The opinion of the court was delivered by: BYERS
This plaintiff -- a New York corporation -- seeks to recover by way of refund for taxes in connection with its excess profits tax for 1944, $ 122,910.32. That sum represents two items:
A. $ 75,303.66 paid in full settlement of an asserted deficiency in estate taxes amounting to $ 441,758.91 said to be due from the Estate of Edwin B. Stimpson, deceased.
B. $ 45,000 being the fee paid to its attorneys in bringing about the said settlement.
The total of these figures is $ 120,303.66 and apparently the difference between this total and the amount demanded in the complaint represents interest claimed.
The theory of the plaintiff is that having paid out of its corporate funds the $ 75,303.16 as for a transferee liability, it is entitled to deduct that amount as a loss sustained during the taxable year 1944 not compensated for by insurance or otherwise.
That as to the $ 45,000 legal fees the deduction is proper as an ordinary and necessary business expense.
It will be convenient to consider these items separately, and to relate the attendant circumstances in the inverse order of their occurrence.
Reliance is required to be had upon a stipulation of facts upon which the controversy has been submitted. Since that has been deemed adequate by the parties, the court is not at liberty to inquire into subjects not therein comprehended.
The complaint was filed February 1, 1951, and the answer on May 2 of that year.
On November 11, 1948 the plaintiff paid $ 102,859.63 tax plus $ 20,050.59 interest, amounting together to $ 122,910.22 as part of its excess profits tax for the year 1944, on the theory that deductions in the sum of $ 120,303.66 (namely $ 75,303.66 'cost of settling litigation',
and $ 45,000 lawyers fees) had been improperly claimed and were therefore disallowed.
In about 1941 the Commissioner of Internal Revenue proposed an estate tax deficiency of $ 441,758.91 in connection with the estate taxes payable by the Executor of Edwin B. Stimpson, deceased.
This was the subject matter of the settlement above referred to.
That proposed deficiency was based upon the assertion that the gross estate of the decedent should have included approximately $ 1,530,000 as the value of certain property purchased by the plaintiff corporation from the decedent in 1933.
Edwin B. Stimpson died in 1940, about seven years after the purchase of the property, namely stock, from him, by the plaintiff.
The transaction of purchase is embodied in a contract dated January 18, 1933 which is part of the stipulation. For present purposes it may summarized as follows:
Stimpson sold to the plaintiff(the then corporate name of which was Howral, subsequently duly changed to the present style)
2,700 out of 3,000 outstanding shares of Edwin B. Stimpson Company;
900 out of 1,000 outstanding shares of Franklin-Kent Corporation;
300 being all outstanding shares of United-Brooklyn Corporation.
These were called operating companies, Howral being then a ...