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Respondent, on the other hand, argued that the $104,231 was
not an ordinary or necessary business expense but represented a
voluntary expenditure by Kanter on behalf of a third party, which
Kanter was under no legal obligation to make. In addition,
respondent maintained the payment was not deductible under
section 212 because the painting venture was not an activity
Kanter undertook for profit.
We agree with respondent. Kanter was principally engaged in
the practice of tax law. He acted as an intermediary between two
clients in arranging the purchase and sale of a purported
authentic painting of George Washington. He did not provide
financing for the transaction. The purchase was rescinded after
it was discovered the painting was not authentic. The amount
paid by Kanter was to reimburse Rappaport on the loss Rappaport
sustained on the amount that was refunded to him arising from the
devalued British currency.
There is no evidence that Rappaport required Kanter to
perform due diligence on this venture. Kanter testified that
both Feigan and Rappaport were friends of his, and he merely
introduced Rappaport to Feigan to consummate the transaction.
There was no agreement or contract that Kanter was to be paid for
his services either in the acquisition of the funds for the
initial purchase of the painting, in the exploitation of the
painting had the sale not been rescinded, or for Kanter's efforts
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