Grant v. Comm'r of Internal Revenue
| Decision Date | 06 May 1985 |
| Docket Number | Docket No. 13985-79. |
| Citation | 84 T.C. 809,84 T.C. No. 54 |
| Parties | WILLIAM W. GRANT, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
During 1972, 1973, and 1974, petitioner performed uncompensated legal services for organizations eligible to receive deductible charitable contributions. Also, he represented a client in a divorce proceeding which lasted from 1971 through 1974 and was not compensated for most of the services he rendered in that proceeding. In April 1972, petitioner separated from his wife and vacated his house. His wife rented part of the house to a tenant beginning in September 1972. His wife vacated the house in January 1973. In July 1973, petitioner and his wife were divorced a mensa et thoro. In late 1974 the tenant vacated the house. Petitioner did not report any rental income from the house. In 1975 petitioner and his wife were divorced a vinculo matrimonii, and shortly thereafter the house was sold in a partition sale. HELD: (1) Petitioner is not entitled to deduct the value of his contributed services to various charitable organizations under sec. 170, I.R.C. 1954; sec. 1.l70A-1(g), Income Tax Regs., which disallows such deduction is valid. (2) The value of his uncompensated services in the divorce proceeding is not deductible under sec. 162, I.R.C. 1954. (3) No alimony deduction is allowed under sec. 215, I.R.C. 1954, for payments made in 1972 and in January 1973 since these payments were not made pursuant to a legal obligation incurred by petitioner under a written instrument incident to the divorce or pursuant to a written separation agreement. (4) Petitioner did not hold the house for the production of income and so is not allowed to deduct the maintenance expenses he paid in 1974. Sec. 212(2), I.R.C. 1954. (5) Liability determined for additions to tax under sec. 6653(a), I.R.C. 1954. ROBERT A. MILLER, for the respondent.
William W. Grant, pro se.
Respondent determined deficiencies in Federal individual income taxes and additions to tax under section 6653(a) 1 as follows:
+-----------------------------------+
¦ ¦ ¦Additions to tax¦
+----+-------------+----------------¦
¦Year¦Deficiency2 ¦sec. 6653(a) ¦
+----+-------------+----------------¦
¦1972¦$3,660.22 ¦$183.01 ¦
+----+-------------+----------------¦
¦1973¦3,085.21 ¦154.26 ¦
+----+-------------+----------------¦
¦1974¦3,378.87 ¦168.94 ¦
+-----------------------------------+
After concessions by both parties, the issues for decision 3 are as follows:
(1) Whether the value of uncompensated legal services performed by petitioner for charitable, governmental, religious, and educational organizations is deductible under section 170;
(2) Whether the value of services performed by petitioner in a divorce proceeding, in excess of the compensation received by petitioner, is deductible as a business expense under section 162;
(3) Whether payments made by petitioner to his wife during 1972 and 1973 are deductible under section 215;
(4) Whether expenses incurred by petitioner in connection with his former residence are deductible under section 212; and
(5) Whether petitioner is liable for an addition to tax under section 6653(a) for each of the years in issue.
Some of the facts have been stipulated; the stipulations and the stipulated exhibits are incorporated herein by this reference.
When the petition was filed in the instant case, petitioner resided in Oakland, Maryland. For 1972 through 1974, petitioner was a cash basis taxpayer.
Petitioner is a Maryland attorney and during the years involved was engaged in private practice in Oakland.
Petitioner served as attorney to the mayor and town council of Oakland (hereinafter sometimes referred to as ‘the Oakland government‘), and received $5,342.01, $1,571.10, and $4,670.00 as compensation for legal services performed in 1972, 1973, and 1974, respectively. These amounts were reported as income on the appropriate years' tax returns. During these three years, petitioner also performed legal services for the Oakland government for which he was not compensated. Petitioner did not report the value of these uncompensated legal services as income for 1972, 1973, or 1974. On the Schedule C's of his tax returns for 1972, 1973, and 1974, petitioner deducted $3,042, $1,440, and $1,800, respectively, for ‘Municipal Work‘; these amounts represent the value of the time he spent performing uncompensated legal services for the Oakland government. These uncompensated legal services were performed exclusively for public purposes. Respondent disallowed the deductions on account of the uncompensated legal services.
By appointment of the Governor of Maryland, during 1972 and 1973, petitioner served on the Board of Visitors of Frostburg State College. Furthermore, during 1973, by designation of the Secretary of Natural Resources of Maryland, petitioner served on the Advisory Committee of the Ohio River Basin Commission. During 1972 and 1973, petitioner performed services for various governmental, charitable, educational, and religious organizations for which he was not compensated. Petitioner did not include the value of these services as income for these years. On his tax returns for 1972 and 1973, petitioner deducted $1,126 and $3,478, respectively, as charitable contribution deductions; these amounts represent the value of the time he spent performing uncompensated legal services for these organizations. All of the organizations for which petitioner performed these uncompensated legal services were eligible to receive deductible charitable contributions under section 170. These uncompensated legal services that were performed for governmental bodies were performed exclusively for public purposes. Respondent disallowed the deductions on account of the uncompensated legal services.
In March 1971, petitioner agreed to serve as court-appointed counsel for a client of the Mental Health Section of the Garrett County Department of Health 4 in connection with a divorce proceeding instituted against the client under the then-new no-fault divorce law of Maryland. Petitioner's legal services in that divorce case involved more than 440 hours over about three years and included three trials in Prince George's County and several appeals. On his tax return for 1974, petitioner claimed a business bad debt deduction for $12,054.36—the amount by which (a) the sum of (1) the fair market value of his legal services ($13,332.00) and (2) his out-of-pocket expenses ($704.67) exceeded (b) the $1,982.31 he received for that divorce case. Respondent disallowed this bad debt deduction.
On April 4, 1972, petitioner and his wife, Lucille, separated. After their separation, petitioner's divorce counsel advised Lucille's divorce counsel in a letter dated May 30, 1972, that petitioner would provide Lucille with direct support payments. 5 In a letter to petitioner dated June 8, 1972, petitioner's divorce counsel states that he would like to establish with the judge in the divorce action the amount of cash support that petitioner would provide to Lucille. 6
By a letter dated August 18, 1972, Lucille's counsel advised petitioner's counsel that Lucille was receiving $125 per week 7 and objected to the inadequacy of this amount. During 1972, petitioner made 27 weekly $125 support payments to Lucille, totalling $3,375. Petitioner paid Lucille another $125 on January 23, 1973. No support payments were made between January 23, 1973, and May 29, 1973, because Lucille went to California. She returned sometime in April 1973. The court then awarded her alimony pendente lite in the amount of $200 per month.
During the period May 29, 1973, through July 28, 1973, petitioner made payments to Lucille totalling $700. 8
On July 16, 1973, petitioner and Lucille were divorced a mensa et thoro by order of the Circuit Court for Garrett County, Maryland.
In July 1974 there was a hearing on the divorce a vinculo matrimonii. The final divorce decree was enrolled in 1975.
No written separation agreement was entered into between petitioner and Lucille. The $3,375 that petitioner paid in 1972 and the $125 that petitioner paid on January 23, 1973, were not paid under a written separation instrument.
On April 4, 1972, petitioner vacated a house in Oakland, which was owned jointly by petitioner and Lucille. This house had been theretofore used as a residence by both petitioner and Lucille. Lucille remained on the premises and in September 1972 she rented the lower part of the house to a tenant.
The tenant paid the rent directly to Lucille, who kept the rent. The expenses incurred to maintain the premises were paid by Lucille or the tenant. Petitioner did not include in income any rental income from the house for any of the years in question. Petitioner was not aware of the rental details and did not have any idea of the amount of rent collected by Lucille. In January 1973, Lucille vacated the premises and the tenant remained in possession of the house.
In July 1974, there was a hearing on petitioner's and Lucille's final divorce decree. Sometime between July and December 1974, the tenant also vacated the premises. Since neither Lucille nor the tenant maintained the premises after the tenant departed, petitioner began paying the maintenance expenses for the house because he feared the insurance would be cancelled and the utility services terminated. Petitioner intended to sell the house as soon as the divorce proceeding was concluded.
On his 1974 tax return, petitioner deducted the expenses shown in table 1, which he paid in connection with the upkeep and maintenance of the house.
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