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person’s expense. Deductibility will not be denied when the
expense was incurred primarily for the payor’s business, and any
personal benefit conferred on the other party was merely
incidental to the payor’s objective. Second, the Court
considered whether the expenditure was an ordinary and necessary
expense of the taxpayer's business. We ask ourselves: “Was the
expenditure an appropriate expense to further or promote the
payor’s trade or business”? Id.
With respect to the first prong, petitioner alleges that it
stood to suffer direct and proximate adverse effects to its
business as a result of the criminal investigation. Petitioner
argues that its contributions to the Fund were related to
petitioner's business in that its records were seized during the
search of MBS, its President was called to testify about its tax
returns, its relationship to Mr. Mohney was close and direct, and
it had a similar relationship with the other enterprises
connected to the grand jury hearing. Petitioner contends that
it, not Mr. Mohney, was the primary beneficiary of the payments
to the Fund, because the grand jury investigation and subsequent
criminal proceedings threatened its corporate existence.
Petitioner contends that its contributions to the Fund were
necessary to defend itself in proceedings in which its own tax
and accounting practices may have been called into question.
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