- 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...)
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