Joseph v. Commissioner

Thomas A. Joseph and Susan Joseph, Petitioners, v. Commissioner of Internal Revenue, Respondent Joseph v. Commissioner Docket No. 57747 United States Tax Court 26 T.C. 562; 1956 U.S. Tax Ct. LEXIS 155; June 18, 1956, Filed *155 Decision will be entered for the respondent. 1. Deductions -- Legal Expenses. -- Petitioner, an attorney at law, was convicted of the crime of subornation of perjury. He was also disbarred by reason of such conviction. Held, claimed deduction of legal expenses incurred in defense of criminal prosecution and disbarment disallowed. Commissioner v. Heininger, 320 U.S. 467, distinguished. 2. Casualty Loss. -- Held, in absence of evidence showing Commissioner's determination of amount of fire loss to be in error, Commissioner's determination sustained. Horace W. Domigan, Esq., for the petitioners. Bernard J. Boyle, Esq., for the respondent. Tietjens, Judge. TIETJENS *562 The Commissioner determined deficiencies in income tax of $ 1,417.36 for 1949; $ 2,723.40 for*156 1950; and $ 576.30 for 1951. The issues for decision are (1) whether, under section 23 (a) of the Internal Revenue Code of 1939, petitioner, an attorney at law, is *563 entitled to deduct attorney fees and other expenses paid in connection with the defense of a criminal prosecution for the commission of the crime of subornation of perjury resulting in petitioner's conviction and imprisonment; (2) whether petitioner can deduct attorney fees paid in an unsuccessful defense of disbarment proceedings instituted and based on the charges set forth in the criminal indictment; and (3) whether the Commissioner improperly reduced a claimed fire casualty loss of $ 6,506.29 to $ 1,492.80, which latter amount was allowed. FINDINGS OF FACT. Thomas A. Joseph (hereafter called petitioner) and Susan Joseph are husband and wife. They filed joint income tax returns for 1949, 1950, and 1951 with the collector of internal revenue for the eleventh district of Ohio at Columbus, Ohio. Petitioner was engaged in the practice of law during the taxable years and was so engaged for a number of years prior thereto. At sometime during his practice petitioner advised and encouraged certain of his clients *157 to establish residence in Franklin County, Ohio, in order that divorce actions could be brought in the courts of that county. For acts arising out of these shifts in residence criminal proceedings were instituted against petitioner in the Common Pleas Court of Franklin County, Ohio. True bills were returned against petitioner on 14 counts in March 1949 and he was charged with commission of the crime of subornation of perjury. He was ultimately convicted on one count. The Supreme Court of the United States denied certiorari on May 22, 1951. Petitioner was confined in the State penitentiary from May 29, 1951, until May 22, 1952. On May 4, 1949, disbarment proceedings were instituted against petitioner, the charges being the same as those included in the criminal indictment. A conviction on the criminal charge was tantamount to disbarment. Petitioner filed a writ of mandamus in the Ohio Supreme Court to have the disbarment proceedings heard prior to the criminal case. This writ was denied. Petitioner was disbarred from the practice of law on August 17, 1950. Petitioner expended $ 6,604.05 in 1949, $ 1,800 in 1950, and $ 3,685.56 in 1951, or a total of $ 12,089.61, for attorney*158 fees and other incidental expenses in his unsuccessful defense of the charges contained in the criminal indictment. Petitioner expended $ 1,000 in 1950 and $ 200 in 1951, or a total of $ 1,200, for attorney fees in his unsuccessful defense of the charges in the disbarment proceedings. There was a fire in the office of petitioner in December 1950. On his 1950 income tax return he claimed a business casualty loss in the amount of $ 6,506.29. The Commissioner determined that the petitioner's *564 correct loss amounted to $ 1,492.80 and the excess claimed was disallowed. OPINION. We have held in a number of cases beginning as early as Sarah Backer, 1 B. T. A. 214, that legal expenses incurred in the unsuccessful defense of a criminal prosecution are not deductible. Norvin R. Lindheim, 2 B. T. A. 229; B. E. Levinstein, 19 B. T. A. 99; Sanitary Earthenware Specialty Co., 19 B. T. A. 641; Estate of John W. Thompson, 21 B. T. A. 568; Burroughs Building Material Co., 18 B. T. A. 101, affd. (C. A. 2) *159 47 F. 2d 178, and see Anthony Cornero Stralla, 9 T. C. 801. Petitioner contends, however, that the decision of the Supreme Court in Commissioner v. Heininger, 320 U.S. 467, lays down a different rule. We do not so understand the Heininger decision. While there allowing the claimed legal expenses as a deduction Justice Black pointed out that the Bureau of Internal Revenue, the Board of Tax Appeals, and the Federal courts have from time to time -- narrowed the generally accepted meaning of the language used in Section 23 (a) in order that tax deduction consequences might not frustrate sharply defined national or state policies proscribing particular types of conduct. In a footnote to the opinion the Court cited with apparent approval Estate of John W. Thompson, supra, and Burroughs Building Material Co., supra, noting with reference to the Thompson case that "A taxpayer who has been prosecuted under a federal or state statute and convicted of a crime has not been permitted a tax deduction for his attorney's fee." As *160 was said in Stralla, supra, "at no place did the Court indicate or hold that the decisions were unsound or in conflict in any way with the principles declared in the Heininger case." Furthermore, the Court pointed out in Heininger that the single policy of the statutes involved in that case "is to protect the public" and that it "is not their policy to impose personal punishment on violators." Also that "such punishment is provided by separate statute, and can be imposed only in a judicial proceeding in which the accused has the benefit of constitutional and statutory safeguards appropriate to trial for a crime." This is indication to us that had the Supreme Court been confronted with a deduction claimed for expenses incurred in defending against conviction for a crime which conviction eventuated, it would have reached a different result in Heininger. Until the cases we have cited are unequivocally overruled we are constrained to follow them, and deny the deduction. The legal expenses of defending against disbarment are so closely related to the criminal conviction that the same result must follow. As recited in our Findings of Fact, "A conviction*161 on the criminal charge was tantamount to disbarment" and petitioner was disbarred. *565 Ohio Rev. Code (Page) sec. 4705.02. See Tinkoff v. Commissioner, (C. A. 7) 120 F. 2d 564, affirming a Memorandum Opinion of this Court to the effect that expenses incident to a proceeding to expunge an order of suspension from practice before the Treasury Department directed against a person who was a lawyer and certified public accountant were disallowed. Accordingly, the Commissioner's disallowance of the expenses in question is upheld. With reference to the claimed casualty loss, petitioner introduced no evidence and simply asked that the Court direct that a proper deduction be worked out in a Rule 50 computation. In the absence of any showing based on evidence that the Commissioner's determination is erroneous, or of a concession of error by the Commissioner, we find no reason to disturb the Commissioner's determination on this issue. Decision will be entered for the respondent.