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disgorgement were related to “his business activities in the
securities industry” and, therefore, are deductible business
expenses. Respondent maintains that petitioner’s expenditures
are not business expenses because his insider trading activity
was not related to his employment at Morgan Stanley and
petitioner was not in a separate trade or business of selling
insider information. Respondent has permitted petitioner to
deduct the disgorgement under section 165(c)(2) as a loss
incurred in an activity entered into for profit that does not
constitute a trade or business. A section 165(c)(2) nonbusiness
loss deduction cannot create an NOL carryback. Sec. 172(d)(4).
Respondent also argues that petitioner is not entitled to deduct
the legal expenses under either section 162 or 212 because the
expenses were paid by petitioner’s father.
The first issue for our consideration is whether
petitioner’s selling of insider information constituted a trade
or business. Petitioner asserts that the sale of insider
information was in connection with his employment at Morgan
Stanley and that his job provided him with the opportunity and
means to engage in insider trading. Petitioner also argues that
he made the disgorgement to protect his business reputation and
future employment. Although petitioner obtained the insider
information in the course of his position with Morgan Stanley,
his use and disclosure of the information for profit was not
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