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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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