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policyholders after the controversies were resolved and the cases
were closed. Cases were often open for more than 1 year. Some
bills from P&G to CSAA were for litigation costs only, some were
for legal fees (services) only, and some were for both costs and
fees. P&G’s fees were paid by CSAA at a stated hourly rate. P&G
claimed as a deduction litigation costs it paid on behalf of
CSAA’s policyholders, either from the $400 retainer or as
advances, in the year that it paid the litigation costs. P&G
reported the $400 retainers and the reimbursements of litigation
costs as income in the year they were received by P&G.
P&G’s deductions for litigation costs were as follows:
Fiscal year ending Litigation costs
May 31, 1990 $262,771.60
May 31, 1991 280,332.39
May 31, 1992 382,365.84
May 31, 1993 358,092.07
May 31, 1994 254,562.73
P&G reported retainers and reimbursed litigation
costs as income as follows:
Retainers and reimbursed
Fiscal year ending litigation costs
May 31, 1991 $242,867.08
May 31, 1992 361,880.37
May 31, 1993 377,767.17
May 31, 1994 276,686.05
Respondent, in the notice of deficiency, disallowed a
portion of the total deduction petitioner claimed for litigation
costs, reduced income by the amount of reimbursed previously
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