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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