Wallace R. Noel and Robinette Noel - Page 21

                                       - 21 -                                         
          was paid to settle petitioner's two contract claims, and 9 per-             
          cent was paid to settle his tort claim.  We, therefore, conclude            
          that 9 percent of the legal expenses, or $27,000, is not deduct-            
          ible.  Also, $54,000 of the legal fees, the amount related to               
          petitioner's two contract claims, is deductible as a miscel-                
          laneous itemized deduction.                                                 
               Next, we must decide whether the legal fees allocated to the           
          sale of petitioner's stock, or $219,000, were properly added to             
          the basis in petitioner's stock, as argued by petitioner, or                
          whether the fees are deductible as miscellaneous itemized                   
          deductions, as respondent contends.  In litigation involving the            
          acquisition or disposition of capital assets, the origin and                
          character of the claim control in deciding whether or not legal             
          expenses should be capitalized.  Woodward v. Commissioner, 397              
          U.S. 572 (1970).  This Court has applied the same rule to cases             
          involving the defense or perfection of title to property.  See              
          Boagni v. Commissioner, 59 T.C. 708 (1973).  Consideration must             
          be given to the issues involved, the nature and objectives of the           
          litigation, and the background and the facts surrounding the                
          controversy.  Id. at 713.                                                   
               Petitioner transferred his Pizza Hut franchises in exchange            
          for PMI stock because he was under the impression that PMI                  
          possessed the right to issue its stock in a public offering                 
          without restrictions from Pizza Hut.  When PepsiCo contested                
          PMI's public offering, petitioner instituted a lawsuit to enforce           

Page:  Previous  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Last modified: May 25, 2011