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II. NITCO's Deduction of Legal Expenses
On its 1987, 1988, and 1989 returns, NITCO claimed
substantial business deductions for legal expenses. To be
deductible by NITCO under section 162, NITCO must establish that
these outlays were ordinary and necessary expenses incurred in
carrying on NITCO's trade or business. However, before, during,
and after the years in issue, NITCO engaged in extensive
nonbusiness-related activities to benefit and support Mr.
Mussman's sons.
Whether a taxpayer is engaged in a trade or business is a
question of fact. Although there are various factors that are
important in making this determination, the most prominent of
these factors are a profit motive and the carrying on of
activities in a businesslike fashion. See International Trading
Co. v. Commissioner, 275 F.2d 578, 584-585 (7th Cir. 1960), affg.
T.C. Memo. 1958-104.
In United States v. Gilmore, 372 U.S. 39, 48 (1963), the
Supreme Court held legal expenses to be deductible if the claim
arises in connection with the taxpayer's profit-seeking
activities. In the words of the Supreme Court in Gilmore, "the
origin and character of the claim with respect to which an
expense was incurred, rather than its potential consequences upon
the fortunes of the taxpayer, is the controlling basic test of
whether the expense was 'business' or 'personal'"; i.e.,
nonbusiness within the meaning of section 162(a). Id. at 49. In
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