9
percent of the firm's business, was valued at around $100 million
and later grew to almost $500 million. Trustees of the KPERS
fund informed IMG at a public meeting that the fund would no
longer utilize the services of PGWV if Peters were found to have
committed any of the alleged insider trading or any other
wrongdoing.
PGWV claimed as a deduction legal fees in the amounts of
$128,854.71, $198,431.67, and $135,659.23 in computing its net
income on its subchapter S return for the tax years 1988 through
1990, respectively. Respondent disallowed $123,103, $190,245,
and $128,131 of those amounts in her timely notices of
deficiency, stating that it had not been established that those
amounts were for ordinary and necessary business expenses, rather
than nondeductible business expenses of Peters. The pro rata
share of such deductions claimed by petitioners on their income
tax returns was disallowed. Respondent has conceded that the
amounts claimed as legal fees were paid by PGWV.
OPINION
The primary issue is whether PGWV, in computing net income
for subchapter S purposes, may deduct legal fees incurred in
defending an action brought by the SEC against petitioner Peters,
one of the shareholders of PGWV. Section 162(a) allows a
taxpayer to deduct ordinary and necessary expenses paid or
incurred in carrying on a trade or business. If we determine
that the amounts in question are not deductible as legal fees, we
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011