John L. Locke and Irene F. Locke v. Commissioner of Internal Revenue

This is an appeal from a Tax Court decision sustaining a finding by the Commissioner of Internal Revenue that John L. and Irene F. Locke owed a tax deficiency of $11,996.05 for the taxable year ending December 31, 1969 and a tax deficiency of $72,796.60 for the taxable year ending December 31, 1970. We affirm.

John L. Locke, now deceased, was the son-in-law of O. D. Fisher who had developed an extensive corporate enterprise of diversified interests. Locke was the chief executive officer of many of the Fisher corporations, and, in general, had a position of leadership in the family enterprises. One of the companies in which the Fisher family owned a substantial interest was Louisiana Long Leaf Lumber Company (4-L) with which Locke had no official connection until May of 1966. Locke incurred legal expenses during 1969 and 1970 defending a lawsuit brought under Section 10(b) of the Securities Exchange Act of 1934,15 U.S.C. § 78j, and Rule 10b-5 of the Securities and Exchange Commission, 17 C.F.R. § 240 .10b-5. Raymond Callahan, a relative of Locke’s by marriage, brought the suit seeking damages for fraud in the sale of stock. Callahan’s amended complaint alleged that Locke knew the…