The opinion of the court was delivered by: HIGGINBOTHAM
Both the plaintiff, Morgan S. Kaufman, and the defendant, United States of America, move for summary judgment
in this suit for tax refund
in which plaintiff claims deductions for legal and related expenses incurred by him in the process of obtaining reinstatement to the Bar. The parties agree that there are no factual issues in dispute.
During the years 1957, 1958 and 1959, plaintiff incurred $ 25,550.84 of legal and related expenses in an effort to gain reinstatement to the Bar. On March 26, 1959, the United States District Court issued an order reinstating him. In its order, however, the Court stated that even though it was granting 'clemency,' the original disbarment was 'fully justified.'
In order for expenses to be deductible under § 162 of the 1954 Internal Revenue Code, they must relate directly to a business
that exists or existed
and not to a prospective venture which is nonexistent at the time to which the deduction pertains. See, McDonald v. Commissioner, 323 U.S. 57, 65 S. Ct. 96, 89 L. Ed. 68 (1944); Owen v. Commissioner, 23 T.C. 377 (1954).
The government maintains that the legal fees in question relate to plaintiff's then prospective efforts to become a licensed attorney and not to plaintiff's former 'business' of practicing law, the latter having been terminated by the disbarment with plaintiff's full-time participation in an unrelated business for 16 subsequent years.
At the threshold, it must be conceded that neither counsel nor the Court has found any cases involving the precise factual issue now before this Court. Thus, since as Mr. Justice Holmes once said, 'the language of judicial decision is mainly the language of logic,'
we must inquire as to which set of previously announced principles are most relevant to decide the instant matter as a case of first impression.
Basically, there have been three lines of cases involving lawyers which announce doctrines that seem most relevant and controlling here:
(1) Cases involving elected state judges where the issue was whether a judge can deduct as a present business expense those campaign expenditures incurred in an effort to obtain re-election during a subsequent year.
(2) Cases involving a lawyer's expenditures for his admission to practice in state 'X' where taxpayer is already licensed to practice in state 'Y'.
(3) Cases where taxpayer-lawyer is not presently practicing in the state where he has been licensed but in which he claims deductions for expenditures made in order to prepare for the resumption of practice in his licensed state at some indefinite future date.
I. EXPENDITURES BY JUDGES FOR SUBSEQUENT ELECTIONS
'He could, that is, deduct all expenses that related to the discharge of his functions as a judge. But his campaign contributions were not expenses incurred in being a judge but in trying to be a judge for the next ten years. That is as true of the money he spent more immediately for his own reelection as it is of the 'assessment' he paid into the party coffers for the success of his party's ticket.' (323 U.S. at 60, 65 S. Ct. at 97).
This principle was recently reaffirmed per curiam in a Third Circuit decision containing almost identical facts. Shoyer v. United ...