The above persons designated to receive 20% each are sons of the Lessor who have irrevocably been given said interests by the Lessor, Arthur T. Galt, and any sums due them hereunder shall be paid to them by mailing the amount so due to their respective residences.

Section 5. Lessee shall also have all rights, privileges, 1953 U.S. Tax Ct. LEXIS 232">*241 easements and appurtenances on or connected with the said premises, together with the use of any and all equipment, houses, stables, grandstand, sheds, fences and other buildings and improvements now existing thereon for and during the term of this lease.

Section 6. As a further consideration for this lease, Lessee agrees to and with the Lessor that the Lessee will pay all taxes and assessments, general and special, and all other impositions, ordinary and extraordinary, of every kind and nature whatsoever levied or assessed upon the demised premises, or any part thereof, or upon any buildings or improvements * * *.

Fifty per centum of any and all amounts paid by Lessee for general taxes assessed against the said premises shall be deducted from the amount due Lessor under the percentage clause of Section 2 of this lease.

* * * *

Section 9. All buildings, improvements, betterments and changes or alterations on said premises shall at the expiration or termination of this Lease whether by lapse of time or for any other cause, remain on said premises and belong to the Lessor.

* * * *

Section 26. That if, during the term of this lease, Lessee shall abandon the premises hereby leased, or1953 U.S. Tax Ct. LEXIS 232">*242 if the same shall become vacant, or if Lessee shall become insolvent or bankrupt, or take advantage or receive the benefits of any bankruptcy, insolvency or debtor's relief act, or if Lessee shall compound its debts or sign over its estate or effects for payment thereof, or if any execution or attachment shall be issued against the Lessee or any of Lessee's effects whereupon the said premises shall be taken or attempted to be taken, or if a receiver or trustee should be appointed of the Lessee's property, or if this lease shall by operation of law devolve upon or pass to any person or persons, firm, association or corporation other than Lessee, or if the Lessee, without Lessor's prior written consent, shall suffer or permit the demised premises or any part thereof to be used or occupied except as herein provided by any person, firm, association or corporation other than Lessee, or if, by reason of Lessee's occupancy any insurance policies relating to the premises or buildings thereon shall be cancelled or if Lessee shall make default in the performance of any one or more of the covenants and conditions herein, including the payment of rent, and in each of said cases if any such default1953 U.S. Tax Ct. LEXIS 232">*243 continues for thirty days or more after notice thereof to Lessee by Lessor and five days after any rent provided for herein is due and owing, it shall and may be lawful for Lessor, at Lessor's election, to go into and upon the said demised premises or any part thereof in the name of Lessor, the whole or any part thereof, to enter and the same to have, hold, possess and enjoy as of the Lessor's former estate discharged from any claim under this lease, nothing contained herein to the contrary in any wise notwithstanding.

* * * *

19 T.C. 892">*896 Section 32. All payments due to Lessor hereunder shall be paid to him at the office of Lessor in the City of Chicago, Illinois or at such other place or to such other persons as Lessor shall, in writing, designate.

Section 33. * * * The relationship between Lessor and Lessee under this lease is solely and exclusively that of landlord and tenant. All monies due hereunder are rent monies and the method of payment of the same are [sic] part of the consideration of this demise.

The lease also required Maywood Park to pay specified charges on the leased premises; to erect in accordance with law all buildings and other structures needed to conduct 1953 U.S. Tax Ct. LEXIS 232">*244 harness races; to maintain specified insurance on the property; and to render reports to the lessor showing amounts wagered at the track. The lessor, in section 23 of the lease, covenanted --

that if the tenant shall pay the rent as herein provided and shall keep, observe and perform all the other terms of this lease to be kept, observed and performed by Lessee, Lessee shall and may peaceably and quietly have, hold and enjoy the said premises for the term aforesaid, as provided herein.

The lease reserved numerous other rights and powers in the lessor. Section 42 of the lease provided:

Lessee shall be entitled to regard Arthur T. Galt alone as Lessor for all purposes, and said Arthur T. Galt or his successor or assignee shall have full power to take all action required under this lease, receive notices, give any approvals and make amendments hereto without the participation of said Arthur T. Galt's wife or sons or any other persons whatsoever.

On February 26, 1946, a letter from petitioner was delivered to each of his three sons named above in the lease. The letter to each son was identical in content, and stated:

I have this day entered into a 20 year lease on the "Fair Grounds" 1953 U.S. Tax Ct. LEXIS 232">*245 property with the Maywood Park Trotting Association, Inc.

The lease provides for an annual fixed rental and also for a contingent rental based on a percentage of the amount of wagering at the track, if any, under the provisions of the Illinois Harness Racing Act.

I want each one of you boys to have a part of the proceeds, if any there shall be, from the wagering that the Lessee speculates may take place. I therefore give you each a one-fifth (1/5) interest under the contingent percentage clause of the lease. This gift to each of you is absolute and irrevocable and I have provided in the lease that any sums when, as and if, they become due, shall be payable to each of you in the amount of 20% directly by the Lessee. I have by proper provision in the lease divested myself of all dominion and control of the amounts if any should become due to the extent of the gift I am hereby giving you and further by this evidence of the gift to you, divest myself of any control or dominion over such amount.

The value of this gift to you is to say the least questionable. The amounts, if any, that you may receive are purely speculative and contingent on so many factors, that it would be folly to1953 U.S. Tax Ct. LEXIS 232">*246 place any worth on it.

As you know, I have had this property for a great many years and there has been practically no revenue from it. I have experienced so much trouble from the various enterprises conducted on the premises, that in the present lease, I am both dubious and pessimistic. You will remember the Cook County Fair 19 T.C. 892">*897 Association was a complete failure and I had the expense of ejecting them. After this there was the Harness Racing, another failure, which did much damage to the reputation of the property. Later the Fair Association retried to profitably operate but this attempt resulted in further damage to the site.

Of course, there is no assurance that the law permitting the present operation on the property and on which the lease is based, will not be repealed or its constitutionality be upheld in the event a test is made. There are also many provisions for cancellation and termination of the lease in the event of certain happenings. Any of these may arise whereby the lease is immediately terminated, and, of course, all obligations thereunder cease and determine.

There are also many provisions in the lease which provide for contingencies that may arise and1953 U.S. Tax Ct. LEXIS 232">*247 diminish the income, if any, accruing under its terms.

I mention all these things solely because I wish you to be fully aware that there are so many contingencies that may arise, that may prevent any return to you under this gift and places the value of the gift at this time on nothing but speculation.

You will all know of course, that in making this gift, I am prompted by my love and affection for you. I hope with all my heart that there will be revenue coming and that you may enjoy the share that I have given you in such possible revenue, and take care of it, if the sum coming to you should be enough to provide you with more than a small part of your current living expenses.

I am now in my sixties and never felt better or was in better health in my life than I am at this date, and as I come from a long lived family -- my father having died at about ninety-two, I fully expect to live during the entire life of the lease, and share with you the fullest association of our mutual company.

During 1946 the total pari-mutuel "handle" ¹ for Maywood Park was $ 5,885,805, and the amount due as rent for that year under section 2, or the "percentage clause" of the lease, was $ 39,873.05. 1953 U.S. Tax Ct. LEXIS 232">*248 This was computed by deducting from $ 58,858.05 (1 per cent of the pari-mutuel handle) the credit of $ 17,500 (as per section 2 of the lease) and $ 1,485 (one-half taxes paid by lessee, as per section 6 of lease).

During 1946 the total rent paid by Maywood Park under the lease was as follows:

Maywood Park in October 1946 sent a check for $ 7,974.61 to each of petitioner's sons, naming each respectively as payee, in payment of the amounts listed above opposite their names. A letter, accompanying each check, stated that the money thus paid "is your share under the terms of the lease." These checks1953 U.S. Tax Ct. LEXIS 232">*249 were endorsed by the 19 T.C. 892">*898 sons and deposited in their respective bank accounts. Petitioner did not exercise any control over the monies thus received by his sons.

In years prior to 1946, petitioner had made gifts to his sons of money and securities.

During 1946, all three sons were of age. In 1946, one of the sons was a physician who had recently returned from military service and was trying to establish himself in private practice; another of the sons was unemployed; and the third son was employed by petitioner.

None of the sons owned any part of the Fair Grounds property, which petitioner continued to own after, as he had before, the lease was executed. None of the sons had anything to do with negotiating the lease to Maywood Park. The first time the sons were aware of the lease was when they received the foregoing letter from petitioner.

After execution of the lease, Maywood Park dealt with petitioner and not the sons in connection with matters pertaining to the lease or the Fair Grounds property. None of the rights and powers reserved to the lessor under the lease were exercised by any of the sons (other than receipt of the portion of the rent transferred to them). 1953 U.S. Tax Ct. LEXIS 232">*250 Those rights and powers were retained by petitioner, and, to the extent they were exercised at all, were exercised only by petitioner or his agents.

Petitioner's sons each reported in his Federal income tax return for 1946 the $ 7,974.61 rental income received by him in 1946 under the lease. In his Federal income tax return for 1946, petitioner did not report any of these amounts so received by his sons; he did report $ 50,949.22 as rental income received from Maywood Park in that year. Petitioner's income tax return was prepared by an accountant, named Whitsel, who also advised him on tax matters.

Respondent determined a deficiency of $ 69,622.52 in petitioner's income tax for 1946, which resulted in part from inclusion in his income of the aggregate of $ 23,923.83 received in that year by the sons as rental from Maywood Park.

The lease to Maywood Park was drafted by Daniel D. Tuohy (hereinafter referred to as "Tuohy"), a lawyer, in consultation with petitioner and a Mr. Quan, who was petitioner's real estate agent and advisor. The foregoing letter to petitioner's sons was written in Tuohy's office, and Tuohy helped prepare that letter. That letter, and the lease provisions to1953 U.S. Tax Ct. LEXIS 232">*251 which it related, were drafted with tax considerations in mind.

Tuohy was first retained by petitioner in or about 1943. Since that time, substantially all of Tuohy's professional work was done for petitioner.

Petitioner retained Tuohy in 1945 to work on the possibility of leasing the Fair Grounds property for harness racing. In that year pending state legislation, thereafter enacted, authorized pari-mutuel 19 T.C. 892">*899 harness racing in Illinois. Tuohy, in 1945, studied this legislation for petitioner, and advised him as to its constitutionality and how it would operate. Thereafter Tuohy entered into negotiations, in many of which petitioner and Mr. Quan participated, with various parties for the purpose of leasing the property for harness racing. The first of these potential lessees, with whom Tuohy dealt in the summer of 1945, was John Stelle. Thereafter Tuohy dealt with the "Allen-Deigert interests" in September or October 1945; and, at times during the remainder of 1945, he negotiated with the "Lathers-Weidrich interests." The negotiations with all of the foregoing parties failed to result in a lease of the property to them.

In January 1946, Tuohy started negotiations for 1953 U.S. Tax Ct. LEXIS 232">*252 the same purpose with Robert G. Johnson (hereinafter referred to as "Johnson"), who represented certain interests which were operating a harness track in the vicinity of New York City, known as Roosevelt Raceway. These negotiations culminated in the lease with Maywood Park executed on February 26, 1946. Tuohy was introduced to Johnson by persons connected with the "Lathers-Weidrich interests."

In the course of these negotiations, it was proposed by or in behalf of petitioner that, in addition to a basic fixed amount, the rent include 50 per cent of the net profits to be earned from the track. The Johnson interests countered with a proposal which resulted in the percentage arrangement embodied in section 2 of the lease.

The work done by Tuohy in attempting to obtain a lease of the premises, starting in 1945 and ending with the lease to Maywood Park, was part of a single assignment undertaken by him for petitioner. His "unsuccessful" efforts in this connection, relating to those interests which did not lease the property, are not separable from his "successful" efforts relating to the lease executed by Maywood Park.

On February 26, 1946, prior to execution of the lease, the assets1953 U.S. Tax Ct. LEXIS 232">*253 of Maywood Park were slight. Thereafter $ 500,000 was obtained and spent on the property by Maywood Park in order to put it in suitable condition and to get the harness racing venture started.

Shortly after the lease to Maywood Park was executed Tuohy performed work necessary to have the zoning of that part of the Fair Grounds property leased to Maywood Park changed so as to permit parking, and he also took action to get permission for the sale of certain beverages there. Tuohy then did the work necessary to arrange for water, needed in operating the track, to be supplied to the premises leased by Maywood Park. Tuohy also examined and checked on various insurance policies Maywood Park obtained or paid for pursuant to the lease, and he examined for petitioner, pursuant to the lease, contracts Maywood Park entered into which provided for an expenditure of more than $ 5,000. All this work was done by Tuohy in 1946.

19 T.C. 892">*900 During 1946, Tuohy also engaged in the following matters for petitioner: (1) "Division of taxes," affecting the premises leased to Maywood Park and certain adjacent pieces of property. (2) Petitioner's liability for gift tax growing out of the lease, and preparation1953 U.S. Tax Ct. LEXIS 232">*254 of gift tax return for 1946. (3) Examination of returns showing business done at Maywood Park's track at the Fair Grounds property. (4) Zoning affecting property not included in the lease. (5) Condemnation proceedings involving property located about 20 miles from the Fair Grounds property. (6) Certain "special assessment bonds" having nothing to do with the Fair Grounds property.

Tuohy kept no records of the time he spent on each of the foregoing matters. He could only guess as to the time he devoted as to each of these matters, and as to many of them his guess was "completely conjecture except knowing what I [Tuohy] did do over that period of time."

It was not Tuohy's practice, in determining his charge for work done, to charge the same fee for two projects requiring the same number of hours of work, where one project was successfully completed by him and the other was not. His bills were not rendered merely on the basis of hours worked, but also took other elements into consideration.

Tuohy sent petitioner a bill in 1946 for $ 45,000, which petitioner paid in full before the end of 1946. The bill was made out in a lump sum, and stated as follows:

All services to and including1953 U.S. Tax Ct. LEXIS 232">*255 November 15, 1946, including services and negotiations on Maywood Park Trotting Assn. lease, including all help necessary in concluding said negotiations for said lease. Zoning, contracts, water, insurance policies, gift tax, tax division, assessor highway department, federal government gift tax and all other miscellaneous work on special assessments, Forest Preserve tax payment, set back line, etc.

Pursuant to agreement of the parties, $ 1,000 of this $ 45,000 fee is allocable as follows: (1) $ 800 for work on "zoning matters," and (2) $ 200 for work on "gift tax matters."

In 1947 or 1948, Tuohy had an interview with a revenue agent of the United States Bureau of Internal Revenue, in which the foregoing bill for $ 45,000 was discussed. Tuohy told the revenue agent that 98 per cent, of this charge of $ 45,000, should be allocated to work pertaining to the lease of the Fair Grounds property to Maywood Park, and 2 per cent of the $ 45,000 should be allocated to "zoning and gift tax matters."

19 T.C. 892">*901 In his Federal income tax return for1953 U.S. Tax Ct. LEXIS 232">*256 1946, petitioner deducted the total amount of $ 45,000 which he thus had paid Tuohy. The income tax deficiency determined by respondent for that year was due in part to disallowance of this deduction. The following appeared in a statement attached to the notice of deficiency:

(c) It has been determined that asserted expenditures of $ 44,000.00 for legal fees and $ 20,000.00 for commissions incurred in securing a lease on property located in Maywood, Illinois, are not allowable as deductions under the provisions of sections 23 and 24 of the Internal Revenue Code, and the deductions claimed therefore for the taxable year ended December 31, 1946, have been disallowed accordingly. These asserted expenditures are to be allowed only as deductions ratably over the 20-year life of the lease in the amounts hereinafter referred to.

* * * *

(e) It has been determined that legal fees of $ 1,000.00 incurred in connection with rezoning a parcel of land and for the preparation and handling of Federal gift tax returns are not allowable as deductions under the provisions of sections 23 and 24 of the Internal Revenue Code, and the deductions claimed therefor for the taxable year ended December1953 U.S. Tax Ct. LEXIS 232">*257 31, 1946 have been disallowed accordingly.

However, respondent allowed as a deduction for 1946, as "amortization of leasehold expenses pursuant to section 23 of the Internal Revenue Code," one-twentieth of $ 44,000 thus paid by petitioner to Tuohy. The remaining $ 1,000, paid for work on the zoning and gift tax matters, was disallowed entirely and no part thereof was attributed to 1946.

In June 1946, petitioner filed a Federal gift tax return for the year 1946, prepared by Tuohy, and for the same year he also filed a Federal gift tax return in March 1947. Both returns showed no gift tax due for 1946, and in both returns the following appeared in Schedule A thereof:

19 T.C. 892">*902 Each of petitioner's sons filed a donee's information return of gifts, in which the following was stated:

Respondent determined a deficiency in petitioner's gift tax for 1946 in the amount of $ 68,079, based on a total valuation of gifts made to his sons in that year of $ 337,500. In the statement attached to respondent's notice of deficiency, the following appeared:

The value of 60% of the income under the percentage clause of the twenty year lease with Maywood Park Trotting Association, Inc., given to the donor's three sons is held to be $ 337,500.00 on the basis of information now of record, or in the alternative the gift to the three sons in 1946 is the 60% of the percentage income, or $ 23,923.83, the amount paid to the sons under the lease.

The legal fee of $ 44,000 (approximately 98 per cent of $ 45,000) was paid by petitioner in 1946 to his lawyer, Daniel D. Tuohy, for1953 U.S. Tax Ct. LEXIS 232">*260 services rendered with respect to the instant lease.

The amounts of $ 7,974.61 constituted gifts by petitioner during 1946 to each of his three sons.

OPINION.

Reduced to its simplest terms the first question is whether rent paid for the use of property owned by petitioner under a lease in which he was the lessor is taxable entirely to him or in some part to his adult sons because of its assignment by him and because of the provision of the lease authorizing the payment of that part of the rent to them. It is beyond question that income is taxable to the earner, Lucas v. Earl, 281 U.S. 111">281 U.S. 111, and that the income from property is taxable to the owner of the property which gives rise to the income. Helvering v. Horst, 311 U.S. 112">311 U.S. 112. And petitioner's argument cannot in fact be viewed as disputing these basic propositions.

He insists, it is true, that the arrangement for the payment of rent to the sons was irrevocable, and that they were entitled to enforce 19 T.C. 892">*903 its collection. But in this respect the case is no different from 311 U.S. 112">Helvering v. Horst, supra. There, to the contention1953 U.S. Tax Ct. LEXIS 232">*261 that a separate property interest was transferred to the donee by the assignment of an interest coupon of which the donor then lost control, see the opinion below (C. A. 2), 107 F.2d 906, the Supreme Court replied (311 U.S. 120">311 U.S. 120):

Nor is it perceived that there is any adequate basis for distinguishing between the gift of the interest coupons here and a gift of salary or commissions. The owner of a negotiable bond and of the investment which it represents, if not the lender, stands in the place of the lender. When, by the gift of the coupons, he has separated his right to interest payments from his investment and procured the payment of the interest to his donee, he has enjoyed the economic benefits of the income in the same manner and to the same extent as though the transfer were of earnings and in both cases the import of the statute is that the fruit is not to be attributed to a different tree from that on which it grew. * * *

And see Loretta McKenna Richards, 19 T.C. 366.

We conceive that the true impact of petitioner's contention is that here as in Blair v. Commissioner, 300 U.S. 5">300 U.S. 5,1953 U.S. Tax Ct. LEXIS 232">*262 a property interest was assigned to the donee from which there arose the income in dispute. In this position we are unable to concur for three reasons.

In the first place, the suggestion that under Illinois real property law the owner of a mere interest in rents succeeds to something denominated by petitioner a "chattel real" runs counter to such basic concepts as that the Federal income tax statutes must be construed so as to be of general application and not to differentiate comparable situations merely because of peculiarities in local terminology; ² and also that anticipatory arrangements, no matter how ingeniously and elegantly contrived, are not to be disposed of by attenuated subtleties. Harrison v. Schaffner, 312 U.S. 579">312 U.S. 579; 281 U.S. 111">Lucas v. Earl, supra;Corliss v. Bowers, 281 U.S. 376">281 U.S. 376. The same principles as those announced in 281 U.S. 111">Lucas v. Earl, supra, and 311 U.S. 112">Helvering v. Horst, supra, have been applied to assignments of rental income where title to the property remained in the assignor. Samuel V. Woods, 5 B. T. A. 413;1953 U.S. Tax Ct. LEXIS 232">*263 Julius Rosenwald, 12 B. T. A. 350, affd. (C. A. 7) 33 F.2d 423, certiorari denied 280 U.S. 599">280 U.S. 599; Ward v. Commissioner, (C. A. 9) 58 F.2d 757 (a 99-year lease); Oscar Mitchell, 27 B. T. A. 101; Arthur H. Van Brunt, 11 B. T. A. 406; and particularly Midwood Associates, Inc. v. Commissioner, (C. A. 2) 115 F.2d 871 (a 21-year lease); and Lum v. Commissioner, (C. A. 3) 147 F.2d 356, both decided after the Horst case.

1953 U.S. Tax Ct. LEXIS 232">*264 Estate of Henry N. Brinsmade, 39 B. T. A. 195, the sole case cited appearing to be in conflict with these authorities, was not only decided 19 T.C. 892">*904 prior to 311 U.S. 112">Helvering v. Horst, supra, but relies partly on the fact that "the taxpayer here obviously intended to convey to his sons one-half of his entire interest in the property," there having been a subsequent grant and release to the assignees of "an undivided one-half part in all his [petitioner's] right, title and interest in the plot of land * * *."

300 U.S. 5">Blair v. Commissioner, supra, is grounded on the very aspect of such a transaction which is absent here. That taxpayer's interest consisted solely of an equitable title which the court considered to be transferred pro tanto when the rights to the income from it were assigned. "In the circumstances of that case the right to income from the trust property was thought to be so identified with the equitable ownership of the property from which alone the beneficiary derived his right to receive the income and his power to command the disposition of it that a gift of the income by the1953 U.S. Tax Ct. LEXIS 232">*265 beneficiary became effective only as a gift of his ownership of the property producing it. Since the gift was deemed to be a gift of the property, the income from it was held to be the income of the owner of the property, who was the donee * * *." 311 U.S. 112">Helvering v. Horst, supra. Cf. Visintainer v. Commissioner, (C. A. 10) 187 F.2d 519, certiorari denied 312 U.S. 858">312 U.S. 858.

It requires no intricate analysis to differentiate that situation from the present one. Blair had nothing left of that portion of his equitable estate which he assigned. Petitioner has retained everything except the right to receive fractions of the income for a term of years.

Nor need we speculate on what would be the situation had petitioner assigned the entire lease and all his rights thereunder as landlord, which might, as in Blair, be construed as conveying an interest in the fee. See Bing v. Bowers (D. C., S. D., N. Y.) 22 F.2d 450, affd. per curiam (C. A. 2) 26 F.2d 1017. The short answer is that no more than in that case did he actually do so. Cf. 1953 U.S. Tax Ct. LEXIS 232">*266 Lum v. Commissioner, supra.

Second, we think petitioner mistaken in his interpretation of the scope of the Illinois authorities upon which he relies. That the donees might have been vested with irrevocable rights of collection would have, as we have seen, no dispositive effect in the present situation. That was also true in the Horst case. But such appears to be the limit of the purpose and effect of the Illinois statute.

A basic distinction in the rights and property acquired under a lease must first be drawn between those of the lessee on the one hand and those of the owner of the fee or lessor on the other. As to the latter, the income is derived from the underlying property and the lease represents "nothing more than * * * the right to future rental payments * * *." Hort v. Commissioner, 313 U.S. 28">313 U.S. 28. The lessee, however, obtains an interest in real property by force of the terms of the lease, Stubbings v. Village of Evanston, 136 Ill. 37">136 Ill. 37, 26 N.E. 577, 19 T.C. 892">*905 of which he had not previously been possessed. And cf. 313 U.S. 28">Hort v. Commissioner, supra,1953 U.S. Tax Ct. LEXIS 232">*267 with Walter H. Sutliff, 46 B. T. A. 446, and Isadore Golonsky, 16 T.C. 1450, affd. (C. A. 3) 200 F.2d 72.

Without relating the details of the statutes and cases upon which petitioner relies, all of which have been exhaustively examined, the effect of the Illinois provisions can be summarily gathered by reference first to Schwartz v. Commissioner, (C. A. 7) 185 F.2d 760:

prior to the statutory enactment * * * the rule at common law had prevailed in Illinois. Under that rule a lease was not assignable so as to give the assignee of a lessor's interest an action for rent against the tenant since there was no privity of contract between them without attornment of the lessee.

As we have pointed out, the assignments here in question merely assigned the interest of the assignors in the lease as security * * *. It did not purport to convey any interest in the land itself. [Emphasis added.]

And then to Barnes v. Northern Trust Co., 169 Ill. 112">169 Ill. 112, 48 N.E. 31:

In Fisher v. Deering, 60 Ill. 114">60 Ill. 114,1953 U.S. Tax Ct. LEXIS 232">*268 we held that at ancient common law a lease, like any other agreement or chose in action, was not assignable, so as to give the assignee an action against the tenant; that, by the 32 Hen. & M. VIII c. 34, § 1, the assignee of the reversion became invested with the rents, and where the tenant attorned to him he might maintain an action of debt to recover subsequent accruing rents; that although the assignment of the reversion created a privity of estate between the assignee and the tenant, still it required an attornment to create such a privity of contract, even under 32 Hen. & M. VIII, as would authorize the assignee to sue for and recover rent in his own name * * *

But the effect of section 14 of chapter 80, Illinois Revised Statutes, was to dispense with the requirement of attornment so that the assignee had "the same remedies, by action or otherwise, for nonperformance of any agreement in the lease for the recovery of rent or other cause of forfeiture, as the lessor might have had * * *." 169 Ill. 112">Barnes v. Northern Trust Co., supra.

It is questionable, even so, whether an assignment of less than the whole cause of action is effective even under1953 U.S. Tax Ct. LEXIS 232">*269 the local law. Thus in Adams v. Shirk, (C. A. 7) 117 F. 801">117 F. 801:

The Illinois statute * * * preserves to grantees * * * the same remedies for recovery of rent that the lessor had. It is conceivable that if Elbert W. Shirk had conveyed in severalty to various grantees different parcels of the demised land, a grantee might not enter upon his portion for breach of a covenant made with the owner of the whole.

Cf. Crosby v. Loop, 13 Ill. 625">13 Ill. 625, 14 Ill. 330">14 Ill. 330.

If, as petitioner contends, the ancient rule treating rents as an incorporeal chattel real were actually still effective in this jurisdiction and at this time, but see 1 Tiffany, Landlord and Tenant, sec. 180 (c), cf. Wineman v. Hughson, 44 Ill. App. 22">44 Ill. App. 22, then the consequence would be that as an interest in land they could be transferred only by grant, 19 T.C. 892">*906 that is, by an instrument under seal duly acknowledged and delivered. ³ If that were so here, then no valid transfer of any interest in the rents has ever occurred. Tiffany, op. cit.

1953 U.S. Tax Ct. LEXIS 232">*270 But, in any event, that uncollected rents do not by themselves represent an interest in the property for the occupation of which the rent is paid appears not only from these authorities and from the purpose of the enactments but from the fact that as in other states, Tiffany, Law of Real Property, sec. 884, past due rents still pass to the executor while those yet to accrue follow the title to the real property and belong to the heirs because of their ownership. See Green v. Massie, 13 Ill. 363">13 Ill. 363; Dixon v. Niccolls, 39 Ill. 372">39 Ill. 372. Whether under a gratuitous assignment such as this, ⁴ without a physical or symbolic delivery of the lease or any other token of the gift, ⁵ the sons acquired an irrevocably enforceable interest at all, and whether, if so, the enforcement could be against the tenant or only against the assignor, see 13 Ill. 625">Crosby v. Loop, supra, we need not now decide. Assuming they had such rights, so did the wives in 281 U.S. 111">Lucas v. Earl, supra;Helvering v. Clifford, 309 U.S. 331">309 U.S. 331; and Commissioner v. Tower, 327 U.S. 280">327 U.S. 280;1953 U.S. Tax Ct. LEXIS 232">*271 and the son in Horst. And see, e. g., United States v. Joliet & Chicago R. Co., 315 U.S. 44">315 U.S. 44. Even if enforceability, as distinguished from a separate property coterminous with the fee, was what the sons obtained, it would thus not suffice.

Finally, this brings us to the third proposition that the whole structure of the lease, and of petitioner's1953 U.S. Tax Ct. LEXIS 232">*272 dealings with it, shows a retention of control and a recognition of petitioner's sole status as landlord which is at war with any such assumption as that the sons received anything of an ascertainable, independently enforceable, and still less of an irrevocable nature.

The fixed rent established by section 1 of the lease was at all times payable to petitioner. So, in terms, was the additional percentage rental, covered by the succeeding section, in even more explicit language, 19 T.C. 892">*907 the agreement being "to pay the Lessor * * *." ⁶ Section 4 merely incorporated the direction to the lessee to pay "any sums that may be due under the provisions of Section 2" in fractions, that is, one-fifth to each of the three sons. The covenants of the lease -- including this one -- are expressly made "with the said lessor," who is, of course, petitioner. And, as if to underscore the relationship between petitioner and the tenant obligated to make the payments, section 42 provides that "Lessee shall be entitled to regard Arthur T. Galt [petitioner] alone as Lessor for all purposes, and said Arthur T. Galt or his successor or assignee [singular] shall have full power to take all action required1953 U.S. Tax Ct. LEXIS 232">*273 under this lease * * * and make amendments hereto without the participation of [petitioner's] * * * sons * * *."

Under such circumstances the assignees would, at most, "as third parties beneficiary" be entitled to "enforce payment from the lessee directly to them * * *." Samuel V. Woods, supra.1953 U.S. Tax Ct. LEXIS 232">*274

Even this becomes doubtful when the gratuitous character of the assignment is considered, coupled with petitioner's manifold prerogatives as landlord specifically retained under the lease and including not only the power of amendment already mentioned but also the retention of title to structures placed on the property by the tenant, the authority under section 6 to have half of all taxes paid by the lessee charged against the percentage payments of section 2 (notwithstanding this was not conceived of as half the rent), the authority under section 32 to designate the persons to whom and the place where payments of rent should be made, and the power to terminate the lease for any of the extensive reasons catalogued in section 26. By the same token, but conversely, such obligations as those imposed by the Covenant of Quiet Enjoyment under section 23, and the grant to the tenant of the use of easements, appurtenances, and buildings under section 5 were obviously the responsibility of petitioner since he alone owned the property. As will later appear from the discussion of the last issue, even the cost of legal services appears to have been undertaken by him without any effort to charge1953 U.S. Tax Ct. LEXIS 232">*275 a proportionate share against the sons.

Although here was no trust and no corresponding fiduciary obligation undertaken by petitioner, we may borrow the language of 309 U.S. 331">Helvering v. Clifford, supra, that under such circumstances petitioner 19 T.C. 892">*908 cannot complain if "for the purpose of taxation he is treated as owner altogether."

One may speculate as to the effect, absent the terms of section 4, of petitioner's contemporaneous letter to his sons. It purports to assign to them the same portion of the income as is authorized under the lease to be paid to them. Without pausing to determine whether that assignment in turn is enforceable, see Chandler v. Illinois Nat. Bank & Trust Co. of Rockford, 290 Ill. App. 509">290 Ill. App. 509, 8 N.E.2d 705, it seems evident that it accomplishes no more than the transfer of the coupon in the Horst case, and that the assignment itself is a mere adjunct of the direction to the tenant contained in the lease. It may, however, assist in assessing the flavor of the "gift" if we repeat a few of the restrictions on the transfer which petitioner himself recognized: "There are also many1953 U.S. Tax Ct. LEXIS 232">*276 provisions for cancellation and termination of the lease in the event of certain happenings * * *" and "There are also many provisions in the lease which provide for contingencies that may arise and diminish the income * * *." One of these, of course, was petitioner's power of amendment, and another his inherent rights as landlord to eject the tenant.

For all of the reasons stated, we conclude that petitioner's effort to avoid the burden of the tax on income, collectible by him until he chose to give it away, must fail. On this issue the deficiency is sustained.

We are confronted next by respondent's claim that, as a result of petitioner's assignment to his sons, he owes a gift tax for 1946. In his notice of deficiency, respondent determined the deficiency in gift tax to be $ 68,079. In a statement attached to the notice of deficiency, he declared that the value of the gifts to the sons "is held to be $ 337,500 on the basis of information now of record, or in the alternative the gift to the three sons in 1946 is the 60% of the percentage income, or $ 23,923.83, the amount paid to the sons under the lease." The petition filed herein alleged error by respondent in valuing the1953 U.S. Tax Ct. LEXIS 232">*277 gifts as aforesaid, and also alleged that "The Commissioner erred in failing to determine that the fair market value on February 26, 1946, of the 20% interest given to each of petitioner's three sons in the sums due under the * * * lease on account of wagering is zero." In a Federal gift tax return filed for 1946, petitioner, where the return required a valuation of gifts, answered "No value." At the trial, however, both parties shifted their positions. Assuming as his premise the contention that the rents payable to the sons each year remain taxable as petitioner's income, respondent at the trial expressly abandoned the primary position taken in connection with the notice of 19 T.C. 892">*909 deficiency, namely, that gifts valued at $ 337,000 were made in 1946, and relied only on the alternative position described in the extract quoted above. At the trial he stated that he no longer contended that petitioner's gifts were made at the time of the assignment; as to that contention he conceded error, and he assumed the basic position that petitioner made gifts to his sons each year as, and in the amounts that, the rentals were paid to them year by year. Respondent now must be taken to admit, 1953 U.S. Tax Ct. LEXIS 232">*278 therefore, that a gift tax deficiency for 1946 in the amount of $ 68,079 is excessive, and that a deficiency is owing for that year only to the extent of the tax due on gifts valued at $ 23,923.83. However, somewhat incongruously with his "abandonment" of the contention that gifts were made at the outset when the assignment was executed, respondent apparently also maintains that, if gifts were made at that time, they were gifts which then had no ascertainable value. On the other side, petitioner now insists that gifts were made in 1946, and that they were made once and for all when the sons were given an interest in the rents; that the gifts, as then made, can be valued and that their total value was $ 34,090; and that petitioner owes a gift tax for 1946 based on that valuation.

Because of the concessions of the parties, and because only the year 1946 is before us in this proceeding, it becomes unnecessary to consider when, and of what value, the gift was made. Respondent now seeks a gift tax for 1946 based on a maximum valuation of $ 23,923.83. That is all the Government is asking for, and it is therefore not entitled to an award in a greater amount. Accordingly, since petitioner1953 U.S. Tax Ct. LEXIS 232">*279 admits that he owes a gift tax based upon a gift of $ 34,090, and since respondent now claims to be entitled only to a tax based upon a gift in the amount of $ 23,923.83, we must hold that the latter amount is the measure of petitioner's gift tax liability for 1946.

The dispute between the parties concerns, finally, the deductibility in 1946 of a fee paid by petitioner in that year to an attorney, Daniel D. Tuohy. Tuohy had done work for petitioner for some years prior to 1945. In that year he was retained by him to effect a lease of the Fair Grounds property for harness racing. He began by studying state legislation authorizing harness racing in Illinois, as to which he advised petitioner. Then he entered into negotiations with various prospective lessees, with a number of whom he was unable successfully to conclude a transaction, until the matter ultimately was closed with the lease to Maywood Park in February of the following year. Tuohy performed other legal services for petitioner, both in respect of the 19 T.C. 892">*910 Fair Grounds property and other property, and for all this work he charged petitioner a lump sum fee of $ 45,000. Petitioner contends that the entire fee1953 U.S. Tax Ct. LEXIS 232">*280 is deductible in 1946 as a nonbusiness expense under section 23 (a) (2)⁷ of the Code. Respondent amortized $ 44,000 of this amount over the 20-year period of the lease to Maywood Park, and allowed a proportionate deduction for 1946. The remaining $ 1,000, representing by agreement of the parties $ 200 attributable to "gift tax matters" and $ 800 attributable to "zoning matters," was disallowed entirely by respondent.

We think respondent was correct in completely disallowing deduction for these two items aggregating $ 1,000. Tuohy advised petitioner as to gift tax liability resulting from1953 U.S. Tax Ct. LEXIS 232">*281 the assignment to the sons, prepared his gift tax return, and represented him before the Bureau of Internal Revenue. His fee for this work is a personal expense and nondeductible under section 24 (a) (1)⁸ of the Code. Cf. Lykes v. United States, 343 U.S. 118">343 U.S. 118; Cobb v. Commissioner, (C. A. 6) 173 F.2d 711, certiorari denied, 338 U.S. 832">338 U.S. 832; Treasury Regulations 111, section 29.23 (a)-15. The "zoning matters," for work on which $ 800 of the fee has been allocated by the parties, apparently related to rezoning of the Fair Grounds property to permit parking and the sale of certain beverages there. There is nothing in the evidence to show that these were not matters affecting the property beyond the 20-year term of the lease. On the record they appear to be capital expenditures, not amortizable because indefinite and undeterminable in the duration of their consequence, and recoverable through addition to the basis of the property rather than through periodic deduction.

1953 U.S. Tax Ct. LEXIS 232">*282 The largest part of the remaining $ 44,000 of Tuohy's fee was attributable to his efforts to obtain a lease of the property for harness racing. Petitioner contends that Tuohy's charge in this connection must be split into two components, one representing payment for work done only in negotiating and consummating the lease to Maywood Park, and the other representing payment for services rendered in negotiating with other prospects who failed to lease the property. 19 T.C. 892">*911 Petitioner concedes that the first component is to be amortized over the 20-year term of the lease; the second, however, is asserted by him to be entirely deductible in 1946.

We are unable to agree with petitioner because we find the evidence insufficient to support his position. He argues that the "successful" and "unsuccessful" efforts were separable, whereas we think the fact was just the opposite. Tuohy was hired to help attain a single objective -- lease of the premises -- to which he applied himself with singleness of purpose, and for his efforts directed to this one objective he submitted a single charge. Tuohy's situation here was very much like that of the broker in Commissioner v. Gordon, (C. A. 2) 172 F.2d 864,1953 U.S. Tax Ct. LEXIS 232">*283 affirming per curiam 10 T.C. 772, whose services in selling a block of stock were held, in determining the period over which the commission for making the sale was to be spread under section 107 of the Code, to include both his unsuccessful and successful efforts. In fact, the lease to Maywood Park, at least in part, grew out of these "unsuccessful" efforts; thus, Johnson who represented the Maywood Park interests was introduced to Tuohy by persons acting for another prospective lessee with whom Tuohy was engaged in otherwise unsuccessful negotiations. Neither in Tuohy's bill to petitioner, nor in any statement made by him prior to commencement of this proceeding, did he ever indicate that he considered either his work or his charge to be divisible as petitioner contends. His charge was unitary, as was his work as well. Because the expenditure here is not divisible, Watson P. Davidson, 27 B. T. A. 158, 159, and Sibley, Lindsay & Curr Co., 15 T.C. 106, 110, are not in point. ⁹

1953 U.S. Tax Ct. LEXIS 232">*284 As to most of the remainder of Tuohy's services for which the $ 45,000 fee was charged, petitioner has failed either to establish their nature sufficiently to show that they were not capital expenditures, or else the evidence shows that they were such expenditures and therefore were not deductible wholly in one year: (1) Arrangement made for water to be supplied to the premises. This is a capital item, of benefit to the property at least for the life of the lease, and perhaps 19 T.C. 892">*912 beyond. Cf. section 24 (a) (2)¹⁰ of the Code; Treasury Regulations 111, section 29.24-2. (2) "Division of Taxes." No detail as to this item appears in the record, and we are unable to determine whether it involved a matter only of significance for the one year 1946 or whether it was of importance to the premises for a longer period. (3) Examination of policies under the lease, and of certain contracts entered into by the lessee. Certain policies of insurance obtained by or for Maywood Park were required under the lease to receive petitioner's approval, and in this connection Tuohy examined insurance policies. The evidence is incomplete as to what policies he examined and their nature, terms, 1953 U.S. Tax Ct. LEXIS 232">*285 and duration, and fails to show that these policies were of no benefit beyond 1946. As to the contracts examined, the evidence is also insufficient, indicating no more than that each of them involved an expenditure of more than $ 5,000. (4) Change in zoning of property not included in the lease. This was a capital item of importance to the property beyond the one year. Here, too, the record is lacking in clarity, and is ambiguous as to the nature and effect of the change made. (5) Condemnation proceedings involving property entirely separate from the Fair Grounds property. What happened here is left unexplained by the record. If property of petitioner were condemned, and he received an award therefor, legal expense in connection therewith would be a capital expenditure which diminished the proceeds recovered. Cf. Isaac G. Johnson & Co. v. United States, (C. A. 2) 149 F.2d 851, 852; Williams v. Burnet, (C. A. D. C.) 59 F.2d 357; William Justin Petit, 8 T.C. 228, 236-237. The record does not show such an award in 1946. No reason appears for deducting in that year, as a current1953 U.S. Tax Ct. LEXIS 232">*286 expense or otherwise, legal expense relating to the condemnation. (6) "Special Assessment Bonds." The only information in the record as to these bonds is that they had nothing to do with the Fair Grounds property. The record is insufficient to sustain the claimed deduction in 1946.

As to these services, moreover, petitioner's sole method of allocating Tuohy's fee between them is on the basis of time spent. Here we find the same objections to application of this method as we mentioned (footnote 9, supra) in respect of petitioner's apportionment of part of the fee between the "successful" and "unsuccessful" efforts in obtaining1953 U.S. Tax Ct. LEXIS 232">*287 a lease. There were no records kept as to time worked on 19 T.C. 892">*913 these items, and Tuohy's testimony in this regard was largely conjecture which left us with an impression that it was of dubious worth; in addition, as we said before, his fees were not fixed just on the basis of time spent but took additional considerations into account, so that time alone was no measure of his charges. And, concerning the other considerations, he has failed to prove what they were and how much weight he gave them in fixing his fee (see footnote 9, supra).

Finally, the $ 45,000 fee was paid for Tuohy's services in examining data showing business done at the track after it opened. The objections just described apply as well to allocation of part of the fee to these services. Tuohy's charge for this work may or may not have been a current expense, but it represented only a very small part of the services for which the $ 45,000 was charged, and the record leaves us with no sufficient basis on which to make a reasonably accurate apportionment of part of the fee to this part of the work. Moreover, respondent did allow petitioner a deduction based upon amortization of $ 44,000, which may well have1953 U.S. Tax Ct. LEXIS 232">*288 included some nondeductible capital items that should not have been amortized at all. Accordingly, we cannot say that the over-all amount allowed by respondent was not sufficient to absorb this last small item, even if some deduction were proper with respect to it.

We therefore conclude that petitioner has failed to prove that respondent erred in confining petitioner's deduction for 1946, in respect of Tuohy's fee, to an amount based on amortization of $ 44,000 of the fee over the term of the lease.

Decisions will be entered under Rule 50.