- 24 - predominant purpose in defending and settling the suit. Woodward v. Commissioner, supra at 577-578. In Woodward, the Supreme Court rejected the primary purpose test, explaining that "A test based upon the taxpayer's 'purpose' in undertaking or defending * * * litigation would encourage resort to formalisms and artificial distinctions." Id. at 577. The test for determining deductibility of legal fees under section 162 is ordinarily an objective one, looking to the "origin" or "character" of the claim rather than the subjective "purpose" of the taxpayer in pursuing it. Woodward v. Commissioner, supra at 577-578; United States v. Gilmore, 372 U.S. 39, 49 (1963). The origin of the claim is ascertained by analyzing the facts of the situation at hand. United States v. Gilmore, supra at 47-48. We therefore consider the issues involved, the nature of the litigation, the defenses asserted, the background of the litigation, and all facts pertinent to the controversy. Id. Petitioners incurred the legal expenses in connection with the Dell'Oca and the Knauss lawsuits.8 Petitioners argue that the legal fees expended with respect to the Dell'Oca lawsuit served to protect the current income of the Pescadero property. 8 Respondent concedes that petitioners have verified the amounts claimed for legal expenses on Schedule F for 1991, totaling $45,961. It appears that petitioners substantiated legal fees of $115,938.37 and $35,837.33, respectively, for the 1992 and 1993 taxable years. In light of our ultimate disposition of this issue, we do not apportion expenses between the Dell'Oca and the Knauss lawsuits.Page: Previous 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Next
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