- 3 -
conspired to hamper, hinder, and impede the ascertaining,
computation, assessment, and collection of his father’s Federal
income taxes.
In its taxable year ended June 30, 1990 (the 1989 taxable
year), Corporation incurred and paid $137,744 in legal fees and
$11,642 in travel-related expenses defending the criminal action.
On its 1989 Federal income tax return, Corporation deducted the
former amount as “legal expenses” and the latter amount as
“travel and entertainment”. Corporation paid $41,671 and
$163,753 in legal fees during its 1990 and 1991 taxable years,
respectively, defending the criminal action. Corporation
deducted these amounts as “legal expenses” on its 1990 and 1991
Federal income tax returns.
In 1993, the Commissioner audited Corporation’s 1989, 1990,
and 1991 Federal income tax returns. The Commissioner disallowed
the above-mentioned deductions taken by Corporation, and she
issued Corporation a notice of deficiency reflecting her
disallowance. According to the notice of deficiency, which was
dated April 4, 1994, Corporation could not deduct these amounts
because: (1) The underlying expenses were not “directly or
proximately related to the corporation’s trade or business”,
(2) “the source of the criminal charges or the character of the
conduct from which the charges arise determines the deductibility
or nondeductibility of the legal expenses in question”, and
(3) the legal expenses were incurred by Mr. Sturman and
Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011