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within the scope of his employment. Petitioner violated his
confidentiality agreement with Morgan Stanley by disclosing and
using for his personal gain confidential information that he
acquired through his employment.
Respondent attempts to analogize petitioner’s actions to
those of an employee who embezzles money from his employer.
Repayment of embezzled funds is not an ordinary and necessary
business expense of being an employee because an embezzler does
not act in the course of his employment when taking the money.
See, e.g., Yerkie v. Commissioner, 67 T.C. 388, 393-394 (1976);
Morrison v. Commissioner, T.C. Memo. 1981-617; Whitler v.
Commissioner, T.C. Memo. 1980-214. Petitioner’s use and
disclosure of the insider information was not in connection with
or furtherance of his employment or for a business purpose of his
employer, Morgan Stanley. Cf. O’Malley v. Commissioner, 91 T.C.
352, 363-364 (1988) (bribery charge against taxpayer related to
his employment because bribe advanced purposes of employer
although taxpayer's employer did not instruct him to offer
bribe). While petitioner’s sale of insider information was
facilitated by his employment, it was not directly or proximately
related to his job at Morgan Stanley. Petitioner is not entitled
to deduct the legal fees or disgorgement as business expenses of
being a financial analyst.
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