been determined and there could not have been a quantum meruit recovery. The subsequently recovered fees are not includible in decedent's gross estate.

2. Held, upon the facts, that a decree of a New York Court that the decedent during his lifetime had made a completed gift in trust to a friend, excluded $8,000, which was paid by the petitioners under the court's decree to settle the beneficiary's claim, from the assets of the gross estate, so as to entitle petitioners to deduction of $8,000 under section 812(b)(3), 1939 Code.

Mathan D. Shapiro, Esq., for the petitioners.

John James O'Toole, Esq., for the respondent.


The Commissioner determined a deficiency in estate tax in the amount of $40,367.22. The deficiency results from several adjustments of the Commissioner increasing the net amount of the estate. During the trial of this case each party made certain concessions to the other to which effect will be given in a Rule 50 recomputation.

In the petition, the petitioners made claim for the first time for a deduction of $8,000 which was paid by the estate in settlement of a claim against the estate.

There remain for decision two issues, as follows:

(1) Whether the decedent, at the time of his death had an interest in four legal fees in four separate causes, which were received after his death, so as to be includible in the gross estate within the meaning of section 811(a), 1939 Code. (2) Whether the estate is entitled to a deduction for $8,000, which petitioners paid in settlement of a claim against the estate, under section 812(b)(3), 1939 Code.


Joseph Nemerov, the decedent, died testate on June 2, 1949, a resident of New York County, New York. The petitioners are the duly appointed and acting executors of the decedent's estate. The decedent's will was admitted to probate by a Surrogate of New York County on June 9, 1949. The estate tax return was filed with the collector of Internal Revenue for the third district of New York on September 1, 1950.

For 37 years before his death the decedent was a member of the bar of New York state. He was admitted to practice in various Federal courts and he also practiced before the Interstate Commerce Commission and the Securities and Exchange Commission. The decedent at the time of his death was a member of a law partnership, Nemerov and Shapiro. The decedent reported his income on a cash basis.

The accountant's report of the income and expenses of the law partnership for the period from June 2, 1949 to May 31, 1950, when the partnership was liquidated, is incorporated herein by this reference.

In determining the deficiency in estate tax, the respondent included in the gross estate a net amount for fees from old cases in the amount of $57,430.12. Petitioners and the respondent now agree that the net fees from the law partnership amounted to $48,000. The respondent agrees that his determination of the amount of this item was excessive to the extent of $9,430.12. Petitioners concede that it is proper to include $48,000 in the value of the taxable net estate.

Issue 1: Legal Fees.-

(A) New York Central RR. Co. litigation, $3,664.37.-

In December 1943 the New York Central Railroad Company brought an action in the New York Supreme Court against the New York and Harlem Railroad Co. and certain minority stockholders for a declaratory judgment. New York Central contended that it was not liable to pay Federal income and excess profits taxes of Harlem. The issue involved interpretation of a lease. Flora Pfeiffer, a minority stockholder, was one of the original defendants and she was represented in the action by the decedent. It was agreed between Pfeiffer and the decedent that no fee was to be paid by Pfeiffer, and that a legal fee for petitioner's services, if there was any fee, would be fixed by the court. In October 1945 the New York Supreme Court dismissed the complaint. In 1947 the Appellate Division affirmed the judgment, and in March 1948 the Court of Appeals affirmed. Thereafter, on June 25, 1948, decedent and other counsel for minority stockholders moved for an allowance of counsel fees. The motion was denied under order dated November 9, 1948, and under a decision of the same date it was held that the attorneys for the minority stockholders, including the decedent, were not entitled to any allowance for counsel fees. From this decision and order, appeal was taken by attorneys for minority stockholders, including the decedent. The appeal was pending at the time of the decedent's death on June 2, 1949. After the death of the decedent, the Appellate Division, on June 28, 1949, reversed the decision and order of November 9, 1948, and referred the proceeding to an official referee. Thereupon, the defendant railroad company, New York and Harlem Railroad Co., appealed from the order of June 28, 1949, and on May 26, 1950, the Court of Appeals affirmed the order of the Appellate Division. During October and November 1950, the official referee held hearings on the petitions of attorneys for fees, which hearings were concluded on November 16, 1950, upon the filing of a stipulation under which the parties agreed to the fixing of fees for attorneys. Under the stipulation, there was allowed a fee for the services of the decedent on behalf of Pfeiffer, and on December 12, 1950, the petitioners, the executors of the decedent's estate, received the net amount of $3,664.37.

(B) 121 Varick Street, $321.70.-During his lifetime, the decedent was retained by the owners of premises at 121 Varick Street, New York City, to take all necessary proceedings to reduce the assessed tax valuations of the premises for the tax years 1945-1946 and 1946-1947. There was an agreement between the decedent and this client that the decedent was not to be paid for his services unless a reduction of the assessed tax valuation was obtained; and if a reduction was obtained, he was to receive 33-1/3 per cent of any tax savings. The decedent filed application for the reduction of the assessed values for the years involved and thereafter ‘ certiorari proceedings' were instituted and filed by the decedent on October 23, 1945, for the tax year 1945-1946; and on October 7, 1946, for the tax year 1946-1947. No hearings were held in these ‘ certioraris' during the lifetime of the decedent. After the decedent's death, the owner of the premises engaged another lawyer, Alexander Berley, who attended hearings before the Tax Commission during 1951, and obtained reductions in the tax assessments for the years 1945-1946, and 1946-1947. The executors of the decedent's estate asserted a claim for legal fees and after negotiations with Berley they received, on October 25, 1951, $321.70, which was paid to the estate of the decedent in satisfaction of the claim for legal fees which was made by the estate.

(C) Pittsburgh Railways Co., $8,341.89.-On May 10, 1938, Pittsburgh Railways Co. had filed a voluntary petition for reorganization under Section 77(b) of the Bankruptcy Act in the United States District Court for the Western District of Pennsylvania. In October 1944 while these proceedings were still pending and undetermined, the decedent was retained to represent some owners of securities in Pittsburgh Railways...

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