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deducted legal fees of $121,200 for 1991 and $25,000 for 1992.
Because Galaxy was a S corporation, the latter deductions passed
through to Mr. Poulos' tax returns for the years in issue.
Respondent disallowed the deductions.
OPINION
Petitioners contend that Liberty and Galaxy are entitled to
deduct as ordinary and necessary business expenses the portion of
the legal fees attributable to regaining possession of the
corporations. See sec. 162(a). Petitioners further contend that
Mr. Poulos may deduct such fees because they were incurred for
the management, conservation, or maintenance of property held for
the production of income. See sec. 212(2). Respondent contends
that the legal expenses relate to Mr. Poulos' divorce proceeding
and, therefore, are personal expenses that should be disallowed.
See sec. 262(a).
Petitioners' legal expenses are deductible if the origin of
the claim arose from their profit seeking, rather than Mr.
Poulos' personal, activities. See United States v. Gilmore, 372
U.S. 39, 48 (1963). Mr. Poulos' legal fees were incurred for the
purpose of establishing his right to possession of, or
participation in the income from, the corporations, and
therefore, such expenses arose from Mr. Poulos' profit-seeking
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