- 8 -
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.
Page: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011