45- -
and character of the controversy, rather than the potential
consequences of the failure to prosecute or defend the
litigation. United States v. Gilmore, 372 U.S. 39, 44-51 (1963);
Anchor Coupling Co. v. United States, supra at 433.
In Freedman v. Commissioner, 301 F.2d 359 (5th Cir. 1962),
affg. 35 T.C. 1179 (1961), the Court of Appeals held that the
cost of settling a personal injury suit arising out of an
accident which occurred while the taxpayer was en route from one
place of employment to another was a nondeductible personal
expense because the taxpayer was not engaged in his vocation at
the time of the accident. Similarly, after applying the "origin
of claim" test in Marcello v. Commissioner, 380 F.2d 499, 504-505
(5th Cir. 1967), affg. in part 43 T.C. 168 (1964), the deduction
for attorney's fees was denied because the controversy did not
originate out of a business activity.
Here, by contrast, the origin of the controversy was Dr.
Oliver's medical treatment, as a physician, of a child for
injuries at his home. Unlike the taxpayers in the Freedman and
Marcello cases, Dr. Oliver was acting in his professional
capacity when the controversy arose, and therefore the payment in
settlement of the lawsuit was a business, rather than personal,
expense. Consequently, we hold that petitioners are entitled to
deduct the $6,000 paid in 1990 in settlement of litigation as an
ordinary and necessary business expense. See Musgrave v.
Commissioner, T.C. Memo. 1997-19.
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