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the legal expenses paid, prior to being capitalized into the
basis of the property. Here, the contingency had not been met,
and the fees had not been paid. Accordingly, the contingent fees
cannot be treated as an addition to basis in petitioner's stock
in PMI.
Deductions in Connection With T.J. Cinnamons Bakery
In his 1990 Federal income tax return, petitioner deducted
$357,356 as a long-term capital loss from his failed investment
in a T.J. Cinnamons Bakery franchise. On brief, however, peti-
tioner argues that the basis of the franchise consisted of the
following amounts:
Cash paid by petitioner $60,000
Note assumed by petitioner 181,058
Capitalized expenses 86,175
Total 1 327,233
1Petitioner's counsel, in his trial brief, admits
that petitioner was not able to reconstruct the
$357,356 amount reported in the 1990 Federal income
tax return. Therefore, our discussion will focus on
the $327,233 amount testified to by petitioner's
accountant, Mr. Hoover.
Respondent contends that the basis is limited to the amount
allowed in the notice of deficiency, $241,058, representing the
cash paid and the note assumed by petitioner. Thus, the expenses
of $86,175 remain in dispute. For the reasons set forth herein,
we conclude that the basis is $241,058.
Petitioner included $86,175 of expenses in the basis of his
T.J. Cinnamons Bakery investment. A taxpayer is responsible for
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