- 7 -
(3) in connection with the determination, collection,
or refund of any tax.
Because petitioners argue that their expenditure of legal fees
was for the "protection of income"11 our focus will be on the
first two subsections of section 212.
Respondent argues that petitioners' legal expenditures were
neither for the production or collection of income nor for the
management of property held for the production of income, but
were instead to establish a right to or to perfect title to
assets passing from a decedent. It is petitioners' burden, of
course, to prove that all of the requirements of section 212 have
been met before their deductions will be allowed. Rule 142(a);
Welch v. Helvering, 290 U.S. 111 (1933).
A taxpayer may not, under section 212, deduct legal fees
that are personal expenses. Section 262(a). Legal fees incurred
in protecting or asserting one's right to property of a decedent
as heir or legatee are not deductible. Section 1.212-1(k),
Income Tax Regs. Also well established is the principle that
amounts paid to defend or perfect title to property are
nondeductible capital expenditures. Woodward v. Commissioner,
397 U.S. 572 (1970); Kramer v. Commissioner, 46 B.T.A. 951, 958
(1942). Furthermore, amounts allocable to the production or
11The return for 1990 indicates that legal fees were paid to
"Protect investment". Petitioners, on their returns for 1991 and
1992, deducted legal fees expended "to protect estate assets".
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011