Wallace R. Noel and Robinette Noel - Page 23

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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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