Hall , 578 F.2d 1389 ( 1978 )

Taxes; income tax; deductions; legal fees; allocation of fees between various legal services. — Plaintiffs seek refund of income taxes for calendar year 1969 by reason of disallowance of a deduction for legal fees respecting activities in defending the legality of plaintiff-husband’s Nevada divorce, alimony problems, property settlement, etc. In a recommended decision reported in full at 78-1 USTC para. 9126 and 41 AFTR para. 78-322, Trial Judge Francis C. Browne concluded that plaintiffs had failed to prove, by a preponderance of the evidence, allocation of a portion of the legal fees to tax counseling advice, and that accordingly plaintiffs are not entitled to a rededuction under Sec. 212(3) of the Code. The trial judge also concluded that plaintiff via its amended petition and brief could not contest in the Court of Claims the deductibility of the fees under Secs. 162(a), 212(1) or 212(2) of the Code because they limited their administrative claim to allegations concerning Sec. 212(3). Furthermore, defendant’s failure to object to testimony relating to business expenses did not constitute a waiver of the requirement of the substantial variance rule. On April 4, 1978 the court, by order, adopted the trial judge’s recommended decision as the basis for its judgment in this case, held that plaintiffs are not entitled to recover, and dismissed the petition.