Stephen F. Scofield and Nancy E. Scofield - Page 20

          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               
               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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