UNITED STATES DISTRICT COURT WESTERN DISTRICT OF PENNSYLVANIA
May 18, 1956
James M. STRAUB, Plaintiff,
Stanley GRANGER, individually and as Collector of Internal Revenue. Theo. A. STRAUB, Jr., and Jean M. Straub, Plaintiffs, v. Stanley GRANGER, individually and as Collector of Internal Revenue. James M. STRAUB and Theo. A. Straub, Jr., Executors of the Estate of Tecla M. Straub, deceased, Plaintiffs, v. Stanley GRANGER, individually and as Collector of Internal Revenue
The opinion of the court was delivered by: MILLER
Plaintiffs, claiming overpayments of income tax for the year 1945 as a result of the disallowance of legal expenses paid in that year, brought these suits for refunds. In the first two of these actions, which were consolidated for trial, deficiencies in the amounts of $ 1,201.01 and $ 952.81 were assessed. In the third an original claim for refund in the amount of $ 1,312.55 was disallowed.
The questions common to these actions are (1) whether amounts expended by taxpayers as attorneys fees are deductible under Section 23(a)(2) of the Internal Revenue Code of 1939 as amended, 26 U.S.C.A., as ordinary and necessary expenses for the management, conservation or maintenance of income-producing property and (2) whether plaintiffs are collaterally estopped to bring these actions by reason of a decision of the Tax Court determining that amounts paid by them in 1944 as broker's fees in connection with the purchase of stock were not deductible under the foregoing section.
At the close of the testimony, all of which was offered by plaintiffs, defendant moved for judgment for the reason that plaintiffs had failed to establish that the legal expenses in controversy were necessary under Section 23(a)(2).
Some of the relevant facts have been stipulated and are found accordingly. Others are found from the testimony.
Findings of Fact
1. James M. Straub is the brother of Theo. A. Straub, Jr. Jean M. Straub is the wife of Theo. A. Straub, Jr. Tecla M. Straub, now deceased, was the mother of James M. and Theo. A. Straub, Jr.
2. The Fort Pitt Bridge Works, a corporation, was founded in 1896 by the grandfather of the present plaintiffs and another. From that time, members of the Straub family have served as officers and directors of the corporation. Plaintiff, James M. Straub, served as president and a director of the corporation on February 26, 1944, and for about four years prior thereto at an annual salary of $ 25,000.
3. Members of the Straub family have, for a number of years, held a substantial minority block of shares of the corporation's stock. On February 26, 1944, the stocks and bonds of the corporation were held as follows:
James M. Straub 6806 $42,900
His wife, Jane 27
Theo. A. Straub, Jr. 6030 52,300
Tecla M. Straub 6034 40,400
Others of the
Straub family 5766
holdings 24,663 135,600
Others 45,337 249,000
Total 70,000 484,000
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