Sklar, Greenstein & Scheer, P.C. - Page 1

          113 T.C. No. 9                                                              

                               UNITED STATES TAX COURT                                

                   SKLAR, GREENSTEIN & SCHEER, P.C., Petitioner v.                    
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 11386-97.            Filed August 13, 1999.                 

                    P is a corporation which provides medical services                
               and is a sponsor of a qualified deferred compensation                  
               plan (the plan).  S, G, and E were petitioner's owners                 
               and employees.  The plan, S, G, and E opened securities                
               investment accounts with X.  After sustaining                          
               substantial losses in their accounts, the plan, S, G,                  
               and E filed a complaint against X alleging breach of                   
               fiduciary duty and other claims.  P was not a claimant                 
               in the litigation.  The litigation spanned 4 years, and                
               P paid nearly 50 percent of the litigation costs                       
               incurred because the four claimants lacked the funds.                  
               R determined that sec. 1.404(a)-3(d), Income Tax Regs.,                
               controls the deduction in this case and that only                      
               expenses incurred by an employer that are of a                         
               recurring nature are deductible thereunder.                            
                    Held:  P may deduct the portion of litigation                     
               costs incurred in connection with the plan under sec.                  
               162.  Section 404 limits deductions for contributions                  
               to a plan but does not preclude P from deducting its                   

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