James F. Boccardo Lorraine v. Boccardo v. Commissioner of Internal Revenue

James F. Boccardo and Lorraine Y. Boc-cardo appeal from a judgment of the United States Tax Court denying them a deduction. We reverse and direct the entry of judgment for the Boceardos.

FACTS

James Boccardo is a partner in a law firm (the firm), whose practice consists primarily of personal injury cases. During the tax years in question, 1982 and 1983, there were twenty lawyers in the firm, half of whom were partners. The firm had offices in California and in Washington, D.C. The firm used the cash method of accounting in the federal income tax returns of the partnership. In both years, it deducted from gross income such litigation costs as filing fees, witness fees, travel expenses and medical consultation fees in connection with a ease. As a partner reporting his net income from the firm, James Boccardo had the benefit of his proportionate share of these deductions on his federal tax returns filed jointly with his wife Lorraine.

The firm’s “gross fee” contract with clients that gives rise to this litigation provided in relevant part as follows:

From the firm’s inception in 1951 through 1983, less than 1% of its clients terminated their relation with the firm before recovery…