United States v. Gilmore

Facts

Gilmore (P) was given an award of a decree of absolute divorce. The divorce was instituted by W, and P cross-claimed for divorce. The assets of P were his controlling interests in three auto dealerships from which he got $66,800 in salary and $83,000 in dividends per year. The Court of Claims found that P’s biggest concern during the divorce was to protect these assets against claims by W. The earnings accumulated by the three corporations was in excess of $600,000 and were the product of P’s personal services and not the result of accretion in capital value thus rendering P’s stockholdings in the enterprises pro tanto community property under California law. The second issue was to the extent the stock holdings were community property. W, the alleged innocent party in the proceeding, was entitled under California law to more than a one-half interest in such property. P wished to defeat those claims in that the loss of controlling interests in the corporations might cost him his loss of corporate positions and his principal means of livelihood. There was also the possibility that if P were found guilty of his wife’s sensational and reputation-damaging charges of marital infidelity, GMC might find it expedient to exercise its rights to cancel his franchises. The end result was a complete victory for P. P was granted the divorce on his cross-claim and W’s community property claims were denied in their entirety and she was held entitled to no alimony. P’s legal expenses were $40,611.36. The Commissioner found all of them to be personal or family expenses and none were deductible under 262. The Court of Claims found that 80% were attributable to P’s defense against W’s community property claims for the stock holdings and hence were deductible under 212(d) as an expense incurred for conservation of the property held for production of income. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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