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Commissioner, 24 T.C. 597, 618 (Bruce, J., dissenting), revd. 234
F.2d 660 (6th Cir. 1956) (citing Judge Bruce's dissent with
approval). Consequently, respondent argues that, because there
has never been a judicial determination that the S Corporation
would be ultimately liable for the amount of the embezzlement,
the S Corporation is not entitled to deduct the Color Q payment.
We do not agree with respondent. In James E. Caldwell & Co.
v. Commissioner, supra, the Sixth Circuit Court of Appeals held,
inter alia, that an amount paid in satisfaction of a judgment
rendered against the corporate taxpayer for fraud was deductible
as an ordinary and necessary business expense. We view the
language cited by respondent as support for the taxpayer's
entitlement to the deduction under the facts of the James E.
Caldwell & Co. case, not a statement of law that a judicial
determination of liability is a prerequisite to a deduction.
Indeed, we have held to the contrary in Waring Prods. Corp. v.
Commissioner, 27 T.C. 921, 929 (1957) and Old Town Corp. v.
Commissioner, 37 T.C. 845, 859 (1962). Additionally, we have
allowed a deduction pursuant to section 162(a) for a payment in
settlement of a claim, even where it has not been ordered by a
court. Old Town Corp. v. Commissioner, supra.
As stated above, Mr. Jeffcott, who was an employee of the S
Corporation at the time of his embezzlement of funds from Color
Q, was providing services to Color Q pursuant to an engagement
letter between Color Q and the S Corporation for which the S
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