21
legal charges incurred for his benefit. We hold that Peters was
in constructive receipt of the distribution in the amount of the
legal fees, and for purposes of claiming them as a deduction he
has also constructively paid the legal fees. Cf. Mueller v.
Commissioner, 496 F.2d 899 (5th Cir. 1974), affg. in part, revg.
in part and remanding 60 T.C. 36 (1973).
D. Incurred in Connection with Taxpayer's Profit-Seeking
Activity
The final element will be met where the activity proximately
results from the taxpayer's profit-seeking activity. Deputy v.
du Pont, 308 U.S. 488, 492 (1940); Kornhauser v. United States,
276 U.S. 145 (1928). We have held above that the origin of the
claim was not in the trade or business of PGWV, but rather arose
in Peters' own activities. The question becomes whether the
activity was a profit-seeking activity for purposes of section
212(1). The transaction in question involved Peters' receipt of
certain payments that the SEC alleged were made only as the
result of an inside trade. Those allegations were never proven.
If they were true, and Peters did engage in an inside trade, such
trade was a profit-seeking activity, albeit an improper one. See
Kent v. Commissioner, T.C. Memo. 1986-324 (charter boat captain
arrested for marijuana smuggling allowed to deduct legal fees
paid by an undisclosed third party). If the allegations were not
true, then the underlying transaction was the repayment of loans
from colleagues who were not clients of PGWV. The loans resulted
from Peters' profit-making business relationship with such
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