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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).
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