
    WILLIAM K. CARPENTER AND LEIGH P. CARPENTER v. THE UNITED STATES
    [No. 192-62.
    Decided November 13, 1964
    
      
      Gordon W. Gerber for plaintiffs. Kenneth W. Gemill; Dechert, Price (& Rhoads of counsel.
    
      Joseph P. Spellman, with, whom was Assistant Attorney General Louis F. Oberdorfer for defendant. 0. Moxley Featherston, Lyle M. Turner and Philip R. Miller on the briefs.
    Before CoweN, Chief Judge, Dtjreee, Davts and ColliNS, Judges, and Whitaker, Senior Judge.
    
   Dtjreee, Judge,

delivered the opinion of the court :

This is a suit for income taxes. In 1957 plaintiff incurred and paid certain attorney’s fees arising out of an uncontested divorce and separation from his former wife. Although defendant disputes the validity of a good faith allocation made by plaintiff’s attorney, the evidence establishes that at least seventy percent of the total bill of $10,031.21 paid by plaintiff to his attorney represented the fee properly allocable to services and advice as to the tax consequences flowing from the divorce and separation. Primarily, plaintiff’s attorney directed his professional efforts in plaintiff’s behalf to making sure, so far as possible, that the very substantial support payments agreed to be made by plaintiff to his former wife would constitute taxable alimony to the latter and hence be deductible by plaintiff. The other thirty percent of the fee was for relatively minor non-tax services rendered in-connection with the divorce and separation proceedings.

Plaintiff contends that the part of his attorney’s fees which pertained solely to services and advice on tax matters is deductible from his gross income for 1957 under Section 212(3) of the Internal Revenue Code of 1954,26 U.S.C. 212(3), 68A Stat. 69, as interpreted in Section 1.212-1 of the Treasury Regulations.

Section 212 of the Internal Revenue Code of 1954 provided:

Seo. 212. ExpeNses eor productioN op INCome.
In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year—
(11 for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for the production of income; or
(3) in connection with the determination, collection, or refund of any tax.

Section 1.212-1 of the Treasury Regulations on Income Tax (1954 Code) provides in pertinent part:

Seo. 1.212-1 NoNtrade or NONbusiNess expeNses.
íji í{í Í¡Í
(1) Expenses paid or incurred by an individual in connection with the determination, collection, or refund of any tax, whether the taxing authority be Federal, State, or municipal, and whether the tax be income, estate, gift, property, or any other tax, are deductible. Thus, expenses paid or incurred by a taxpayer for tax counsel or expenses paid or incurred in connection with the preparation of Ins tax returns or in connection with any proceedings involved in determining the extent of tax liability or in contesting his tax liability are deductible.

The language of the foregoing regulation, “Thus, expenses paid or incurred by a taxpayer for tax counsel * * * are deductible,” is sufficiently clear by itself to allow the deduction sought here. Moreover, the question involved is not even one of first impression in the Court of Claims. In Davis v. United States, 152 Ct. Cl. 805, 811, 287 F. 2d 168, 171 (1961), this court held, on facts substantially identical to those here, that “ * * * fees paid by plaintiff for consultation and advice in tax matters arising in connection with the settlement agreement are properly deductible from gross income” under Sec. 212(3) and the above regulation. See also Frisch, Divorce and Separation Tax Techniques, 20 N.Y.U. Inst. on Fed. Tax. 35, 49 (1962).

On certiorari, Davis was affirmed in part and reversed in part by the Supreme Court of the United States. United States v. Davis, 370 U.S. 65 (1962). However, the Government did not seek review ,on the question here involved, and the Supreme Court specifically refrained from intimating any opinion on the question, except to say, “As to the deduction of the wife’s fees, we read the statute, if applicable to this type of tax expense, to include only the expenses of the taxpayer himself and not those of his wife.” [Emphasis supplied.] See United States v. Davis, supra, at p. 74.

Thereafter, the Supreme Court decided in United States v. Gilmore, 372 U.S. 39 (1963) that legal expenses generated by a separation or divorce were not deductible under Section 23(a) (2) of the 1939 Code (now Section 212(2) of the 1954 Code) as “ * * * ordinary and necessary expenses * * * incurred during the taxable year * * * for the *■ * * conservation * * * of property held for the production of income.” The Court considered that section to apply only to expenses arising out of a taxpayer’s profit-seeking activities. Thus, it is clear that the legal fees in question are not deductible under Section 212(2), and plaintiff does not n,ow so contend.

However, in Gilmore, the Supreme Court specifically distinguished Section 212 (2) from Section 212 (3). In footnote 16' at page 48 of 372 U.S., the Court stated:

Expenses of contesting tax liabilities are now deductible under §212(3) of the 1954 Code. This provision merely represents a policy judgment as to a particular class of expenditures otherwise nondeductible, like extraordinary medical expenses, and does not cast any doubt on the basic tax structure set up by Congress.

Thus, so far as the question at issue here is concerned, there appears to be nothing in the decisions of the Supreme Court in Davis and Gilmore, which would contravene the holding of this court in Davis v. United States, supra.

Defendant urges that the decision of this court, in Davis, supra, should now be reversed because there is nothing in the statute or the regulations to indicate provision for tax counsel except in proceedings involving tax controversies. In support of this position, the Government has cited the reports of the House and Senate Committees. The Committee reports make clear that Section 212(8) was primarily designed to change the rule in Lykes v. United States, 343 U.S. 118 (1952), which held that legal fees paid in connection with litigation of an issue as to gift tax liability were not deductible because a gift tax (rather than an income tax) was being contested. Subsection (3) of the statute allows deduction for legal expenses “in connection with the determination, collection or refund of any tax.” This language is clearly not limited in meaning to any contested tax controversy, as construed by defendant.

The primary problem in Davis, supra, was the inclusion in income for the speeifio tax year involved, of the gain from the use of appreciated property in a lump sum property divorce settlement. The instant case is concerned not only with plaintiff’s tax liability for the year in which the divorce settlement was concluded, but also as to the annual deducti-bility from income of alimony payments in future years under Section 215 of the Internal Revenue Code for 1954. For the reasons hereinafter stated, we reaffirm the rule in Davis that “fees paid by plaintiff for consultation and advice in tax matters arising in connection with the settlement agreement are properly deductible from gross income,” and hold that this rule controls in the instant case.

In interpreting this subsection of the statute, Treasury Regulations § 1.212-1(1) does not restrict the deductibility of expenses for the employment of tax counsel to contest of a tax liability or preparation of tax returns for a single year. It provides, by way of illustration, four separate examples:

expenses paid or incurred for the tax counsel or expenses paid or incurred in connection with the preparation of his tax return
or in connection with proceedings involved in determm-ing the extent of his tax liability
or in contesting his tax liability. [Emphasis supplied.]

There is nothing in the Regulation to suggest that these four illustrative examples of legal expenses deductible under Section 212 (3) are exclusive as to its application. Subsection 1(g) of the same section of the Regulation provides for the deduction of fees paid for services of, among other things, “investment counsel.” Obviously, a taxpayer does not employ investment counsel after be has made his investments, and he should not be restricted to deduction of expenses for tax counsel solely to discover the tax consequences of what has already transpired or a tax liability already accrued. One of the purposes of a taxpayer in obtaining tax counsel is to avoid tax contests, not to create them, and this also serves the interest of the Government in collecting taxes.

The collection of Federal income taxes is accomplished in the first instance by a method of self assessment prescribed by Section 6012 of the Internal Revenue Code of 1954, and the regulations thereunder. This requires the taxpayer, in the preparation of his income tax return, not merely to submit tax information but to compute his own tax, and under Section 6151 to pay “such tax."

No exercise in semantics is required in order to conclude that by this process of self assessment, the Government in the first instance accepts the taxpayer’s computation and payment of his own tax as a “determination” thereof. It may later challenge or content the tax liability, but Section 212(3) refers to the “determination * * * of any tax,” without restriction to a contested liability.

For advice in arriving at this determination, the taxpayer may consult the Internal Revenue Service, or he may under Treasury Regulations §1.212-1(1) employ “tax counsel.” One of the legitimate purposes of plaintiff in employing tax counsel was to minimize insofar as was legally possible the tax consequences to plaintiff of the property settlement in the divorce. These were tax consequences first, as to the tax year of 1957 when the divorce settlement was concluded and, second, as to plaintiff’s future annual payments of $150,000 to his divorced wife as alimony. These tax consequences were the result of the same transaction, which had to be considered in toto in 1957 when plaintiff employed tax counsel. If plaintiff is entitled to deduct expenses for legal assistance in preparing his 1957 tax return, this legal assistance or counsel had to consider and evaluate the entire tax problem, in which 1957 was an inseparable part.

To restrict the deductibility of expense for tax counsel to tlie computation or contest of a tax liability for completed tax years under tlie particular facts in this case, would defeat the clear purpose of Section 212(3) and the Regulations § 1.212-1.

Accordingly, plaintiff was entitled to deduct as legal expense under Section 212(3) the portion of his attorney’s fees allocable to tax counsel. The allocation by plaintiff’s comisel that at least seventy percent of his services related solely to plaintiff’s tax problems was conservative and reasonably accurate, and there is no evidence that in making the allocation, plaintiff’s counsel acted in bad faith. Accordingly, we accept this allocation as correct. Davis v.United States, supra. Plaintiff is entitled to recover the amount of tax paid by reason of the refusal to allow him to deduct from gross income seventy percent of the $10,031.21 total legal expenses for his own attorney in the divorce and separation, and judgment is entered to that effect. The amount of recovery will be determined pursuant to Rule 47 (c) (2) of the Rules of this court.

Davis, Judge,

dissenting:

In 1952, the Supreme Court held that an individual taxpayer could not deduct, for federal income tax purposes, attorneys’ fees paid for contesting a gift-tax deficiency. Lykes v. United States, 343 U.S. 118. At that time the Internal Revenue Code, as it does now, permitted individuals to deduct non-trade or business expenses incurred “for the production or collection of income, or for the management, conservation, or maintenance of property held for the production of income,” but the Court ruled, with three dissenters, that lawyers’ fees for contesting a gift tax, unlike a struggle over the income tax or the estate tax, did not fall into either of those classes. This decision was the direct stimulus for the inclusion of Section 212(3) in the 1954 Code, and the legislative history shows that Congress did not contemplate going much, if at all, beyond permitting the deduction of attorneys’ fees (or other expenses) paid in fighting tax liabilities or in dealing with the taxing authorities.

The report of the House Ways and Means Committee emphasized this aspect of the new provision (H. Rep. No. 1337, 83d Cong., 2d Sess., pp. 29, A59, 3 TJ.S.C. Cong. & Adm. News (1954) 4017, 4054, 4196) :

Existing law allows an individual to deduct expenses connected with earning income or managing and maintaining income-producing property. Under regulations costs incurred in connection with contests over certain tax liabilities, such as income and estate taxes, have been allowed, but these costs have been disallowed where the contest involved gift-tax liability. A new provision added by your committee allows a deduction for expenses connected with determination, collection, or refund of any tax liability.
H* ❖ # ijs #
Paragraph (3) is new and is designed to permit the deduction by an individual of legal and other expenses paid or incurred in connection with a contested, tax liability, whether the contest be Federal, State, or municipal taxes, or whether the tax be income estate, gift, property, and so forth. Any expenses incurred in contesting any liability collected as a tax or as a part of the tax will be deductible. [Emphasis added.]

The remarks of the Senate Finance Committee are almost identical to the second paragraph quoted from the House report. See S. Rep. No. 1622, 83d Cong., 2d Sess., p. 218, 3 U.S.C. Cong. & Adm. News (1954) 4621,4855.

The one suggestion, in the legislative history, that the new subsection should go beyond an actual contest of tax liabilities was the statement made to the Senate Committee by the American Bar Association’s Section on Taxation. The Association thought that the language of the House Committee report “appears to confine expenses in connection with tax matters to contested tax liabilities,” possibly even for the income tax (which previously had been governed by the existing provisions of the Code). To avoid this result the Senate Committee was asked to add “computation” before “determination” in Section 212(3), or to “clarify the point that deductions with respect to taxes are not hereafter to be confined to contested taxes.” See 1 Hearings before the Senate Committee on Finance on the Internal Revenue Code of 1954, p. 487. Congress did not adopt either branch of this suggestion.

With this background, the words Congress put into the 1954 Code — “expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax” — could have been read as limited strictly to contested tax liabilities. But the Treasury Department, perhaps in response to the position of the Bar Association’s Section on Taxation, has issued a regulation going somewhat back of a tax contest (but not, I think, as far as the majority believes). Treas. Beg. on Income Tax (1954 Code), Sec. 1.212-1 {l). Certainly the regulation goes back to the time of preparation or consideration of a tax return — a stage which takes place after the occurrence or congealing of the transactions or events to be reflected in the return. It is not entirely clear whether the regulation extends further back to the period when the transactions are still in the process of being planned or the taxable events are still uncertain and in futuro. The reference in the regulation to “tax counsel” is ambiguous if read alone. With the significant help of the statutory language and the legislative history, I interpret it, however, not as authorizing the deduction of expenses paid for any tax counsel, but only for tax counsel employed in connection with the preparation or consideration of tax returns or with tax proceedings, i.e., tax advice given after the critical, events have taken place or been settled. Tax counsel designed to help plan future transactions or arrangements is not covered. I would construe the second sentence of section 1.212-1 (l) as if it read:

Thus, expenses paid or incurred by a taxpayer for tax counsel or other expenses paid or incurred in connection with the preparation of his tax returns or in connection with any proceedings involved in determining the extent of Ills tax liability or in contesting his tax liability are deductible [italicized word added].

This reading of the regulation seems to me-strongly indicated, if not required, by the words of section 212(3), by the legislative history, and by the untoward consequence of adopting the broader view. The words of the Code (“determination, collection or refund of any tax”) connote an appraisal of tax liability on the basis of past or settled events, not a molding of future events to minimize taxes. Each of the three words deals with a fmiction related to taxes already due or about to become due, not with planning ahead. The legislative history treats exclusively with a still more restricted problem, a tax contest; and even the Bar Association’s proposal to add “computation” would not, on a normal reading, carry back further than to activities in preparation for a return. The ultimate consequence of the wider view of the regulation, adopted by this court, is that individual taxpayers will be able automatically to deduct counsel fees paid for the general planning of their holdings and estates so as to minimize income, estate, or gift taxes in the years ahead, or for arranging marital or family affairs with the same end of tax-minimization in the future, or for planning charitable or foundation gifts (and allocation of assets) for such a purpose. Hitherto, the large share of these costs which fall outside section 212 (1) and (2) have been personal expenses, barred from deduction by Section 262 of the 1954 Code, Treas. Beg. on Income Tax (1954 Code), Sec. 1.262-1, and their predecessors. See United States v. Gilmore, 372 U.S. 39, 44 ff. (1963); United States v. Patrick, 372 U.S. 53, 57 (1963); Lykes v. United States, 343 U.S. 118, 121, 125 (1952). I find nothing to intimate that Congress, in adding section 212(3), intended to overturn this accepted position by placing the expenses of trying to reduce one’s future taxes in a different category from all the other personal expenses of living.

My view is contrary to that taken by this court in Davis v. United States, 152 Ct. Cl. 805, 809-11, 287 F. 2d 168, 170-71 (1961) . In reviewing our decision, the Supreme Court expressly left the question open. United States v. Davis, 370 U.S. 65, 74 (1962). I do not feel bound by our ruling in Davis (see Mississippi River Fuel Corp. v. United States, 161 Ct. Cl. 237, 246-47 (1963), 314 F. 2d 953, 958, concurring opinion) because this point was not sufficiently argued by tlie parties — it was but one of several issues in that case— and also because this court did not then have the benefit of the Supreme Court’s stress, in its Gilmore and Patrick opinions, on the general demarcation in the income tax law between expenses attributable to business-type or profit-seeking activities and those pertaining to personal affairs.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Lloyd Fletcher, and the briefs and argument of counsel, makes findings of fact as follows:

1. At the end of the calendar year 1957 plaintiffs, William K. Carpenter and Leigh P. Carpenter, were husband and wife, both citizens of the United States, and their mailing address was 9462 Nemours Building, Wilmington, Delaware.

2- Plaintiff’s claim involves the deductibility from income of certain legal fees incurred and paid by him during 1957 in connection with a separation and divorce from his former wife, Francis K. Carpenter.

3. Plaintiff and Francis were married on April 3, 1941. They had one daughter, Belle Morgan Carpenter, bom April 3, 1942, and plaintiff adopted Peter K. Carpenter, Francis’ son by a former marriage. In consequence of marital difficulties, plaintiff and Francis agreed to a separation and divorce sometime prior to April 9,1957.

On June 3, 1957, plaintiff and Francis executed a document entitled “Separation Agreement”. This 22-page document set forth, inter alia, their agreement with respect to a division of property, and made arrangements for the wife’s support and for the custody and education of the children. In the latter connection, the agreement provided:

(b) In view of the income that is currently received by Belle Morgan Carpenter and Peter K. Carpenter, which provides for their current needs and in further view of the other expectancies which the children have in the future, no provision has been made in this agreement for periodic support payments to be made by the Husband to the children or to the Wife for the children, it being the intent and purpose of this agreement to provide solely for the support and maintenance of the Wife.

The agreement further contemplated that it should be incorporated into any divorce decree which might be thereafter granted to either party.

On June 14,1957, Francis was granted an absolute divorce from plaintiff by a decree of the Circuit Court of Winston County, State of Alabama.

4. Francis was represented during the separation and divorce proceedings by two attorneys, Vincent A. Theisen, Esquire, of the Delaware bar and J. H. Berman, Esquire, of the Alabama bar. Mr. Berman handled only the actual divorce action itself. Mr. Theisen represented Francis in the preparation of the separation agreement, and his fee was paid by her. Mr. Berman’s fee was paid by plaintiff.

5. Plaintiff was represented during the separation and divorce by Edmund N. Carpenter II, Esquire, and it is in connection with his fee that the dispute herein has arisen. Edmund was, and is, a duly licensed, qualified and practicing attorney and a partner in the law firm of Richards, Layton and Finger of Wilmington, Delaware. He is a first cousin of plaintiff and has acted as his attorney on other occasions. He was also a friend and acquaintance of Francis and from time to time has represented her in legal matters.

6. Prior to plaintiff’s consulting Edmund on April 9,1957, plaintiff and Francis had already orally reached substantial agreement as to the arrangements to be made for her support, as to the division of their property, and as to custody and visitation rights concerning their children. Accordingly, no part of the legal services rendered to plaintiff by Edmund related to contesting or resisting the legal separation or divorce action or to contesting or resisting the right or claim of Francis for support by plaintiff. The services rendered by Edmund between approximately April 9, 1957 and June 8, 1957 were directed primarily to insuring that the written separation agreement clearly expressed the oral agreement that bad been reached previously between plaintiff and Francis and to minimizing so far as possible the tax consequences of the separation to plaintiff.

The separation agreement itself was drafted by Mr. Thei-sen, attorney for Francis, and was reviewed on behalf of plaintiff by Edmund who made comments and suggested changes to Mr. Theisen. Two or three drafts were prepared and revised prior to the execution of the final agreement.

7. Plaintiff and Francis had agreed, and the separation agreement so provided, that she would receive from plaintiff annually the sum of $150,000 for the remainder of her life or until her remarriage. Throughout his representation of plaintiff during this period, Edmund’s primary concern was to make sure, so far as he could, that such $150,000 annual payment to Francis would qualify as an alimony deduction for plaintiff under Section 215 of the Internal Eevenue Code of 1954. Since plaintiff’s income was sufficiently large to be taxed at the highest tax rate of 91 percent Edmund was fully aware that his failure to qualify the annual payment for deduction as alimony would cost plaintiff approximately $135,400 annually in Federal income taxes. He therefore felt that a favorable resolution of this question was the most important part of his job. In his opinion, the separation agreement, as finally drafted and executed by the parties, resulted in periodic alimony payments fully deductible by plaintiff for Federal income tax purposes, and he so advised plaintiff. Accordingly, plaintiff has deducted such annual payments in his Federal income tax returns.

8. In addition, Edmund rendered legal advice and services to plaintiff concerning other tax matters which arose out of the separation and divorce proceedings, including the following:

(a) He advised plaintiff that he could not deduct on Ms Federal income tax return any amounts paid to Francis K. Carpenter’s two attorneys. Although plaintiff paid Ber-man’s fee of $1,500 for handling the divorce proceedings, he followed Edmund’s advice and did not take a deduction therefor on his tax return. He did not pay any part of Theisen’s fee of $25,000 for representing Francis.

(b) He advised plaintiff that he could deduct his own attorney’s fees at least to the extent that they were for tax advice. Plaintiff deducted the entire amount of Edmund’s fees.

(c) He advised plaintiff that no deduction was created by the transfer of his interest in certain real and personal property to Francis, and that the cost to plaintiff of furnishing to Francis a New York apartment and an expensive automobile would likewise be non-deductible. In keeping with such advice, plaintiff did not deduct any of such amounts.

(d) Edmund further advised plaintiff that he was not required to file a Federal gift tax return or pay any gift tax as a consequence of the separation agreement, and in reliance upon such advice, plaintiff did not file any gift tax return or pay any gift tax.

9. Edmund also performed some services for plaintiff which required no knowledge of, or research into, the tax laws. For example, he obtained copies of certain trust agreements in which plaintiff had an interest and furnished them to Francis’ attorney, Mr. Theisen. He spent a small amount of time merely trying to push Mr. Theisen into expediting his work of preparing a draft of the separation agreement. Also, he reviewed cursorily the divorce and appearance papers prepared by Mr. Berman for filing in the Alabama divorce court. These services were in no way connected with the law of taxation. In view of the fact that the divorce was uncontested, and that plaintiff and Francis had fully agreed between themselves as to the custody of the children, the amounts required for the wife’s support and the division of real and personal property, the non-tax services rendered by Edmund could have been performed by plaintiff himself and did not require the skill and experience of an attorney.

10. On July 26, 1957, Edmund sent plaintiff a statement for legal services in the sum of $10,000 plus costs advanced of $31.21 for a total of $10,031.21. It is undisputed that these charges were fair and reasonable under the circumstances, and plaintiff paid the statement in two installments during the latter part of 1957.

1L At the time Edmund prepared his statement of services dated July 26, 1957, it was his opinion that the entire amount thereof was deductible by plaintiff in his Federal income tax return. Therefore, he was not at all concerned with making any allocation in the statement as between services rendered for tax matters as opposed to non-tax matters. The statement as submitted to plaintiff enumerated 17 items of services rendered, and the word “tax” appears in only three of those items. It is clear from Edmund’s testimony, however, that many of the other enumerated items, such as the preparation of opinion letters, the review of drafts of the separation agreement, and negotiations with Theisen relative to changes in the agreement all related to Edmund’s objective of making sure that his client would be entitled to deduct the annual payments provided for the wife’s support.

12. At the time he prepared the aforesaid statement, in July 1957, Edmund’s billing procedures were not based upon a precise and accurate method of keeping time records for his various clients. Although he did keep time records on a desk calendar, they were not complete. In connection with the preparation in 1961 of the claim for refund herein, Edmund was asked by plaintiff’s counsel in this litigation to make an allocation of his services rendered plaintiff as between tax services and non-tax services. In compliance with this request, Edmund reviewed his incomplete time records and examined his entire file containing his legal memoranda and correspondence with plaintiff and Theisen. From such review of his records and file, Edmund arrived at an estimate that at least 70 percent of his services related solely to his client’s tax problems and that the remainder of those services should be allocated to non-tax matters. There is no evidence in this record that, in making the aforesaid allocation, Edmund acted in bad faith. The allocation made by Edmund was conservative and reasonably accurate.

13. Plaintiff had no business purpose in getting married or divorced; his reasons were solely personal. His divorce and separation did not involve any business or profit-seeking activity. The entire $10,031.21 in legal fees and costs incurred by plaintiff were generated by his separation and divorce from Francis K. Carpenter.

14. On their 1957 joint Federal income tax return filed with the District Director of Internal Eevenue for Delaware, plaintiffs, William K. and Leigh P. Carpenter, claimed as a deduction the aforementioned sum of $10,031.21 and described the same in their return simply as “Legal fees.” That return reported adjusted gross income of $831,561.89, taxable income of $556,076.89, and net tax payable of $455,669.97. The net tax payable, as shown on the return, was duly paid on or before April 15,1958.

Upon defendant’s audit of the above return, the $10,031.21 deduction was disallowed resulting in the proposal of a deficiency. By check dated April 13, 1959, plaintiffs paid to the District Director of Internal Revenue for Delaware the amount of the asserted deficiency plus statutory interest thereon.

15. On March 29, 1961, plaintiffs duly filed a claim for refund in which it was alleged that $7,031.21 of the aforesaid legal fee represented a fee paid in connection with Federal tax matters arising out of negotiations and execution of a separation agreement and, as such, was deductible under Section 212(3) of the Internal Revenue Code of 1954 and that the balance of such fee was deductible under Sections 212 (1) and (2) of said 1954 Code.

On April 2,1962, plaintiffs were notified by registered mail that their claim for refund had been disallowed in full. This suit was timely filed thereafter.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is entitled to recover the amount of tax paid by reason of the refusal to allow him to deduct from gross income seventy percent of his total legal expenses for his own attorney in. the divorce and separation, and judgment is entered for plaintiff, with the amount of recovery to be reserved for further proceedings in accordance with Rule 47 (c) (2) of the Rules of this court.

In accordance with the opinion of the court and a memorandum report of the commissioner as to the amount due thereunder, it was ordered on February 5, 1965, that judgment for the plaintiffs be entered for $6,761.29 plus statutory interest thereon from April 20, 1959, as allowed by law. 
      
      Trial Commissioner Lloyd Fletcher has submitted an Opinion, Findings of Fact and recommended Conclusion of Law which were of great assistance in the preparation of this opinion by the court.
     
      
      As used herein, “plaintiff” refers to William K. Carpenter. Leigh P. Carpenter is involved in this suit only by reason of the fact that she filed a joint income tax return with William K. Carpenter for the year 1957.
     
      
       The Ways and Means Committee Report (H. Rep. No. 1387, 8Sd Cong., 2d Sess., (3 U.S.C. Cong. & Adm. News (1954) 4017, 4196)).
      Senate Finance Committee Report (S. Rep. No. 1622, 83d Cong., 2d Sess., (3 U.S.C. Cong. & Adm. News (1954) 4621, 485i5)).
     
      
       If they are expenses at all and do not come -within the category of capital expenditures.
     
      
       The Government’s position is supported, however, by Ktmjmann v. United States, 221 F. Supp. 807, ap. dis. 328 F. 2d 619.
     
      
       Leigh P. Carpenter is a nominal plaintiff herein solely because she executed a joint income tax return with her husband, William K. Carpenter. For sate of convenience and clarity, therefore, the taxpayer, William K. Carpenter, is hereinafter referred to as the “plaintiff.”
     
      
       Plaintiff has formally abandoned and withdrawn a further claim asserted In his petition herein that a $500 contribution to the National Investigations Committee on Aerial Phenomena was erroneously disallowed by defendant.
     
      
       Necessarily, such estimated figure would be based on the assumption that the statutory rate schedule remained unchanged and that, if the payment represented support for the children rather than taxable alimony to .Francis, plaintiff would at least be entitled to dependency exemptions for a limited period of time.
     
      
      
         The total deficiency assessed also Involved other minor disallowances which are not In dispute here.
     
      
       This figure represents 70 percent of Edmund’s total fee plus all of the costs.
     