- 45 -
We are satisfied, and we have found, that Kenmore
understated the net of its gross receipts over its purchases by
$510,919.28 for 1981 and $349,349.67 for 1982. Supra tables 3
and 4. We so hold.
(c) Legal Fee--Eggertsville Inn
Respondent‘s determination against Kenmore for its fiscal
1981 is based primarily on the bank deposits method. In
addition, respondent disallowed Kenmore’s deduction of a $500
payment by Kenmore to a law firm, LoTempio & Brown. This payment
was made in connection with the Eggertsville Inn. Supra table 3,
note 2. The notice of deficiency states that the payment is
disallowed “because it has not been established that * * * [it
was] for an ordinary and necessary business expense”.
Section 162(a)15 allows a deduction for “all the ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business”. In order to satisfy the
requirements of section 162(a), an expense must be both ordinary
and necessary, and it must have the requisite relationship to the
taxpayer’s business. George R. Holswade, M.D., P.C. v.
Commissioner, 82 T.C. 686, 698 (1984). Also, “the trade or
15 Sec. 162(a) provides, in pertinent part, as follows:
SEC. 162. TRADE OR BUSINESS EXPENSES.
(a) In General.--There shall be allowed as a deduction
all the ordinary and necessary expenses paid or incurred
during the taxable year in carrying on any trade or
business, * * *
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