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officer or employee of Northeast and in action taken by him as an
investor-shareholder of Northeast; they did not relate to
petitioner's guaranty of other debts.
Respondent argues that, under section 263(a), petitioner may
not currently deduct the settlement payment because the
plaintiffs in the Northeast litigation alleged that he
misappropriated both tangible and intangible property. We
disagree. The creditors' claims against petitioner arose in the
ordinary course of their business with Northeast, not in the
process of acquiring or disputing who had title to a capital
asset. In defending against the claims, petitioner was not
defending or perfecting his title to property. See Cruttenden v.
Commissioner, 644 F.2d 1368, 1372-1374 (9th Cir. 1981), affg. 70
T.C. 191 (1978); Boagni v. Commissioner, 59 T.C. 708, 711-712
(1973).
Respondent argues that petitioners may not deduct the
settlement payment as an ordinary and necessary expense because
the plaintiffs in those cases alleged that petitioner embezzled
from Northeast. We disagree. Zayre, CNI, and the other
creditors' allegations that petitioner had embezzled funds were a
small part of the Northeast litigation. Petitioner denied and
defended against these allegations. Petitioner did not admit
that those allegations were correct as part of the settlement or
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