Stephen F. Scofield and Nancy E. Scofield - Page 25

          of petitioner's creditors, other than the bank, arose from his              
          income-producing activities.                                                
               Respondent argues that petitioners' reliance on Dowd v.                
          Commissioner, 68 T.C. 294 (1977), is misplaced.  We disagree.  In           
          Dowd, we applied the origin of the claim doctrine in deciding               
          whether legal expenses of a bankrupt taxpayer were deductible               
          under section 162(a).  The taxpayer in that case filed a petition           
          in bankruptcy resulting primarily from his inability to repay               
          more than $400,000 of business-related debts.  The taxpayer                 
          incurred court costs and litigation expenses to resolve a dispute           
          with his creditors under which he agreed to pay some of their               
          claims and they agreed not to oppose his discharge in bankruptcy.           
          We held that the taxpayer could deduct litigation expenses to the           
          extent that the creditors' claims were business related.  See Cox           
          v. Commissioner, T.C. Memo. 1981-552 (taxpayers could deduct                
          bankruptcy legal expenses attributable to their business since              
          their bankruptcy was proximately caused by their inability to pay           
          the debts of their business).                                               
               Petitioner's bankruptcy legal expenses were attributable to            
          his business or investment since Northeast's failure forced him             
          to seek bankruptcy protection.  The debts listed in his                     
          bankruptcy petition related almost exclusively to Northeast.  The           
          plaintiffs in the adversary proceeding were creditors of                    
          Northeast.  Fees paid to file petitioner's bankruptcy petition              
          and legal fees paid to defend claims against petitioner in the              

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