The opinion of the court was delivered by: FORMAN
Plaintiff was an executor and trustee of the estate of his father, William C. Squier, who died a resident of the state of New Jersey in the year 1908, and whose will was duly admitted to probate in the same year n the surrogate's court of Union county, N.J. Plaintiff was also an executor and trustee of the estate of his mother, Catherine C. Squier, who died in the year 1913, and whose will was likewise duly admitted to probate in the same year in said surrogate's court of Union county, N.J. He inherited property as a beneficiary from each of said estates.
In July, 1927, one Charles Burnham Squier, the son of a deceased brother of plaintiff, brought an action against plaintiff and the other executors and trustees named in the wills above referred to in the Supreme Court of the state of New York.
Under the will of William C. Squier a life estate in certain property was left to Catherine C. Squier with a power of appointment of the remainder. Charles Burnham Squier, the grandson, in filing the aforesaid suit, demanded an accounting alleging that the grandmother had not exercised the power of appointment which had been given her.
In said action as brought by Charles Burnham Squier this plaintiff was named as a defendant in both his capacity as an executor and trustee, and in his individual capacity. He and his cotrustee, Augustus S. Houghton, together with the other individual defendants, retained a firm of lawyers to defend that action. Final judgment was given for the defendants therein.
At the time Charles Burnham Squier instituted said suit for an accounting all the assets of the grandmother's estate and of the grandfather's estate had been distributed in full and all the trusts which might have been affected by the litigation had been terminated, with the result that this plaintiff was called upon to pay to said firm of attorneys in 1929 on account of services rendered and disbursements made in said action the sume of $30,154.55, which he did so pay.
The foregoing $30,154.55 represents only that portion of the fee which was paid by this plaintiff. The aggregate fee was borne proportionately by the eventual heirs of Catherine C. Squier, of whom this plaintiff was one.
The plaintiff claimed the said sum of $30,154.55 as a deduction on his individual tax return for 1929, but upon audit the same was disallowed by the Commissioner of Internal Revenue. The tax paid thereon was $6,519.02. Following the filing and rejection of a claim for refund, the instant suit was brought.
The controversy in this case is governed by the provisions of the Revenue Act of 1928. The section of said statute dealing with deductions of the character herein involved is as follows:
"§ 23. Deductions from gross income
"In computing net income there shall be allowed as deductions:
"(a) Expenses. All the ordinary and necessary expenses paid or incurred during taxable year in carrying on any trade or business." 26 U.S.C.A. § 23 and note.
The application of section 23(e) of the same act (26 U.S.C.A. § 23 note) is also urged upon the court. This section provides as follows:
"(e) Losses by individuals. In the case of an individual, losses sustained during the taxable year and not compensated ...