In September of 1939, Andrew Jergens and his wife decided to separate and the petitioner, who had controlled the stock during the marriage, drew up an agreement. On September 18, 1939, 1,759 shares of common stock and 240 shares of preferred stock of the Ohio corporation were transferred on the records of the corporation from Amy B. Jergens to her husband. A superseding agreement was executed on October 30, 1939, by which Amy B. Jergens sold the stock to the petitioner. The consideration for the sale was stated as $ 500,000, $ 200,000 of which was paid in jewelry and the balance by means of an annuity 1951 U.S. Tax Ct. LEXIS 38">*41 of $ 15,000 per year for life. Additional consideration was agreed upon by which the petitioner contracted to pay his wife's unpaid Federal income taxes on the dividends on stock she had received before the transfer. On the same date, the petitioner wrote a letter to his wife supplementing the contract, stating that the petitioner agreed to pay any capital gain or profit tax arising from the sale. A further agreement was reached on April 2, 1940, ratifying the contract of October 30, 1939, and providing that Andrew Jergens would pay all capital gain or profit tax, including gift or other Federal taxes due by reason of any agreements or transactions between the parties. Amy B. Jergens agreed to accept this settlement and to forward all tax assessments to the petitioner and permit him to deal with these demands. The petitioner's wife also agreed to execute all documents necessary to make proper income and gift tax returns, or for contesting any Federal government claims against her arising out of the transaction.

On September 18, 1939, there were 8,000 shares of common stock outstanding. The petitioner held 612 shares, as well as the 1,759 shares received from his wife. In addition1951 U.S. Tax Ct. LEXIS 38">*42 to these 2,371 shares, the petitioner held 1,636 shares as trustee under a declaration of trust executed by petitioner's father in 1923. Petitioner thus controlled 4,007 of the 8,000 voting shares of stock of the Ohio corporation after the purchase from his wife.

In 1943 the respondent determined income tax deficiencies for 1939 and 1940, and a gift tax deficiency for 1939 arising out of the sale transaction against the petitioner's former wife. The petitioner employed counsel and petitions were filed with the Tax Court. Decisions were rendered by the Court, in accordance with stipulations, finding a 1939 gift tax deficiency of $ 109,056.24, and income tax deficiencies totaling $ 25,943.76. The gift tax deficiency, with interest 17 T.C. 806">*808 in the amount of $ 26,094.32, and the income tax deficiencies, with interest of $ 5,249.74, were paid by checks drawn in March and July, respectively, by the Andrew Jergens Company and charged to the petitioner's personal account. Salary and dividend payments were made to petitioner by crediting his personal account. The charges were offset by credits to this account by July 19, 1944. The petitioner had a stock appraisal made in connection1951 U.S. Tax Ct. LEXIS 38">*43 with the tax litigation. A check for $ 1,524.41, drawn in March 1944 by the Jergens Company and charged to petitioner's account, was used to pay for these services. This charge was offset by credits to the personal account by July 19, 1944. Counsel fees of $ 10,000 were paid by a check drawn by the Jergens Company in October 1944 and charged to petitioner's account. Credits offset this charge by November 30, 1944.

In 1945, the petitioner's former wife sued him in Florida for specific performance of the 1939 and 1940 stock agreements. Jergens employed a law firm to represent him. A retainer of $ 5,000 was paid by check drawn in October 1945 by the Jergens Company, charged to Jergens' personal account. This charge was offset by November 30, 1945.

In 1945, Jergens entertained his attorney, the firm's engineer, advertising agents, bankers, suppliers of the corporation, and radio and screen personalities for both business and social purposes. The petitioner was neither obligated to incur these expenses nor was he reimbursed by the corporation.

The petitioner, who made his returns on the cash receipts and disbursements basis, deducted in his 1944 income tax return $ 31,344.06 as1951 U.S. Tax Ct. LEXIS 38">*44 interest paid on the gift and income tax deficiencies of his former wife. The attorney's fee of $ 10,000, paid in contesting the deficiency, and the appraisal fee of $ 1,524.41, were also deducted in that year. In 1945, the petitioner deducted the attorney's fee of $ 5,000 arising out of his former wife's suit in Florida and $ 2,400 as entertainment expenses. These deductions were disallowed by the respondent.

OPINION.

Several issues are presented under the statutory provisions by petitioner's claim for deductions. The respondent contends, at the outset, that the petitioner has not proved the fact of payment of the amounts he seeks to deduct. The payment of interest on the gift and income tax deficiencies and the expenses of the Tax Court and Florida litigation were made by checks drawn by the Jergens Company. The petitioner's personal account was then charged with such amounts. The respondent argues that the petitioner must suffer a cash detriment before the deduction can be allowed. The respondent's cited cases, however, do not involve instances 17 T.C. 806">*809 wherein the taxpayer's source of cash was reduced by the charges made. The petitioner here did not exchange one obligation1951 U.S. Tax Ct. LEXIS 38">*45 for another, as in Thomas Watson, 8 T.C. 569, nor were the settlements effected by book entries with payment of cash deferred beyond the close of the taxable year, as in Barto Co., 21 B. T. A. 1197. Payment was not made by the deduction of the amount from a loan which was not repaid in the taxable year, as in Cleaver v. Commissioner, 158 F.2d 342, certiorari denied 330 U.S. 849">330 U.S. 849, nor were the payments merely accrued as in Fred W. Leadbetter, 39 B. T. A. 629. Similar to the situation in Rollin C. Reynolds, 44 B. T. A. 342, petitioner's salary was credited to his personal account which was then debited in the amount the company had paid for him. Jergens' ability to withdraw cash from this account was reduced by the amount of the payments made. The debits to petitioner's personal account are considered as payments by a cash basis taxpayer when the charges do not exceed the credits included in income. Gertrude Rosenblatt, 16 T.C. 100. In each of the taxable years petitioner's1951 U.S. Tax Ct. LEXIS 38">*46 personal account attained a credit balance after the debits were made and he suffered a cash detriment to the extent of the charges made to his account. On the facts, we cannot hold that the requisites for cash basis payments were not met.

The petitioner seeks to deduct the interest paid on tax deficiencies assessed against his wife under section 23 (b) of the Internal Revenue Code. ¹ The transfer of stock to petitioner occurred in September 1939, and the respondent determined the deficiencies in 1943. By the agreement dated April 2, 1940, the petitioner agreed to pay all capital gain or profit tax, including gift tax or other Federal taxes, payable by reason of the agreement. As partial consideration therefor the petitioner's wife agreed to accept the payments provided under the agreement in full for all claims against the petitioner in connection with the sale of the stock. The petitioner paid the deficiency as he agreed to do. The payment of interest was not, however, part of the agreement and cannot be considered part of the petitioner's purchase price. The interest, all of which accrued after the transfer of the stock to the petitioner in September 1939, could have been1951 U.S. Tax Ct. LEXIS 38">*47 assessed against the petitioner as the liability of a transferee and donee under sections 311 (a) (1), 1025 (a) (1), and other sections of the Internal Revenue 17 T.C. 806">*810 Code. ² See, also, section 1009 dealing with liens for taxes. Interest on an income tax deficiency, accrued subsequent to the transfer of assets, is interest on the transferee's own indebtedness and deductible in determining the transferee's income tax. Commissioner v. Breyer, Jr., 151 F.2d 267, affirming Koppers Co., 3 T.C. 62; Philip D. Armour, 6 T.C. 359. The fact that the deficiencies were determined against the transferor and that the petitioner agreed to pay these taxes does not preclude the deduction. Koppers Co., supra.The petitioner here did not contract to pay interest on the debt of another, as in William H. Simon, 36 B. T. A. 184; Eskimo Pie Corporation v. Commissioner, 153 F.2d 301, affirming 4 T.C. 669; Orange Securities Corporation, 45 B. T. A. 24,1951 U.S. Tax Ct. LEXIS 38">*48 affd. 131 F.2d 662. The interest on the 1939 and 1940 deficiencies, having accrued after the petitioner received the stock from his transferor, was interest on his own debt and was properly deducted in 1944, the year in which the petitioner paid it. See Evelyn N. Moore, 1 T.C. 14, affd. 146 F.2d 824.

1951 U.S. Tax Ct. LEXIS 38">*49 Petitioner also seeks to deduct under section 23 (a) (2) of the Internal Revenue Code³ the 1944 attorney's fees of $ 10,000 and appraisal expenses of $ 1,524.41 incurred in contesting the deficiencies determined against his former wife. The petitioner classifies these expenditures as ordinary and necessary nonbusiness expenses incurred in the management, conservation, or maintenance of property held for the production of income. While litigation expenses paid 17 T.C. 806">*811 in connection with the defense of a transferee's liability for income tax deficiencies have been held deductible as ordinary and necessary expenses when the subject matter of the litigation bore a reasonable and proximate relation to the management, conservation, or maintenance of income-producing property, Charles N. Manning, 3 T.C. 853, affd. 148 F.2d 821; and Philip D. Armour, supra, we cannot here agree with petitioner's contention. The transaction giving rise to expenses "had its genesis in the personal relationship of the petitioner and his former wife and stems from the property settlement agreement," as was said of1951 U.S. Tax Ct. LEXIS 38">*50 comparable expenses in Lindsay C. Howard, 16 T.C. 157. In that case the expenses were disallowed. Moreover, we are not persuaded that these expenses bore a reasonable and proximate relationship to the management, conservation or maintenance of income-producing property.

Similar consideration leads to the same result when we consider the $ 5,000 fee paid in connection with the suit instituted by the petitioner's wife to compel specific performance of the 1939 and 1940 agreements.

The respondent disallowed a deduction of $ 2,400 taken by the petitioner on his 1945 income1951 U.S. Tax Ct. LEXIS 38">*51 tax return as entertainment expenses under section 23 (a) (1) (A). ⁴ The petitioner testified that the purpose of such entertainment was both social and business but no evidence was offered to show what proportion of the claimed amount was spent for necessary business. Jergens was neither required to make these expenditures nor was he reimbursed by the company for entertaining persons ostensibly for the benefit of the corporation. The expenses were, if at all, ordinary and necessary expenses of the corporation and not such expenses of earning his salary as president. Hal E. Roach, 20 B. T. A. 919. This deduction must be denied.

1951 U.S. Tax Ct. LEXIS 38">*52 Decision will be entered under Rule 50.