Lewis v. Comm'r of Internal Revenue
| Decision Date | 31 October 1956 |
| Docket Number | Docket No. 53981. |
| Citation | 27 T.C. 158 |
| Parties | JOSEPH LEWIS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Paul Arnold, Esq., and Richard Z. Steinhaus, Esq., for the petitioner.
John M. Doukas, Esq., for the respondent.
Petitioner paid fees of psychiatrists, special guardian, and attorneys in defending suits instituted by his wife to have him declared insane and an incompetent; fees for his attorneys' services in connection with the revocation of a trust, in defending a suit for an accounting brought by his wife, and in connection with separation proceedings instituted by his wife; and legal expenses incurred by his wife which he paid pursuant to the agreement settling their controversies. Held, such expenses are not deductible by petitioner under section 23(a)(2), I.R.C. 1939.
Respondent determined the following deficiencies in income tax and addition to tax against the petitioner:
+-----------------------------+
¦ ¦Income tax¦Addition to ¦
+----+----------+-------------¦
¦Year¦deficiency¦tax sec. 294 ¦
+----+----------+-------------¦
¦ ¦ ¦(d) (2) ¦
+----+----------+-------------¦
¦ ¦ ¦ ¦
+----+----------+-------------¦
¦1947¦$14,995.44¦ ¦
+----+----------+-------------¦
¦1948¦18,693.03 ¦ ¦
+----+----------+-------------¦
¦1949¦6,352.22 ¦ ¦
+----+----------+-------------¦
¦1950¦5,341.59 ¦$1,718.18 ¦
+----+----------+-------------¦
¦ ¦ ¦ ¦
+-----------------------------+
Petitioner has conceded that the deficiency and addition to tax determined for the taxable year 1950 are correct.
The issues to be decided are whether the petitioner is entitled to deduct (1) various expenses which he incurred during the year 1947 in connection with proceedings which were instituted to have him declared insane and an incompetent; (2) legal fees incurred in connection with the revocation of a trust; (3) legal fees incurred in defending a suit for an accounting brought against him by his wife; (4) legal fees incurred in connection with separation proceedings brought by his wife; and (5) certain legal fees paid by him to counsel representing his wife in the incompetency proceedings, suit for an accounting, and separation proceeding.
Some of the facts were stipulated.
The stipulated facts are so found and are incorporated herein by this reference.
Petitioner is an author and publisher. He is the sole stockholder of three publishing companies, namely, the Eugenics Publishing Co., Personal Books, Inc., and the Free Thought Press Association. He is the author of several books. Among the books which he has written are: ‘Thomas Paine, Author of the Declaration of Independence,’ ‘The Bible Unmasked,’ ‘Atheism,’ ‘The Ten Commandments,‘ and ‘The Tyranny of God.’ About 500,000 copies of petitioner's books and pamphlets have been sold. The views expressed by petitioner in his books are controversial.
On his Federal income tax returns for the years 1947, 1948, and 1949, petitioner reported the receipt of dividends in excess of $50,000 for each of such years.
On January 29, 1947, petitioner was arraigned in the Magistrate's Court of the City of New York, on the basis of a complaint brought by his wife, Fay A. Lewis, charging that he was dangerously insane and seeking his commitment to a mental institution. Petitioner had been separated and living apart from his wife for approximately a year prior to such arraignment.
Petitioner retained Milton Mokotoff, an attorney, to represent him in the sanity proceeding. During the proceeding, he was offered the choice of submitting to psychiatric examination at Bellevue Hospital, or at a private sanitarium. Petitioner chose to go to a private sanitarium since the publicity which would have resulted from his admission to Bellevue Hospital for mental observation would have had an adverse effect upon the sale of his books. The proceeding was then adjourned pending the completion of the psychiatric examination.
Subsequent to his arraignment, petitioner retained the law firm of Hays, St. John, Abramson & Schulman as his attorneys. On February 27, 1947, petitioner's wife withdrew her proceeding in the Magistrate's Court and, in place thereof, instituted a proceeding in the Supreme Court of the State of New York in May 1947 to have him judicially declared to be mentally incompetent. She asked that the court appoint her as the committee of petitioner's person and that she ‘and a banking corporation, or each, or both, be appointed Committee over his property.’ A former justice of that court was appointed special guardian for the petitioner. In connection with the proceedings in that court and in the Magistrate's Court, petitioner was required to submit to examination by four psychiatrists. The Supreme Court subsequently dismissed the proceeding and declared petitioner to be competent in all respects to manage and control his property.
In successfully defending himself against his wife's attempt to have him declared insane and committed to a mental institution, petitioner incurred and paid the following expenses during the year 1947:
+-------------------------------------------------------------+
¦Attorney's fee to Milton Mokotoff ¦$250 ¦
+-----------------------------------------------------+-------¦
¦Attorneys' fee to Hays, St. John, Abramson & Schulman¦6,000 ¦
+-----------------------------------------------------+-------¦
¦Special guardian's fee ¦3,500 ¦
+-----------------------------------------------------+-------¦
¦Fees to psychiatrists ¦2,200 ¦
+-----------------------------------------------------+-------¦
¦Total ¦$11,950¦
+-------------------------------------------------------------+
In 1931, petitioner had established an inter vivos trust for the benefit of his wife, and others, reserving to himself the right of revocation. On March 20, 1947, petitioner revoked this trust. The trustee then filed an accounting and brought a proceeding to have its account judicially settled. A judgment was entered in that proceeding settling the account of the trustee and directing the trustee to pay over to petitioner the sum of $200,428.82 as principal, and the sum of $423.62 as income of said trust. In 1947 petitioner paid the law firm of Howie & Robertson a fee of $3,500 for its services in connection with the preparation of the accounting and the judicial settlement thereof.
In October 1947, petitioner's wife instituted an action against him for a legal separation. At the outset of this action, petitioner stated, under oath, that he did not intend to defend it insofar as it related to his wife's desire for a separation. A major portion of the services rendered by petitioner's counsel in connection with this action related to the form and amount of the maintenance and support provisions to be made for petitioner's wife and to the adjustment of their respective property rights. Among the demands made by his wife was that she be given 50 per cent of the stock of the Eugenics Publishing Co. and 50 per cent of various other stocks which petitioner held in brokerage accounts.
In January 1948, petitioner's wife instituted an action against him for an accounting. In her verified complaint, she alleged, in effect, that she was the joint owner with petitioner of various securities purchased from brokerage firms, valued in excess of $450,000; and that he had removed all of these securities from a joint safe-deposit box, as well as United States Government bonds, valued at about $100,000, which she declared were her sole property. She also alleged that she was the owner of 40 shares (50 per cent) of the stock of the Eugenics Publishing Co., and that petitioner had agreed to purchase securities for her out of her share of the profits and dividends of said corporation. She alleged that petitioner had appropriated the stock of Eugenics to himself and she sought to recover it from him and to obtain an accounting as to her share of the dividends thereon and also as to the securities allegedly purchased with her share of such dividends. Petitioner in his answer denied the material allegations of the complaint.
In November 1948 petitioner and his wife effected a general settlement of all pending litigation between them which was incorporated in a judgment of the Supreme Court of the State of New York. Under the judgment, petitioner's wife agreed to discontinue the action for an accounting and to release petitioner from her claims to certain securities, she acknowledged that petitioner was the owner of the stock of the Eugenics Publishing Co., and she agreed to consent to the accounting filed in connection with petitioner's revocation of the 1931 inter vivos trust. Under this settlement, petitioner agreed to establish a $300,000 trust fund, the income from which was to be paid to his wife during her lifetime; to effect the cancellation of certain debts due from his wife and other individuals to the various publishing companies which he controlled; to turn over to his wife a certain insurance policy on which she was the irrevocable beneficiary; and to permit an irrevocable inter vivos trust of $100,000, which he had previously established for his wife, to remain in full force and effect. Petitioner also agreed to pay his wife's attorneys, Spence, Hotchkiss, Parker & Duryee, an additional fee of $10,000. Such fee was paid by petitioner in 1948.
In addition to the $6,000 fee which he paid to Hays, St. John, Abramson & Schulman for their legal services in the mental incompetency proceedings, petitioner paid this law firm the sum of $15,530.29 for their services in the accounting action brought by his wife; in representing him in the proceeding to revoke the trust set up for his wife; and for their services...
To continue reading
Request your trial
-
Ruoff v. Comm'r of Internal Revenue
...228; Mercantile National Bank at Dallas, 30 T.C. 84. The most recent statement, Lewis v. Commissioner, (C.A. 2) 253 F.2d 821, affirming 27 T.C. 158, is: The taxpayer now urges that the expenses incurred by him in defending his title are deductible under Section 23(a)(2). In support of this ......
- Lewis v. Commissioner of Internal Revenue
-
Reed v. Comm'r of Internal Revenue
...case (D.Miss. 1959, 3 A.F.T.R.2d 1207, 59-2 U.S.T.C.par. 9487); Lewis v. Commissioner, 253 F.2d 821, 827 (C.A. 2, 1958), affirming 27 T.C. 158 (1956); and Samuel Galewitz, 50 T.C. 104 (1968), which apply the primary-purpose test, and United States v. Gilmore, 372 U.S. 39 (1963); Woodward v.......
-
AMERICAN INSULATION CORPORATION v. Commissioner
...deduction of the $11,795 claimed. See e.g., Hyslope v. Commissioner Dec. 19,956, 21 T. C. 131, 134 (1953); Lewis v. Commissioner Dec. 21,994, 27 T. C. 158, 165 (1956), affd. 58-1 USTC ¶ 9420, 253 F. 2d 821 (2d Cir. 1958); Geer v. Commissioner Dec. 22,530, 28 T. C. 994, 996 (1957). For this ......