Kasey v. Comm'r of Internal Revenue , Docket No. 3087-67.

• Decision Date: 25 August 1970
• Docket Number: Docket No. 3087-67.
• Citation: 54 T.C. 1642
• Parties: J. BRYANT KASEY AND MARYANN KASEY, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

54 T.C. 1642

J. BRYANT KASEY AND MARYANN KASEY, PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 3087-67.

United States Tax Court

Filed August 25, 1970.

[54 T.C. 1642]

J. Bryant Kasey and Maryann Kasey, pro se.

Eugene H. Ciranni, for the respondent.

Petitioner incurred litigation expenses in connection with his unsuccessful prosecution of an action for the ‘recovery of certain mining properties, for an accounting, and for damages.’ Such litigation involved as its principal issue the adjudication of title to the mining claims. Held: Expenditures in connection with petitioner's unsuccessful attempt to establish an interest in property are nondeductible personal expenses. Petitioner's request for an accounting and damages was wholly dependent upon and incident to the determination of title and does not therefore affect the character of such litigation.

FAY, Judge:

Respondent determined the following deficiencies and additions to tax in the Federal income tax of petitioners for the taxable years 1963, 1964, and 1965:

+-------------------------------------+
                ¦ ¦ ¦Addition to tax ¦
                +------+------------+-----------------¦
                ¦Year ¦Deficiency ¦sec. 6653(a) ¦
                +------+------------+-----------------¦
                ¦1963 ¦$947.41 ¦$47.37 ¦
                +------+------------+-----------------¦
                ¦1964 ¦1,534.66 ¦76.73 ¦
                +------+------------+-----------------¦
                ¦1965 ¦1,746.32 ¦87.32 ¦
                +-------------------------------------+
                

The issues for decision are:

(1) Whether petitioner may deduct certain litigation-related expenses—including travel expenses, rental, and utilities expenses allocable to the use of his home as an office, and post office box rentals— incurred in connection with certain mining claims; and if so the amount of such deduction.

(2) Whether petitioner is entitled to deductions for magazine subscriptions, moving expenses, and mailing expenses.

(3) The amount of petitioner's deductible prospecting expenses attributable to the use of his automobile.

(4) Whether petitioner is entitled to claimed net operating loss carryover deductions for the years 1964 and 1965.

(5) Whether petitioner is liable for additions to tax under section 6653(a). ¹

FINDINGS OF FACT

Petitioners J. Bryant and Maryann Kasey, husband and wife, resided in Las Vegas, Nev., at the time of the filing of their petition in this case. Petitioners filed joint Federal income tax returns for the

[54 T.C. 1643]

calendar taxable years 1963 and 1964 with the district director of internal revenue, Los Angeles, Calif., and for the year 1965 with the district director of internal revenue, Reno, Nev. J. Bryant Kasey will be referred to as petitioner.

Petitioner is a chemist and registered metallurgical engineer. He was employed as an analytical chemist by the Bagdad Copper Corp. from July 1963 to January 1967. Petitioner has also engaged in prospecting activity on a regular basis prior to and during the taxable years in question. Such prospecting efforts resulted in petitioner's discovery and ownership of numerous mining claims, some of which were productive of income.

On June 11, 1951, petitioner and one Julius A. Paskan,² as ‘owners,’ entered into an agreement³ with Molybdenum Corp. of America (hereinafter referred to as Molybdenum), which recited that petitioner and Paskan, who were the sole owners of certain mining claims located in the Clark Mountain Mining District of San Bernardino County, Calif., desired to grant Molybdenum an option to purchase such claims subject to the terms of the agreement. The agreement further recited that Molybdenum had theretofore acquired certain other mining claims in the same mining district, referred to as the Sulphide Queen claims.

Molybdenum was granted, under the terms of the agreement, an exclusive option to purchase the specified mining claims on or before October 8, 1951, for a maximum purchase price of $2 million payable as follows: $15,000 upon execution of the agreement, $135,000 upon the exercise of the option, and the balance, $1,850,000, payable, if at all, to the extent that petitioner is entitled to ‘royalties' under section Fifth of the agreement. Such royalties were payable with respect to concentrates produced from minerals mined from a valid claim of petitioner based upon a stated percentage of the value of such minerals. The Sulphide Queen claims which were the property of Molybdenum prior to the agreement were specifically excluded from the royalty provision. However, the agreement provided that if Molybdenum exercised its option to purchase petitioner's claims and commenced commercial operations for mining of minerals from the Sulphide Queen claims, it must also commence similar operations within the claims with respect to which royalties were payable to petitioner. In the event the option was exercised, petitioner further agreed to admit the validity of the Sulphide Queen claims and consent to a judgment

[54 T.C. 1644]

quieting title to such claims in favor of one Fred B. Piehl in a legal proceeding then pending in the Superior Court of the State of California, respecting the validity of the Sulphide Queen claims. Section Ninth of the agreement provided that neither the execution of the agreement nor the exercise of the option to purchase shall prejudice or impair the right of Molybdenum to assert in good faith the invalidity of any of the claims.

On September 21, 1952, pursuant to the terms of the above agreement, petitioner executed a deed conveying the claims and appurtenant rights and properties to Molybdenum. Prior to October 8, 1951, in accordance with the agreement, Molybdenum exercised its...