11
from PGWV's business. Petitioners take the position that PGWV,
the successor to IMG, incurred the legal fees to protect its
trade or business as well as its reputation, and that because
payment of the fees was helpful to PGWV's trade or business, they
are deductible.
Expenses which are personal in nature are not generally
deductible. Sec. 262; Johnson v. Commissioner, 72 T.C. 340, 348
(1979). An expense must be directly connected with, or
proximately result from, the business of the taxpayer.
Kornhauser v. United States 276 U.S. 145, 153 (1928); see also
Deputy v. du Pont, 308 U.S. 488, 494 (1940). Where expenses of
litigation are involved, the origin of the claim which gave rise
to the litigation, rather than the consequences of the
litigation, is evaluated to ascertain whether the expenses are
business or personal in nature. United States v. Gilmore, 372
U.S. 39 (1963). The expenses of an activity are not
automatically rendered nondeductible merely because the activity
is illegal or inappropriate. See Johnson v. Commissioner, supra
(legal expenses incurred in unsuccessful defense against criminal
charges brought against taxpayer's husband due to his
participation in a tax fraud scheme treated as deductible under
section 212(1) because the criminal prosecution arose from his
profit-seeking activities). Additionally, otherwise allowable
deductions under section 162 or 212, which arose from an illegal
activity, will not be disallowed on public policy grounds.
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