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asserts that the payments are deductible as an ordinary and
necessary business expense in petitioner's separate business of
developing computer software. Second, petitioner contends that
the payments are deductible as an ordinary and necessary expense
of petitioner's law practice because they were incurred to
protect petitioner's professional reputation as an attorney.
Respondent contends that the payments were not ordinary and
necessary expense of petitioner's law practice and that
petitioner's only trade or business was the practice of law.
Respondent argues that the payments are allowable as a capital
loss deduction to petitioner, subject to the capital loss
deduction limitation rules of section 1211. We address each
argument separately.
Section 162(a) provides for a deduction for "ordinary and
necessary" expenses paid or incurred during the taxable year in
carrying on a trade or business. Sanford v. Commissioner, 50
T.C. 823, 826 (1968), affd. per curiam 412 F.2d 201 (2d Cir.
1969). An ordinary and necessary expense is one that is
appropriate and helpful to the taxpayer's business and that
results from an activity which is a common and accepted practice.
Boser v. Commissioner, 77 T.C. 1124, 1132 (1981), affd. by order
(9th Cir., Dec. 22, 1983). Deductions are a matter of
legislative grace, and petitioner bears the burden of proving
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