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deficiency for the taxable year ended January 31, 1991, is based
upon the disallowance of a $3,967 insurance deduction claimed on
petitioner's return for that year. Petitioner concedes the
deficiency determination for the taxable year ended January 31,
1991, in the amount of $1,349.
Section 162(a) allows as a deduction "all the ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business". But section 263(a) prohibits
deductions for "Any amount paid out * * * for permanent
improvements or betterments made to increase the value of any
property or estate." Section 1.263(a)-2(c), Income Tax Regs.,
provides examples of capital expenditures, including "The cost of
defending or perfecting title to property."
In United States v. Gilmore, 372 U.S. 39 (1963), the Supreme
Court held that whether litigation expenses are "business" or
"personal" is determined by looking to "the origin and character
of the claim with respect to which an expense [is] incurred".
Id. at 49. This doctrine was amplified in Anchor Coupling Co. v.
United States, 427 F.2d 429, 433 (7th Cir. 1970), cert. denied
401 U.S. 908 (1971):
Taxpayer argues that Gilmore is inapplicable because we
are asked here to determine whether a settlement
constitutes an ordinary and necessary business expense
3(...continued)
argued on brief, and nothing appears to turn on the burden of
proof in this factually fully stipulated case.
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