The opinion of the court was delivered by: LEVET
This is an action for the refund of federal income taxes in the amount of $ 4,897.03 which plaintiffs claim were erroneously collected from them for the years 1955 and 1956.
Both plaintiffs and defendant have moved for summary judgment.
The facts are set forth in a stipulation entered into between the parties and may be summarized as follows:
Viktor and Mary Petschek, husband and wife, filed joint federal income tax returns for the years 1955 and 1956. They deducted, for the year 1955, certain legal and other fees, aggregating $ 5,171.51 which had been paid in that year in connection with the prosecution of certain claims before the Foreign Claims Settlement Commission with respect to property interests of Viktor Petschek confiscated by the government of Yugoslavia; they deducted, for the year 1956, legal and other fees aggregating $ 6,609.27 which had been paid in connection with proceedings before the Commission with respect to property interests of Viktor Petschek confiscated by the governments of Rumania and Yugoslavia. These deductions were disallowed by the Commissioner of Internal Revenue. The plaintiffs paid the tax deficiencies which resulted from the disallowance of the claimed deductions and are now seeking a refund of the additional taxes paid as a result of the Commissioner's determination.
Prior to World War II Viktor owned minority stock interests in three Yugoslav corporations. Two of these corporations were nationalized or confiscated by the government of Yugoslavia on December 5, 1946, and the third corporation was confiscated on January 25, 1947. The government of Yugoslavia did not pay any compensation at the time of the confiscations.
On August 21, 1948 the Yugoslav government paid $ 17,000,000 to the United States as part of an inter-governmental settlement of claims of the United States and its nationals against Yugoslavia arising from the nationalization of property in Yugoslavia. The International Claims Commission was created to consider claims of the United States and its nationals with respect to property confiscated or nationalized by Yugoslavia. The functions of the International Claims Commission were later transferred to the Foreign Claims Settlement Commission.
On June 29, 1951 Viktor and other members of his family filed a joint claim with the Commission wherein they sought compensation for the property interests confiscated by Yugoslavia. Under the Commission's rules a claimant had the burden of proving, inter alia, his ownership of the property, the value of the property, that he was a United States national, and that the property had been nationalized.
On December 30, 1954 the Commission rendered a final decision awarding Viktor $ 181,810 as compensation for the nationalized Yugoslav properties. Payments in respect of these awards totaling $ 155,246.37 were made to Victor on April 14, 1955, May 17, 1955, June 7, 1956 and December 9, 1957. It has been stipulated (Stip. par. 10) that such recovery was not includible in Viktor's gross income under the war loss recovery provisions of Section 1332(b)(1) of the Internal Revenue Code of 1954.
Prior to World War 11 Viktor held shares in a pool, which through intermediate corporations held shares of stock in a Rumanian corporation. On June 11, 1948 the corporation was nationalized by the Rumanian government without payment of compensation.
The Rumanian Claims Fund was created out of the net proceeds of property owned by Rumania or its nationals which was vested in the Alien Property Custodian or the Attorney General and liquidated pursuant to the Trading with the Enemy Act. The Foreign Claims Settlement Commission was empowered to determine the validity and amounts of claims of United States nationals against Rumania arising out of Rumania's failure to pay effective compensation for the nationalization of their property, and the United States Treasury was directed to pay from the Rumanian Claims Fund awards certified by the Commission on these claims.
On September 26, 1956 Viktor presented a claim relating to his Rumanian interests. The claimant's burden of proof as to Rumanian claims was essentially the same as for Yugoslav claims.
On June 15, 1959 the Commission rendered its final decision awarding Viktor $ 160,000 with respect to his Rumanian interests. Payments totalling $ 53,231.50 were made to Viktor on August 12, 1959, December 28, 1959 and October 25, 1960. It has been stipulated (Stip. par. 15) that these payments were not includible in Viktors' gross income under the war loss recovery provisions of Section 1332(b)(1) of the Internal Revenue Code of 1954.
THE RELEVANT STATUTES AND REGULATIONS
The relevant statutes include Section 212(1) and (2) and Section 265(1) of the Internal Revenue Code of 1954 (Title 26 U.S.C. §§ 212 and 265).
Section 212(1) and (2) is as follows:
' § 212. Expenses for production of income
'In the case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year --
'(1) for the production or collection of income;
'(2) for the management, conservation, or maintenance of property held for the ...