- 77 - unrelated to NITCO's business. We previously have held that substantially all these legal expenses were not deductible under section 162 by NITCO, because petitioners failed to establish the expenses were deductible under the Gilmore origin-of-the-claim test. Most of these legal expenses were incurred in the constitutional challenge, divestiture, and enforcement actions discussed supra. To the extent a substantive difference exists between the Gilmore origin-of-the-claim test discussed at pages 67-68, supra, and the analysis for whether a particular payment should be treated as constructive dividend income, petitioners in the instant cases have failed to meet their burden in proving that NITCO's payment of the legal expenses: (1) Did not primarily benefit Mr. Mussman's son Rhys, (2) furthered the interest of NITCO, and (3) was of direct and substantial economic benefit to NITCO. Compare Hagaman v. Commissioner, supra, and Ireland v. United States, supra, with Parker v. Commissioner, 365 F.2d 792, 801-802 (8th Cir 1966), affg. in part, revg. in part, and remanding T.C. Memo. 1965-77.19 19In Parker v. Commissioner, 365 F.2d 792, 801-802 (8th Cir. 1966), affg. in part, revg. in part, and remanding Foundation for Divine Meditation, Inc. v. Commissioner, T.C. Memo. 1965-77, the founder and head of a religious organization was prosecuted for contributing to the delinquency of a minor. Following his acquittal, he brought an action for slander. The religious organization paid the expenses of both the criminal and civil actions. This Court viewed the legal expenses as a personal expense of the founder and held that their payment by the organization represented taxable income to the founder. In reversing, the Court of Appeals for the Eighth Circuit stated (continued...)Page: Previous 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 Next
Last modified: May 25, 2011