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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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