- 70 - 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'Page: Previous 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 Next
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