Stephen F. Scofield and Nancy E. Scofield - Page 21

          otherwise.  He settled the Northeast litigation to repay                    
          Northeast's creditors (Zayre and CNI) for debts Northeast                   
          incurred in the ordinary course of its trade or business and to             
          settle the bank's claim against him as a guarantor for Northeast.           
          We conclude that petitioner's payment to Northeast's creditors              
          other than his payment for the guaranty was an ordinary and                 
          necessary expense.                                                          
               The claims brought against petitioner for actions he took              
          while he was an officer of Northeast and the allegations in the             
          adversary proceeding originated in petitioner's conduct of his              
          duties as an officer and employee of Northeast.  The settlement             
          payment reasonably and proximately related to his serving as an             
          officer of Northeast.  Petitioner's payment to settle claims                
          other than that relating to his guaranty to the bank was a trade            
          or business expense.  Thus, petitioners may deduct under section            
          162 that part of the payment petitioner made in the Northeast               
          litigation and adversary proceeding to settle the claims of                 
          Northeast's creditors other than his payment for the guaranty.              
          O'Malley v. Commissioner, supra.                                            
               A taxpayer may deduct a payment relating to his or her trade           
          or business of being a corporate employee even though the                   
          taxpayer made the payment 3 years after the corporation stopped             
          operating.  Ostrom v. Commissioner, 77 T.C. 608, 613 (1981).                

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