George W. Guill - Page 7

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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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