Howard

The questions here are whether taxpayers who moved to California in 1950 owing the federal government personal income taxes for the years 1944, 1945 and 1946 on income from sources outside California may take deductions on their 1952,1953 and 1954 California income tax returns for the amounts paid in those years as (1) legal and accounting fees incurred in settling the back federal taxes and (2) interest on the amounts owed as federal taxes. Our conclusions are that the interest is deductible but the legal and accounting fees are not.

This action was brought by the taxpayers in the superior court for a refund of California personal income taxes allegedly overpaid. The trial court gave judgment for defendant, and the plaintiff taxpayers have appealed from the judgment. The case has been submitted here upon an agreed statement of facts.

The taxpayers are husband and wife. Prior to June 1, 1950, they resided in Michigan, but ever since that date have been California residents. They have always been on a calendar year cash basis of accounting. On November 6, 1952, they settled a federal income tax dispute concerning their taxable years 1944,1945 and 1946. By the terms of the…