to defend title to property and, therefore, should be considered capital expenditures. The answer lies somewhere in between.

The Commissioner's regulations deny a deduction under section 212 for expenses paid or incurred in defending or protecting title to property. This provision of the regulations has been approved and applied in many cases, both by this and other courts. Only a few of these cases need be cited. Brown v. Commissioner, 215 F. 2d 697 (C.A. 5, 1954), affirming on this issue 19 T.C. 87 (1952); Louisiana Land & Exploration Co., 7 T.C. 507 (1946), affd. 161 F. 2d 842 (C.A. 5, 1947); Jones' Estate v. Commissioner, 127 F. 2d 231 (C.A. 5, 1942), affirming 43 B.T.A. 691 (1941); Addison v. Commissioner, 177 F. 2d 521 (C.A. 8, 1949), affirming a Memorandum Opinion of this Court; Safety Tube Corp. v. Commissioner, 168 F. 2d 787 (C.A. 6, 1948), affirming 8 T.C. 757 (1947).

The first of several questions raised by the petitioners' contention is that the Stricker suit cannot be considered litigation in defense of title because the Mississippi court and the United States District Court for the Southern District of Mississippi lacked jurisdiction to affect title to the plantation in Louisiana.

We do not think that either the Mississippi court or the Federal District Court in Mississippi lacked such jurisdiction. The Supreme Court of Mississippi in the case of Jacobson v. Jones, 236 Miss. 640, 111 So. 2d 408, 411 (1959), quotes the earlier Mississippi case of Sharp v. Learned, 182 Miss. 333, 181 So. 142 (1938), as follows: that the courts of this state have no jurisdiction over the subject matter of a suit involving the contested title to land situated in another state where there is no question of specific performance of a contract, enforcement of trust, or the doing of any act which from previous dealings is binding on the conscience of the parties, although the court had jurisdiction of the parties.

In the Stricker litigation, the plaintiff failed to establish as a fact that the title to the fee in the plantation had been taken by Morgan for a partnership of Stricker and Morgan. Had he succeeded in establishing that fact, then conveyance of an undivided one-half interest in the land to Stricker would have been an act binding upon the conscience of Morgan. Thus, the Stricker litigation would fall within the exception stated by the Mississippi court to the general rule that a Mississippi court cannot affect title to land in another State. This, of course, is dicta, and there appears to be no Mississippi case directly in point, but in the absence of a case it must be assumed that the Mississippi courts would follow the rule established in the majority of common law States that upon facts such as those alleged by Stricker in his bill of complaint an equity court may order a defendant who is before the court to make a deed of the property. 1 Beale, Conflict of Laws, secs. 97.1-97.10, pp. 417-428.

If a Mississippi court could require the conveyance of title, undoubtedly a Federal District Court sitting in the State of Mississippi in a case where jurisdiction is based on diversity of citizenship could do the same. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Guaranty Trust Co. v. York, 326 U.S. 99 (1945).

We deem it immaterial that Stricker asserted an equitable interest in the land rather than a legal one and that the title to the land could have been affected only indirectly through an order of the court requiring Morgan to execute a deed.

Therefore, we conclude that title to the plantation could have been affected in the Stricker litigation. In view of this conclusion, it is unnecessary to decide whether these expenses would be deductible if the court in the Stricker litigation lacked jurisdiction to affect title. There is some authority that they would not. Safety Tube Corp. v. Commissioner, supra.

The second question is raised by the petitioners' argument that the defendants in the Stricker litigation cannot be considered to have been defending their title because that suit was for an accounting between partners. In support of this contention, the petitioners cite Kornhauser v. United States, 276 U.S. 145 (1928); Rassenfoss v. Commissioner, 158 F. 2d 764 (C.A. 7, 1946), reversing a Memorandum Opinion of the Board of Tax Appeals; Hochschild v. Commissioner, 161 F. 2d 817 (C.A. 2, 1947), reversing 7 T.C. 81 (1946); Sergievsky v. McNamara, 135 F. Supp. 233 (S.D. N.Y. 1955); Selig v. Allen, 104 F. Supp. 390 (M.D. Ga. 1952); and Beer v. United States, 132 F. Supp. 282 (S.D. Ala. 1955). All of these cases may be distinguished. Some are distinguishable on the grounds that the suit was one in which income was primarily involved and title to property was merely incidental. Others are distinguishable on the grounds that the defendant in the suit was motivated to defend by some reason other than a desire to protect his title.

A review of the foregoing cases in addition to the many other decided cases would be of little aid, since each case turns on its own facts.

The present case seems to be most closely related to Addison v. Commissioner, supra. In that case the niece of the taxpayer had brought suit against her asserting that she had obtained property from her brother, father of the niece, by exerting undue influence. The taxpayer claimed the right to deduct the expenses of defending this suit on the grounds that it was a suit for an accounting. The Court of Appeals, affirming this Court, however, denied the deduction, saying that the niece's right to an accounting would depend on whether her title to the property was upheld. The same is true in the present case. Therefore, since the basic question in the Stricker litigation was the ownership of the plantation, we believe that the taxpayers con

cerned were defending their title to that property in spite of the fact that Stricker, in his suit, requested an accounting of what he asserted to be a partnership transaction.

The third issue raised by the petitioners in the alternative is, may a portion of the legal fees and expenses of this litigation be deducted as an expense of defending past income from the property which was also in issue in the suit? We hold that it may.

Stricker in his suit claimed not only the plantation but also the past income from it. This Court in Midco Oil Corporation, 20 T.C. 587 (1953), held that in the case of a suit for income-producing property the portion of expenses relating to past income from the property could not be deducted. That case was based upon a finding that the major objective of the suit was to dispute title to property. Where, as here, both property and the income from it have been the objectives of a suit and neither is predominant, an apportionment has been made. Daniel S. W. Kelly, 23 T.C. 682, 689 (1955), affd. 228 F. 2d 512 (C.A. 7, 1956), and Estate of Thomas E. Arnett, 31 T.C. 320 (1958). The evidence available for use in making this apportionment is not entirely satisfactory. However, judging from the income from the royalty shown for the years 1956 and 1957 on the tax returns which are before us, it would seem that the amount alleged by Stricker in his bill of complaint was not excessive. That amount was "in excess of $500,000.00." The value of the property must also be determined. The notices of deficiency valued the property as "in excess of $2,000,000.00." Stricker, in his bill of complaint, placed the value “in excess of $3,000,000.00." In view of the income factor, the higher value appears to be more reasonable. Using these figures, one-sixth of the fees and expenses, after allowance for items separately treated hereinafter, should be allowed as a deduction under section 212 of the Code.

The fourth question is whether the petitioners, other than the estate of Morgan, are entitled to a deduction for fees and expenses relating to past income from the property in view of the fact that they were not made defendants in the Stricker litigation. In E. L. Potter, 20 B.T.A. 252 (1930), it was held that a taxpayer might deduct the expenses of litigation in which he was not a defendant if he would be substantially affected by the result. Here the petitioners other than the estate of Morgan could be bound by some of the issues decided in the Stricker litigation if suit were brought against them in Mississippi. They may be considered in privity with Morgan because, although they obtained their interests in the plantation from him prior to the commencement of the Stricker litigation, they were donees and paid no value for the property. Hayes v. First Joint Stock Land Bank, 174 Miss. 880, 165 So. 605 (1936). Therefore, their participa

tion in the Stricker litigation was appropriate, and they may deduct their portion of the expenses relating to past income under section 212. The fifth question is whether the fees, expenses, and premium relating to the bond obtained to maintain the flow of royalty income may be deducted under section 212 of the Code. These amounts are clearly deductible as sums paid for the collection of income. The amount of expenses separately stated as applying to the bond may be deducted. We have found that 10 percent of the time of the attorneys was spent in dealing with the bond and the incompetency proceedings for Morgan. Seventy-five percent of this 10 percent of legal fees and general expenses is allowable as expenses pertaining to the bond.

The sixth and final question is whether a part of the fees relating to Morgan's incompetency proceedings is deductible under section 212 by any of the taxpayers involved. We hold that it is. Estate of Frederick Cecil Bartholomew, 4 T.C. 349 (1944), appeal dismissed 151 F.2d 534 (1945). Since 75 percent of the portion of the fees and expenses pertaining to the bond and the incompetency proceedings has already been allocated to the bond, the remaining 25 percent is allocated to the incompetency proceedings. Since Morgan's income tax returns reveal substantial income-producing property, we consider one-half of this sum as pertaining to property held for the production of taxable income. Of this, however, only that portion paid from Morgan's funds is deductible because this is solely the expense of Morgan. We deem him to have contributed to this sum in proportion to his ownership in the retained royalty interest.

Decisions will be entered under Rule 50.

HERBERT M. LARUE AND JANE S. LARUE, PETITIONERS, V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 79209. Filed October 16, 1961.

LaRue was an orthodontist employed by Girt, an orthodontist who maintained a practice in Pittsburgh and a branch practice in Uniontown. In 1953 Girt and LaRue entered into an oral agree ment concerning the Uniontown practice, which provided that for 1 year from May 1, 1953, all collections from the Uniontown practice would be received by Girt, 40 percent of such receipts remitted to LaRue, and Girt would pay all expenses of the office. For the next year all the collections would be received by LaRue, 40 percent remitted to Girt, and LaRue would pay all office expenses. From approximately June 1953, LaRue attended to the Uniontown office by himself and after April 30, 1955, Girt had no interest therein. Held, the oral agreement between Girt and LaRue amounted to a sale of the Uniontown practice. Held, further, all net income realized from the Uniontown office in 1954 and 1955 is taxable to LaRue. Held, further, the subject matter of the sale was the going Uniontown practice and the goodwill which attached thereto.

Held, further, the orthodontia cases pending in Uniontown at the
time of the sale are not amortizable. Held, further, the respondent
has not met the burden of proving the amount of additional income
to the petitioners alleged in the amended answer.

Paul G. Perry, Esq., for the petitioners.

Charles A. Boyce, Esq., for the respondent.

BRUCE, Judge: The respondent initially determined deficiencies in income tax for the calendar years 1954 and 1955 in the amounts of $957.33 and $401.46, respectively. By amended answer filed at the hearing the respondent claims an increased deficiency for the year 1954 in the amount of $797.67. The principal issue is whether an oral agreement between Herbert M. LaRue and Charles H. Girt was in the nature of a joint venture with a division of fees or amounted to the purchase by LaRue from Girt of an existing practice. If the agreement is held to be a sale and purchase, an alternative issue is raised whether certain arrangements then existing concerning treatment are amortizable. This proceeding was consolidated, for hearing only, with the case of Charles H. Girt, Docket No. 78965. The respondent determined deficiencies against Girt, holding that this agreement was not a sale or exchange and that he is not entitled to treat amounts received by him as long-term capital gains. The respondent takes a contrary position in the present case.

The petitioners filed joint income tax returns for 1954 and 1955 with the director of internal revenue at Pittsburgh, Pennsylvania.

FINDINGS OF FACT.

The stipulated facts are incorporated herein by this reference. The petitioners are husband and wife and reside in Pittsburgh, Pennsylvania. Herbert M. LaRue is an orthodontist. From about 1949 until 1954 he was employed as an assistant by Charles H. Girt, an orthodontist, who has been in practice since about 1928. Orthodontia is a specialized phase of dentistry involving the correction of malocclusion or regulating the dental arches to a more favorable aesthetical appearance and functional relationship. Girt maintained his principal office in the Medical Arts Building in Pittsburgh. From about 1937 he operated an office in Uniontown, Pennsylvania, in addition. That office was started at the request of friends to alleviate the difficulties of travel to Pittsburgh by patients. At first he visited Uniontown once in 2 weeks but later on an average of once each week. Patients were referred to him by dentists or by satisfied parents of former patients. He had no clerical help at Uniontown and handled all correspondence from the Pittsburgh office. LaRue occasionally treated the Uniontown patients at Uniontown when Girt was absent.