Lemond v. Comm'r of Internal Revenue, Docket No. 19780.
| Decision Date | 28 October 1949 |
| Docket Number | Docket No. 19780. |
| Citation | 13 T.C. 670 |
| Parties | BARBARA B. LEMOND (FORMERLY BARBARA BREWSTER BLOOMINGDALE), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, that attorneys' fees paid or incurred by the petitioner during the taxable years in connection with securing settlement with her husband incident to separation and divorce are deductible as nonbusiness expenses within the meaning of section 23(a)(2), in so far as they resulted in the production or collection of income taxable to the petitioner under the provisions of section 22(k) of the Internal Revenue Code. Charles J. Nager, Esq., for the petitioner.
Ellyne E. Strickland, Esq., for the respondent.
This proceeding involves deficiencies in income tax for the calendar years 1943 and 1944 in the amounts of $4,037 and $1,559.81, respectively.
The sole question presented is whether petitioner is entitled to deduct, as nontrade or nonbusiness expenses under section 23(a)(2), attorneys' fees of $7,500 and $3,000 paid by her in 1943 and 1944, respectively, in securing a fair and equitable financial settlement from her then husband incident to their separation and the drawing of an instrument embodying the terms of the settlement and separation. The respondent disallowed the entire payments on the ground that they were personal expenses.
Other minor adjustments made by respondent in the petitioner's tax liability for the years in issue are not in question. The facts stipulated are hereby found and are incorporated in our findings of fact.
The petitioner, Barbara B. LeMond, formerly Barbara Brewster Bloomingdale, now resides in Hollywood, California. Her income tax returns for the calendar years 1943 and 1944 were filed with the collector of internal revenue for the third district of New York.
Petitioner and Alfred S. Bloomingdale were married on November 23, 1941, in Fort Lee, New Jersey, and thereafter maintained their marital domicile in New York, New York. Early in 1943 petitioner and her husband decided to separate, the latter moved out and established separate living quarters for himself. Thereafter both parties retained counsel. It was agreed that the separation should be final, and negotiations for a financial settlement for the petitioner were conducted by the attorneys. It was decided that after a financial settlement had been agreed upon a separation agreement would be drawn and executed by the parties. Petitioner's then attorney proposed a tentative settlement, which did not meet with her approval. In June 1943, after several months of negotiations, petitioner's original attorney withdrew from the case at the request of petitioner. Thereupon, the petitioner retained a new law firm to obtain a fair and equitable financial settlement from Bloomingdale and to negotiate and prepare a separation agreement. On July 27, 1943, a separation agreement was duly executed by the petitioner and Bloomingdale.
Under the agreement of July 27, 1943, petitioner's husband agreed to pay her the sum of $22,500 upon the execution of the agreement and $600 per month thereafter. It further provided that in the event either party obtained a decree of absolute divorce prior to June 30, 1944, the petitioner would have the option within one month after such divorce to elect to receive, instead of the monthly payments of $600, an additional sum of $213,000, payable in the following specified installments:
(a) A first instalment of $45,000 in cash within seven days after the receipt by the Husband of the notice of election provided for in this paragraph. * * *
(b) Thereafter a second instalment of $18,000 to be paid in four equal quarterly payments on January 15th, April 15th, July 15th and October 15th and commencing on January 15th of the year following next after the year of payment of the first instalment provided for in subdivision (a) hereof.
(c) Ten further instalments of $15,000 per year for the next ten years thereafter, in equal quarterly instalments on January 15th, April 15th, July 15th and October 15th of each of said ten years * * *
In the event that the tax law is amended so that the payments to be made in accordance with subdivisions (b) and (c) hereof are no longer taxable to the Wife and/or deductible from the gross income of the Husband, or in the event of the death of the Wife, at any time after the exercise of the option provided for by this paragraph, the aforesaid principal amount shall be reduced so that the instalment payments under subdivisions (b) and (c) hereof during the last six year period, or that portion of said period remaining after the occurrence of either of the said last mentioned events, shall be at the rate of $10,000 per year payable in equal quarterly instalments on the quarterly dates aforesaid; * * *
Thereafter, petitioner filed suit for divorce in Nevada and on September 25, 1943, a final decree was obtained by the petitioner in the District Court, Second Judicial District, County of Washoe, State of Nevada. The separation agreement of July 27, 1943, was approved and adopted by the Nevada decree. Attorneys' fees incurred in connection with this action were not claimed as deductions by the petitioner in her Federal tax returns and are not involved in this proceeding.
On October 2, 1943, petitioner notified her husband that she elected to receive in lieu of the monthly payments of $600 the alternative amount of $213,000, payable in installments.
Pursuant to the agreement of July 27, 1943, petitioner received from her husband during 1943 the following amounts:
+---------------------------------------------------+
¦Payment upon execution of agreement ¦$22,500¦
+-------------------------------------------+-------¦
¦Monthly payments August, September, October¦1,800 ¦
+-------------------------------------------+-------¦
¦First installment after election ¦45,000 ¦
+-------------------------------------------+-------¦
¦Total ¦69,300 ¦
+---------------------------------------------------+
During the year 1943 petitioner paid her attorneys the sum of $7,500, and in the year 1944 the sum of $3,000, a total of $10,500, representing payment for conducting the...
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