DocketNumber: Docket No. 48168-86.
Citation Numbers: 55 T.C.M. 630, 1988 Tax Ct. Memo LEXIS 188, 1988 T.C. Memo. 164
Filed Date: 4/20/1988
Status: Non-Precedential
Modified Date: 11/20/2020
*189 MEMORANDUM OPINION
WOLFE,
After concessions, the sole issue for our decision is whether petitioners are entitled to deduct legal expenses incurred in 1980.
This case was submitted fully stipulated pursuant to Rule 122. The stipulation of facts and attached exhibits are incorporated herein by this reference.
The petitioners, Robert W. and Sonia Heinemann, husband and wife, resided in Dover, New Jersey at the time the petition was filed. 2
The factual background of this case is summarized below. 3
*190 In 1965, Robert W. Heinemann was employed as a scientist by the United States Government (U.S. Government) at the Army's Picatinny Arsenal (Picatinny) in New Jersey. Petitioner invented a "low density indirect fire munition system" (invention). In 1966, petitioner submitted an invention disclosure, invention rights questionnaire, and a military invention record to officials affiliated with Picatinny. In 1972, an attorney from the legal office of Picatinny demanded that petitioner assign his invention to the U.S. Government. Petitioner subsequently assigned the invention to the U.S. Government. 4 The assignment was recorded in August of 1972 at the United States Patent and Trademark Office. The U.S. Government filed a patent application for the invention in April of 1972. In 1974, the patent application was placed under a secrecy order which subsequently was lifted. In September of 1977,
*191 Petitioner filed suit against the U.S. Government in the United States Court of Claims in May of 1979, asserting three claims: (1) that he was entitled to damages for patent infringement; (2) that he was entitled to damages caused by a secrecy order on his invention and the United States' alleged use of his invention; and (3) that the United States' use of the invention was a taking without due process under the
In the 1980 decision (
Plaintiff 5 argues, in effect, that he is the equitable owner of the
And in denying the U.S. Government's*192 motion to dismiss petitioner's third claim of a taking by the United States the court states (at 879):
Of course, in order to find that the
In January of 1981, the Court of Claims ordered a bifurcated trial. 7 The first trial was to determine "the contested ownership issue and to consider defendant's allegation that it is entitled to a royalty-free license to practice the invention if plaintiff is adjudged to be the owner of the patent."
On March 1, 1984, the United States Claims Court held that the assignment*193 of the invention was not knowingly and freely given and remanded the case to Picatinny, in accordance with Exec. Order No. 10096,
*194 Petitioner contested the Agency determinations in the Federal Circuit Court of Appeals. 10 The Federal Circuit held that the
In their joint Federal income tax return for 1980, petitioners claimed deductions for legal expenses incurred in connection with the 1980 litigation in the amount of $ 4,405.00. 11 In the statutory notice of deficiency, respondent disallowed the deductions claimed by petitioner in 1980. Respondent's determinations are presumed correct and petitioners bear the burden of proving they are wrong.
The sole*195 issue for decision is whether petitioners are entitled to claimed legal expense deductions for 1980. Petitioner contends that he was a professional inventor and that the legal expenses he is claiming as deductions for 1980 were ordinary and necessary business expenses incurred in connection with his occupation as an inventor and deductible under
In the alternative, petitioner argues that the legal expenses are deductible under
In determining whether legal expenses are deductible under
Petitioner brought suit in 1979 for the primary purpose of setting aside his assignment of the invention*199 to the U.S. Government and reclaiming title to the invention. This conclusion is unaffected by petitioner's inclusion in his 1979 suit of a claim for damages for patent infringement and a claim for damages caused by a secrecy order on his invention and the United States' alleged use of the invention. Petitioner's right to receive any damages for patent infringement was wholly dependent upon and incident to the resolution of the primary issue, the determination of who owned the invention. Under the circumstances of this case, petitioner's request for damages for patent infringement cannot change the origin and character of the litigation. The fundamental origin and character of the underlying litigation here was the determination of title to the invention. See
Essentially, here petitioner seeks a deduction for legal expenses incurred in litigation to establish title to an invention. Petitioner's legal expenses are capital expenditures and are not deductible.
1. This case was assigned pursuant to section 7443A(b) and Rule 180 et seq. All section references are to the Internal Revenue Code as amended, and as in effect during the year in issue, and all Rule references are to the Tax Court Rules of Practice and Procedure. ↩
2. Mr. Heinemann sometimes will be referred to herein as petitioner. ↩
3. The facts are stipulated and facts also are set forth in the opinions with respect to the underlying dispute in this case at
4. Petitioner alleged that he assigned the invention to the Government as a result of his misplaced reliance on the legal opinion and documentation provided to him by the Picatinny attorney. Petitioner alleged that the legal opinion and documentation were incomplete and erroneously indicated that he was legally required to make such an assignment. ↩
5. Mr. Heinemann is referred to as Plaintiff by the Court of Claims. ↩
6. The United States is referred to as the defendant by the Court of Claims. ↩
7.
8. In
9.
10.
11. The amounts listed on the attachment to petitioner's tax return actually total $ 4,125.00. Respondent stipulated that all of the expenses claimed pertain to the litigation petitioner had pending in the Court of Claims. ↩
12.
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 -- * * *
(2) for the management, conservation, or maintenance of property held for the production of income; ↩
13. The parties only stipulated that petitioner claims that he is an inventor. ↩
J. Bryant Kasey and Maryann Kasey v. Commissioner of ... , 457 F.2d 369 ( 1972 )
Robert W. Heinemann v. The United States , 796 F.2d 451 ( 1986 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )
United States v. Gilmore , 83 S. Ct. 623 ( 1963 )