United States v. Gilmore – Oral Argument – March 28, 1962

Media for United States v. Gilmore

Audio Transcription for Oral Argument – March 27, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Earl Warren:

Number 255, United States, Petitioner, versus Don Gilmore et al.

Mr. Barnett, you may continue your argument.

Wayne G. Barnett:

Mr. Chief Justice.

The question in this case is whether the respondent’s litigation cost, the nature and character which I described yesterday, are to be treated as the cost of his marriage or the cost of his business or the relationships of his marriage or the cost of his business.

The relationships to each are clear.

The claims asserted arose out of the marriage.

They depended entirely upon the marriage relationship and came from the marriage relationship.

The claims, if successful, would extend themselves on the business either by taking his business assets, causing him to lose his franchise or his job.

William J. Brennan, Jr.:

Incidentally, there’s no quarrel if they are deductible, there is no quarrel with the apportionment of 32,000 or 45,000, is it?

Wayne G. Barnett:

I would quarrel with — we did not, we did not raise a question about the allocation.

There — it’s a rather defective allocation in our view but — now, the question is which aspect of the claim, its source or its consequence controls this characterization as personal business and we contend that it’s the source of the claim that makes no difference on how it’s going to be paid if you happen to lose the lawsuit.

Supposing in the first case, Gilmore, the suit, the petition, immunity of property has been brought during the existence of the marital relationship.

In other words, supposing that you have the situation —

Wayne G. Barnett:

Yes, I understand.

— Gilmore is existing during the marital —

Wayne G. Barnett:

Right.

— relationship.

Wayne G. Barnett:

Right.

Would those expenses had been deductible?

Wayne G. Barnett:

I wish to distinguish a claim by her that there is community property and litigation over that claim and conceded community property and the litigation over the partition of it.

The first, I would say is personal and it’s not deductible for that reason.

She is asserting a claim arising from her status as being a wife that there is community property to —

William J. Brennan, Jr.:

Well, is it to an aspect of that in this case?

Wayne G. Barnett:

The — the assertion that there is community property is in this case and I say that’s personal.

That derived from the marriage relationship.

If you can see that there is community property which is true in the Fifth Circuit case, the Owens case and that it is simply a matter of dividing, I would say the expenses are capital not that that they’re nondeductible because they’re capital and not because they’re personal.

They’re nondeductible either way.

Actually, I think you’ll find that the Patrick case involves more of the capital problem than this case.

Now, I think the principle that you look to the source and nature of the claim and not to the consequences is as firmly established by the decisions of this Court that is possible for any doctrine of tax law to be established.

One of the earliest tax cases on business expenses is the Kornhauser case decided back in 278, I believe, U.S. it’s cited in our brief.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Wayne G. Barnett:

That involved the converse situation.

A — the taxpayer was formerly the partner of a law office.

After he resigned from the partnership, he was sued by his former partner claiming that he’d received fees for services that perform — during the partnership for which he was required to account to the other partner that he has been receiving in a form of a stock.

The Bureau of Internal Revenue argued that he was no longer in the business and that he was really just defending some property he happened to own, the stock and therefore, the expense is capital or personal.

I’m happy to say that the Solicitor General disassociated himself from that argument and filed a brief taking the other view.

The Court held that since the claim asserted arose from his former business activities, the expense of defending it were deductible and the fact that the claim would expend itself only what — on what was now personal assets was irrelevant.

Now, more directly in point is the recent decision in the Lykes case which involved this side of the coin — Lykes, that’s in 343 U.S., a gift tax deficiency was asserted against Mr. Lykes.

Mr. Lykes is the president of a family owned corporation.

He made gifts of stock in that corporation to his wife and children and reported them for gift tax purpose.

The Commissioner thought he’d under valued the stock and asserted a deficiency of $150,000 based on the issue evaluation.

The issue evaluation went to the Tax Court and is finally settled by agreement by paying the $15,000 additional deficiency.

Now, Mr. Lykes claimed the deduction under the same provision involved here.

One of his arguments was that if he’d have to pay $150,000, he would’ve had to liquidate his remaining holdings in the family corporation which was the main source of income and therefore, it’s a direct and immediate threat on his income producing property.

This Court said in an unmistakably clear terms that it is solely the source and nature of the claim and it makes no difference that if you just — the defense is unsuccessful, it will consume income producing property.

I might say that this seems to me — obviously necessary result.

Once you consider the corollary problem which you have a claim arising from business transaction, does it make a difference that you’ve retired and all of the property you have is personal property like home, life insurance policies, there is no threat to your income producing activities.

Of course you can deduct the expense of descending a claim that arose from your business transactions.

I would — just to distinguish the case, as you might assume a tort claim against due for personal injuries.

If the tort claim is for injuries caused by a former employee of yours while you’re engaged in business, defending the claim is equally attributable to the business activities and is deductible whether or not the judgment will be paid out of income producing or non-income producing asset.

On the other hand, if the tort claim is — arises from your driving an automobile for pleasure, I can’t see how it can possibly make a difference that the judgment is going to expend itself on income-producing assets rather than upon personal property.

I would like if I may to reserve my — rest of my time for a rebuttal.

Earl Warren:

You may Mr. Barnett.

Mr. Freed.

Eli Freed:

Mr. Chief Justice and members of this Court.

I would like to give some attention to the question passed by Mr. Justice Harlan of counsel of which the counsel didn’t have the time to answer.

The question was that, as I understood it, that if an — if a husband and wife before any divorce action, should become engaged in litigation to dissolve or partition the community property whether the legal expenses of the husband in such a case would be deductible expenses.

The case of Kornhauser against United States discussed by counsel, touches directly on this subject, I believe.

In Kornhauser which is one of the leading cases, there was a suit by two lawyers who had formerly been law partners.

The plaintiff claimed that if the part — law partner had received some fees during the partnership, the fees consisted of shares of stock and that the defendant or partner have failed to account for those fees.

The legal expense of defending that action was deducted.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Eli Freed:

The deduction was disallowed and the question that was at issue on that subject was whether those expenses were personal.

There was a question as to whether they were capital in nature, but as I read the case, I understood that the principal contention was that they should be disallowed primarily because they were personal because the partnership no longer existed and the Court — this Court held that since these legal expenses that were incurred were approximately related to a partnership and a dissolution of the partnership, they were deductible because expenses should be just as deductible if they incurred in the pursuit of income as to defend income and retain such (Inaudible).

Now, in the case of a husband and wife at California, in addition to the marital obligations that they have to each other, they have a distinct and well-recognized property relationship.

The community property relationship of the husband and wife, they in some sense — in a sense to be regarded this as substitute for what rights that the wife has against the husband and non-community property states.

Those are the property rights that are well-established.

They’ve been even criticized as we put it out in our brief that is the relationship has been criticized as too much of a business relationship, but in this day and age, I think we can readily understand that the addition to the marital obligations of husbands and wives has to each other that they — they regard that they — the husbands and wives in California regard each other as partners insofar as the earnings, that is the income, the gains and the losses of the community here concerned.

It’s my understanding that counsel contends that — that generally expenses that are incurred to conserve property held for the production of income are deductible, but that’s not so in the case of a husband and wife.

In a situation where they become engaged in the dispute which is initiated by a divorce action, it’s our view that’s unrealistic and unfair.

That in California, particularly, and what we’re dealing with here, the husband and wife have this so-called partnership relationship as well as this marriage relationship and there can be more than one issue between them in an action which is termed a divorce action.

In this case — there was a divorce action, but there was also a distinct controversy recognized by the court below as being the most important controversy over the question of whether there was community property and that there is was — a community property and the community property had to be dissolved which is one of the incidence of that type of proceeding, namely, if there is community property in that same action, there was this partition or dissolution of the community that has been referred to.

Now, if there had been — if the wife in the Gilmore case had succeeded in proving to the satisfaction of the trial court that there was community property, and she had a reason to expect that she would get a portion of it whether she win or lost the divorce action and Mr. Gilmore, the taxpayer could expect whether he won or loss the divorce that his wife could reasonably expect a substantial portion of the community property.

Potter Stewart:

Am I right in my understanding that under the involved, California is actionable if the Court had found that the advantage of divorce based upon the husband’s aggression then the wife is entitled to at least 50% of any community property?

Did I understand that correctly from the brief?

Eli Freed:

I would like to explain that.

Potter Stewart:

Please do.

Eli Freed:

There are I believe five grounds for divorce in California.

Two of the grounds are involved in this case, adultery and extreme cruelty, the other grounds I may mention as I remember, desertion, habitual temperance and insanity.

In the case of extreme cruelty and adultery, when the court finds that there is community property, the court is required by law to award upon the dissolution of the community property more than 50% to the innocent spouse.

Potter Stewart:

50% of the community property.

Eli Freed:

Yes, just community.

There is no obligation at all in —

Potter Stewart:

(Inaudible) more than 50.

Eli Freed:

50% or more than 50%.

Potter Stewart:

Well, was that discretionary with the Court?

Eli Freed:

Entirely discretionary, maybe 51% and conceivably it could be all.

Potter Stewart:

And if on the other hand, the divorce is granted as it was upon the basis of the — on the grounds of wife’s strong doing then it’s within the discretion of the Court, is it, whether or not to grant any — grant her anything, any of the community property or is he limited in what he can grant?

Eli Freed:

If the court had found that there was community property.

Potter Stewart:

Yes.

Eli Freed:

It was within the discretion of the court to deny Mrs. Gilmore any of the community property because she was found to be the guilty party.

Potter Stewart:

Yes.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Eli Freed:

Does that answer your question?

Potter Stewart:

Well, but he — could he — could the court in his discretion have granted even though based upon her fault, even though the divorce has been based upon her fault or guilt or aggression, could the court in his discretion even so have granted her some or all of it —

Eli Freed:

Yes, the Court could have granted her as much as 49%.

Potter Stewart:

Up to 50 %.

Eli Freed:

Up to 50%.

Potter Stewart:

I see.

Eli Freed:

Yes.

Now the crux of this tax case is found in the finding of the Court of Claims that 80% or more, and I believe I should emphasize those words or more.

There was no doubt in the mind of the Court of Claims that it should be at least 80%, that 80% or more of the legal expenses involved were incurred for services to defeat the efforts of the wife to establish that there was community property and to that — in her claim that she was entitled to at least 50% of it.

The consequences to Mr. Gilmore in case she had succeeded or apparent in the findings, the other findings, he was exposed to the risk in case she secured any of the community property upon dissolution of the community which consists of stock and these automobile corporations, he was exposed to the risk of having the franchises of the automobile dealerships cancelled.

There are other reasons such as the fact that the dealerships were required to maintain minimum capital standards and the record shows that that could not have been done if she had secured any substantial part of the community property.

That finding of the Court of Claims as I understand it, (Inaudible) is conclusive here.

I also understand that from my reading of the case of being in the crest of this Court that Mr. — the opinion written by Mr. Chief Justice Stone was held that — that the question of whether the expenses involved in such dispute as this are proximately re-enlightened to the question of whether these services and expenses were — that is the expenses were incurred for the conservation of property held for the production of income, but that question of proximity is for the trier of fact ordinarily.

And I submit that the court below found as an ultimate fact that the expenses in the case of Barr are proximately or were proximately related to the conservation of Mr. Gilmore’s stock, property which held for the production of income, a property which was I can say with the nominal exception was his entire source of income and it was the policy of Congress as I understand it and the intent of Congress that in adding section or subdivision 2 to Section 23 (a) of the 1939 Code to remove the inequity that had existed between situations where expenses if incurred in business approximately related to the production of income were deductible but expenses that were of an on business nature although likewise proximately incurred or incurred proxi — approximately in relation to the conservation of property held for the production of income were not deductible and I don’t see any sound reasoning for discriminating the dispute between the husband and wife where if the — a similar — somewhat similar dispute that is related to — as much related to property held for the production of income as in this case why there should be discrimination could be disallowed in the case of a husband and wife is because they’re married.

Now in California but it’s not unusual for husbands and wives to actually go into a partnership together.

They have that right under our law as we have pointed out in our brief.

They can reach any agreement they see fit in regard to property.

I think that this Court could take judicial notice of the fact that there are such partnerships.

Like I am a member of such a partnership, my wife is a lawyer and in such a case if there was a divorce action and there should also be dissolution of a community partnership.

As I understand it, the rule intended for by counsel would be extended to such a case and expenses incurred to preserve property held production of income or expenses incurred in the dissolution of such a marital partnership should not be allowed because they got married and that was the origin that continues to run through all of their activities thereafter it would seem.

Take the situation that the — perhaps it’s the most familiar one, the Reno divorce, a so-called friendly divorce.

There are two steps in that always, one is — really only one step actually.

Lawyers negotiate a separation agreement which is in fact a property agreement.

Is it your view that irrespective of whether it’s a community property estate or not that if the separation agreement involves dealing with income producing property that the attorney’s fees are — in that case are deductible?

Eli Freed:

That happens to be my view although I don’t think that that view must necessarily be adopted in our case.

No, I realize that but I — your view would stretch to that standard.

Eli Freed:

Yes.

I would be very sympathetic to that view that there should be no discrimination against a husband who knowingly and deliberately incurs expenses and it pains him as much as anyone else to go out of pocket to defend and conserve his rights in property which he holds for the production of income.

I see no reason for distinguishing between a husband and wife and between people, two persons who are not husband and wife.

Felix Frankfurter:

Mr. Freed, a minute ago, you said that it should be a trier of fact to determine what the cause of relation of the proximity.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Felix Frankfurter:

That means that if the trier of fact as a jury or these cases may come before jury that —

Eli Freed:

I don’t think they can Your Honor.

The —

Felix Frankfurter:

Well, they might be assuming in the court.

Eli Freed:

A divorce action cannot be tried before a jury —

Felix Frankfurter:

No, no, no.

I didn’t mean the divorce action but this allows subsequently, could come before a jury?

Eli Freed:

For a, say an account — dissolution in the (Voice Overlap)

Felix Frankfurter:

No, not — the — the disallowance of the Commissioner of the fact.

Eli Freed:

Yes, a refund case.

Felix Frankfurter:

The refund case and that may come before the jury.

Eli Freed:

Yes.

Felix Frankfurter:

That means that an appropriate charge have been made to a jury saying it’s for you gentleman of the — ladies and gentlemen of the jury to find how closely connected this is and whatever they find would control under decisions of this Court, is that right?

If this is a jury question, if this a matter put to the jury on a general charge, that the determination of the closeness, the consequences and therefore, let me take this course to simplify the matter before the Congress — before a judge of a trier of fact and this, as I find that this is closely connected with the proper consolation of property.

Another jury, another judge sitting alone might take a contrary view and these findings would be sustained, is that right?

Eli Freed:

Yes sir, I certainly believe that if I were in a jury case, I think the jury should have the right to determine as a fact whether the expenses were incurred.

Felix Frankfurter:

In connection with —

Eli Freed:

Not for the divorce itself but whether they were incurred for services that were rendered directly in connection with the property controversy.

Felix Frankfurter:

But that in every case in which — in every case of this sort in which there’s a rundown between the two spouses and their lawyers with reference to making the best kind of a settlement, the property interest would be involved wouldn’t it?

Eli Freed:

Yes.

Felix Frankfurter:

So that —

Eli Freed:

Not always, Your Honor.

In California, the — there — it’s quite possible for them to try the divorce action and not dissolve or dispose of their property relationship.

Felix Frankfurter:

No, no, no.

But if — whenever there is a controversy about it —

Eli Freed:

No.

Felix Frankfurter:

If they don’t reach a settlement, there would be.

Eli Freed:

Most of the time Your Honor.

Felix Frankfurter:

Yes, anyhow for a sufficient number of time.

This is in the(Inaudible), is it?

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Eli Freed:

No.

Felix Frankfurter:

So we really — what this Court will do in this case will affect a lot of cases.

Eli Freed:

I should think so.

It would affect the deduction of expenses which people will incur in these kinds of cases that they —

Felix Frankfurter:

It would be done too rare these days unfortunately.

Eli Freed:

But you still have to determine.

Felix Frankfurter:

Yes.

Now, all these leads up to what I would ask you.

Is this — is it fare to say that this is a question of fact, for the trier of fact, leading to these inevitable and appropriately leading to these diversities of judgment or is it one of these cases which we, lawyers call questions of law in the sense that it isn’t a question for the jury that a line has to be drawn, namely, whether you take one view, whether the expenditures relate directly and indirectly and/or contingent ego is a well-known concepts of the law.

Isn’t it that kind of a problem rather than a question of fact for the jury leading to all these diversities on exactly the same, not assessment of evidence, not judgment of more or less but a guiding line?

Is it necessary here to establish a guiding line and that’s what we mean by rule of law?

Eli Freed:

I’ve given a lot of thought to that problem and I concluded that it would be up to the trier of fact to determine and it could determine whether the primary purpose, and I use the words primary purpose knowingly because it’s often used in tax cases, primary business purposes is a common expression, the primary purpose is to consider a property held for production of income.

I think that can be determined as a question of fact and if the record supports it, that fact should be conclusive, that’s exactly what the Court of Claims did here.

They had a hearing commissioner who have heard the facts, he reported the facts and the findings and the Court of Claims accepted it as a fact that the expenses were incurred primarily for the purpose of defending and conserving the property that was held for the production of income and not primarily for any other purpose and the same what — and this — and by the — that finding, the Court also determined as a corollary that 20% or less of the total expenses were incurred for matters proximately related to or pro — for things proximately related to personal matters such as the divorce itself such as alimony which is personal and houses.

But that was before the trier of fact, they can see, there was testimony that I’ve referred to some of it in our brief to show it realistically that it is for the trier of fact.

Now, there can be, I can understand some questions of mixed fact of the law here but after thinking about it very carefully, that was my conclusion.

Felix Frankfurter:

I was — I was just imagining that in my limited imagination the kind of speeches that will be made to juries in this case, the kind of a speech that one man would make that he really didn’t care about her, he tried to get rid of her but he didn’t want to have this much money as against the fact that he — to get rid of her implied or may involve some publicity and that may jeopardize his license from General Motors.

I can imagine a wonderful kind of oratory before juries on this question of whether it’s primary or secondary or whether there’s a — there’s a condominium, a juncture of motives, I think the wonderful thing to embark on speculation.

Eli Freed:

Your Honor, I submit —

Felix Frankfurter:

Stimulation and we lawyers indulge in that with pleasure.

Eli Freed:

I submit that the American people as jurors are sufficiently experienced in marital matters and in property matters to exercise a fair judgment on the matter of that kind.

Certainly, you make speeches but it’s up to counsel in term of what kind of speech would be most persuasive in a matter of that kind.

Earl Warren:

Mr. Freed — Mr. Freed, does your theory carry to this conclusion that in litigation of this kind, the jury is called upon to determine how important the divorce is to the parties and how important the division of property is in order to determine this question?

Eli Freed:

Based upon evidence that is introduced before the jury testimony, there are testimonies in those days, yes, I do think that on the testimony in the record of this case for example, we have one juror as the Commissioner of the Court of Claims.

Now, we made arguments to him and the fact that there’d be 12 people that should make a better difference in my mind.

Felix Frankfurter:

It might be better for the 12 you —

Eli Freed:

Yes.

Felix Frankfurter:

You dilute a different (Inaudible)

Eli Freed:

Of course that’s an accepted procedure.

I find that to be a very good way of dealing with the problem of this kind.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Eli Freed:

It shouldn’t be left to the Commissioner of Internal Revenue I think.

Hugo L. Black:

Do you not weaken your position on the fact that it has been — you add the word primarily to the words of the statute?

Eli Freed:

I don’t, Your Honor, add the word primary to the statute.

Hugo L. Black:

Each time you’ve said — the statute says, all the ordinary and necessary expenses paid or incurred during the taxable year for the production and selection of income or for the management and conservation and maintenance of property.

Eli Freed:

Yes.

Hugo L. Black:

Each time you say, so long as you primarily for this management conservation and so forth of the property.

Eli Freed:

I used the word primarily Your Honor in the sense of dominance as the fact if the trier of facts determines that all of the expenses could conceivably be allocated to — for example, the divorce, the trier of fact determines that primarily that isn’t — that the dominant motive and purpose of the expense —

Hugo L. Black:

Why do you have to get to motive and purpose there?

Eli Freed:

Yes.

Hugo L. Black:

In that field.

Eli Freed:

Yes, in that field, yes.

It’s not uncommon as Your Honor well knows that expenses that are alleged to have incurred in business that have no business purpose and are primary purpose are not allowed.

Hugo L. Black:

Suppose somebody who’s knocked this man’s life, had sued him for this property that he owned, would you have to prove that his dominant purpose in defending it or primary purpose in defending it would keep the other person from getting it?

Eli Freed:

Not if that was the only issue between the two but if there were some collateral issue between them as to whether a — I can’t imagine what it might be that it could simply join two causes of action together, some other action in the same procedure.

Hugo L. Black:

Well, that’s a different thing.

Eli Freed:

It is Your Honor.

Hugo L. Black:

But not about his fighting to conserve his income producing property.

I don’t see why your word primary gets you far in your direction.

Eli Freed:

I use it just to take aim at the target, I suppose, that it helps me in — I think it will throw a little more light on the problem.

The counsel — for the government claims that these expenses should be regarded as personal and because they relate more to the divorce than they do to the property honestly, well, they relate primarily to the property more than the property —

Hugo L. Black:

Well, I assume.

Eli Freed:

— they do with divorce.

Hugo L. Black:

I assume your answer to that if there is an answer, if you’re right, it would be not lifted.

If you’re to get something, you can collect the fee but so far as it was paid for the purpose of (Inaudible) rather than to fight over the property.

It may be that you can’t divide those up.

I can understand an argument like that.

I don’t understand why you’d look — see whether its primary purpose was to find a service for the property whether its primary purpose was to concern his property.

The problem would be a fact as to whether or not that is a fact he paid this fee for the purpose of conserving his interest in this income producing property.

Eli Freed:

Yes.

Felix Frankfurter:

But if you have a co-mingling of factors and forces, one of which is — it has nothing to do with conserving the property and some of which may have to do — you to deal some — you have to deal with the statute whether the statute allows you to just have a little infusion of conserving property, remotely or as a distant consequence or whether that statute says you must have that or you mustn’t use the word purpose.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Eli Freed:

The statute is very simple just as Mr. Justice White said.

Hugo L. Black:

If you had — if you had a lawsuit by one count, it had nothing to do whatever in conserving property but another one did, I do not suppose that you would be barred from recovering part of the fee that is attributable to the conservation of property merely because somebody was afraid of the idea of co-mingling.

Eli Freed:

I can agree with that.

Felix Frankfurter:

But this is the real trouble that in some — in one sense, there is conservation of property in one sense.

Ultimately, it doesn’t make a difference to the total asset or to the potentiality with future earnings, but is that what the statute goes out — and we go out to something else but you can’t escape this by —

Eli Freed:

I think the statute —

Felix Frankfurter:

There was a word you used, your word primary, whatever word you may use, you are confronted with the question, does the statute of conserving property relate to have it or threats (Inaudible) demolition or actual demolition of property in the first line of fire or way beyond it.

That’s really what’s involved in here, isn’t it?

Eli Freed:

I see the red light.

Earl Warren:

You may answer it —

Hugo L. Black:

Suppose if you would — has done nothing here except the suit to divorce, you wouldn’t be claiming that — you could get it for trying to conserve your property, would you?

Eli Freed:

I beg your pardon?

Hugo L. Black:

If it’s nothing but a personal lawsuit for divorce between these people, you wouldn’t be claiming you could deduct that.

Eli Freed:

Of course not.

Hugo L. Black:

What did you say?

Eli Freed:

You’re absolutely right.

We wouldn’t claim that at all.

Hugo L. Black:

What you’re claiming is that the state of fee, a part of which was for conserving estate had income bearing for him.

Eli Freed:

Right.

Hugo L. Black:

And that the statute says that you can deduct maintenances, management conservation or maintenance of property held for the production of income, I presume you’re saying if — you shouldn’t be barred because one fee was paid for both purposes.

One part — part of it didn’t — wasn’t deductible from your standpoint and one for the (Inaudible), you’re claiming it for the part of the fee that was attributable to the conservation of the income.

Eli Freed:

Correct.

Felix Frankfurter:

The whole question is whether it was.

Eli Freed:

That’s what the trier of fact felt then I think it’s —

Felix Frankfurter:

The question is whether — on what basis the trier — the trier of fact went.

The trier of fact doesn’t grab anything out of the sky and says this is it.

Eli Freed:

Based on the income —

Felix Frankfurter:

Was there some kind of considerations?

Eli Freed:

The testimony —

Felix Frankfurter:

It is to determine what the statute means and what does it direct towards.

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

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Felix Frankfurter:

You’ve got an entangled situation means we have to disentangle it.

Is there anything in the legislative history that indicates whether Congress had in mind one way or the other the — this kind of a situation when they enacted 2382?

Eli Freed:

Your Honor, I found no reference in this type of situation in the legislative history.

The problem that confronts you would be greatly simplified that the lawyers stood up their bill and said so much in this financial settlement by representation and so much as to the divorce angle and then all you have question — the only question you have assuming the statute covers it at all is whether the — that’s a bona fide allocation of this or whether it’s an unreasonable fee then you don’t get tangled up with the problem that concerns you.

Eli Freed:

That of course if for the trier of fact that they did —

And the second case, you’ve got that allocation by the lawyers.

Eli Freed:

Yes.

Earl Warren:

Mr. Barnett, yesterday afternoon, Mr. Justice Harlan asked a question that — concerning something that I think it was not in your — in your briefs.

Wayne G. Barnett:

Yes.

Earl Warren:

And I thought it might possibly call for a memorandum and I wonder if Justice Harlan would repeat the question to you.

Wayne G. Barnett:

That’s about the regulation —

How the regulation (Voice Overlap) to be.

Wayne G. Barnett:

Yes sir.

I will supply a memorandum fee —

Yes.

Earl Warren:

Of course, Mr. Freed you may reply to the memorandum if you desire.

Wayne G. Barnett:

I — to solve this question about the question of the fact, I would like to stipulate that 80% of —

Felix Frankfurter:

I didn’t hear you.

Wayne G. Barnett:

I would like to stipulate that 80% of the fees, $32,000 would pay for the sole reason of saving his property.

There’s no question about that.

There’s no — there’s no question about that in any case.

The reason you defend a tort suit is to save your property.

You have no other interest at stake.

And if your property happens to be an income producing property, the property you’re saving is income producing property.

We don’t deny that.

It’s not a question about how direct the relationship is or what the facts are.

The question is whether the question turns up on that relationship or upon the source of the claim.

They’re entirely different things.

It’s a direct conflicting fact about the same thing.

I’m sorry?

Audio Transcription for Oral Reargument – December 06, 1962 in United States v. Gilmore
Audio Transcription for Oral Reargument – December 05, 1962 in United States v. Gilmore

del

I was just observing but I think that’s a very sensible position for you to take.

That’s not the issue in this case.

Wayne G. Barnett:

Right.

Earl Warren:

Very well.