- 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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