*48 Decision will be entered 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.
*158 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*50 wife in the incompetency proceedings, suit for an accounting, and separation proceeding.
Some of the facts were stipulated.
FINDINGS OF FACT.
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 *159 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. *51 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 insanity 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*52 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 |
*160 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*53 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*54 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, *55 she acknowledged that petitioner was the owner of the stock of the Eugenics Publishing Co., and she agreed to consent to the *161 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*56 him in the proceeding to revoke the trust set up for his wife; and for their services in the separation action.
The following summary shows the amounts spent by the petitioner during the years 1947, 1948, and 1949 for legal fees, guardian fees, and medical fees:
| 1947 | |
| Amount | |
| Milton Mokotoff, Attorney | $ 250.00 |
| Howie & Robertson, Attorneys | 3,500.00 |
| Hays, St. John, Abramson & Schulman, Attorneys | 6,000.00 |
| Dr. A. A. Brill | 250.00 |
| Dr. S. C. Burchill | 100.00 |
| Dr. R. E. Frick | 350.00 |
| Dr. S. Feigin | 1,500.00 |
| Guardian | 3,500.00 |
| Total | $ 15,450.00 |
| 1948 | |
| Hays, St. John, Abramson & Schulman, Attorneys | $ 5,315.92 |
| Spence, Hotchkiss, Parker & Duryee, Attorneys | 10,000.00 |
| Total | $ 15,315.92 |
| 1949 | |
| Hays, St. John, Abramson & Schulman, Attorneys | $ 10,214.37 |
On the basis of such expenditures, petitioner claimed the following deductions on his returns for the years 1947, 1948, and 1949, all of such deductions being disallowed by respondent:
| Year | Amount |
| 1947 | $ 15,450.00 |
| 1948 | 15,000.00 |
| 1949 | 9,419.37 |
*162 OPINION.
Respondent has disallowed the deduction of the various expenses here in issue on the grounds that they all relate to petitioner's marital difficulties*57 and are, therefore, nondeductible personal expenses. We must decide whether they are, as petitioner contends, deductible under section 23 (a) (2) of the 1939 Code 1 as "ordinary and necessary expenses paid or incurred * * * for the management, conservation, or maintenance of property held for the production of income."
The issue is whether the principal reason for incurring the expenses was for the protection of income-producing property. Paul Draper, 26 T. C. 201 (1956). If that was the main reason for the expenditures, the fact that the threat to such property*58 came from an immediate member of the taxpayer's family does not preclude their deduction. Estate of Frederick Cecil Bartholomew, 4 T. C. 349 (1944).
Various expenses were incurred by petitioner in successfully defending himself against attempts by his wife, first, to have him declared insane, and then, after dropping that action, to have him declared an incompetent. He contends that his wife's primary motive in instituting these proceedings was to gain control of his property. Therefore, he argues, the legal fees, guardian fees, and medical expenses incurred in the defense of such proceedings are deductible under section 23 (a) (2). Certainly, petitioner had very substantial income-producing property to protect, for it produced dividends in excess of $ 50,000 during each of the years in issue. And when a taxpayer incurs expenses in resisting the attempt of members of his family to gain control of property held by him for the production of taxable income, it has been held that such expenses are deductible. Estate of Frederick Cecil Bartholomew, supra.However, respondent contends that though there was a desire on the*59 part of petitioner's wife to secure control of his property, her primary purpose must be regarded as merely harassment. Petitioner's wife undoubtedly had mixed motives in instituting these proceedings against him, and it would be difficult to determine what was her dominant motive. But the crucial factor is petitioner's aim in contesting these proceedings. The problem in the instant case is similar to that in Eugene E. Hinkle, 47 B. T. A. 670 (1942), where the taxpayer sought to obtain deductions for legal expenses which he had incurred in a successful attempt *163 to secure his release from a neuro-psychiatric institution to which he had been confined after having been declared incompetent. In that case we said that the taxpayer's purposes were "to obtain his freedom and gain control over his property." Here, they were to maintain his freedom and retain control over his property. As in that case, the taxpayer's foremost concern was with his personal liberty rather than the protection or control of his property and though the Hinkle case was decided before the enactment of section 23 (a) (2) we do not think, in view of the taxpayer's primary*60 purpose, that the result here should be different. The cases relied upon by petitioner are distinguishable, for, in each, it was clear that the taxpayer's dominant motive was to protect his business. Paul Draper, supra;Waldo Salt, 18 T. C. 182 (1952); Lindsay C. Howard, 16 T. C. 157 (1951), affd. 202 F. 2d 28 (C. A. 9, 1953).
Petitioner appears to present an alternative argument on brief, namely, that the various expenses incurred by him in the insanity and incompetency proceedings must be allowed as ordinary and necessary business expenses under section 23 (a) (1) (A). He argues that an adjudication that he was insane or incompetent would have had an adverse effect on his reputation as a writer and on the sale of his recently published book on Thomas Paine, published in January 1947, and, thus, amounts spent by him in resisting such a result are to be treated as deductible business expenses. This argument must be denied because petitioner limited the issue to section 23 (a) (2), both in his petition and at the hearing, and, in addition, petitioner has not proved*61 that the primary reason for incurring these expenses was to protect his business rather than to preserve his personal liberty. Cf. Paul Draper, supra.
Next, petitioner contends that he is entitled to deduct the legal fees which he paid in 1947 in connection with the revocation of an inter vivos trust which he had established for the benefit of his wife and others in 1931, reserving the right of revocation. In March 1947 he delivered an instrument to the trustee revoking the trust. At that time, the incompetency proceeding against him was still pending and it appears that questions arose as to his mental capacity to revoke the trust. The trustee filed an accounting and brought an action to have its account judicially settled. The court directed that the principal and income of the trust, aggregating over $ 200,000, be paid to petitioner. Under section 166 of the 1939 Code, 2 the income from *164 this revocable trust was taxable to petitioner although he was not the beneficiary. In our view, the petitioner's action in revesting in himself the title to both the income and the corpus was motivated principally, if not solely, by the difficulty*62 he was having with his wife. This was a personal or family purpose and the expenses incident to its accomplishment were personal. Furthermore, these expenses were concerned with securing title rather than with the management, conservation, or maintenance of property held for the production of income. Such expenses are of either a personal or a capital nature and as such are not deductible.
We also point out that the property of which the taxpayer was attempting*63 to regain control was not at the time held for the production of income for himself, despite the fact it was taxable to him. In this respect we have held that expenses incurred in connection with such property are not deductible. In Frederic A. Seidler, 18 T. C. 256 (1952), we said:
Petitioner's final contention is that the expenditures were ordinary and necessary nontrade or nonbusiness expenses incurred for the management, conservation or maintenance of property held for the production of income under section 23 (a) (2), I. R. C. The statute, however, contemplates situations where the property is so held for the production of income for the taxpayer himself. Whatever income accrued in this case was payable, not to the petitioner but to the life beneficiary, to the extent of $ 75 per week, with the balance, if any, being added to the trust corpus. Since the property interest was not held by petitioner for the production of income for himself, petitioner must be denied deduction of the expenses incurred.
The third issue relates to the legal expenses which petitioner incurred in defending a suit for an accounting brought against him by his wife. *64 In this action, petitioner's wife sought to establish that she was the joint owner, with petitioner, of various securities valued in excess of $ 450,000. She alleged that petitioner had removed such securities from a joint safe-deposit box and had also taken from this box United States Government bonds valued at $ 100,000 which she claimed were her sole property. She further claimed that she was the owner of 50 per cent of the stock of the Eugenics Publishing Co. and that petitioner had appropriated this stock and the dividends thereon to himself. This accounting action was discontinued when the parties resolved their problems in a settlement which was incorporated in a judgment of separation, dated November 15, 1948. Petitioner's primary purpose in defending this action was to protect his title to the various stocks and securities at issue. It is firmly established that expenses incurred in protecting title to property are not deductible but are capital in nature. Bowers v. Lumpkin, 140 F. 2d 927 (C. A. 4, 1944); Agnes Pyne Coke, 17 T. C. 403 (1951), affd. 201 F. 2d 742 (C. A. 5, 1953). *65 Section 23 (a) (2) does not, as petitioner contends, permit the deduction of such expenses as nontrade or nonbusiness *165 expenses. The situation in the accounting action defended by petitioner appears to be directly the opposite of that in Rassenfoss v. Commissioner, 158 F. 2d 764 (C. A. 7, 1946), cited by petitioner, where the court allowed the expenses to be deducted because, in that case, "the main and primary purpose of the suit * * * was for an accounting and any question of title was merely incidental thereto." See Sergievsky v. McNamara, 135 F. Supp. 233 (S. D., N. Y., 1955).
Insofar as this accounting action related to dividends which petitioner allegedly had appropriated to himself, rather than to title to the securities themselves, petitioner might have been entitled to a deduction under section 23 (a) (2) for legal expenses incurred for the "production or collection of income." See William A. Falls, 7 T. C. 66 (1946). However, there is no basis in this record for making an allocation of that portion of the legal expenses attributable to the dividends, and, in that*66 situation, the rule of Cohan v. Commissioner, 39 F. 2d 540, is inapplicable. Charles H. Hyslope, 21 T. C. 131 (1953).
The last two issues involve the question of whether petitioner is entitled to deduct, under section 23 (a) (2), the various legal expenses which he and his wife incurred in connection with their separation proceedings. Petitioner and his wife were already separated at the time the action was instituted, and his attorneys' efforts were directed principally toward the form and amount of the alimony or maintenance provisions to be made for his wife and the adjustment of their respective property rights. Petitioner contends that, accordingly, his attorneys' fees are a deductible expense under section 23 (a) (2). We have held that legal expenses incurred by a husband in resisting financial demands made by his wife incident to divorce proceedings are nondeductible personal expenses rather than expenses paid or incurred for the management, conservation, or maintenance of property held for the production of income. Arthur B. Baer, 16 T. C. 1418 (1951), revd. 196 F. 2d 646*67 (C. A. 8, 1952). See Thorne Donnelley, 16 T. C. 1196 (1951); Lindsay C. Howard, supra.This position has been adhered to in F. C. Bowers, 25 T. C. 452 (1955), on appeal C. A. 6 (Feb. 17, 1956), and with due deference to the contrary opinion expressed in George G. McMurtry, 132 Ct. Cl. 418, 132 F. Supp. 114 (1955), we see no reason to depart from it now.
Petitioner also contends that he should be permitted to deduct the $ 10,000 legal fee incurred by his wife in connection with the incompetency proceedings, suit for an accounting, and separation proceeding, since, pursuant to the final settlement of such litigation, he was required to pay such expenses on her behalf. Petitioner cites Elsie B. Gale, 13 T. C. 661 (1949), affd. 191 F. 2d 79 (C. A. 2, 1951); and Barbara B. LeMond, 13 T. C. 670 (1949), but neither of these cases is in point since they relate to a wife's right to deduct legal expenses which she incurred in a successful effort to secure increased*68 additions *166 of taxable income. Accordingly, respondent's disallowance of such deduction is sustained.
Decision will be entered for the respondent.
Rice, J., dissenting: I disagree with the disallowance of the deduction of the legal expenses incurred by petitioner in connection with the revocation of the inter vivos trust of which he was the grantor. These were not personal expenditures even though petitioner's marital difficulties may have induced him to revoke the trust. The legal expenses which he incurred were not directly caused by the contest with his wife but, rather, by the trustee's doubt as to his ability to revoke the trust at that particular time, due to his possible mental incompetency. There was no question as to the revocability of this trust or as to petitioner's right to revest title in the property himself. This legal action was not the result of a dispute as to title of property, as the majority opinion would imply, but resulted from the trustee's concern as to petitioner's mental competence at the time of the revocation. The doctrine of the cases cited by the majority is somewhat harsh and I would not extend it to situations *69 that can be distinguished.
Mulroney, J., dissenting: I agree with the dissenting opinion of Judge Rice and I also disagree with the disallowance of expenses incurred by petitioner in successfully defending himself against attempts by his wife to have him declared an incompetent. The majority opinion states the rule of Estate of Frederick Cecil Bartholomew, 4 T. C. 349, is that a taxpayer's expenses incurred "in resisting the attempt of members of his family to gain control of property held by him for the production of taxable income," are deductible under section 23 (a) (2). It seems to me the application of this rule in the instant case would render the expenses incurred by the taxpayer in defending the incompetency action, deductible. In the wife's suit she prayed that she or a banking institution, or both, take over property which was admittedly held by him for the production of income.
I think Eugene E. Hinkle, 47 B. T. A. 670, cited in the majority opinion can be distinguished. There the property was not "held" by the taxpayer "for the production of income." It was actually held by a conservator and the suit*70 was by the taxpayer to gain his freedom and the restoration of property order was, as the opinion points out, merely an incidental order that "naturally would follow from the court's determination that he was competent to handle his own affairs." It is also true the Hinkle case was decided under the rule of Higgins v. Commissioner, 312 U.S. 212, before section 23 (a) (2) was adopted.
Footnotes
1. SEC. 23. DEDUCTIONS FROM GROSS INCOME.
In computing net income there shall be allowed as deductions:
(a) Expenses. --
* * * *
(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. SEC. 166. REVOCABLE TRUSTS.
Where at any time the power to revest in the grantor title to any part of the corpus of the trust is vested --
(1) in the grantor, either alone or in conjunction with any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, or
(2) in any person not having a substantial adverse interest in the disposition of such part of the corpus or the income therefrom, then the income of such part of the trust shall be included in computing the net income of the grantor.↩