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Legal expenses are deductible under section 162(a) as
ordinary and necessary business expenses if the litigation is
directly connected with, or proximately related to, the
taxpayer's business. Bingham's Trust v. Commissioner, 325 U.S.
365, 373-374 (1945); Kornhauser v. United States, 276 U.S. 145,
153 (1928); Rafter v. Commissioner, 60 T.C. 1, 8 (1973), affd.
without published opinion 489 F.2d 752 (2d Cir. 1974).
Petitioner claims that he was engaged in the business of
selling real estate as part of his renovation, management, and
rental activities. While respondent concedes that petitioner
participated in the purchase, renovation, management, rental, and
sale of property, respondent contends that petitioner was not in
the business of selling real estate during the years in issue.
Rather, respondent characterizes petitioner's activities as
investment activity.
We conclude that petitioner was not engaged in the business
of selling real estate during 1992 and 1993. Although petitioner
purchased 11 properties during the period 1982 through 1989, he
renovated 7 of the properties and sold only 2 of the properties,
1 in 1989 and 1 in 1990. Thus, petitioner's sales activity was
neither regular nor continuous. See Polakis v. Commissioner, 91
T.C. 660, 670-672 (1988). Further, petitioner's Schedules C for
tax years 1992 and 1993 do not reflect any income; rather,
petitioner reported the rental income and expenses from his
properties on Schedule E. Petitioners reported the gain on the
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