- 7 - prove that his interest payments are not of a personal nature, he may qualify for interest deductions under section 163. Section 162 - Trade or Business Expense A deduction shall be allowed for all ordinary and necessary expenses paid during the taxable year in carrying on a taxpayer's trade or business. Sec. 162; sec. 1.162-1, Income Tax Regs. An expense is ordinary if it arises out of the normal operations of the business. Deputy v. du Pont, 308 U.S. 488 (1940). An expense is necessary if it is appropriate and helpful to the taxpayer's business. Welch v. Helvering, 290 U.S. 111, 114 (1933). Interest payments on a settlement may be deducted if the payments have a business origin and are proximately related to the taxpayer's trade or business. United States v. Gilmore, 372 U.S. 39, 49 (1963); Deputy v. du Pont, supra at 493-494; Harden v. Commissioner, T.C. Memo. 1991-454. Business origin is described as the "character of the claim with respect to which an expense was incurred". United States v. Gilmore, supra at 49. It is not the consequence of the litigation on the taxpayer's trade or business; it is the origin of the underlying claim which is determinative. United States v. Gilmore, supra. The question to be answered is, out of what kind of transaction did petitioner's interest expenses arise. Boagni v. Commissioner, 59 T.C. 708, 713 (1973).Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 Next
Last modified: May 25, 2011