Meyer J. Fleischman v. Commissioner
45 T.C. 439 (Tax Ct. 1966)
- Fleischman got divorced.
After the divorce was settled, his ex-wife sued him to try to get the
pre-nup invalidated. He spent $3k in legal fees trying to keep his
ex-wife from getting his money.
- When he filed his taxes
Fleischman claimed a $3k deduction as an expense related to the production
- 26 U.S.C. §212(2) allows for deductions related for expenses
paid for the management, conservation, or maintenance of property held
for the production of income.
- Fleischman didn't claim a
deduction for expenses related to the divorce, only for expenses related
to the lawsuit.
- The IRS denied the deduction.
- The IRS claimed that the
expenses were not deductible because they were "personal, living,
and family expenses" and excluded by 26 U.S.C. §262.
- The Tax Court affirmed.
- The Tax Court looked to United
States v. Gilmore (372 U.S. 39
(1963)) and United States v. Patrick (372 U.S. 53 (1963)), both of which held that §212(2) is not applicable to divorce related
- The Tax Court found that if
the underlying dispute is personal in nature, then the legal fees are not
deductible under §212, even
though there are income-producing assets at stake.
- Otherwise, almost all legal
fees would be deductible because in any civil lawsuit a loss will result
in the loss or property.