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 18

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               Respondent's argument fails for the following reasons.                 
          Although the underlying transaction here did remotely involve a             
          capital transaction (the purchase of the ERG stock), the relation           
          of Peters to such transaction is too attenuated.  Peters                    
          allegedly gave inside information to Mick and Lounsbury, who then           
          profited from such information, and returned some of the profits            
          by the repayment of loans.  Peters did not buy any stock;                   
          furthermore, the allegations of the SEC were never proven or                
          admitted by Peters.                                                         
               In Barrett v. Commissioner, supra, the taxpayer was sued by            
          the SEC, inter alia, for alleged inside trading; as part of a               
          settlement, he disgorged his profits.  The case is                          
          distinguishable because there the taxpayer was a buyer-broker,              
          and the underlying transaction was the purchase of certain                  
          options by the taxpayer based on inside information.  In our                
          case, Peters was not a buyer-broker, but was an investment                  
          adviser; he did not personally buy the stock which gave rise to             
          the claim.                                                                  
               In the present case, Peters was alleged to have committed an           
          inside trade, and faced losing his license as an investment                 
          adviser.  There being nothing capital concerning the legal fees             
          (they were spent to protect Peters and his money-making                     
          activity), we find that defending the SEC allegations was                   
          proximately related to his business, and accordingly we hold that           
          the payment of the legal fees was ordinary in nature for him.               




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