McMurtry v. United States, 514-53.
| Decision Date | 07 June 1955 |
| Docket Number | No. 514-53.,514-53. |
| Parties | George G. McMURTRY v. The UNITED STATES. |
| Court | U.S. Claims Court |
A. Harding Paul, Washington, D. C., R. H. Yeatman, Jr., Washington, D. C., on the brief, for plaintiff.
Edmund C. Grainger, Jr., Washington, D. C., Asst. Atty. Gen., H. Brian Holland, Andrew D. Sharpe, Ellis N. Slack and James Q. Riordan, Washington, D. C., on the brief, for defendant.
Before JONES, Chief Judge, and LITTLETON, WHITAKER, MADDEN and LARAMORE, Judges.
Plaintiff sues to recover an alleged overpayment of taxes for the year 1942. The Commissioner of Internal Revenue disallowed a deduction from the gross income of that year which plaintiff had claimed for legal expenses. He also disallowed part of a deduction from net income for medical expenses. This disallowance resulted from the adjustment in net income when the deduction for legal expense was disallowed. The defendant has moved to dismiss plaintiff's petition on the ground that it fails to state a cause of action. The question to be decided is whether or not the Commissioner properly disallowed the deduction for legal fees.
In 1933 plaintiff married Louise Hunt and they lived together until their separation sometime in 1941. In 1942 as a result of extensive negotiations between attorneys for the plaintiff and an attorney representing his wife it was agreed that plaintiff would establish two trusts in favor of his wife, Louise Hunt McMurtry. A small part of these negotiations concerned the question of custody of the couple's minor child and impending divorce proceedings.
At the time of the negotiations plaintiff was retired and his income consisted in the main of dividends, and secondly, of income from a trust. During the conferences with the wife's counsel the latter demanded that 2,500 to 3,000 shares of American Can Company stock (together with shares of stock in other companies) be placed in a trust for her benefit. Taxpayer's principal income-producing property consisted of American Can Company stock and he was a director of this company and received director's fees as such. His remaining a director of the American Can Company, to some extent, depended on the amount of his stock holdings in such company.
Plaintiff's counsel successfully opposed the demand of the wife's counsel and succeeded in procuring an agreement that there be placed in one trust only 1,500 shares of stock of the American Can Company (together with other shares which the parties had agreed to place in the trust). To secure this agreement plaintiff agreed to assign to another trust a one-third interest in reversion in still a third trust which plaintiff had established in 1933 for his first wife, Mabel Post McMurtry. This reversionary interest was non-income producing to plaintiff, all the income being required for payment to the first wife. The work of plaintiff's attorneys preserved to him at least 1,000 to 1,500 shares of the income-producing American Can Company stock demanded by the second Mrs. McMurtry, which shares were at the time producing dividends to plaintiff in the amount of from $4,000 to $6,000 per annum. For these services plaintiff's attorneys charged and received $3,580.07 in fees in 1942.
Plaintiff claims that the attorneys' fees were paid "for the management, conservation, or maintenance of property held for the production of income." He relies on section 23(a) (2) of the Internal Revenue Code of 1939, as amended, 26 U. S.C.A. § 23(a) (2), which reads as follows:
The defendant replies that the legal fees here in question may not be deducted under section 23(a) (2); that they are nondeductible expenses under section 24 (a) (1) which lists among items not deductible in computing net income the following:
"Personal, living, or family expenses, except extraordinary medical expenses deductible under section 23 (x)."
The defendant also relies on Treasury...
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