It is clear that a taxpayer may deduct ratably his or her cost basis in a PURCHASED term, including a life, interest. Early v. Commissioner, 445 F.2d 166, 169 (5th Cir. 1971), revg. on another ground 52 T.C. 560 (1969); Manufacturers Hanover Trust Co. v. Commissioner, 431 F.2d 664 (2d Cir. 1970), affg. a Memorandum Opinion of this Court; Gist v. United States, 296 F. Supp. 526, 528 (S.D. Cal. 1968), affd. 423 F.2d 1118 (9th Cir. 1970); Frank MacBoyle Lewis Trust B v. Commissioner, 83 T.C. 246, 253 n.10 (1984); Elrick v. Commissioner, 56 T.C. 903, 909 (1971), revd. on another ground 485 F.2d 1049 (D.C. Cir. 1973); see also secs. 167(h), 62(6).There has been considerable controversy as to whether these ratable deductions are allowable as depreciation or amortization under sec. 167 or as amortization under secs. 162 and 212.See Sohosky v. Commissioner, 57 T.C. 403, 409 & n.4 (1971), affd. 473 F.2d 810 (8th Cir. 1973); Early v. Commissioner, 52 T.C. 560, 568-572 (1969) (Tannenwald, J., dissenting).
Hence the statement is made by respondent in his brief: ‘It is respondent's position that under Rev. Rul. 57-507 * * *, Preston recognized a taxable gain on the transfer in trust of the separately held duPont and Christiana common stock * * *.’We must note, however, that we would view the transaction as a sale of the income interest to the wife and allow her to amortize its cost. See, e.g., Marianne Crocker Elrick, 56 T.C. 903 (1971), on appeal (C.A.D.C., Jan. 27, 1972); Estate of Daisy F. Christ, 54 T.C. 493 (1970); Allen M. Early, 52 T.C. 560 (1969), reversed on other grounds 445 F.2d 166 (C.A. 5, 1971). The trust did not purchase the income interest; therefore, it should not be given a separate basis in the income interest.
We must note, however, that we would view the transaction as a sale of the income interest to the wife and allow her to amortize its cost. See, e.g., Marianne Crocker Elrick, 56 T.C. 903 (1971), on appeal (C.A.D.C., Jan. 27, 1972); Estate of Daisy F. Christ, 54 T.C. 493 (1970); Allen M. Early, 52 T.C. 560 (1969), reversed on other grounds 445 F.2d 166 (C.A, 5, 1971). The trust did not purchase the income interest; therefore, it should not be given a separate basis in the income interest.
Without denominating that deduction as one for amortization or depreciation and without determining whether it would be allowable under sec. 167, sec. 212, or some other section, we should note that there is some controversy concerning the nature of such a deduction. Compare Allen M. Early, 52 T.C. 560, 570-571 (1969) (Tannenwald, J., dissenting), revd. 445 F.2d 166 (C.A. 5, 1971), certiorari applied for (July 26, 1971), with Manufacturers Hanover Trust Co. v. Commissioner, 431 F.2d 664, 667, fn. 4 (C.A. 2, 1970), affirming a Memorandum Opinion of this Court.
Legal fees are no less a cost of acquisition where that which is acquired is a life estate; and, in our opinion, the legal fees in question were incurred as the cost of acquiring a life estate in the income from the stock transferred to the trust. Cf. Allen M. Early, 52 T.C. 560, 566 (1969), reversed on other grounds 445 F.2d 166 (C.A. 5, 1971). See also Jones' Estate v. Commissioner, 127 F.2d 231 (C.A. 5, 1942); and Pennroad Corporation, 21 T.C. 1087 (1954).
It is concluded that Daisy purchased the 41.307-percent life interest attributable to Andrew's share of the community transferred to the trust. In our opinion the principles set forth in Gist v. United States, 296 F.Supp. 526 (S.O. Cal. 1969); Commissioner v. Siegel, 250 F.2d 339 (C.A. 9, 1957), affirming 26 T.C. 743; and Allen M. Early, 52 T.C. 560 (1969), are determinative of the questions involved here. In Gist v. United States, supra, the U.S. District Court for the Southern District of California dealt with the same question, namely, whether a widow was entitled to deductions for amortization of the cost of acquiring a life estate in a testamentary trust.
While such use does not affect either the rationale or the result in the instant case, there are other situations in which a careful delineation between depreciation and amortization is essential. See my dissenting opinion in Allen M. Early, 52 T.C. 560 (1969).
applies. See KIRO, Inc., supra at 167-168; Allen M. Early, 52 T.C. 560, 570 (1969) (dissenting opinion).SEC. 162.