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and necessary expenses paid or incurred in carrying on a trade or
business. Section 212 allows an individual to deduct all of the
ordinary and necessary expenses paid or incurred in: (1)
Producing income, (2) managing, conserving, or maintaining
property held for the production of income, or (3) determining,
collecting, or refunding a tax. Personal expenses are not
deductible. See sec. 262.
Whether an ordinary and necessary litigation expense is
deductible under section 162(a) or section 212 depends on the
origin and character of the claim for which the expense was
incurred and whether the claim bears a sufficient nexus to the
taxpayer's business or income-producing activities. See Woodward
v. Commissioner, 397 U.S. 572 (1970); United States v. Gilmore,
372 U.S. 39, 44-45 (1963); see also Peckham v. Commissioner, 327
F.2d 855, 856 (4th Cir. 1964), affg. 40 T.C. 315 (1963); Guill v.
Commissioner, 112 T.C. 325 (1999). Ordinary and necessary
litigation costs are generally deductible under section 162(a)
when the matter giving rise to the costs arises from, or is
proximately related to, a business activity. See Woodward v.
Commissioner, supra; Kornhauser v. United States, 276 U.S. 145,
153 (1928). Litigation costs must be "attributable to a trade or
business carried on by the taxpayer" in order to be deductible as
a business expense. Sec. 62(a)(1); see Guill v. Commissioner,
supra.
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