- 40 -
The ascertainment of a claim's origin and character is a
factual determination that must be made on the basis of the facts
and circumstances of the litigation. See United States v.
Gilmore, supra at 47-49. The most important factor to consider
is the circumstances out of which the litigation arose. See
Guill v. Commissioner, supra; Boagni v. Commissioner, 59 T.C. 708
(1973). In passing on this factor, the fact finder must take
into account, among other things, the allegations set forth in
the complaint, the issues which arise from the pleadings, the
litigation's background, nature, and purpose, and the facts
surrounding the controversy. See Guill v. Commissioner, supra;
Boagni v. Commissioner, supra at 713.
B. Squirrel Bend Litigation
Petitioner argues that (1) the origin of the claim in the
Squirrel Bend litigation was Mr. Davis' sale of Big Bite stock to
Mr. Hyrne, and (2) this was directly related to Mr. Davis' trade
or business of promoting Big Bite. Respondent counters that the
origin of the claim was the construction of the waterline at
Squirrel Bend. We agree with respondent.
The Squirrel Bend litigation was a mail fraud case. Mr.
Davis used the U.S. mail to transmit documents associated with
the construction of the waterline at Squirrel Bend. The
indictment alleged that he improperly inflated the cost of the
waterline. Mr. Davis was not charged with bribing Mr. Hyrne.
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