Peters, Gamm, West & Vincent, Inc., Richard L. West, Judith L. West, Marc A. Vincent, Deborah S. Vincent, Gary L. Gamm and Connie F. Gamm - Page 10

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          must determine whether they are deductible as compensation to               
          Peters.  If the fees are not deductible by PGWV, we must                    
          determine whether Peters, individually, is entitled to a                    
          deduction under section 212(1).  Petitioners have the burden of             
          proof.  Rule 142(a); Welch v. Helvering, 290 U.S. 111 (1933).               
          1.  Deductibility of Legal Fees by PGWV Under Section 162(a)                
               Section 162(a) allows a deduction for "all the ordinary and            
          necessary expenses paid or incurred during the taxable year in              
          carrying on any trade or business".  For an expense to be                   
          deductible under section 162(a), it must meet five basic                    
          elements:  (a) It must be ordinary; (b) it must be necessary; (c)           
          it must be paid or incurred by the taxpayer in the taxable year;            
          (d) there must be a trade or business; and (e) the expense must             
          arise in connection with or proximately result from that trade or           
          business.  O'Malley v. Commissioner, 91 T.C. 352, 361 (1988).               
               These elements are in the conjunctive:  if just one is not             
          satisfied, the deduction is not allowed.  Because we make our               
          decision based on the last element, whether the expenses arose in           
          the carrying on of PGWV's trade or business, we do not consider             
          the other elements.  Respondent has conceded that legal fees of             
          $128,854.71, $198,431.67, and $135,659.23 were incurred for the             
          tax years 1988 through 1990, respectively, and that PGWV paid               
          them.                                                                       
               Respondent argues that the legal fees are personal in                  
          nature, and they did not arise in connection with or proximately            




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