George W. Guill - Page 10

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          change the fact that petitioner's legal costs were all                       
          attributable to his business activity.  Pursuant to South                    
          Carolina law, see Oxford Fin. Cos. v. Burgess, 402 S.E.2d 480,               
          482 (S.C. 1991); Rhode v. Ray Waits Motors, Inc., 74 S.E.2d 823,             
          825 (S.C. 1953); see also Sherrill White Constr., Inc. v. South              
          Carolina Natl. Bank, 713 F.2d 1047, 1051-1052 (4th Cir. 1983),               
          and the judge's instructions, the jury in the Academy lawsuit                
          awarded petitioner both actual and punitive damages on his                   
          conversion claim.2  The fact that petitioner received two                    
          different types of damages on his single claim of conversion does            
          not mean, as respondent would have us hold, that the claim is                
          bifurcated into two claims solely for purposes of applying the               
          Federal income tax laws.  Contrary to respondent's position in               
          this case, the various types of damages which petitioner received            
          on his conversion claim do not dictate whether his legal costs               
          must be apportioned between his business and nonbusiness                     

          2 We recognize that South Carolina law does not provide that                 
          punitive damages are awarded in every case in which a tortfeasor             
          is held liable for an act of conversion.  See Sherrill White                 
          Constr., Inc. v. South Carolina Natl. Bank, 713 F.2d 1047,                   
          1051-1052 (4th Cir. 1983) ("in order to recover punitive damages             
          [under South Carolina law] there must be more than mere                      
          conversion.  There must be malice, ill will, a conscious                     
          indifference to the rights of others, or a reckless disregard                
          thereof."; citations and quotation marks omitted).  The fact that            
          the converter's degree of culpability enters into an award of                
          punitive damages under South Carolina law, however, does not                 
          change the fact that the origin and character of a claim for                 
          punitive damage under that law is an act of conversion, which, in            
          this case, stems from petitioner's business activity.                        

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