Mass.: two daily papers and a Sunday paper. (Stip., par. 5)
At that time, there were 177 shares of common stock of Republican outstanding. Of these, 23 shares (13%) were owned by pension funds for the employees of the newspapers (Funds). Another 74 shares (42%) were owned by collateral relatives of the Bowles family (Cousins), and the remaining 80 shares (45%) were owned by the family of the deceased publisher, Bowles (Family). (Stip., par. 6)
The 80 shares of Family stock were held in 1960 in a voting trust set up by a 1952 agreement between Family and Funds, to pool their combined 103 shares for 15 years. Control was in the trustees of Funds, who were also directors, officers and employees of Republican and the operating companies. (Stip., par. 6)
Following a proposal from a representative of the Cousins, Newhouse became interested in an acquisition, and following negotiations, two transactions ensued:
(a) purchase by Ledger of the Cousins' 74 shares at $25,000 a share ($1,850,000) on June 6, 1960;
(b) an agreement by Ledger to purchase the Family's 80 shares, the shares to be received at termination of the voting trust in 1967, at $21,000 a share ($1,680,000), which was deposited in a Boston bank on June 17, 1960 against delivery of the stock. (Stip., par. 8, 9, 10)
Subject to the voting trust, Ledger thus came to own the beneficial interest in 154 shares (87%) of all of the outstanding stock of Republican. The remaining 23 shares (13%) remained in the ownership of the Funds. (Stip., par. 11)
On June 17, 1960, Newhouse met Cook (an officer of Republican) in New Haven, told him of the purchase and arranged for an announcement in the evening Springfield paper that day, which was done. (Stip., par. 13)
On the following Sunday, an editorial appeared in the Sunday Springfield paper, which was critical of the paper's acquisition by "outside interests". (Stip., par. 13)
As a result, Newhouse asked for a meeting which was held in New York. Newhouse was told he should sell the stock, and he refused. A request to tour the newspaper plants at an early date was put off. Requests were made to examine books and records and to be given financial information, but these were denied. (Stip., par. 12, 13, 14, 15)
Ledger thereafter filed, or caused to be filed, a flurry of lawsuits in Massachusetts. Two were in federal court and four in the state courts. The complaints are part of the stipulation as Exhibits A through F. (Stip., par. 16)
Extended hearings by masters were conducted in both courts, and after review of the State court's proposed disposition, a settlement was achieved that resolved all the litigation. (Stip., par. 17, 18)
The aggregate legal fees and expenses incurred by Ledger from fiscal 1962 through 1967 are stipulated, as are the amounts assessed and paid as deficiencies plus interest, for which refund is claimed. (Stip., par. 19 through 42)
In the Stipulation, the United States explicitly refused to stipulate the "purpose" for which the litigation was initiated and processed, or the " gravamen" of each lawsuit. (Stip., part II, par. 1 and 2)
Similarly, Ledger explicitly refused to stipulate that Newhouse was told, before buying the Family stock, that there had been trouble with management about dividends and about access to books and records, and that Newhouse would be "buying a lawsuit" in these respects. Also, Ledger would not stipulate that Newhouse was told that the reason why Family and Cousins wanted to sell was their feeling of denial of a management voice and unfair treatment by management.
Treatment of Facts Not Stipulated
The court has examined the pleadings, as well as the discovery depositions of Samuel I. Newhouse, Sidney R. Cook, and Donald E. Newhouse, and the depositions de bene esse of Francis T. Bowles (Family interests) and William H. Baldwin (Cousins interests).
From these materials, as well as from Exhibits A through F of the Stipulation it is plain that Ledger's "purpose" in the litigation, as well as the "gravamen" of each lawsuit, are matters of law for the court to determine from inspection of the complaints filed.
If "purpose" is a pertinent element, it can only be considered in the ostensible or objective sense. Subjective purpose, as a state of mind, cannot have any bearing on the key issue here. Even if it were, the materials indicate that it would be impossible to compose a collective state of mind for the individuals who participated: Samuel I. Newhouse, the primary figure, his son, Donald, who was involved on a day-to-day basis, house counsel and Massachusetts counsel.
The same observation is true of the "gravamen" of the suits. This is a matter of legal evaluation and interpretation from the authenticated documents, and a study of them discloses that there is no genuine issue of fact in regard to their "gravamen".
The facts which the United States sought to have stipulated, and which the Ledger declined, are not undisputed facts largely because they are only part of the facts developed on discovery and de bene esse. Taken alone, to the extent there is some testimony to support them, they would not provide a fair basis for ruling on the motions.
Taken together with other contextual testimony, a somewhat different pattern emerges.
Accordingly, the court has approached the motions by considering whether these fact items not stipulated are facts having a legal consequence in arriving at a decision. If they do, then being disputed both motions would need to be denied. If they do not, a resolution on the motions can be made.
Nature of the Legal Questions
Two major legal questions appear in this case:
1. Were the legal and litigation expenses allowable as deductions under § 162(a) of the 1954 Internal Revenue Code, 26 U.S.C. § 162(a)? To qualify under this head, it must appear that the item was
. . . "paid or incurred during the taxable year",
. . . for "carrying on a trade or business",