46- -
Third, petitioners contend that they are entitled to a
deduction in 1991 for damages of $4,500 and legal fees of $1,500,
which resulted from a lawsuit filed by a neighbor against them
after they constructed a landfill on their property.
Respondent argues that the amounts paid as damages and legal
fees are not deductible because they are personal expenses.
Petitioners argue that they were business expenses because
petitioners maintained an office at their home which was
protected from flood damage by the landfill.
We agree with respondent that the amounts petitioners paid
as damages and legal fees as a result of the construction of a
landfill on their property were personal expenses and thus
nondeductible. Applying the "origin of claim" test, we conclude
that the controversy did not originate in petitioners' business
activity, but rather originated in their effort to protect their
home from flooding. United States v. Gilmore, supra at 44-51.
The connection between the construction of the landfill and
petitioners' business activities is far too attenuated for us to
conclude that the expenses were not personal. In any event,
petitioners, as cash method taxpayers, are not entitled to deduct
the damages and legal fees because they apparently were not paid
by them until 1992, a year that is not before the Court in this
case.
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