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the payment for the claims of the bank relating to petitioner's
guaranty.
B. Whether Petitioners May Deduct Their Legal Fees
Petitioners paid legal fees of $10,243 in 1986, $59,352 in
1987, and $104,156 in 1988 and deducted them on Schedules C of
their tax returns. Respondent determined and contends that
petitioners may not deduct $25,269 in 1987 and $33,313 in 1988 of
these fees as ordinary and necessary business expenses under
section 162 because petitioner paid them in connection with his
bankruptcy. Respondent also determined that legal fees of
$10,243 in 1986, $34,083 in 1987, and $70,843 in 1988 were
deductible from adjusted gross income subject to the limitations
of section 67, which allows miscellaneous itemized deductions to
the extent that they exceed 2 percent of adjusted gross income.
Petitioners argue that they may deduct the legal fees relating to
their bankruptcy because it resulted from Northeast's business
failure.
Petitioners may deduct legal expenses if the origin of the
claims in the Northeast and adversary proceedings related to
petitioner's trade or business or the production of income and
was not primarily personal. Woodward v. Commissioner, 397 U.S.
572, 577-578 (1970); Commissioner v. Tellier, 383 U.S. 687, 689
(1966); United States v. Gilmore, 372 U.S. 39 (1963). The origin
of the claim is found by analyzing the facts, United States v.
Gilmore, supra at 47-48, and the basis of the transaction out of
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