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ascertain whether the fees are business or personal in nature.
United States v. Gilmore, 372 U.S. 39 (1963). The fact that
legal fees are paid by a taxpayer on behalf of another person's
criminal defense will not foreclose a deduction by the taxpayer
when the alleged criminal activity relates to the taxpayer’s
trade or business. See Commissioner v. Tellier, supra;
Conforte v. Commissioner, 74 T.C. 1160, 1189-1190 (1980), affd,
in part and revd. in part 693 F.2d 587 (9th Cir. 1982);
Johnson v. Commissioner, supra at 347-348 (1979); cf.
Pantages Theatre Co. v. Welch, 71 F.2d 68 (9th Cir. 1934)
(corporation could not deduct legal expenses paid to defend its
president and majority shareholder in defense of charges that he
raped a prospective client of the corporation); Sturdivant v.
Commissioner, 15 T.C. 880 (1950) (partnership could not deduct
legal expenses paid to defend two of its partners and an employee
charged with the murder of a business associate); Price v.
Commissioner, T.C. Memo. 1973-65 (taxpayer could not deduct
legal fees incurred by management consultant for criminal defense
of the fraudulent sale of securities because consultant was not
in the trade or business of selling securities).
In Lohrke v. Commissioner, supra at 688, the Court adopted a
two prong test for determining when a taxpayer may deduct the
legal expenses of another. First, the Court looked to the
purpose or motive that caused the taxpayer to pay the other
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