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“Legal expenses do not become deductible merely
because they are paid for services which relieve a
taxpayer of liability. That argument would carry us
too far. It would mean that the expense of defending
almost any claim would be deductible by a taxpayer on
the ground that such defense was made to help him keep
clear of liens whatever income-producing property he
might have. For example, it suggests that the expense
of defending an action based upon personal injuries
caused by a taxpayer's negligence while driving an
automobile for pleasure should be deductible. * * *
* * * * * * *
“It is not a ground for * * * [deduction] that the
claim, if justified, will consume income-producing
property of the defendant.” * * * [United States v.
Gilmore, 372 U.S. at 46-47 (quoting Lykes v. United
States, 343 U.S. 118, 125-126 (1952)).]
Thus, the fact that NITCO may have been subject to being fined or
otherwise sanctioned by the FCC is not controlling under the
Gilmore origin-of-the-claim test, because those potential actions
by the FCC concern only the attendant consequences of the
litigation.
We have found that the activities that NITCO engaged in with
respect to NICATV were not undertaken by NITCO with a profit
motive. Indeed, NITCO's 1989 annual report to the IURC reflects
that NITCO wrote off the approximately $122,000 "debt" that
NICATV "owed" to NITCO. The purported debt was written off,
despite the fact that Mr. Mussman knew that Rhys had realized
sufficient cash from his sale of NICATV to discharge the "debt".
In addition, in its 1989 annual report to the IURC, NITCO stated
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