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Rev. Rul. 1972-545 Document Info Printer

Revenue Rulings
Internal Revenue Service
 Revenue Ruling

Rev. Rul. 72-545

1972-2 C.B. 179

Sec. 212
 Sec. 262

IRS Headnote

Situations are described in which legal fees that include charges for
advice concerning tax consequences incident to divorce may be allocated on
a reasonable basis and the tax counsel portion included in taxpayer's
itemized deductions for the year paid. 

Full Text

Rev. Rul. 72-545 

Advice has been requested whether legal fees incident to divorce
proceedings that are incurred and paid by a taxpayer during the taxable
year and that are attributable to tax counsel in the situations described
below are deductible for Federal income tax purposes under section 212(3)
of the Internal Revenue Code of 1954. 

Situation (1). The taxpayer at the time of his divorce engaged a law firm
to advise him of the Federal income tax consequences to him of a proposed
property settlement agreement in which he transferred his interest in
certain properties to his wife in exchange for the transfer to him of her
interest in other properties, and the release by her of marital rights in
certain other properties owned by him. The law firm limits its practice to
matters involving state and federal taxation. 

Situation (2). The taxpayer at the time of his divorce engaged tax counsel
to advise him of the Federal income, gift, and estate tax consequences to
him of establishing a trust to make periodic payments to his wife during
her life in discharge of his obligation under state law to support her,
with the remainder interest in the property to pass to their children at
her death. The law firm also handled certain non-tax aspects of the
divorce, but the tax matters were referred to and were handled by a
department in the firm that specializes in taxation. The firm's statement
to the taxpayer allocated a portion of the total fee to tax matters. The
allocation was based primarily upon the time required, the difficulty of
the tax questions presented, and the amount of taxes involved. 

Situation (3). The taxpayer, for an agreed fee engaged a practitioner to
represent him in connection with his divorce. The legal services included
tax counsel concerning the right of the taxpayer to claim the children as
dependents for Federal income tax purposes in years subsequent to the
divorce. The practitioner's statement to the taxpayer allocated the fee
between the tax advice and other non-tax matters, based primarily on the
amount of the attorney's time attributable to each, the fee customarily
charged in the locality for similar services, and the results obtained in
the divorce negotiations. 

Section 212(3) of the Code permits a deduction for all ordinary and
necessary expenses paid or incurred during the taxable year in connection
with the determination, collection, or refund of any tax. 

Section 1.262-1(b)(7) of the Income Tax Regulations provides, in part, that
generally attorneys' fees and other costs paid in connection with a
divorce, separation, or decree for support are not deductible by either the
husband or wife. See also United States v. Don Gilmore, et ux., 372 U.S. 39
(1963), Ct. D. 1878, C.B. 1963-1, 355; United States v. Talbot Patrick, et
al., 372 U.S. 53 (1963), Ct. D. 1877, C.B. 1963-1, 51. 

Section 1.212-1(1) of the regulations provides, in part, that expenses paid
or incurred by a taxpayer for tax counsel or expenses paid or incurred in
connection with the preparation of his tax returns or in connection with
any proceedings involved in determining the extent of tax liability are
deductible. In order for an expense to be deductible under Section 212(3)
of the Code it must relate solely to tax counsel. United States v. Thomas
Crawley Davis, et al., 370 U.S. 65 (1962) Ct. D. 1873, C.B. 1962-2, 15;
Carpenter v. United States, 338 F.2d 366 (1964); George v. United States,
434 F.2d 1336 (1970); and James A. Collins, et ux., v. Commissioner, 54
T.C. 1656 (1970) acquiescence, C.B. 1971-1, 2. If such expense is incurred
in connection with an activity that is not solely concerned with tax
matters, the expense for tax counsel must be properly allocated and
substantiated. Meyer J. Fleischman v. Commissioner, 45 T.C. 439 (1966) and
Arthur D. McDonald et ux. v. Commissioner, 52 T.C. 82 (1969). 

In each of the three situations described above there exists a reasonable
basis for allocating to tax counsel a portion of the legal fees incurred in
connection with the divorce proceedings. Accordingly, it is held that the
expense for tax advice to determine the tax consequences to the taxpayer
incident to divorce in each of the above situations is deductible under
section 212(3) of the Code in computing taxable income for the year in
which the expense is paid, provided the taxpayer in each of the above
situations elects to itemize his deductions.

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