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under section 104(a)(2). We apply the reasoning in Whitley and
hold the same here.
As to the primary issue, section 162(a) governs the
deductibility of litigation costs as a business expense.
Section 162(a) allows an individual to deduct all of the ordinary
and necessary expenses of carrying on his or her trade or
business. Section 212 governs the deductibility of litigation
costs as an itemized deduction, when the costs are incurred as a
nonbusiness profit-seeking expense. 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.
Sections 162(a) and 212 are considered in pari materia, except
for the fact that the income-producing activity of the former
section is a trade or business whereas the income-producing
activity of the latter section is a pursuit of investing or other
profitmaking that lacks the regularity and continuity of a
business. See Woodward v. Commissioner, 397 U.S. 572, 575 n.3
(1970); United States v. Gilmore, 372 U.S. 39, 44-45 (1963);
Bingham's Trust v. Commissioner, 325 U.S. 365, 374-375 (1945).
A deduction of litigation costs under section 162(a) may be
more desirable to an individual than is a deduction under section
212. The primary advantage to a deduction under section 162(a),
vis-a-vis a deduction under section 212, rests on each
deduction's effect on gross income and adjusted gross income.
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