Northwestern Indiana Telephone Company - Page 70

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            the instant cases, application of the Gilmore origin-of-the-claim                          
            test is crucial because NITCO, while a corporation, engaged in                             
            various activities, some of which were business activities and                             
            others of which were nonbusiness activities.  See Accardo v.                               
            Commissioner, 942 F.2d 444, 449-451 (7th Cir. 1991), affg. 94                              
            T.C. 96, 99-100 (1990)                                                                     
                  Implicit in the Gilmore test is the further requirement                              
            that, for an expenditure to be deductible under section 162, it                            
            must be an ordinary and necessary expense, directly connected                              
            with or proximately resulting from the taxpayer's business.                                
            Kornhauser v. United States, 276 U.S. 145, 153 (1928).                                     
                  Petitioners contend that the disputed legal expenses NITCO                           
            incurred and paid, during the years in issue, are deductible                               
            ordinary and necessary business expenses under section 162.  They                          
            argue that the litigation expenses with respect to the                                     
            constitutional challenge, enforcement, and divestiture actions                             
            are deductible, because NITCO was a named party in the proceeding                          
            before the FCC, was the subject of the FCC's divestiture order,                            
            and was faced with the prospect of being fined or otherwise                                
            sanctioned by the FCC.                                                                     
                  Respondent, on the other hand, contends that the disputed                            
            legal expenses are not deductible, because they fail to meet the                           
            Gilmore origin-of-the-claim test.  Respondent maintains that the                           
            claims in the constitutional challenge, divestiture, and                                   
            enforcement actions arose from nonbusiness activities that NITCO                           
            engaged in to benefit Mr. Mussman's son, Rhys, by assisting Rhys'                          



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