John B. Young and Martha H. Young - Page 8




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          directly out of the sales proceeds does not relieve her from tax            
          on that income.  See Old Colony Trust Co. v. Commissioner, 279              
          U.S. 716, 729 (1929) (holding that a third person's payment of a            
          taxpayer's obligation is equivalent to the receipt of the amount            
          of the obligation by the taxpayer).  Accordingly, we sustain                
          respondent's determination.                                                 
          III. Deductibility of Legal and Collection Expenses                         
             Respondent contends that Louise may deduct $2,573 of the                 
          collection expenses she paid in 1992 (i.e., $8,475) and $91,071             
          of the legal expenses she paid in 1993 (i.e., $300,000).  John's            
          transfer of property that discharged his obligation to pay                  
          interest, legal expenses, and collection expenses (i.e.,                    
          $344,938, $300,606, and $8,300, respectively) resulted in                   
          $653,844 of taxable income to Louise.  Respondent calculated the            
          deductions based on the ratio of the $653,844 of taxable income             
          to the $2,153,845 of total debts discharged by the transfer                 
          (i.e., $653,844 divided by $2,153,845 equals 30.36 percent).  See           
          Kelly v. Commissioner, 23 T.C. 682, 688 (1955), affd. 228 F.2d              
          512 (7th Cir. 1956) (allowing a deduction for legal expenses                
          allocable to the recovery of taxable income).  We sustain                   
          respondent's contentions.                                                   
             Contentions we have not addressed are irrelevant, moot, or               
          meritless.                                                                  







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