Later courts went against this
Disagreed with in part by Kent Mfg. Corp. v. Commissioner, 33 T.C. 930 (1960)
We have considered Towanda Textiles, Inc. v. United States, 180 F. Supp. 373 (Ct. Cl), relied on by petitioner, and to the extent it is inconsistent with our holdings herein we respectfully disagree with it.
The opinion
LITTLETON, Judge (Retired)
(concurring in part and dissenting in part).
I agree with the conclusion of the majority that the gain received from the involuntary conversion in this case cannot, under section 337 of the Internal Revenue Code of 1954, be recognized to-plaintiff corporation, but I disagree with their conclusion that the attorneys’ and adjuster fees incurred in the collection of the insurance proceeds cannot be treated as ordinary and necessary business expenses, and as to this point I must, respectfully dissent.
I think that fees paid to attorneys and adjusters in connection with the recovery of insurance proceeds consequent to the burning of taxpayer’s property are within the common meaning of the terms ordinary and necessary business expenses, as they are used in section 162 of the Internal Revenue Code of 1954. I cannot find, and the majority does not mention, any statutory provision which requires us to consider them otherwise-Neither is there cited nor have I been able to find any administrative regulation which requires such a result.
It is true that brokerage commissions on the sale of securities, commissions-paid in a sale of real estate, and attorneys’ fees incurred in obtaining compensation in condemnation proceedings are-treated as offsets against the amounts received in such transactions. In Spreckels v. Commissioner, 315 U.S. 626 , 62 S.Ct. 777 , 86 L.Ed. 1073 , where the-Supreme Court held that brokerage commissions on securities sales are an offset against the selling price, it made clear that it was dealing with regulations promulgated by the Treasury which required such a result. The same is true of Helvering v. Winmill, 305 U.S. 79 , 59 S.Ct. 45 , 83 L.Ed. 52 , which is also cited by the majority.
The Board of Tax Appeals decisions, Irma Jones Hunt, 47 B.T.A. 829 , and Frank Cavanaugh, 19 B.T.A. 1251 , which are relied on by the majority to establish *379 that real estate sales commissions are treated as offsets against the sales price give only the most cursory consideration to that question, and are of no help in solving the problem in the instant case.
The cases cited by the majority as establishing the proposition that attorneys’ and appraisers' fees incurred in obtaining compensation for the condemnation of a taxpayer’s property are treated as an offset against the amounts received clearly indicate that the basis for their conclusion is that the expenses of prosecuting claims for compensation for the taking of property are incurred by taxpayers primarily in connection with “the protection of their rights arising from the ownership of the property, and in that aspect, as a loss, might be taken into account as a part of the cost of the property.” Williams v. Burnet, 61 App. D.C. 181 , 59 F.2d 357 , at page 358.
This reason for such a conclusion with respect to condemnation proceedings does not apply with equal force to such fees as are involved in the instant case. These fees are not primarily related to the protection of rights in the property itself, but rather arise from a contingency in connection with the operation of the business. I do not think that they must be treated as are sales commissions or expenses of condemnation proceedings. Their nature seems to me to be much more that of an ordinary and necessary expense which befalls a corporation confronted with the problem of salvaging the remains of its business after most of its assets have burned. As was said by the Tax Court in Ticket Office Equipment Company v. Commissioner, 20 T.C. 272 , at page 280, “the purpose of the expenditure was to collect a sum of money, and the requirement arose in the ordinary course of [taxpayer’s] business. The item involved was a claim for money damages; the dispute did not concern title to a capital asset nor an additional expenditure undertaken to improve or increase the value of any capital item then owned by [taxpayer].”
United States v. Pate, 254 F.2d 480, 483 , decided by the Tenth Circuit in 1958, dealt with the very issue with which we are here concerned, and concluded that such attorneys’ fees are to be distinguished from the kinds of expenses which the majority here discusses, and that they are deductible as ordinary and necessary expenses rather than as capital expenditures. I would follow this authority, which I think reaches the sounder conclusion.