- 73 -
that the writeoff was not deductible for tax purposes.17 We
conclude that the activities that NITCO engaged in with respect
to NICATV were nonbusiness activities of NITCO. See
International Trading Co. v. Commissioner, 275 F.2d at 584-585.
As the claim in the divestiture and enforcement actions arose in
connection with these nonbusiness activities that NITCO engaged
in with respect to NICATV, the legal expenses of the divestiture
and enforcement actions are not deductible by NITCO under section
162. See United States v. Gilmore, supra; Accardo v.
Commissioner, supra; Dower v. United States, 668 F.2d 264, 266
(7th Cir. 1981); Anchor Coupling Co. v. United States, 427 F.2d
429, 431-433 (7th Cir. 1970). Petitioners have further failed to
establish that the constitutional challenge action arose in
connection with or proximately resulted from a business activity
17At trial, Mr. Mussman claimed that the writeoff occurred
due to an inadvertent error on the part of NITCO's accountant.
He related that the accountant, unlike Mr. Mussman, did not know
that Rhys had realized sufficient cash from the sale of NICATV to
discharge the "debt". We find Mr. Mussman's tale of mere
inadvertence to be incredible and not worthy of belief. We doubt
that the accountant would write off as uncollectible this large
$122,000 "receivable", without consulting Mr. Mussman and NITCO's
other top management. Moreover, even if the "receivable" were
inadvertently written off on NITCO's books, this still does not
adequately explain why NITCO never took action to collect the
"debt", as Mr. Mussman knew that Rhys possessed sufficient cash
to discharge the "debt". Additionally, we are not convinced that
Mr. Mussman was unaware of the accountant's "error". In signing
NITCO's 1989 annual report to the IURC, Mr. Mussman represented
that the information contained in the report, to the best of his
knowledge, was true and correct under penalty of perjury. We
think that Mr. Mussman all along never intended that NITCO
actually be paid by NICATV and Rhys for much of the work and
other assistance that NITCO provided to NICATV.
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