Wallace R. Noel and Robinette Noel - Page 22

                                       - 22 -                                         
          these rights.  The litigation involved the transferability of               
          PMI's stock, thereby implicating the "perfection of title" by               
          petitioner, and the litigation culminated in the sale of the                
          stock to PepsiCo.  Thus, 73 percent of the legal expenses, or               
          $219,000 of the $300,000 legal fees paid, was properly included             
          in the basis of petitioner's stock and treated as an offset                 
          against the sale price.  See Reed v. Commissioner, 55 T.C. 32               
          (1970) (legal expenditures to remove restrictions on the trans-             
          ferability of a partnership interest are capital in nature).                
               In addition to the $300,000 of legal fees paid to the                  
          attorneys, petitioner included $500,000 in the basis of his PMI             
          stock.  The $500,000 related to a contingent note, executed by              
          petitioner, payable to the law firm involved in the litigation.             
          Payment on the note was contingent upon any future awards from              
          the PMI litigation.                                                         
               Generally, a contingent liability may not be added to basis.           
          Albany Car Wheel Co. v. Commissioner, 40 T.C. 831, 839 (1963),              
          affd. per curiam 333 F.2d 653 (2d Cir. 1964).  Petitioner,                  
          however, relies on Roberts Co. v. Commissioner, a Memorandum                
          Opinion of this Court dated June 15, 1945, to support his claim             
          of propriety of this addition to basis.  This reliance is                   
          misplaced.  The taxpayers in Roberts capitalized contingent                 
          attorney's fees paid for defense of claims against their father's           
          estate.  The fees were paid out of the estate, because the                  
          defense was successful.  Thus, the contingency had been met, and            

Page:  Previous  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Last modified: May 25, 2011