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A deduction under section 162(a) is subtracted in full from gross
income to arrive at adjusted gross income. A deduction under
section 212 is subtracted from adjusted gross income to arrive at
taxable income and is subject to certain floor limitations in
section 67(a). The benefit from a deduction of litigation costs
under section 212 may also be limited by application of the
alternative minimum tax. See sec. 56(b); see also Benci-Woodward
v. Commissioner, T.C. Memo. 1998-395.
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. See Woodward v. Commissioner, supra; United
States v. Gilmore, supra at 44-45; see also Peckham v.
Commissioner, 327 F.2d 855, 856 (4th Cir. 1964), affg. 40 T.C.
315 (1963). 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).
The ascertainment of a claim's origin and character is a
factual determination that must be made on the basis of the facts
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