-16-
property or business (deductible expenditures), and, as a result,
an allocation between the two may be appropriate. DeMink v.
United States, 448 F.2d 867, 869 (9th Cir. 1971); see Boagni v.
Commissioner, 59 T.C. 708, 713-714.
2. Whether the Entire Settlement Payment Must Be
Capitalized
Petitioner contends that the $625,000 payment is deductible
whether it was paid by her or OMCC. Respondent contends that the
entire payment is a nondeductible capital expense. We agree with
petitioner in part in that we conclude that OMCC may deduct its
share of the settlement payment under section 162. We agree with
respondent in part in that we conclude that petitioner must
capitalize her share of the settlement payment.
In identifying the origin of the claim that led to the
settlement payment, we consider the Government’s original and
amended complaints in the farm loan litigation and the settlement
agreement. The Government’s original complaint was directed at
Cook Farms and its partners and sought a judgment requiring them
to repay all of the farm loan debt with interest. In the amended
complaint, the Government added petitioner as a defendant and
added allegations of conspiracy and fraudulent conveyance. The
Government alleged: (a) Petitioner had engaged in a conspiracy
to hinder and delay the Government's effort to collect the farm
loans in that Bob and Byron were secret or dormant partners in
OMCC; and (b) Bob, Byron, Owen, and petitioner fraudulently
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