Barrow, Arthur E.

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Federal Income Taxation: Nondeductibility of Husband\u27s Legal Expenses in Contesting Alimony Payments

University of Florida Levin College of Law

Florida Law Review Volume 6 Issue 4 Article 10 December 1953 Federal Income Taxation: Nondeductibility of Husband's Legal Expenses in Contesting Alimony Payments Arthur E. Barrow Follow this and additional works at: https://scholarship.law.ufl.edu/flr  Part of the Law Commons Recommended Citation Arthur E. Barrow, Federal Income Taxation: Nondeductibility of Husband's Legal Expenses in Contesting Alimony Payments, 6 Fla. L. Rev. 570 (1953). Available at: https://scholarship.law.ufl.edu/flr/vol6/iss4/10 This Article is brought to you for free and open access by UF Law Scholarship Repository. It has been accepted for inclusion in Florida Law Review by an authorized editor of UF Law Scholarship Repository. For more information, please contact kaleita@law.ufl.edu. DATE DOWNLOADED: Thu Sep  8 12:09:10 2022SOURCE: Content Downloaded from HeinOnlineCitations:Bluebook 21st ed.			                                                                Arthur E. Barrow, Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments, 6 U. FLA. L. REV. 570 (1953).               ALWD 7th ed.                                                                         Arthur E. Barrow, Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments, 6 U. Fla. L. Rev. 570 (1953).               APA 7th ed.                                                                          Barrow, A. E. (1953). Federal income taxation: nondeductibility of husband's legalexpenses in contesting alimony payments. University of Florida Law Review, 6(4),570-573.                                                                             Chicago 17th ed.                                                                     Arthur E. Barrow, "Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments," University of Florida Law Review 6, no. 4(Winter 1953): 570-573                                                               McGill Guide 9th ed.                                                                 Arthur E. Barrow, "Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments" (1953) 6:4 U Fla L Rev 570.                 AGLC 4th ed.                                                                         Arthur E. Barrow, 'Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments' (1953) 6(4) University of Florida Law Review570                                                                                  MLA 9th ed.                                                                          Barrow, Arthur E. "Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments." University of Florida Law Review, vol. 6,no. 4, Winter 1953, pp. 570-573. HeinOnline.                                         OSCOLA 4th ed.                                                                       Arthur E. Barrow, 'Federal Income Taxation: Nondeductibility of Husband's LegalExpenses in Contesting Alimony Payments' (1953) 6 U Fla L Rev 570Provided by: University of Florida / Lawton Chiles Legal Information Center-- Your use of this HeinOnline PDF indicates your acceptance of HeinOnline's Terms and    Conditions of the license agreement available at https://heinonline.org/HOL/License-- The search text of this PDF is generated from  uncorrected OCR text.-- To obtain permission to use this article beyond the scope of your  license, please use:Copyright Information 1Barrow: Federal Income Taxation: Nondeductibility of Husband's Legal ExpePublished by UF Law Scholarship Repository, 1953UNIVERSITY OF FLORIDA LAW REVIEWcovery may have been inadvertently limited by Section 458.16 andthat the Legislature has reversed the trend of liberal pre-trial dis-covery proceedings.ROBERT R. TENCHFEDERAL INCOME TAXATION: NONDEDUCTIBILITY OFHUSBAND'S LEGAL EXPENSES IN CONTESTINGALIMONY PAYMENTSHoward v. Commissioner, 202 F.2d 28 (9th Cir. 1953)Petitioner incurred legal expenses in the unsuccessful defense ofan action brought by his divorced wife to collect monthly paymentsawarded her in divorce proceedings. On his 1943 and 1944 incometax returns he sought to deduct the legal expenses as expenses paidfor "the management, conservation, or maintenance of property heldfor the production of income" within the purview of Section 23 (a) (2)of the Internal Revenue Code.1 The commissioner disallowed thededuction and determined deficiencies in petitioner's tax liability.The Tax Court upheld the determination of the commissioner as tothe deduction.2 On appeal, HELD, Section 23 (a)(2) affords no basisfor the deduction. Judgment affirmed.The revenue laws have consistently provided for the deductionof trade or business expenses, 3 but under such provisions expenses in-curred in collecting or producing income, or managing, conserving,or maintaining property held for the production of income not de-rived from any trade or business were not deductible.4 There was1"In computing net income there shall be allowed as deductions: (a) Expenses.-(1) Trade or business expenses.-... (2) Non-trade or non-business expenses.-In the case of an individual all the ordinary and necessary expenses paid or in-curred during the taxable year for the production or collection of income, or forthe management, conservation, or maintenance of property held for the produc-tion of income."21Howard v. Commissioner, 16 T.C. 157 (1951).3INr. Rv. CODE §23 (a) (1); Revenue Act of 1918, §214 (a) (1), 40 STAT. 1066(1919) (first enacted in present form); Revenue Act of 1913, §H1 B, 38 STAT. 167(1913) (first provision for deduction of business expenses).4E.g., Kane v. Commissioner, 100 F.2d 382 (2d Cir. 1938); Stuart v. Commissioner,84 F.2d 368 (Ist Cir. 1936); Reese v. Commissioner, 29 B.T.A. 565 (1933).2Florida Law Review, Vol. 6, Iss. 4 [1953], Art. 10https://scholarship.law.ufl.edu/flr/vol6/iss4/10CASE COMMENTSmuch litigation as to what constituted trade or business expenses.5Higgins v. CommissionerO placed a strict construction on "trade orbusiness expenses," and as a result Section 23 (a) (2) was added to theInternal Revenue Code.7Section 23 (a) (2) was at first interpreted by the Treasury as notpermitting the deduction of legal expenses incurred during litigation.8The regulations were amended later9 to conform to the SupremeCourt's decision in Bingham v. Commissioner0 that legal expensesincurred in contesting an income tax deficiency were deductible underthis section. The original position of the Treasury prohibited thededuction of counsel fees paid by a wife for services rendered in con-nection with her efforts to obtain an increase in alimony as well assimilar fees paid by the husband in contesting the increase as notbeing "ordinary and necessary expenses"" within the meaning ofSection 23 (a) (2).12 In 1949, however, it was held in two cases' 3 thatlegal expenses paid or incurred in connection with the collection ofalimony includible in the gross income of a wife under Section 22 (k)constitute ordinary and necessary expenses for the production or col-lection of income within the meaning of Section 23 (a) (2) and aretherefore deductible. This ruling is now accepted by the Treasury. 4The instant case held that legal expenses are not deductible merelybecause they are paid in an effort to relieve the taxpayer of liability.The court uses the rationale of Lykes v. United States- that thesection applies "to expenses on the basis of their immediate purposesrather than upon the basis of the remote contributions they mightmake to the conservation of a taxpayer's income producing assetsby reducing his general liabilities."'16 The taxing statute not only5E.g., DuPont v. Deputy, 103 F.2d 257 (3d Cir. 1939); Kales v. Commissioner,100 F.2d 35 (6th Cir. 1939); Monell v. Helvering, 70 F.2d 631 (2d Cir. 1934).0312 U.S. 212 (1941).7H.R. REP. No. 2333, 77th Cong., 2d Sess. 46 (1942).BU.S. Treas. Reg. 111, §29.23 (a)-15 (1943).DT.D. 5513, 1946-1 Cum. BULL. 61.10325 U.S. 365 (1945).1U. oF FLA. L. REv. 136 (1953).2I.T. 3856, 1947-1 CUm. BULL. 23."3LeMond v. Commissioner, 13 T.C. 670 (1949); Gale v. Commissioner, 13 T.C.661 (1949), aff'd, 191 F.2d 79 (2d Cir. 1951), no cert. (G), 4 P-H 1951 FE. TAxShay. 171,141 (1951).14U.S. Tres. Reg. 118, §39.24(a)-i (1953).16343 U.S. 118 (1951).'Old. at 125.3Barrow: Federal Income Taxation: Nondeductibility of Husband's Legal ExpePublished by UF Law Scholarship Repository, 1953UNIVERSITY OF FLORIDA LAW REVIEWdraws a distinction between deductible trade or business expenses anddeductible nontrade or nonbusiness expenses but also provides inSection 24 (a) (1) for the nondeductibility of purely personal, living,or family expenses. The consideration here is whether the expenseis: (1) for the production or collection of income or for the manage-ment, conservation, or maintenance of property held for the produc-tion of income and thus deductible;-, or (2) a strictly personal expense,which is not deductible.' sIn the Lykes case the taxpayer made a gift of stock in a closely heldfamily corporation to members of his family and paid the federalgift tax thereon. Later the Commissioner of Internal Revenue as-serted a deficiency of $145,276.50. The taxpayer, through the effortsof his attorney, secured a settlement for $15,612.75. Then the tax-payer attempted to deduct the attorney's fees on his income tax returnunder Section 23 (a) (2), arguing that if the deficiency had not beencontested it would have consumed property held for the productionof income; therefore, the legal expenses were incurred for the conser-vation of income-producing property. This argument was not accepted.If it had been, it would mean that counsel fees incurred in defendingany claim would be expenses for the conservation of income-producingproperty and thus all litigation expenses would be deductible. Thereare indications that this was not within the intent of Congress whenit enacted Section 23 (a) (2).19 The Court in the Lykes case refusedto allow the deduction, expressing the view that, since the gift was inthe nature of a personal or family expense, the donor's expenses wereof a like nature and that the nondeductibility of such expenses isindicated by the express denial of Section 24 (a) (1) and the absenceof affirmative allowance under Section 23 (a) (2). 0The instant case falls squarely within the purview of the Lykesdecision. The court, however, mentions Baer v. Commissioner2' as"a good illustration of the proper application of the statute." 22 TheBaer case must be charily used as authority for the meaning of Section"7E.g., Baer v. Commissioner, 196 F.2d 646 (9th Cir. 1952).ISE.g., Lykes v. United States, 343 U.S. 118 (1951).'988 CONG. REC. 6376 (1942) (intended to permit the deduction of nontrade ornonbusiness expenses not allowed by §23 as it then existed but not prohibited by§24).2OLykes v. United States, 343 U.S. 118, 121 (1951). But cf. McDonald v. Com-missioner, 323 U.S. 57 (1944).21196 F.2d 646 (9th Cir. 1952).22At p. g0.4Florida Law Review, Vol. 6, Iss. 4 [1953], Art. 10https://scholarship.law.ufl.edu/flr/vol6/iss4/10CASE COMMENTS23 (a)(2), as the decision was reached by looking at the end resultrather than the origin of the matter giving rise to the litigation. Inthat case the wife demanded a substantial percentage of the taxpayer'sestate as alimony. Since the estate consisted largely of stock in acorporation in which he held control, he was concerned lest his con-trol of and future in the company be affected. Through the effortsof his attorney a satisfactory settlement was reached which protectedhis interest in the business. The deduction of these attorney's feeswas allowed under Section 23 (a) (2) as being directed to the conserva-tion and maintenance of property held by the taxpayer for income-producing purposes. Despite the confusing aspects of the court's ap-proving mention of the Baer case in the instant case, the law seemssettled at this time. The Lykes case points the way, and the lowercourt's decision in the instant case has won support in two recentcases.2 3 The rule evolved is not wholly satisfactory, however. Onerather anomalous result is that it is less expensive to seek alimonythan it is to contest it. The result of the instant case, while ad-mittedly within the Lykes rule, appears unduly harsh with respectto the husband. If a change is to be made, and apparently it shouldbe, the matter is one for Congress. Section 23 (a) (2) might be amendedso as to make legal expenses incurred in contesting a wife's claimfor alimony specifically deductible, or Section 24 (a) (1) might beamended so as to specifically exclude such expenses from the nonde-ductible personal category. The first suggestion is the more logical,since it is difficult to percieve how an expense incurred in connectionwith a separation or divorce can properly be treated as a purely per-sonal, living, or family expense. 24ARTHUR E. BARROw23Tressler v. Commissioner, P-H 1053 TC Mt.m. DEC. 53,111 (1953); Donnellyv. Commissioner, 16 T.C. 1196 (1951).-4Sce Harris v. Commissioner, 340 U.S. 106, 112 (1950).5Barrow: Federal Income Taxation: Nondeductibility of Husband's Legal ExpePublished by UF Law Scholarship Repository, 1953

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Federal Income Taxation: Nondeductibility of Husband\u27s Legal Expenses in Contesting Alimony Payments

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