Distributors, 692 F.2d 214 (1st Cir. 1982).7 In Nation-Wide, a money order vendor sued the assignee for the benefit of creditors to recover the proceeds of money order sales previously held by the defendant. After commencement of the suit, the assignee allowed the destruction of records which were relevant and necessary to proving plaintiff's right to the proceeds. Affirming the District Court, the U.S. Court of Appeals for the First Circuit held that where the assignee was aware of the suit and was familiar with the records, his destruction of the records raised an inference adverse to the assignee sufficient to allow plaintiff to meet its burden of tracing the proceeds to the distributor's bank account.

Assuming we were to employ the Nation-Wide rationale, petitioners have convinced us that the lists are relevant to whether the certified number assignment procedure was followed. It is also plausible that, generally, respondent's employees could have been aware of the usefulness of the lists in the present controversy. But, unlike Nation-Wide, there is no specific indication that the information in the list either proved or would prove petitioners' contentions. Moreover, respondent has adduced sufficient uncontradicted evidence proving that the mailing occurred on October 31. After a review of all of the facts and circumstances in this case, we hold that even if we were willing to employ the rationale of Nation-Wide, it would not change the outcome of this case.

We conclude that petitioners have failed to carry their burden of persuasion. Therefore, we hold that the notice was timely mailed.

To reflect the foregoing,

An appropriate order will be issued.

See also Brown & Williamson Tobacco Corp. v. Jacobson, 827 F.2d 1119, 1134-1136 (7th Cir. 1987), cert. denied sub nom. CBS, Inc. v. Brown & Williamson Tobacco Corp., 485 U.S. 993 (1988) (a court and a jury are entitled to presume that documents destroyed in bad faith while litigation is pending would be unfavorable to the party that has destroyed the documents).

ANTHONY J. ACCARDO AND CLARICE ACCARDO, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 39577-87.

Filed February 27, 1990.

Held, legal expenses in successful defense of RICO charges were not paid or incurred for the management, conservation, or maintenance of property held for the production of income and, accordingly, are not deductible under sec. 212(2).

Carl M. Walsh, for the petitioners.

Diane L. Berkowitz, for the respondent.

OPINION

CLAPP, Judge: Respondent determined deficiencies in and additions to petitioners' Federal income taxes as follows:

Additions to tax

1

Year Deficiency Sec. 6653(a)(1) Sec. 6653(a)(2)

Sec. 6661

$9,903

The case was submitted fully stipulated under Rule 122. The issues are (1) whether petitioners may deduct under section 212(2) the legal expenses they incurred in successful defense of petitioner Anthony J. Accardo in a criminal prosecution under the Racketeer Influenced and Corrupt Organizations Act; (2) whether petitioners are liable for additions to tax under section 6653(a)(1) and (2); and (3) whether petitioners are liable for an addition to tax under section 6661.

Petitioners resided in Barrington Hills, Illinois, when they filed their petition. Clarice Accardo is a party only because she filed a joint income tax return with her husband. All references to "petitioner" in the singular will be to Anthony J. Accardo.

On June 3, 1981, petitioner and 15 other defendants were indicted by a Federal grand jury in Florida. The relevant portions of the indictment read

1All section references are to the Internal Revenue Code of 1954 as amended and in effect for the years in issue. All Rule references are to the Tax Court Rules of Practice and Procedure.

THE GRAND JURY CHARGES:

COUNT ONE

3. From on or about October 1970 and continuously thereafter until December 31, 1977, in the Southern District of Florida and elsewhere, the defendants ANTHONY ACCARDO *** [and others] did knowingly, willfully, and unlawfully conspire, combine, confederate, and agree together, with each other, and with other persons known and unknown to the Grand Jury, to conduct and participate, directly and indirectly, in the conduct of the affairs of the Laborers Union through a pattern of racketeering activity in violation of Title 18, United States Code Section 1962(c).

4. It was part of the conspiracy that the defendants and co-conspirators would be employed by or associated with an enterprise which was engaged in, and the activities of which affected interstate commerce, to wit: the Laborers Union, including its subordinate bodies and affiliated benefit plans.

5. It was further part of the conspiracy that the defendants and co-conspirators would commit and cause to be committed multiple acts of racketeering activity, to wit: the unlawful payment and receipt of things of value relating to questions and matters concerning employee welfare benefit plans, in violation of Title 18, United States Code, Section 1954.

6. It was further part of the conspiracy that some of the defendants and the co-conspirators would, directly and indirectly, give, offer, and promise to give and offer fees, kickbacks, commissions, gifts, loans, money, and other things of value to other defendants and co-conspirators who were administrators, officers, trustees, custodians, counsel, agents, and employees of employee welfare benefit plans, with other defendants and coconspirators aiding, abetting and counseling both of the previous groups, because of, and with intent to influence, the actions, decisions, and other duties of such defendants and co-conspirators as administrators, officers, trustees, custodians, counsel, agents and employees relating to questions and matters concerning such plan, that is, granting of welfare benefit plan dental, vision and life insurance business.

7. It was further part of the conspiracy that the defendant ANTHONY ACCARDO would agree to and support the operation of a kickback scheme involving the Laborers Union initially in Chicago and Florida and eventually nationwide in return for payments of money.

*

39. During 1975 defendant ANTHONY ACCARDO had a conversation with Joseph Hauser in which he advised Joseph Hauser that the insurance business of the Laborers Union would be controlled by "the

family" with

ACCARDO controlling the midwestern United States

All in violation of Title 18, United States Code, Section 1962(d).

THE GRAND JURY FURTHER CHARGES:

FORFEITURE

2. Through the aforesaid pattern of racketeering activity, the defendants ANTHONY ACCARDO *** [and others] have acquired and maintained interests in violation of Title 18, United States Code, Section 1962, thereby making these interests subject to forfeiture to the United States pursuant to Title 18, United States Code, Section 1963.

3. The interests of the defendants subject to forfeiture to the United States include any and all proceeds of the pattern of racketeering alleged in Count One and any and all interests, securities, claims, and property and contractual rights acquired through the use of these proceeds, including $2,064,066.32 paid and received as kickbacks as set forth in [the indictment] ***

4. The defendants are jointly and severally liable to the United States for this forfeiture.

Petitioner was acquitted by the jury on June 30, 1982. On their Federal income tax returns for 1981 and 1982, petitioners deducted legal fees of $17,500 and $207,000, respectively, that they incurred defending petitioner against the charges.

Title 18 U.S.C. sec. 1963 (1982) in effect at the time of trial provides that:

(a) Whoever violates any provision of section 1962 of this chapter shall be fined not more than $25,000 or imprisoned not more than twenty years, or both, and shall forfeit to the United States (1) any interest he has acquired or maintained in violation of section 1962, and (2) any interest in, security of, claim against, or property or contractual right of any kind affording a source of influence over, any enterprise which he has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962.

The only assets, if any, that petitioner was attempting to protect against forfeiture under 18 U.S.C. sec. 1963 were three certificates of deposit of $500,000 each, and condominiums in River Forest, Illinois, and Indian Wells, California, that petitioners used as their personal residences. The

indictment did not specifically identify these assets as property subject to forfeiture under 18 U.S.C. sec. 1963. The funds used to purchase these assets were not obtained from the alleged activities for which petitioner was indicted. Section 212(2) provides that an individual may deduct "all the ordinary and necessary expenses paid *** for the management, conservation, or maintenance of property held for the production of income." Petitioner argues that the entire amount of the legal fees should be deductible under section 212(2) because the indictment sought a "forfeiture judgment," and petitioner accordingly incurred the legal fees to conserve and maintain income-producing property (the certificates of deposit). Petitioner does not explain why he believes that none of his legal fees were incurred to conserve and maintain his other nonincome-producing property (the condominiums) or to keep him out of jail.

In any event, we hold for respondent. No allocation is necessary because no part of the legal fees is deductible. Petitioner's situation is no different from that of any defendant in a criminal or civil trial who faces a potential fine or monetary judgment that must be paid out of incomeproducing assets such as savings accounts, certificates of deposit, or stocks. In United States v. Gilmore, 372 U.S. 39, 46 (1963), the Supreme Court noted that the taxpayer in Lykes v. United States, 343 U.S. 118 (1952), had—

argued that if he had been required to pay the original [gift tax] deficiency he would have been forced to liquidate his stockholdings, which were his main source of income, and that his legal expenses [contesting the deficiency] were therefore incurred in the "conservation" of income-producing property and hence deductible under *** [the predecessor of section 212(2)]. ***

The Lykes Court rejected the taxpayer's argument,2 saying that

It would mean that the expense of defending almost any claim would be deductible by a taxpayer on the ground that such defense was made to help him keep clear of liens whatever income-producing property he might have. For example, it suggests that the expense of defending an action based upon personal injuries caused by a taxpayer's negligence "The taxpayer now would be allowed a deduction under sec. 212(3).