TAXATION-FEDERAL INCOME TAX-DEDUCTIBILITY OF LEGAL FEES INCURRED IN CONTESTING GIFT TAX DEFICIENCY

Petitioner gave shares of stock in a closely held family corporation to his wife and children. After paying the federal gift tax, he was notified by the Commissioner of a deficiency of $145,276. The case was eventually settled by payment of $15,612. In this controversy petitioner incurred legal expenses which he sought to deduct on his income tax return under section 23(a)(2) of the Internal Revenue Code.

When his claim was disallowed by the Commissioner, this suit was brought for refund. Held, on certiorari, this expenditure was not "for the production or collection of income'' nor incurred in the "management, conservation or maintenance of property held for the production of income," and hence was not deductible. Lykes v. United States, (U.S. 1952) 72 S.Ct. 585.