- 6 - the earlier sale of the stock. See also Mosby v. Commissioner, 86 T.C. 190, 198 (1986); cf. Neely v. Commissioner, 85 T.C. 934, 954-955 (1985).2 That the insurance proceeds produced a gain in and of itself is insufficient to require a different conclusion. The existence of that gain, however, raises the question of how the legal fees should be treated. It is well established that expenses that are incurred in either the acquisition or disposition of a capital asset are nondeductible capital expenditures. Sec. 263; see Wagner v. Commissioner, supra at 915-916. The destruction of petitioners' residence by the firestorm in effect constituted a disposition of the residence in return for payment of the proceeds of the insurance. In this context, the treatment of the legal fees in condemnation cases provides a useful analogy. A property owner's expenses incurred to increase a condemnation award are nondeductible capital expenditures under section 263 that serve to reduce the amount of the taxable gain. Mosby v. Commissioner, supra at 196-197; Casalina Corp. v. Commissioner, 60 T.C. 694, 703 (1973), affd. per curiam 511 F.2d 1162 (4th Cir. 1975). We think that petitioners' legal expenses should be accorded the same treatment since destruction is in a very real sense the equivalent of an involuntary conversion; in either case, the taxpayer loses the property. We note that our treatment of the 2 See also Myers v. Commissioner, T.C. Memo. 1988-160.Page: Previous 1 2 3 4 5 6 7 8 Next
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