*20 Decision will be entered under Rule 50.
1. During the taxable years the taxpayer, a minor, paid, pursuant to orders of court, attorneys' fees and court costs of numerous lawsuits involving his current and future earnings as a juvenile actor and his right thereto or the conservation of his estate, which consisted of his prior earnings. Held, the fees and costs are deductible under section 23 (a) of the Internal Revenue Code, as amended, either as ordinary and necessary business expenses, or as ordinary and necessary expenses of a nontrade or nonbusiness nature, except for minor amounts allocable to tax-free interest under section 24 (a) (5), Internal Revenue Code, as amended.
2. Upon the facts, held that one-half of the cash compensation paid by the taxpayer for the services of a chauffeur and bodyguard is deductible as ordinary and necessary expense incident to and in furtherance of his profession.
*349 This case involves income tax deficiencies of $ 10,031.96, $ 3,838.81, $ 370.90, and $ 161.09 for the taxable years 1938, 1939, 1940, and 1941, respectively.
The questions presented are (a) whether certain attorneys' fees and costs paid in each of the years by the guardian of Frederick Cecil Bartholomew are proper deductions under section 23 (a), Internal Revenue Code, as amended by section 121 of the Revenue Act of 1942, and (b) whether amounts paid in 1938 for the services of a chauffeur, who likewise acted as bodyguard, and automobile maintenance and depreciation are deductible. The case was submitted on oral testimony and numerous court files consisting of petitions, complaints, answers, court orders, etc., introduced in evidence as exhibits to show the character of litigation involved and type of services performed by the attorneys, for which the fees in question were paid. The exhibits have been summarized by stipulation of the parties.
FINDINGS OF FACT.
Frederick Cecil Bartholomew, a minor, hereinafter referred to as Freddie, resides with his aunt, Myllicent Bartholomew, hereinafter referred to as Myllicent, in Los Angeles County, California. The returns*22 for the years in question were on the cash basis and were filed in the collector's office in Los Angeles.
Freddie was born in London February 8, 1924. When about three years old his father, Cecil Llewellyn Bartholomew, and his mother, *350 Lillian May Bartholomew, took him to the home of his grandparents in Warminster, Wiltshire, England, for a two weeks holiday. He lived with his grandparents during the next seven years and they paid all his expenses. Myllicent was his father's sister. She lived with her parents in the same home and looked after Freddie, instructed him, and trained him in acting and elocution. When he was nine years of age he went to school for a year. From the time he went to his grandparents' home until he was ten years of age, his parents saw him but two or three times. Under Myllicent's tutelage Freddie showed marked ability in acting, and when his aunt learned "David Copperfield" was to be filmed she thought him a proper person to play the part and contacted a representative of Metro-Goldwyn-Mayer, hereinafter referred to as MGM, then in London, with whom she discussed Freddie's abilities. When he was ten years of age his aunt Myllicent brought *23 him to this country, with his parents' consent. They arrived in New York July 27, 1934, and shortly thereafter went to California. Myllicent negotiated with MGM and succeeded in getting a contract for him to play the part. On September 13, 1934, she executed a contract in his behalf, having been appointed guardian for that purpose, wherein Freddie was to render theatrical services for a period of 13 weeks at 35 pounds per week, with an option to MGM to renew the contract for additional periods of time at increased salary as follows: For a period of 39 weeks at $ 200 per week, for a year thereafter at $ 350 per week, for a year thereafter at $ 500 per week, for a year thereafter at $ 650 per week, for a year thereafter at $ 800 per week and for a year thereafter at $ 1,000 per week. His mother came to this country in April 1935 and his father two or three months later. From then on there were disputes and litigation, the underlying purpose of which, so far as his parents were concerned, was to get the minor's earnings and control thereof.
On September 14, 1935, Myllicent filed a petition in the Superior Court of Los Angeles County, California, docket number 152887, requesting that*24 she be appointed guardian of Freddie and his estate. This petition was granted by order of court under date of October 22, 1935, and letters of guardianship were duly issued to Myllicent. At all times material hereto Myllicent continued to be guardian of the person and the estate of Freddie except for the period June 10, 1936, to December 17, 1937, when the Union Bank & Trust Co. of Los Angeles acted as guardian of his estate. At the time Myllicent filed her petition Freddie's property consisted of cash in banks and the salary to be paid under the MGM contract.
On March 22, 1936, his parents filed a complaint in the Superior Court of Los Angeles County, California, docket number 401182, alleging that under California law they were entitled to the earnings of *351 their minor son and asking for an accounting as to such earnings. Thereafter the parents and Myllicent, through the attorneys then representing them, entered into a stipulation in docket number 152887 dated June 10, 1936, in which it was agreed among other things that Myllicent withdraw as guardian of Freddie's estate and the Union Bank & Trust Co. of Los Angeles be appointed. Another stipulation dated June 24, *25 1936, was entered into which, among other things, provided that 10 percent of the net earnings of Freddie's estate should be paid to his father and an additional 10 percent to his two minor sisters, and specified that attorneys' fees and expenses of the parents were to be paid out of the minor's earnings. These stipulations were approved and confirmed by the court. On September 10, 1936, the court authorized the new guardian to draw upon the estate of the minor in the event the earnings were insufficient to make the payments.
Early in 1937 the law firm of William H. Neblett was employed as attorneys and thereafter performed the legal services here in question. On February 8, 1937, a petition, docket AD-264, was filed by Myllicent through Neblett's firm for the adoption of Freddie. With the petition was a report and recommendation for the adoption by the Department of Social Welfare of California and a letter from each of Freddie's parents in which they stated it would be to the best interest of Freddie that he be adopted by Myllicent and consenting to the adoption. An order of adoption was issued on April 3, 1937. On September 27, 1937, the parents filed a motion to cancel and*26 revoke the order of adoption, which, after hearing, was denied, whereupon the parents appealed, and on November 21, 1938, the District Court of Appeals, Second Appellate District, State of California, affirmed the order of adoption, 84 Pac. (2d) 199. Unless otherwise stated, all subsequent reference to Myllicent will be in her capacity as guardian.
On August 5, 1937, MGM filed suit against Freddie, Myllicent, and the Union Bank & Trust Co., docket number 418,894, alleging that Freddie had refused to comply with his contract of September 14, 1934, and praying for judgment enjoining him from breaching the contract and seeking employment elsewhere during the period of the contract. The court granted a preliminary injunction and an appeal was taken therefrom on October 4, 1937. Thereafter, and on October 18, 1937, MGM executed a new contract for the theatrical services of Freddie at $ 2,000 per week for 80 weeks. At the time of the new contract he was getting $ 1,100 per week for 40 weeks under the old contract, the difference between the amount paid and the rate provided in the old contract being attributable to bonuses. With the execution of the new contract*27 it was agreed that MGM should have judgment and the appeal from the preliminary injunction should be abandoned. Judgment was accordingly entered on November 4, 1937, enjoining *352 Freddie from acting for any other person, firm, or corporation without the written consent of MGM, which was adjudged entitled to his exclusive services for the contract period.
In October and November 1937 Myllicent requested the court to fix reasonable fees for the legal services rendered to conserve, protect, and benefit the estate of the minor. In the petitions the legal services were summarized generally as follows: (1) Obtaining an order from the Los Angeles Superior Court whereby Myllicent adopted Freddie; (2) seeking abrogation of the agreement of June 10, 1936, whereby Myllicent withdrew as guardian and the Union Bank & Trust Co. was appointed guardian, of the agreement of June 24, 1936, whereby the father was to receive 10 percent and two minor sisters of Freddie an additional 10 percent of his net earnings, and certain attorneys' fees and expenses incurred by the parents were to be paid by the guardian, and of the agreement of September 10, 1936, whereby the new guardian was authorized*28 to draw upon the corpus of the minor's estate if his earnings were insufficient, and the orders based thereon; (3) an action in the Los Angeles Superior Court, entitled Frederick Cecil Bartholomew vs. Pacht et al., docket number 418,273, which related to the above controversies; (4) removing the Union Bank & Trust Co. as guardian; (5) obtaining a new theatrical contract with MGM for the minor for a period of two years at a guaranteed salary of $ 98,000 per year, and in addition numerous consultations including the defense of an action brought by MGM to enjoin the minor from seeking employment with others; and for services rendered resulting in a substantial reduction of attorneys' fees claimed by the Union Bank & Trust Co. in its petition for attorneys' and guardian fees. In the settlement of the injunction suit MGM paid the attorneys $ 10,000 toward their fees for services rendered the minor in said injunction suit. Written objections to the allowance of the attorneys' fees were filed by the Union Bank & Trust Co., but the court order fixed the fees and adjudged the same a necessary item of administrative expense of the estate.
On November 24, 1937, Freddie's father filed*29 a petition in docket number 152,887 requesting the court to appoint him guardian. To the petition for the appointment of Myllicent as guardian of the minor's estate, the father filed objections claiming to be a creditor of the estate as a result of the stipulations and orders wherein he was to receive 10 percent of his son's earnings, and that Myllicent was unqualified to act. He also filed a petition for the appointment of the Bank of America National Trust & Savings Association as guardian of the estate. The attorneys for the guardian prepared findings of fact and conclusions of law in the proceedings. The court determined that Myllicent was competent and qualified to act as guardian of the estate, that the minor was of an age to form an *353 intelligent preference and preferred Myllicent, and that the best interests of the minor and his estate would be more fully protected and conserved by her appointment, and it entered an order accordingly. On December 16, 1937, the court appointed Myllicent guardian of the estate upon filing bond in the sum of $ 100,000, and on the same day denied the petition of the father. Letters of guardianship of the estate were duly issued to*30 Myllicent on December 17, 1937.
In January 1938 Myllicent petitioned the court for instructions and modification of the orders to the extent of releasing the estate of the minor from any obligation to make the payments provided for in the stipulations and orders of June and September 1936. Among other reasons advanced for such a release was that the estate of the minor would have to expend the entire $ 100,000 expected to be earned under his contract with MGM and would have to expend in addition thereto all but the sum of $ 2,042.97 of the accumulated savings of the estate, and that in addition the minor's estate was facing a contingent liability of $ 44,287.04 as a result of two suits filed against it by Myron Selznick Co. and Herman B. Schaad. After hearing Freddie's father in opposition to the petition, the court, on February 24, 1938, revoked and abrogated its orders of June and September 1936 and ordered the guardian to make no further payments from the minor's estate under said orders and stipulations.
Other proceedings instituted and ended during 1938 consisted of a suit by Freddie's parents, filed June 9, 1938, docket number 429,060, against all the attorneys and guardians*31 in re the stipulations and orders of June and September 1936, revoked February 24, 1938, in which the parents asked for a $ 40,000 judgment. Myllicent answered this complaint July 29, 1938.
The character and nature of the services for which the fees were paid in 1939 is disclosed in the report of the guardian and petition for fees filed January 14, 1939, covering the period December 16, 1937, to December 31, 1938, and subsequent petitions and orders. The legal services rendered may be summarized generally as follows: (1) Defending an appeal by the parents from the order of the court in which Freddie was adopted by Myllicent; (2) successfully defending an action wherein Myron Selznick Co. sought to recover against the guardian of the estate $ 39,600 for alleged commissions as actor's agents; (3) for modification of the stipulations and orders of June and September 1936, which saved 20 percent of Freddie's earnings and released the corpus of his estate from liability if earnings were insufficient; (4) defending action in New York Supreme Court wherein H. B. Schaad sought to obtain $ 4,687.04 for alleged services as actor's agent, which resulted in a compromise; (5) in obtaining authority*32 to purchase an automobile for the minor, mobile dressing room, and insurance *354 contract, for employment of actor's agent, and for payment of services for actor's agent. The guardian's account was approved and an order was entered approving attorney fees in the amount of $ 2,500, as requested, and the same was adjudged a reasonable and necessary item of administration of the estate of the minor.
During 1939 various proceedings were instituted, continued, and/or terminated which required the employment and rendition of services by counsel. On June 19, 1939, the parents sued Myllicent, Freddie, and others, docket number 442,074, for damages for fraud, alleging that the defendants had conspired to and did defraud the plaintiffs and asked judgment for $ 1,000,000. On June 22, 1939, Leonard J. Meyberg sued Myllicent and others, docket number 442,224, alleging that he had obtained judgment against defendants Lillian May Bartholomew and Cecil Llewellyn Bartholomew in the sum of $ 7,739.99 for professional services rendered and money advanced, and that prior to performing such services and advancing such moneys the defendants had conspired to defraud him by making certain stipulations*33 whereby the parents released their right to Freddie's earnings. Plaintiff prayed for a judgment declaring the stipulations and orders fraudulent as to him and that an accounting be had of Freddie's earnings and that a receiver be appointed to collect the minor's earnings and assets. On July 17, 1939, Freddie's mother filed a petition, docket number 152,887, for instructions to the guardian ad litem and asked the court to instruct Myllicent to pay her, as guardian of her daughters, $ 5,000 under the stipulations and orders of June and September 1936. On July 20, 1939, the parents' suit, docket number 401,182, for Freddie's earnings and an account was dismissed.
In addition to the attorney fees allowed in January 1939 in settling her account as guardian, Myllicent filed two other petitions, docket number 152,887, for permission to employ attorneys and pay their fees during the taxable year. Her petition to employ counsel to defend the suit for $ 1,000,000 damages for fraud filed by Freddie's parents was granted July 13, and the $ 2,500 fee therein fixed was adjudged to be a necessary and proper administrative expense of the minor's estate. On September 26 Myllicent petitioned the*34 court and was authorized to employ attorneys and pay attorneys' fees of $ 2,500 to defend two suits filed against Myllicent, as guardian and individually, Freddie, and others, viz., docket number 442,224, supra, and docket number 444,443, entitled Lillian May Bartholomew v.Union Bank & Trust Co. of Los Angeles, et al, and to enjoin the prosecution of these suits and others which might be filed that would reduce and impair Freddie's earning capacity.
Thereafter, and on September 26, 1939, Myllicent, as guardian of the estate and person of Freddie, filed a suit for injunction, docket *355 number 445,072, against the parents, minor sisters, and Leonard J. and M. S. Meyberg et al., in which it was alleged that the defendants had filed seven separate actions, five of which were pending, in which they sought to obtain in addition to other things a total of $ 1,026,739.99, that all of said actions were groundless and were filed to annoy and harass plaintiffs and to force them to pay large sums of money from the minor's estate, and that defendants were damaging and destroying the reputation of Freddie as a motion picture actor and otherwise, and it was sought to enjoin defendants*35 from prosecuting the pending actions, from bringing others, and from harassing and annoying plaintiff.
On January 8, 1940, Myllicent filed her account and report for 1939. The account and report alleged that legal services were rendered the guardian during the year for the purpose of conserving, protecting, and benefiting the minor's estate and asked an allowance to the attorneys of $ 2,500 for the services and that the allowance be adjudged a necessary item of administrative expense of the estate of the minor. An order to this effect was entered by the court on January 29, 1940. A second order of the court granting attorneys' fees during 1940 was executed on September 30, 1940, in the amount of $ 250 for the purpose of defending an action against the minor's estate by the Hollywood Collection Agency for $ 1,713.87 in the Municipal Court of Los Angeles. This suit was based upon an assigned claim for services alleged to have been rendered by certain New York attorneys for the benefit of the minor and his estate.
The guardian's account and report for 1940 was filed with the court March 5, 1941. No particular amount was requested therein for legal services rendered by the attorneys*36 for Freddie's estate, but the court was asked to fix a reasonable sum for their services and adjudge the same a necessary and proper item of administrative expense of the minor's estate. The court, by its order of March 31, 1941, fixed the attorneys' fee for services rendered the minor's estate during the accounting period at $ 500 and adjudged it a reasonable and proper administrative expense.
On May 14, 1941, the court entered judgment in the injunction proceedings, docket number 445,072, hereinabove referred to. The court found that all of the allegations of the plaintiff's complaint were true, and the defendants were permanently enjoined from prosecuting the pending actions and from commencing other actions or proceedings for the purpose of obtaining any right, title, or interest in the estate or earnings of the minor.
Freddie's estate in 1937 and during the taxable years was estimated by his accountant as "not over $ 20,000 in 1937," and "probably between $ 90,000 and $ 100,000" in 1938 and 1939, dwindling but "still a substantial *356 amount" in 1940 and 1941. Freddie's income tax returns for 1937 to 1941, inclusive, reported total income, government obligations owned, *37 interest received thereon, and interest on bank deposits, notes, etc., as follows:
| Government obligations owned | |||||
| Interest on | |||||
| Total | Interest | deposits, | |||
| Year | income | Principal | notes, etc. | ||
| Taxable | Tax-free | ||||
| 1937 | $ 20,067.08 | $ 15,000 | $ 275,00 | $ 137.50 | |
| 1938 | 111,333.32 | ||||
| 1939 | 97,854.16 | 22,500 | 687.50 | 137.50 | |
| 1940 | * 20,070.12 | 35,000 | 275.00 | 137.50 | $ 1,050.11 |
| 1941 | ** 7,437.45 | 40,000 | 550.00 | 137.50 | 339.85 |
The attorney fees paid out of Freddie's estate prior to 1938 were estimated to be in excess of $ 26,000. During the taxable years his estate paid the following stipulated amounts to Wm. H. Neblett, or his law firm, for legal services rendered and costs incident thereto: $ 15,590.72 in 1938; $ 7,874.54 in 1939; $ 2,852.87 in 1940; and $ 895.90 in 1941. All payments for legal services were made under the direction and orders of the court, which adjudged the payments to be proper administrative expenses of the estate of the minor.
During 1938 Myllicent paid Edward Reed $ 1,061.75 as compensation for his personal services as chauffeur, helping around*38 the house, and acting as Freddie's bodyguard. Myllicent's presence at the studio and on location was necessary to prepare Freddie for his part and coach him in his acting. He was too young to drive a car and Myllicent could not. He and Myllicent lived from 6 to 8 miles from the studio and his car was the only suitable means for their transportation to and from the studio. He had an automobile trailer dressing room which he used for dressing on location and sometimes at the studio. This was necessary and was transported to and from the studio and location by the automobile. Due to a kidnapping threat, Reed had to be with him all the time, even when he was playing. In addition to his salary, Reed was furnished his uniform, board, and room.
Respondent disallowed the attorneys' fees and costs incident thereto as deductions on petitioners' returns for the taxable years, and the $ 1,061.75 salary paid Edward Reed in 1938, on the ground that such payments were not deductible under section 23 (a) of the Revenue Act of 1938 or section 23 of the Internal Revenue Code, as amended by section 121 of the Revenue Act of 1942. He also disallowed one-half of the depreciation deduction on Freddie's*39 automobile on the *357 ground that only one-half of the use of the automobile was for business purposes. Various other adjustments made by the respondent are uncontested.
Myllicent neither claimed nor asserted any right to Freddie's earnings. As guardian she received the earnings for him, reported them to the court as guardian, and sought and obtained orders and directions of the court with reference to the various suits and steps taken by her, the ultimate purpose of which was to secure and collect for the ward his own earnings. Myllicent intended to and did effectively emancipate the minor as to all his earnings during the years in question.
The attorneys' fees and costs incident thereto were ordinary and necessary expenses of the taxable years paid in connection with the minor's trade or business, or the production or collection of income, or in connection with the management, conservation or maintenance of property held for the production of income.
One-half of the cash compensation paid Edward Reed in 1938 constituted ordinary and necessary expenses incident to Freddie's profession as a motion picture actor.
OPINION.
The principal question, namely, the deductibility of*40 attorneys' fees and costs, has been restricted in scope by the stipulations and agreement of counsel. The parties are agreed that the attorneys' fees and court costs involved herein were paid during the taxable years pursuant to orders of court, and that the amounts so paid were reasonable. Their dispute is over the propriety of the deductions under the applicable statutory provisions, section 23, Revenue Act of 1938, and section 23, Internal Revenue Code, as amended by section 121, Revenue Act of 1942. 1Section 121 (d) of the 1942 Act makes the amendment applicable to taxable years beginning after *358 December 31, 1938; section 121 (e) makes the amendment retroactive as to the Revenue Act of 1938 and prior revenue acts.
*41 The respondent contends that the sums paid for legal services in connection with litigation concerning the adoption of Freddie by his aunt, and the litigation with respect to who was to have custody of Freddie and who was to be guardian of his estate, are not ordinary and necessary expenses for the reason that the amounts were not paid or incurred for the production or collection of income, nor for the management, conservation or maintenance of property held for the production of income. He contends that the evidence shows clearly that the laying out of attorneys' fees is directly related to a grievous dispute among members of Freddie's immediate family about who was to have custody and control of the person of Freddie and who was to have custody and control of his estate. Respondent denies that the dispute related to Freddie's trade or vocation as an actor in motion pictures, or to the rendition of services to MGM under a contract which the latter was at all times ready, able, and willing to perform, or to the production or collection of income or the management, conservation, or maintenance of property held for the production of income. He asserts that the entire record discloses*42 that the fees related directly to a quest for authority and control over Freddie and his estate and section 23 (a) should not be construed to permit the fees and court costs here involved to be treated as ordinary and necessary business expense.
In our opinion respondent's argument ignores one of the cardinal factors in this case. It was Freddie who earned the income. He is the taxpayer before us, not Myllicent, Van Wart v. Comm. (1935), 295 U.S. 112">295 U.S. 112; Freuler v. Helvering (1934), 291 U.S. 35">291 U.S. 35. He had no legal right to enter into contracts. His minority forced him to conduct all of his professional business transactions through a guardian. At one time he had two court-appointed guardians, one of his person and one of his estate, which was in itself productive of litigation. The original transaction which started Freddie on his professional career was executed by Myllicent as guardian. His rise to fame swiftly followed, but equally swift was the rise in the number of claimants seeking a share of his mounting earnings. Fortified by the provisions of section 197 of the Civil Code of California, 2 his parents *43 filed numerous actions directed toward obtaining Freddie's earnings or his estate, or a portion of his estate and earnings. Had his parents succeeded in their design, the earnings as well as the accumulated earnings would have been theirs, not his. Myllicent countered *359 these and other suits in various ways in order to increase his earnings and to preserve and protect the income and accumulated earnings for him.
The litigation with MGM, although compromised, resulted in greatly increased earnings. The adoption proceedings were but one of the steps devised to prevent the parents from appropriating Freddie's past, present, and future earnings to themselves. Thereafter the parents had no legal rights to his earnings. *44 Sec. 229, Civil Code of California. Myllicent's purpose was to preserve to Freddie the fruits of his own labors. That Myllicent did not seek by these proceedings to appropriate Freddie's earnings to herself is apparent in that she regularly reported to the court during the taxable years all the earnings as belonging to Freddie. She sought and obtained the approval of the court with respect to her stewardship. Nowhere in this record is there any indication that Myllicent was prompted by selfish motives or personal aggrandizement. On the contrary, the record shows that her every effort was toward securing for her ward the earnings derived from his personal services. Our findings show the suits and countersuits filed by various parties, and we believe no useful purpose would be served by further reviewing them. All the contests, whether waged by parents or others, had a connection either direct or indirect with his past, present, or future earnings, and his right to their possession and enjoyment. Clearly the actions, except those instituted by Myllicent, were adverse to his interests, and the issues were bitterly contested.
We have heretofore held that if the "original transaction*45 was proximately related to the production or collection of income, any litigation arising out of that transaction involving its tax consequences would also proximately relate to the production or collection of income," so that "fees and expenses paid in connection with such litigation would be deductible under section 121." Charles N. Manning, 3 T. C. 853, 874; Walter S. Heller, 2 T. C. 371; appeal pending, C. C. A., 9th Cir. The original transaction here was a contract for the continuing services of Freddie as a motion picture actor over a period of years. His earnings and estate were derived from this contract, as changed by agreement of the parties, or from his personal appearances, or from his endorsement of articles, and the like, which income was derived from his professional standing. It seems reasonable to hold that any litigation which sought to increase the production of income, or to protect the right to income produced, being produced, or to be produced, or to prevent others from acquiring a right, title, or interest therein would be proximately related to "the production or collection of income" specified*46 in section 121. The term "income," as the Senate Committee on Finance pointed out in its report accompanying H. R. 7378, which *360 later became the Revenue Act of 1942, "comprehends not merely income of the taxable year but also income which the taxpayer has realized in a prior taxable year or may realize in subsequent taxable years, and is not confined to recurring income but applies as well to gain from the disposition of property." Freddie's earnings were certainly the product of his efforts, and litigation expenses which protected his right thereto would appear to be within the statutes. Cf. Commissioner v. Heininger, 320 U.S. 467">320 U.S. 467.
The other class of expenditures deductible under section 121 relates to expenditures incurred for the management, conservation, and maintenance of property held for the production of income. In so far as this case is concerned, such expenditures relate to that part of the litigation which sought to reach the estate of the minor. This estate was estimated in 1937 at $ 20,000, at $ 90,000 to $ 100,000 in 1938 and 1939, and at a lesser but substantial sum in 1940 and 1941. His returns for the taxable years *47 show that part of his estate consisted of government obligations, interest on $ 5,000 of which, amounting to $ 137.50, was tax-exempt for 1939, 1940, and 1941. Some of the litigation mentioned in our findings involved Freddie's entire estate; some involved only a portion thereof. The portion involving tax-free interest and the amount of fees and costs allocable under section 24 (a) (5), Internal Revenue Code, is hereinafter considered. 3 The expenses of this litigation were not such as should be capitalized, for it involved no recovery of capital as in Helvering v. Stormfeltz (C. C. A., 8th Cir.), 142 Fed. (2d) 982; and no defense of Freddie's title thereto as in Bowers v. Lumpkin (C. C. A., 4th Cir.), 140 Fed. (2d) 927. The litigation sought to strip him of this property, which his returns show was producing income to him. It requires no extension of the statutory language to say that Freddie's estate to the extent thereof was property held for the production of income. Nor do we think that we do violence to the spirit or literal meaning of the section when we hold that, in so far as his legal expenses were*48 attributable to protecting and retaining his estate, such expenditures were normal, ordinary, and necessary for the management, conservation, and maintenance of his property. Cf. Longhorn Portland Cement Co., 3 T.C. 310">3 T. C. 310.
Respondent has tentatively recognized that some of the litigation expenses may be deductible by arguing that the proof will not permit the lump sum fees to be allocated and, in the alternative, that if some allocation must be made on authority of Cohan v. Commissioner*361 (C. C. A., 2d Cir.), 39 Fed. (2d) 540, the amount should not exceed 5 percent of the total claimed. We are unable to agree with respondent's allocation. *49 We are persuaded by the evidence that at least 90 percent of the litigation expenses are deductible under section 23 (a)(1) or that portion of section 23 (a)(2) relating to expenses paid "for the production or collection of income," and that only 10 percent thereof is deductible under section 23 (a)(2), relating to expenses paid for "the management, conservation or maintenance of property held for the production of income." Of this 10 percent, it is our opinion that the amount thereof allocable to property held for the production of income which produces tax-free interest is one-tenth thereof, or 1 percent of the attorneys' fees and court costs for the taxable years 1939, 1940, and 1941. No allocation is necessary for 1938, as petitioner's return shows no tax-free interest for that taxable year.
We find no case with analogous facts. Estate of Edward W. Clark III, 2 T. C. 676, cited by respondent, involved attorney fees in opposing claims of alleged mismanagement of a trust, which is factually distinguishable from the present case. Here the fully developed facts show the litigation in which the fees were paid concerned ordinary and necessary expenses*50 (a) of the business, (b) for the production or collection of income, or (c) for the conservation of property held for the production of income, and not mismanagement of the estate. There, no part of the fee paid was "for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income." Gloria Laura Morgan Vanderbilt, 39 B. T. A. 43; affd., 107 Fed. (2d) 1023, on authority of Van Wart v. Commissioner, supra, involved attorney fees paid by the guardian of a minor's estate pursuant to order of court, but the minor was not engaged in business. Likewise, in Van Wart v. Commissioner, supra, the deduction of attorney fees by a minor was denied by the Supreme Court, which pointed out "The ward was not engaged in any business. So far as appears, the same is true of the guardian." Estate of Elizabeth Felt, 44 B. T. A. 593 (1941), denied the deduction by the conservator or guardian of the estate of an incompetent of the fees of conservator, guardian, attorney, accountant, court costs, etc., principally upon the ground*51 that the taxpayer through her guardian was not engaged in carrying on a trade or business. Cases involving legal or accounting expenditures for preparing tax returns, tax litigation, securing refunds of taxes and interest thereon, are not in point, as none of the attorney fees or court costs herein was paid for such purposes.
The second question is petitioners' right to deduct one-half of the compensation paid Edward Reed for services rendered to Freddie, *362 the other half thereof being conceded by taxpayer to be nondeductible. We are of the opinion that this record fairly shows that Reed's services were necessary to the performance by the minor of his contract. Reed was Freddie's chauffeur and at the same time his bodyguard. On account of his tender age it was necessary that Myllicent be with him at the studio and on location to look after him and coach him for his role. Neither Freddie nor Myllicent could drive, and a motor vehicle was necessary to transport him, and at times his trailer dressing room, to and from the studio and to and from location. We have held the cost of transportation in going to and returning from a taxpayer's place of business is not deductible*52 as a business expense. Frank H. Sullivan, 1 B. T. A. 93; E. C. O'Rear, 28 B. T. A. 698; affirmed on another point, 80 Fed. (2d) 473. But here more is involved than cost of transportation to and from taxpayer's place of business. Sometimes it was necessary for him to go out on location. The automobile and trailer dressing room were necessary and were used by Freddie in the performance of his contract and in furtherance of his profession. In order to use the automobile and the mobile dressing room he had to employ a chauffeur, who also doubled as a bodyguard, due to threats to kidnap Freddie. We have found as a fact that one-half of Reed's cash compensation in 1938, which was less than half of his total compensation, was ordinary and necessary expense incident to Freddie's profession. Our finding is in accordance with the evidence and is consistent with respondent's determination that one-half of the depreciation of the automobile is deductible as ordinary and necessary business expense. We hold, therefore, that, under the special conditions existing here, one-half of Reed's cash compensation*53 is deductible. Cf. Joe May, 39 B. T. A. 946, which involved transportation to and from movie studios; Harry F. Canelo, 41 B. T. A. 713, 733, which allowed, inter alia, 70 percent of the wages paid a chauffeur; and John J. Ide, 43 B. T. A. 799.
Respondent disallowed one-half of the depreciation claimed on Freddie's automobile for 1938 on the ground that only one-half of the use of the automobile was for business purposes. Petitioner offered no proof that he was entitled to any larger amount than that allowed, and on this issue respondent's determination is approved.
Decision will be entered under Rule 50.
Murdock, J., dissenting: Freddie was regularly engaged in business as a motion picture actor. A part of the attorneys' fees was deductible as ordinary and necessary expenses paid in carrying on that *363 business. Sec. 23 (a) (1). These would include the fees incident to the suits involving agents' commissions, the injunction suit, and the new contract, and reasonable fees incident to the appointment of a guardian to look after contracts and business affairs for*54 the minor. But I find no section of the statute under which the other fees would be deductible, even though Myllicent went through all of this litigation for the purpose of preserving Freddie's earnings for his benefit alone, and even though she formally relinquished her right as parent to those earnings.
These other attorneys' fees to which I refer are allowed in the report as deductions under section 23 (a) (2) as "non-trade" or "nonbusiness" expenses. If they were really expenses of collecting or producing income, they would relate directly to the business and would be deductible under (1), not (2). Cf. Ralph D. Hubbart, 4 T. C. 121. Four cases, Clark, Vanderbilt, Van Wart, and Felt, are distinguished in the prevailing opinion on the ground that no business was carried on in those cases, whereas Freddie had a business. Obviously, this distinction will not do for present purposes, since the deductions are being allowed as nonbusiness expenses and the existence of a business is not necessary.
These additional attorneys' fees were not "non-trade" or "nonbusiness" expenses within the meaning of section 23 (a) (2). In the first place, they*55 had nothing to do with producing or collecting the income from Freddie's acting. Freddie produced that income without any benefit from these suits and MGM paid it willingly, so that the suits served in no way to assist in producing or collecting it. None of the suits to which I refer had anything to do with the collection or production of the income.
Neither are the expenditures deductible as ordinary and necessary expenses paid or incurred in the management, conservation, or maintenance of property held for the production of income. This provision means, held for the production of taxable income. See section 24 (a) (5). Only an undisclosed part of Freddie's property was held for the production of taxable income. The most that can be said is that the protracted family litigation was, from Freddie's standpoint, for the conservation of all of Freddie's property for whatever purpose it was held so that it would be his property rather than the property of his natural parents. There is nothing in the statute allowing the deduction of expenditures of that kind. It has been held that expenditures of conservation in the sense of protecting property from adverse attack are not deductible. *56 Bowers v. Lumpkin, 140 Fed. (2d) 927; John W. Willmott, 2 T. C. 321. Not all of the attorneys' fees were deductible.
Footnotes
*. Employer, RKO Studios.↩
**. Employer, Columbia Pictures Corporation.↩
1. SEC. 121. NON-TRADE OR NON-BUSINESS DEDUCTIONS.
(a) Deductions for Expenses. -- Section 23 (a) (relating to deduction for expenses) is amended to read as follows:
"(a) Expenses. --
"(1) Trade or business expenses. --
(A) In General. -- All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered; traveling expenses (including the entire amount expended for meals and lodging) while away from home in the pursuit of a trade or business; and rentals or other payments required to be made as a condition to the continued use or possession, for purposes of the trade or business, of property to which the taxpayer has not taken or is not taking title or in which he has no equity.
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"(2) Non-Trade or Non-Business Expenses. -- In the case of an individual, all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income."↩
2. "The father and mother of a legitimate unmarried minor child are equally entitled to its custody, services and earnings. If either the father or mother be dead or unable or refuse to take the custody or has abandoned his or her family, the other is entitled to its custody, services and earnings."↩
3. SEC. 24. ITEMS NOT DEDUCTIBLE.
(a) General Rule. -- In computing net income no deduction shall in any case be allowed in respect of --
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(5) * * * or any amount otherwise allowable under section 23 (a) (2) which is allocable to interest * * * wholly exempt from the taxes imposed by this chapter;
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