- 8 -
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
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 id. at 713.
Petitioner's legal costs, which the parties agree are
"ordinary" and "necessary" expenses, bear the required nexus to
his sole-proprietor insurance business to meet the requirements
for deductibility under section 162(a). As a matter of fact,
petitioner's lawsuit against Academy arose entirely from his
insurance business. Each cause of action petitioner alleged in
the lawsuit was spawned entirely from the fact that, after
Academy fired him, it failed to honor the terms of their working
agreement by not paying him the commissions to which he was
entitled under their agreement. But for the agreement, and the
fact that Academy breached the agreement by unilaterally
terminating its obligation to pay commissions to petitioner, the
instant lawsuit, as it was framed, would never have arisen, and
petitioner would never have incurred (or paid) any of the legal
costs.
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