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cable television company NICATV. Respondent also asserts that
petitioners have failed to establish that the disputed legal
expenses were directly connected with or proximately resulted
from NITCO's business activities. We essentially agree with
respondent.
We think that the mere naming of NITCO as a party in the FCC
proceedings does not suffice to make the legal expenses
deductible. The Synanon Church v. Commissioner, T.C. Memo. 1989-
270.16 In Gilmore, the Supreme Court noted:
16But cf. Kopp's Co. v. United States, 636 F.2d 59, 61 (4th
Cir. 1980), where the Court of Appeals for the Fourth Circuit
distinguished United States v. Gilmore, 372 U.S. 39 (1963),
reversed the lower court's holding that the legal expense in
dispute failed to meet the origin-of-the-claim test, and allowed
the taxpayer-corporation to deduct certain legal expense. In
Kopp's Co., the corporation incurred the legal expense in
defending itself and a shareholder's son in a tort suit stemming
from an accident involving a company car driven by the son. The
son had not been a corporate employee, nor had he been engaged in
performing corporate business. The court distinguished Gilmore
on the basis that the taxpayer-corporation had been named as a
party defendant and was alleged to have negligently permitted the
son to operate its car. We think that Kopp's Co. v. United
States is inapposite to the instant cases. Unlike the instant
cases, the taxpayer-corporation in Kopp's Co. apparently engaged
only in business activities. The activity giving rise to the
lawsuit, although arguably unrelated to the taxpayer’s business,
was an isolated incident. In contrast, NITCO engaged in
substantial nonbusiness activities before, during, and after the
years in issue. Indeed, the precise activities giving rise to
the proceedings in issue were NITCO’s nonbusiness activities.
For example, the FCC based its conclusion that NITCO and NICATV
were affiliated, inter alia, upon the following nonbusiness
activities: (1) NITCO’s construction and maintenance of signal
distribution facilities for NICATV, (2) Rhys’ responsibility,
while serving as NITCO’s executive vice president, for
negotiating pole attachment agreements with competing cable
companies, (3) the fact that all contractual agreements between
NITCO and NICATV were oral, and (4) Rhys’ oral “consulting
agreement”.
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