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With respect to the legal expenditures for the
constitutional challenge, divestiture, and enforcement actions,
petitioners contend the expenditures directly benefited NITCO,
because they prevented NITCO from being subjected to a fine and
protected its business reputation with the FCC.
We consider the hundreds of thousands of dollars in legal
expenditures that NITCO incurred in litigating the constitutional
challenge, divestiture, and enforcement actions, to have been of
dubious benefit to NITCO and its business, particularly since, as
indicated above, the activities that NITCO engaged in with
respect to NICATV were not undertaken by NITCO with a profit
motive. We are thus not convinced that the litigation of the
constitutional challenge, divestiture, and enforcement actions
furthered NITCO's interest and was of direct and substantial
benefit to NITCO. Rather, the litigation primarily benefited
Rhys, by giving Rhys' company NICATV the further time it needed
to build up its cable television system business.
Moreover, we perceive the protracted litigation to have been
actually more harmful to NITCO's good reputation with the FCC,
19(...continued)
that because the reputation and business of the organization were
inextricably bound up with its founder, the payment of the
expenses was of direct and substantial benefit to the
organization. Although the Court of Appeals for the Eighth
Circuit further stated, in dicta, that the expenses would be
deductible by the organization as an ordinary and necessary
business expense, the issue of the expenses' deductibility had
not been raised. Thus, the Court of Appeals for the Eighth
Circuit did not have the deductibility issue before it and did
not address the Gilmore origin-of-the-claim test.
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