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retirement benefits. The administrator's actions prompted Mrs.
Glassman to file her claim and formed the basis of her cause of
action.
The second step requires us to characterize the transaction
that we identified in the first step. Id. at 678. Respondent
contends that the taxable portion of the income stream from the
Hughes Plan is ordinary income. See secs. 61(a)(11), 72, 402(a);
Eatinger v. Commissioner, T.C. Memo. 1990-310. Indeed,
petitioners consistently reported the taxable portion of all
payments from the plan as ordinary income. We conclude that Mrs.
Glassman's claim relates to the calculation of benefits under the
Hughes Plan, not to a "capital transaction" (e.g., the
acquisition, disposition, defense, or protection of title to
property). Therefore, petitioners' expenditures are not capital
expenditures. See Dye v. United States, 121 F.3d 1399, 1405
(10th Cir. 1997) (stating that expenditures for attorney's fees
are not capital expenditures if incurred to secure taxable,
ordinary income); see also Leonard v. Commissioner, 94 F.3d 523,
526 (9th Cir. 1996); Parker v. United States, 215 Ct. Cl. 773,
573 F.2d 42, 51 (1978); cf. Pierce Estates, Inc. v. Commissioner,
3 T.C. 875, 892-893 (1944)(holding that expenditures for
attorney's fees are not capital expenditures where incurred in
litigation over the proper method of calculating how much income
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