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Although Mr. Hyrne allegedly allowed Mr. Davis to inflate
the cost of the waterline because Mr. Hyrne acquired the
opportunity to purchase Big Bite stock, the sale of the stock
itself was not alleged to be improper; rather, the cost inflation
was allegedly improper. We conclude, therefore, that the origin
of the claim was the construction of the waterline at Squirrel
Bend.
The parties stipulated that Mr. Davis' activity at Squirrel
Bend was not a trade or business, and petitioner presented no
evidence suggesting that he managed, conserved, or maintained his
personal residence at Squirrel Bend for the production of income.
Therefore, we conclude that petitioner is not entitled to deduct
the legal fees associated with the Squirrel Bend litigation in
any amount greater than that which was allowed by respondent in
the notices of deficiency.
C. SEC and Orange Co. Litigation Expenses
Petitioner argues that the SEC and Orange Co. litigation
expenses were related to his "business of promoting" or his
business of being an employee of Orange Co. (as an officer and
director). Respondent contends that the SEC litigation was not
related to a business activity. In the alternative, respondent
argues that if petitioner's actions were in the course of
petitioner's trade or business of being an employee of Orange
Co., he was entitled to reimbursement of the SEC and Orange Co.
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