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I. Advanced Litigation Costs
FINDINGS OF FACT
Petitioner Pelton & Gunther, P.C. (P&G), is a law firm
operating as a professional corporation and had its principal
place of business in San Mateo, California, at the time the
petition was filed. P&G’s Federal income tax returns are filed
for fiscal years ending May 31. For the taxable years ended May
31, 1992 and 1993, P&G used the cash method of accounting for
Federal income tax reporting.
P&G’s legal specialty is the defense of personal injury
automobile accident lawsuits. More than 90 percent of P&G’s
services were performed pursuant to the request of the California
State Automobile Association (CSAA). At CSAA’s request, P&G
provided legal services for CSAA policyholders in connection with
controversies arising from automobile accidents. Under this
arrangement, CSAA generally paid P&G $400 at the time P&G was
asked to represent one of CSAA’s policyholders. P&G would pay
various litigation costs including filing fees; deposition
expenses; the costs of medical records; fees for witnesses, court
reporters, and interpreters; and similar expenses as they would
occur. The litigation costs P&G paid on each case, more often
than not, exceeded $400.
P&G would bill CSAA for its legal services and the
litigation costs that it incurred on behalf of CSAA’s
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Last modified: May 25, 2011