*144 Decision will be entered for the petitioners.
The parents of the petitioner, Willy Zietz, were citizens of Germany. Hugo Zietz, the father, died testate in Germany in 1927. German law governs the construction of his will. Hugo in his will appointed his widow, Hedwig, the provisional heir of his estate for life and his sons the final or reversionary heirs to succeed their mother. Hedwig died intestate, a resident of Switzerland, in 1945. Willy Zietz was the sole survivor, his brother, Hugo, Jr., having died in 1934. Although under the will, Hedwig had the power to invade the principal of the estate for the use of herself and sons, such power was limited by law to protect the interests of the final heirs and she could not dispose of principal by gift, bequest, devise, or appointment. Under German law, she held the estate property in her own name during her life. The will of Hugo created legal relationships under German law substantially similar to those known under general law of the United States as a life estate with power to invade corpus in the widow, and a remainder interest in the sons. Upon Hedwig's death, all of the remaining property in Hugo's estate devolved immediately*145 upon Willy by operation of law, passing to him from his father, not from his mother. Estate of Hedwig Zietz, 34 T.C. 351">34 T.C. 351. Under the father's will, the two sons were to receive the remaining estate after their mother's death in equal shares and their shares were to go eventually to their issue in their place. Willy's brother died without issue. Therefore, the whole of the remaining estate of the father devolved in possession upon Willy upon his mother's death. After Hedwig's death the divorced wife of Hugo, Jr., instituted proceedings, as the alleged widow of Hugo, Jr., to attach income-producing securities and funds which had devolved upon Willy as the sole heir of his father. She claimed to be the successor to Hugo, Jr., under the will of the father. Also, Swiss tax officials included in Hedwig's own estate the value of the remaining estate of her deceased husband and assessed an inheritance tax on that basis. Petitioner employed lawyers to obtain dismissal of the divorced wife's suits to attach his property, and to represent him before tax officials in proving that the remainder of his father's estate had devolved upon him under his father's*146 will and therefore was not includible in his mother's estate, and he paid their fees in the taxable year. Held, that all of the legal fees were ordinary and necessary expenses paid for the conservation of petitioner's income-producing property and are deductible under section 23(a)(2), 1939 Code.
*369 The Commissioner determined a deficiency in income tax for the taxable year 1948 in the amount of $ 4,007.78. The question is whether legal fees totaling $ 9,977 paid to several attorneys are deductible nonbusiness expenses under section 23(a)(2), 1939 Code.
*370 FINDINGS OF FACT.
The petitioners are residents of New York. They filed a joint return with the collector of internal revenue for the second district of New York. Since the issue relates to the petitioner Willy Zietz, he is referred to hereinafter as the petitioner.
Willy Zietz is the son of Hugo and Hedwig Zietz, and the brother of Hugo Zietz, Jr. His father, mother, and brother died prior to 1948 at the places and on the dates shown below:
| Relationship | Date of death and place |
| Hugo Zietz, father | Sept 3, 1927, Dresden, Germany |
| Hugo Zietz, Jr., brother | Feb. 7, 1934, Vienna, Austria |
| Hedwig Zietz, mother | Nov. 22, 1945, Meilen, Switzerland |
*147 Petitioner's parents were nationals and residents of Dresden, Germany. They were married in 1898. They had two sons, Hugo, Jr., and Willy. Petitioner's father owned and operated a cigarette-manufacturing business, the Oriental Tobacco and Cigarette Factory Yenidze. The business was not incorporated. Prior to his death, petitioner's father sold his business for about $ 4 million. At the time of his death, practically all of his assets had been converted into cash. The total value was in excess of $ 4 million.
Under the German law, all rights in property pass over at the same time to the heirs, and there are no interests such as those of trustees, executors, and administrators, or trust beneficiaries.
In Hugo's will, Hugo named his widow a "first" or "provisional heir" (Vorerbin), and his sons, "reversionary" or "final" heirs (Nacherben). Hedwig, as the provisional heir, was given the right to use both the income and principal during her lifetime but she was prohibited by law from disposing of any estate property by gift, devise, bequest, or appointment. Under German law a provisional heir cannot defeat the interests of a final heir by disposing of estate corpus. As*148 the first heir, Hedwig did not have a fee simple or absolute title to her deceased husband's estate.
In Estate of Hedwig Zietz, 34 T.C. 351">34 T.C. 351, this Court held inter alia as follows: (1) That the interest of Hedwig Zietz in her deceased husband's estate, under his will and German law, was substantially similar to a life estate with a power of consumption and invasion, and that such interest was not a fee simple interest. (2) That the interests of the sons were substantially the same as remainder interests. (3) That Hedwig's interest in the estate (befreiter Vorerbschaft) was such that under German law she was permitted to hold the estate assets in her own name during her life for the final heirs. (4) That at the time of Hedwig's death, she held assets of her own having a value of about $ 37,500, plus personal *371 belongings and household effects having a value of about $ 35,000. (5) That the remaining estate of Hugo Zietz, deceased, amounted to about $ 1,000,000 at the time of Hedwig's death. (6) That the property remaining in the estate of Hugo upon the death of Hedwig in 1945, passed immediately to Willy Zietz, the sole surviving heir*149 of Hugo Zietz, by operation of the provisions of the will of Hugo, and that Willy did not inherit such property from Hedwig.
The remaining estate of Hugo at the time of Hedwig's death consisted of stocks, bonds, and bank accounts. Some of such securities in the amount of $ 697,504 were held by branches of Swiss banks in New York City at the time of the death of Hedwig in custodian accounts in the names of nominees or in Hedwig's name. Securities also were held by banks in Switzerland in custodian accounts in Hedwig's name, as well as cash. Many of the custodian and depositary accounts remained in Hedwig's name after her death for personal reasons of convenience determined by Willy Zietz. Nevertheless, under the controlling German law, immediately upon the death of Hedwig, possession and absolute ownership of all of the remaining property of the Hugo Zietz estate, including all accounts and all property in Hedwig's name, passed to Willy. Furthermore, upon the death of Hedwig, intestate, the separate property of Hedwig, bank accounts and other property, became the property of Willy Zietz, as her sole heir.
The legal fees paid in 1948, which are involved here, were paid to six lawyers*150 in Zurich, Switzerland, and in New York City, New York, for legal services relating in general to two classes of legal matters, as follows:
Upon the death of Hedwig, taxing authorities in both Zurich and New York City claimed that she had acquired the absolute title to all property which passed under the will of her deceased husband. As the first heir, according to German law, she held all of such property in her name. Willy engaged counsel to present proof and legal argument, in opposition, to show that most of the property standing in the name of Hedwig was the remainder of the Hugo Zietz estate, that Hedwig had never had the absolute title, and that the property had passed to him from his father, not his mother, under his father's will. The lawyers employed in connection with this controversy were Martin Domke in New York City, who was paid $ 2,500, and Paul Herzog in Zurich, who received $ 1,147. The total amount of these fees is $ 3,647.
The second class of legal matters involved a series of legal services required in preventing the attachment of Willy's property and bank accounts, which he had inherited from his father, by a European woman, Madeleine Halmos, the divorced*151 wife of Hugo Zietz, *372 Jr., deceased. She was not his widow and her claims were without merit. For their services in connection with the Halmos suits for attachment H. Frei-Zamboni, a Swiss lawyer, was paid $ 3,423; Alois Ritter, a lawyer in the city of Vaduz in the country of Liechtenstein, received $ 101; Max G. Braunschweig, a lawyer in Zurich, received $ 350; and a New York law firm, Wagner, Quillinan, Wagner & Tennant, received $ 2,456. This group of fees amounts to $ 6,330.
Claims of Tax Authorities.
Following the death of Hedwig on November 22, 1945, there were filed with the collector of internal revenue for the second district of New York by New York branches of three Swiss banks, the Swiss American Corporation, the Union Bank of Switzerland, and the Swiss Bank corporation, preliminary estate tax notices on Form 705, reporting stocks and bonds held by them in the name of or for the benefit of Hedwig Zietz, deceased. None of the above corporations were executors or administrators. The law firm of Katz & Sommerich was employed by Willy Zietz to advise the Internal Revenue Service that the preliminary estate tax notices had been filed by mistake and should not*152 have been filed because the assets reported therein were not owned by Hedwig but emanated from the estate of Hugo Zietz, deceased, in which Hedwig had only what corresponded to a life interest, and that the true owner thereof was Willy Zietz who had become the owner forthwith under his father's will and by operation of German law immediately following the death of Hedwig Zietz. The law firm was requested by the Internal Revenue Service to produce an affidavit on German law by an expert in support of the contentions advanced. Martin Domke was retained. He prepared such memorandum in the form of an affidavit sworn to by him on October 18, 1947, which was used by the attorneys representing Willy Zietz in resisting a determination of the Commissioner of Internal Revenue that the remaining property in Hugo's estate, which had passed to Willy, should be included in the estate of Hedwig for estate tax. For his services Domke received $ 2,500 drawn on a personal bank account of petitioner at the Chase National Bank in New York City.
Petitioner's mother was a resident of Meilen in the Canton of Zurich, Switzerland, at the time of her death. The tax department of Zurich, believing that*153 all property, bank, and custodian accounts in the name of Hedwig, or in the names of her nominees, were her property at the time of her death, included such properties in an inventory and assessed an inheritance tax. Willy, the only person who could represent his mother's intestate estate, did not object to the assessment of an estate tax based upon the value of such property *373 as Hedwig owned at the time of her death, but he attempted to have excluded from her estate the remainder of the property in his father's estate which he contended had passed to him under his father's will. He alleged that the inclusion of that property in the inventory of Hedwig's own property was incorrect. He contended that his mother's own property was a great deal less than had been determined. He proceeded to prove that his mother had had only the interest of a provisional heir and that he was the final heir.
Petitioner engaged Paul Herzog in Zurich to present to the Zurich tax department legal argument and proof with respect to the provisions of his father's will, the construction to be given to it under German law, and about the properties which constituted the remainder of the father's *154 estate. Herzog obtained a decision in petitioner's favor. He received $ 1,147.
The last will of Hugo Zietz was executed in Dresden, Germany, on May 8, 1925. His estate was probated in a Dresden court. At the time of his death, Hugo had a large amount of cash deposited in 23 banks, all but 2 of which were in Germany, Switzerland, and The Netherlands. Two were in Buenos Aires. Because he suffered from palsy and could not easily sign his name to checks, Hugo desired having bank accounts in the joint names of himself and his wife so that his wife could sign checks without resort to the use of powers of attorney on which there were stamp taxes. Under German law, Hedwig was not a joint tenant with a right of survivorship, and she did not own the bank accounts upon the death of Hugo. Rather, they were his sole property and became part of his estate. No agreement creating a joint tenancy in the bank accounts was ever executed or registered. According to an inventory prepared at the time of Hugo's death, his estate, having a value in excess of $ 4 million, included the joint bank accounts. German stamp taxes and court fees were fixed and paid on the basis of the above value of his*155 estate.
At the time of Hugo's death, Hedwig's only separate property, apart from personal belongings, was a piece of real estate in Berlin, a gift from her father before her marriage, which produced very little income. The house was bombed and destroyed during the war in 1943.
Hedwig and her two sons went to Switzerland in 1927 or 1928, where Hedwig established her domicile and home. With her went Hans Seiler, formerly her husband's secretary and accountant. Seiler became Hedwig's secretary and accountant. He is still living. He kept accounting records of the principal, income, and expenditures of Hugo's estate, and of the receipts and disbursements of Hedwig and her family. Her expenditures for herself and for the maintenance of her two sons was very large. In 1932 she sold stocks *374 which were part of the estate of Hugo at a loss of in excess of $ 400,000. As of Hedwig's death, the remainder of the Hugo Zietz estate was about $ 1 million.
The Zurich tax department, listing all of the property it could locate in Hedwig's name or under her control in Switzerland valued such property at about $ 844,450.
Upon the conclusion of a hearing, the Zurich tax tribunal entered*156 a written decree, from which an appeal could be but was not taken, in which the following conclusions were reached with respect to facts and German law: It was concluded that under German law governing the construction of the will of Hugo Zietz, Hedwig had been only the first or provisional heir (Vorerbin), and that upon her death the remaining property in Hugo's estate immediately passed in possession to Willy Zietz (Nacherbe), the final heir; and that, as a matter of law, the joint bank accounts which had been established before the death of Hugo constituted part of his estate and remained part of his estate even though after his death the accounts had been transferred into Hedwig's name. That was the correct procedure during the life of the first heir, and it did not bring about or represent any enlargement of Hedwig's legal interest in any property in her deceased husband's estate. Hedwig's interest was substantially like a life interest with a power of invasion. It was held further that on the basis of the records and proof presented, the assets existing at the time of the death of Hedwig, for the most part, constituted the remainder of the estate of Hugo Zietz in *157 which Hedwig's interest ended upon her death, and, therefore, were not includible in her estate and were not subject to the inheritance tax of Zurich. It was held, further, that the only property which was Hedwig's "own property" at the time of her death had a value of about 150,000 Swiss francs, $ 37,500, plus personal property, jewelry, and household effects, having a value of 149,423.60 francs, $ 35,000.
Under the above ruling and construing of Hugo's will, the securities located in New York City were not Hedwig's own property, were not part of her estate, and did not pass from her to the petitioner.
Under the above ruling, most of the inheritance tax which had been assessed against the estate of Hedwig Zietz was set aside.
Law Suits of Madeleine Halmos.
Hugo Zietz, Jr., was married to Madeleine Halmos, a Hungarian national, on January 9, 1926. Hugo and Madeleine were divorced by a decree of the District Court of Berlin, Germany, on May 6, 1927. No children were born of the marriage. The divorce proceeding was instituted by Madeleine. After the entry of the decree *375 of divorce, Madeleine received, on May 12, 1927, from the Zietz family 350,000 reichsmarks for the*158 release of all of her claims against Hugo, Jr., and the Zietz family. In the release Madeleine acknowledged complete satisfaction of all of her claims.
Hugo, Jr., died intestate in 1934. Beginning in 1936, Madeleine took the position that her divorce was illegal, that she was in fact the widow of Hugo, Jr., and that therefore she was his heir. She instituted an action in 1936 in a Swiss court against Hedwig alleging that she was entitled to share in the estate of Hugo, Jr., including his share in his father's estate. The suit was dismissed for lack of merit. She prosecuted appeals, the last of which was dismissed March 18, 1942. The Swiss courts held that Madeleine's divorce was valid, had legally dissolved her marriage to Hugo, Jr., that she was not his widow and could not share in his estate, and that, in any event, since Hugo, Jr., had predeceased his mother, there was not a remainder interest in the estate of his father to which Halmos could succeed. The courts held that Madeleine's lawsuits were malicious, without merit, and an abuse of process.
None of the legal fees involved here were for legal services relating to the above litigation.
Madeleine persisted in her endeavors*159 to establish claims to the alleged estate of Hugo, Jr. In 1946, after the death of Hedwig, she took the extraordinary step of petitioning the Superior Court in the Principality of Liechtenstein to appoint an estate manager with respect to the alleged estate of Hugo, Jr., who had become naturalized but had never resided in that country. Alois Vogt was appointed such estate manager. Vogt proceeded to file an application on March 6, 1946, in the District Court of Meilen, Switzerland, in the name of a court in Liechtenstein, to have the court in Meilen ascertain the estate of Hugo, Jr., to separate such estate from the estate of Hedwig Zietz, and to safeguard the estate of Hugo, Jr., by placing it at Vogt's disposal until "the administration" of the alleged estate in Vaduz, Liechtenstein, could be completed. Vogt then petitioned the Meilen court to attach all of the assets in the estate of Hedwig Zietz, insofar as they could be located within Switzerland, so that any assets of Hugo, Jr., which had become intermingled therewith could be determined and separated.
Petitioner retained a Swiss lawyer, H. Frei-Zamboni, to appear in all of the litigation instituted by Vogt in Swiss courts, *160 and he retained Alois Ritter, an attorney in Vaduz, Liechtenstein, to watch for and advise him about any other actions which might be taken by authorities in Liechtenstein relating to the alleged estate of his deceased brother.
On April 29, 1947, the District Court of Meilen dismissed Vogt's petition as being without merit. Among several reasons for dismissing *376 the petition, the court stated that the alleged "vested inheritance" of Hugo, Jr., consisting of a bank account in the Swiss Bank Corporation, did not in fact or in law exist because he had predeceased his mother.
While the petition of Vogt was pending in the District Court of Meilen, Vogt obtained a temporary order of attachment on February 11, 1947, from the District Court of Zurich in a proceeding against Willy Zietz, individually, and the parties were cited to appear at a hearing on February 18, 1947. The legal representative of Willy appeared and made application for the immediate vacatur of the warrant of attachment and for the imposition on Vogt of security to protect Willy from the imposition of any loss resulting from any fluctuation in the value of the income-producing securities attached.
On February 28, *161 1947, the Zurich court entered an order directing Vogt to post security within 4 days in the amount of 400,000 francs, or $ 100,000. In its order, the court stated that the Swiss Bank Corporation, the Credit Suisse, and the Union Bank of Switzerland, where securities which had been attached were deposited, had advised the court that considerable losses might be sustained by Willy if sales of securities were prevented because of the attachment. One of the banks advised the court that at that time it was necessary for Willy to invest in commodities because of the unfavorable status of exchange quotations of American securities and that he would sustain losses if the attachment prohibited such purchases. Therefore, the court directed Vogt to post security to protect Willy against losses.
Vogt failed to post security and the temporary order of attachment was vacated. Thereupon, Vogt filed an appeal. Willy filed an answer requesting dismissal. In this petition, Willy was named the defendant. The appellate court entered an order on April 8, 1947, confirming the lower court's order to Vogt to post security, and dismissed Vogt's appeal.
In the appellate court's order, the court noted*162 that up to the time of her death, Hedwig's assets had included assets of the estate of Hugo Zietz, Sr., which she had held as the first heir (Vorerbin); that since her death, those assets had been held on deposit in various banks in Zurich; that the heir was Willy; that Vogt's objectives were to prevent Willy from appropriating and removing the alleged share of inheritance of Hugo, Jr. (Nacherbe); and that the property in the estate of Hedwig Zietz consisted chiefly of cash and securities. The court stated in its order, further, that Hugo, Jr., had never resided in Liechtenstein, did not have any property there upon his death, and that it was strange that the Principality of Liechtenstein*377 had been inactive for 13 years since his death with respect to seeking to administer his alleged estate. The court said that these facts raised the suspicion that Vogt, appointed to administer an estate which did not exist in Liechtenstein, had taken up the matter only at the instigation of Madeleine Halmos, perhaps for monetary reasons, after she had been unsuccessful in obtaining any recognition of her alleged right of inheritance of the alleged estate of Hugo, Jr., in the previously*163 instituted suit against Hedwig. The court said that the claims of the divorced wife of Hugo, Jr., had a "very insecure basis," and also noted that Vogt did not have a judgment against Willy Zietz, the heir, or any order for the specific performance of such kind of judgment. The court pointed out that the securities which Vogt had had attached were subject to fluctuations of the stock market and that considerable damages might be sustained as a result of the attachment.
Apart from Vogt's obtaining a temporary attachment order, he continued with appeals on the basis of the petition first filed to obtain the aid of Swiss courts in locating and separating the alleged estate of Hugo, Jr. The last one of those appeals was dismissed on October 21, 1947, as without merit.
Willy paid Frei-Zamboni $ 3,423 for his services in opposing the series of actions by Vogt. Payment was made in 1948 from bank accounts in Swiss banks which formerly were in the name of Hedwig. He paid Ritter $ 101 through the Union Bank of Switzerland on February 19, 1948. These payments totaled $ 3,524.
Vogt did not limit his activities to his petitions in Swiss courts. In 1947, he arranged for the filing of an *164 application in the New York County Surrogate's Court, by a New York lawyer, William Fitz Gibbon, for ancillary letters of administration of the alleged estate of Hugo, Jr. Fitz Gibbon filed papers purporting to show that the Principality of Liechtenstein had jurisdiction over the alleged estate of Hugo, Jr. On January 13, 1948, the Surrogate's Court issued the ancillary letters of administration, and later denied a motion of petitioner to vacate the letters.
In New York branches of Swiss banks there were securities, custodian accounts, and bank accounts in the name of the estate of Hedwig Zietz. Willy Zietz was obliged to petition the Surrogate's Court in New York County to revoke the ancillary letters of administration which had been issued to Fitz Gibbon, and he filed such petition on February 10, 1948, and an amended petition on October 7, 1948, in which he alleged that the letters were obtained by false suggestions of material facts, such as that Liechtenstein had jurisdiction with respect to the alleged estate of Hugo Zietz, Jr., and that Vogt was acting on behalf of the Principality of Liechtenstein, *378 whereas, in fact, Vogt was acting for Madeleine Halmos, and the*165 Principality of Liechtenstein had no jurisdiction, which facts had been determined by judgments of Swiss courts. Willy claimed that Fitz Gibbon, Vogt, and Madeleine Halmos were estopped by those judgments from contending otherwise.
Thereafter a motion was made, and, later, renewed, by Willy for a summary judgment and a decree vacating the ancillary letters theretofore issued to Fitz Gibbon on the ground of res judicata. In connection with these motions, Max G. Braunschweig, an attorney in Zurich, was retained by Willy. Braunschweig executed an affidavit in which he stated that it was his opinion that under Swiss law the judgments entered by the Swiss courts estopped Halmos, Vogt, and Fitz Gibbon from contending that the Principality of Liechtenstein had any jurisdiction whatever with respect to the alleged estate of Hugo Zietz, Jr. The motions were denied.
For his services in connection with the foregoing, there was paid to Braunschweig the sum of $ 350 through the Credit Suisse of Zurich on August 3, 1948, in accordance with directions given to the bank by Willy, personally, by letter dated July 25, 1948.
From January 1, 1947, to January 15, 1948, the New York law firm, Wagner*166 & Tennant, rendered legal services to Willy at his request, advising him about his rights under New York law in view of the litigation in Switzerland and the decisions of the Swiss court. The fees and charges of the Wagner law firm amounted to $ 2,800, plus costs, of which petitioner paid $ 2,456 on March 30, 1948. Petitioner paid the total amount of $ 2,806 for legal fees as a result of Vogt's getting Fitz Gibbon to obtain ancillary letters in New York City.
During 1948, the petitioner paid the total sum of $ 6,330 for lawyers' fees for services which were required because of legal proceedings which Halmos had instituted in Switzerland and New York. The services were rendered to petitioner and he was the owner of the bank accounts from which all of the fees were paid. Some of the fees were paid from a bank account in his name with the Chase National Bank.
Substantially all of the assets derived from the estate of petitioner's father were held in bank accounts and security custodian accounts in the name of "Estate of Hedwig Zietz," except for cash transfers which were made to petitioner's account with the Chase Bank in 1947 and 1948 amounting to about $ 56,000. Assets remained*167 in the accounts in the name of "Estate of Hedwig Zietz" until after 1948.
The petitioner's interest in the estate of his father was substantially the same as a remainder interest under our general law, and the interest of his mother was substantially the same as a life estate *379 with a power of invasion. Upon the death of petitioner's mother in 1945, the remainder of the assets in the Hugo Zietz estate passed immediately to petitioner under his father's will, and did not pass to him from his mother. At the time of the death of Hedwig, the value of the remaining assets was about $ 1 million. No estate administration was required in order for petitioner to become the owner of the remaining assets of the Hugo Zietz estate upon the death of Hedwig.
Petitioner was the sole heir at law of the separate estate of his mother upon her death. The value of her own estate was determined by the Zurich tax department to be about $ 37,500, plus the value of her jewelry and household effects which was about $ 35,000. Hedwig's own assets were held in accounts in banks in the name "Estate of Hedwig Zietz."
There was no need to separate and segregate Hedwig's own assets from the assets which*168 constituted the remainder of the Hugo Zietz estate, and there was no practical need to change the names of the several bank accounts into the name of Willy Zietz. He owned and had complete dominion and control in 1948 over all of the bank accounts standing in the name "Estate of Hedwig Zietz," and, therefore, over all of the contents thereof which were derived both from the Hugo Zietz estate and from Hedwig's own individual estate. For all practical purposes, petitioner had possession of all of the assets. All of such assets were either cash or income-producing securities.
During 1948, petitioner paid legal fees in the amounts of $ 6,330 and $ 3,647, a total of $ 9,977, for the conservation and maintenance of property held for the production of income.
OPINION.
The chief question is whether legal fees in the total amount of $ 9,977 constitute nonbusiness expenses paid for conserving or maintaining property held for the production of income within the scope of section 23(a)(2) of the 1939 Code, 1 or are capital expenses. Although the problems which required the employment of attorneys fall roughly into two classes, the question with respect to each class is essentially the same. *169
*380 In Estate of Hedwig Zietz, 34 T.C. 351">34 T.C. 351, in connection with a determination of the Commissioner that securities having a value of $ 697,504.29, located in New York City, were includible in the estate of Hedwig Zietz, it was held that under German law, the will of Hugo Zietz gave Hedwig an interest in his estate which was substantially similar to that of a life estate with a power of invasion, and that Willy's interest in the estate is comparable to a remainder interest. It was concluded, therefore, that upon the death of Hedwig, the remaining property*170 in the estate passed to Willy under his father's will, and did not pass from his mother to him. It was held further that under German law joint bank accounts created by Hugo were not joint tenancy accounts in which Hugo's wife owned an interest but belonged to Hugo and became part of his estate. It was also held that under German law, in view of the nature of Hedwig's interest under her husband's will, it was proper for her to hold securities, bank accounts, and other property in her own name, and that such procedure did not enlarge her interest from what is comparable to a life estate to a fee simple estate. It was concluded that upon Hedwig's death the remainder of the estate of Hugo immediately became Willy's property, and that it was of no legal consequence that for his own reasons and convenience he continued to hold some of the Hugo Zietz estate property under the designation "Estate of Hedwig Zietz" or "Hedwig Zietz."
One of the respondent's reasons for taking the view that some of the legal fees in question are not deductible is that they were paid out of bank accounts in Switzerland in the name "Estate of Hedwig Zietz." The evidence shows that regardless of such designation*171 the Swiss bank accounts were the property of the petitioner. He has established that he was the owner of the funds with which he paid the fees, and that he was not paying them for or on account of the estate of Hedwig. Respondent's contentions to the contrary are incorrect in view of petitioner's proof about applicable German law and the correct construction of the will of Hugo Zietz under German law.
The chief issue for decision is whether all or some of the fees in dispute were ordinary and necessary expenses paid for the management, conservation, or maintenance of Willy's property held for the production of income within section 23(a)(2).
We shall consider first the legal fees totaling $ 6,330 which were paid to lawyers who represented Willy Zietz in connection with the litigation instituted on behalf of Madeleine Halmos.
The circumstances and facts in this case are unique. There appears to be no case which is clearly in point. The petitioner relies upon principles stated in Bingham's Trust v. Commissioner, 325 U.S. 365">325 U.S. 365; Allen v. Selig, 200 F. 2d 487, affirming 104 F. Supp. 390">104 F. Supp. 390;*172 and Northern Trust Co. v. Campbell, 211 F. 2d 251.
*381 Respondent relies on the defense-of-title rule under which expenditures in defense of title of property are capital items to be added to the cost of property. James C. Coughlin, 3 T.C. 420">3 T.C. 420, 423; Porter Royalty Pool, Inc., 7 T.C. 685">7 T.C. 685, affd. 165 F. 2d 933, certiorari denied 334 U.S. 833">334 U.S. 833; Levitt & Sons v. Nunan, 142 F. 2d 795; Bowers v. Lumpkin, 140 F.2d 927">140 F. 2d 927, certiorari denied 322 U.S. 755">322 U.S. 755. He contends, also, that the fees were the expense of Hedwig's estate.
It is true that in some instances Vogt's actions in Switzerland were brought against the estate of Hedwig Zietz, but in the actions dealing with Vogt's efforts to attach property, Willy Zietz was the defendant. However, we are unable to regard it as significant that the petitioner did not have bank accounts and other accounts changed to his name. Since Willy was the sole survivor in the Zietz family, since most of the assets*173 inherited by him were derived from the estate of Hugo Zietz and passed to him under Hugo's will immediately upon Hedwig's death, no probate administration was required and there was no practical need for his segregating the comparatively small amount of Hedwig's own personal estate of a value of $ 37,500 (apart from her personal belongings) from the assets derived from Hugo's estate having a value of around $ 1 million. We shall consider hereinafter the question of the deductibility of legal fees totaling $ 3,647 which were paid to lawyers who appeared in matters involving alleged taxes on the estate of Hedwig. With respect to the litigation instituted in behalf of Madeleine Halmos, we deem it clear that the purpose of that litigation was to attempt to reach part of the assets derived from the estate of Hugo Zietz, Sr. That is because, under Hugo's will, both of his sons were to share equally in the remainder of his estate. Madeleine, claiming to be his widow and heir, was seeking to attach the assets derived from the father's estate to which heirs of Hugo, Jr., would have been entitled.
Hedwig died intestate. It is clear that whatever might be involved in any bona fide claim*174 of an heir of Hugo, Jr., if he had had any, to a share in Hedwig's own personal estate, such claim would be comparatively small compared to an heir's claim to Hugo, Jr.'s interest in the remaining estate of Hugo Zietz, Sr. Therefore, since Hedwig's personal estate was small, and for all practical purposes de minimis as far as Madeleine's purposes were concerned, we deem it correct, in considering the fees of $ 6,330 paid to lawyers engaged by petitioner in the litigation of Madeleine, to regard them as relating to petitioner's inheritance under his father's will, and as having no relevance to the personal estate of Hedwig. To take any other view unnecessarily complicates consideration of the question. If such other view were taken, however, and an allocation of $ 6,330 *382 were to be made between legal expenses incident to Willy's inheritance from the estate of Hugo, Sr., and Hedwig's personal estate, the amount of such legal fees allocable to a charge to Hedwig's estate would be so small as to be, again, de minimis, and, therefore, we shall consider the issue of the deductibility of legal fees of $ 6,330 as involving only petitioner's inheritance under his father's*175 will.
With respect to the litigation instituted by or for Madeleine for which petitioner paid legal fees of $ 6,330 in 1948, the record shows that Madeleine was endeavoring to take away from Willy assets derived from his father's estate.
The question, therefore, is whether the legal fees paid to resist Madeleine's legal actions should be classified as nondeductible capital expenses, or ordinary and necessary expenses paid for the conservation of Willy's property held for the production of income within the meaning of section 23(a)(2).
The situation here is one which requires practical application of the tax statute in an unusual setting. In the first place, it was judicially determined by several Swiss courts that the claims of Madeleine were wholly without merit and malicious. Madeleine had no valid basis for seeking to obtain any of the assets which had passed to the petitioner under his father's will upon the death of his mother. That was her purpose. Vogt obtained a temporary order attaching accounts and securities. At a hearing on February 18, 1947, in Zurich, petitioner's lawyer made an application for the immediate vacatur of the warrant of attachment and for the imposition*176 of security to protect Willy from any loss which might result from any fluctuation in the value of the income-producing securities which had been attached. The securities were owned by the petitioner at that time. During the above proceeding, the court issued an order to Vogt to furnish security in the sum of about $ 100,000.
It would be inaccurate and unrealistic to say that Madeleine's suits were bona fide attacks on petitioner's title to the property which he had inherited from his father. Respondent's assumption that such was the nature of the litigation is too narrow. Madeleine, through Vogt, sought to tie up and attach petitioner's income-producing securities and cash. Petitioner's attorneys were obliged to act to fend off the attempt to attach petitioner's securities. There was no litigation about petitioner's title to the securities. Vogt's petitions, which if allowed to stand might have raised that issue, were dismissed. Vogt proceeded like a creditor seeking to levy attachment on chattels to obtain payment of an established debt.
Petitioner's expenditures for legal fees bore a proximate and direct relation to keeping his income-producing property free from attachment*177 under a malicious claim wholly without merit. If Vogt had *383 succeeded in obtaining a permanent order attaching the securities, petitioner would have lost the income from the securities, temporarily at least, and according to the views expressed by his banks to the court, he might have sustained losses because of fluctuations in the market prices of the attached securities.
In Selig v. Allen, 104 F. Supp. 390">104 F. Supp. 390, the court pointed out that the taxpayer's real purpose in taking certain action and incurring legal expenses was "to prevent the laying waste of her property. Mere perfection of disputed title was not the Plaintiff's purpose. She brought the suit in order to conserve income producing property which she already owned. * * * her property, if treated as part of Simon Selig's estate, could have been sold by the executors under the powers given them in his will. It seems clear that legal action taken to forestall such depletions and possible sale of her property is conservatory in nature."
In Frederick E. Rowe, 24 T.C. 382">24 T.C. 382, we considered whether a taxpayer paid legal fees to defend or perfect her title *178 to a remainder interest in a testamentary trust, as the Commissioner contended. We concluded upon the facts that the taxpayer had not paid legal fees to acquire or perfect title but, rather, to conserve and maintain the taxpayer's remainder interest in the corpus of a trust by having left in the trust, as part of the trust corpus, the trust income which was withheld from the life beneficiary in the form of reserves for depletion of oil- and gas-producing properties. We referred to and considered Selig v. Allen, supra.We held that the legal fees involved were paid for the conservation or maintenance, or both, of property held for the production of income within the meaning of section 23(a)(2).
Our conclusion here is that petitioner's purpose in incurring the legal fees paid to resist Vogt's efforts to attach and tie up some of his securities, which he owned as part of the remainder of the assets of his father's estate, was not to perfect his title to the securities but was to maintain and conserve his income-producing property. The legal expense bore a reasonable and proximate relation to the conservation of property held for the production of *179 income. Cf. Bingham's Trust v. Commissioner, supra.It is held that the legal fees amounting to $ 6,330 fall within the scope and meaning of section 23(a)(2) and are deductible as ordinary and necessary nonbusiness expense.
There remains for consideration the legal expense incurred in connection with petitioner's efforts to have the value of assets derived from his remainder interest in assets of his father's estate excluded from the value of his mother's separate estate which tax departments *384 in Switzerland and the United States, respectively, had determined were part of his mother's estate. Respondent's view with respect to these expenses is, briefly, that they were expenses of the estate of Hedwig Zietz, or were for the purpose of defending petitioner's title to the property derived from his father's estate.
It is true that both the Zurich tax department and our Internal Revenue Service made determinations of the value of what each believed constituted all of the property in the estate of Hedwig for the purposes of the respective estate taxes. In presenting to the tax officials, in each instance, evidence and legal argument about the*180 construction of Hugo's will under German law, and about the respective interests of the surviving spouse and the sons, as first heir and final heirs, it was not petitioner's primary purpose to obtain a determination of, or to perfect, or defend his title to the assets constituting the remainder of his father's estate. Also, it was not petitioner's purpose to contest an estate tax upon what he believed was in fact and in law the personal and separate estate of Hedwig. For example, petitioner was not contending that an inter vivos gift of Hedwig out of her own property was not intended to take effect at or after death and, therefore, was not includible in her estate for the purpose of estate tax. If petitioner had been making such contention, he would have appeared before each group of tax officials as a representative, or administrator, of his mother's intestate estate, and the legal expenses involved would seem to be the expense of Hedwig's estate.
Rather, the situation here resembles that in Northern Trust Co. v. Campbell, supra, and Selig v. Allen, supra. If the Zurich tax department had prevailed and had attempted*181 to collect an estate tax based upon the inclusion in Hedwig's estate of the assets derived from Hugo's estate, it is evident that the property which had been Hedwig's own property would not have been sufficient to pay the assessed tax and there would have been resort to assets derived from Hugo's estate which had passed directly to and were owned by petitioner. His property would have been diminished by such tax. The same reasoning applies to the determination of the Internal Revenue Service from which this case arose. Petitioner incurred the expenses of having Herzog appear at the hearing in Zurich, and of having Domke present a brief on German law to the Internal Revenue Service in New York in order to forestall the depletion of some of his own property which stood in danger of having to be sold or applied to the payment of taxes on Hedwig's estate. Petitioner undertook successfully in Zurich to have excluded from his mother's estate property which had passed directly to him under his father's will. He is attempting to do the same thing here, this case being a continuation *385 of the procedure first undertaken by petitioner when he retained Domke in the first instance.
*182 In Bertha K. Goldberg, 31 T.C. 258">31 T.C. 258, the taxpayer used her own personal funds to pay a deficiency which had been assessed in the estate tax of her deceased husband's estate. She then incurred legal expense to obtain a refund of the tax and was successful. Bertha Goldberg had contributed to the payment of the estate tax deficiency to avoid a possible assessment against her as a transferee of her husband's estate. In Northern Trust Co. v. Campbell, supra, the taxpayer had paid an estate tax deficiency as the transferee of assets of his father's estate. As a transferee there was a personal liability in him. In the Goldberg case we concluded that the legal expense incurred by Bertha Goldberg to obtain a refund of the tax which she claimed was invalid had a direct and proximate relation to the conservation of her own income-producing property. In so holding, we applied the same reasoning which had been employed in the Selig and Northern Trust Co. cases, which we regarded as being in harmony with the reasoning in Bingham's Trust v. Commissioner, supra.The fact that petitioner*183 did not pay the legal expense in question in a suit for refund of payment of a tax is of no consequence. Here, as in the cited cases, the nature of the legal expense had a direct relation to conserving and also maintaining petitioner's property which was income-producing property.
It is held that the legal fees paid to Herzog and Domke in the amount of $ 3,647 are deductible under section 23(a)(2).
As we said in the Goldberg case (p. 268), we do not think the facts of the instant case bring it within the rule of those cases decided in this Court which have held "that expense incurred in the defense of title must be capitalized." This case is distinguishable from Hermann F. Ruoff, 30 T.C. 204">30 T.C. 204, revd. 277 F. 2d 222, and cases there cited.
Decision will be entered for the petitioners.
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.↩