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suggestion that petitioner had other choices or means of
continuing income-producing activity.
Generally, expenditures by a substantial shareholder for the
benefit of his corporation are deemed capital and are not
deductible due to a lack of connection with the
shareholder/taxpayer's own trade or business. Deputy v. du Pont,
308 U.S. 488 (1940). However, where a taxpayer makes
expenditures to protect or promote his own business, the
expenditure may be deductible, "even though the transaction
giving rise to the expenditures originated with another person
and would have been deductible by that person if payment had been
made by him." Lohrke v. Commissioner, supra at 685 (and cases
cited therein).
In this case, the expenditures were made to protect and
promote petitioner's insurance business. Here the income-
producing asset consisted of the names of clients and potential
clients. Following the cease and desist order, the clients could
no longer be sold securities of the Mid-Continent corporations,
and petitioner pursued the sale of insurance. Because Riley's
assets had been intermingled within the Mid-Continent
corporations' assets, the Mid-Continent corporations' obligations
were associated with Riley's client list and its use. Payment of
the corporations' obligations was necessary to protect
petitioners' own insurance business. Accordingly, the
expenditures pass the Lohrke test.
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