3
through 1990, and lived in Towanda, Kansas, at the time their
petition was filed. Peters, Gamm & West, Inc.,1 was an S
corporation formed under the laws of the State of Kansas in 1986.
After concessions2 and settlement of various issues, we must
decide:
(1) Whether Peters, Gamm, West & Vincent, Inc. (PGWV), is
entitled to a deduction for legal fees incurred in defending an
action brought by the Securities and Exchange Commission (SEC)
against one of the principals of PGWV. We hold that it is not.
(2) Whether the legal fees are deductible by PGWV as
compensation to petitioner Don S. Peters. We hold that they are
not.
(3) Whether petitioner Don S. Peters, individually, is
entitled to a deduction under section 212(1) in an amount equal
to the previously disallowed amounts paid by PGWV in defending
the legal action brought by the SEC. We hold that he is.
FINDINGS OF FACT
In August 1983, Gamm, Ivan West (Ivan), and Peters formed an
equal partnership called Investment Management Group (IMG). The
1 In 1989, Marc A. Vincent became a principal of the firm,
and, accordingly, in 1990 the name was amended to Peters, Gamm,
West & Vincent, Inc. (PGWV). Hereinafter, references to PGWV
will be to Peters, Gamm & West, Inc., or Peters, Gamm, West &
Vincent, Inc., depending on the year involved.
2 Petitioners Peters conceded the sec. 6651(a)(1) addition
to tax for tax years 1988, 1989, and 1990 and the sec. 6662(a)
penalty for the 1990 tax year. Respondent conceded the sec.
6653(a)(1) addition to tax for the 1988 tax year and the sec.
6662(a) penalty for the 1989 tax year.
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