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buyout against his best interests and at an unconscionable price.
On November 1, 1991, William filed an action in State court
naming Lakeview, petitioner, and Lakeview's attorney as
defendants, and seeking rescission of the Redemption Agreement,
return of the Fence Property, an accounting and appointment of a
receiver to operate Lakeview, and damages from Lakeview,
petitioner, and the corporate attorney, including punitive
damages from the latter two. The complaint alleged undue
influence on the part of petitioner and the corporate attorney,
failure of consideration, breach of fiduciary duty by the
corporate attorney and by petitioner in his role as an officer of
Lakeview, and intentional infliction of emotional distress by
petitioner. William's complaint was submitted for mediation, and
on August 10, 1992, a mediation panel unanimously proposed an
award of $100,000 in favor of William for which petitioner and
Lakeview would have joint and several liability, and an award of
$30,000 for which the corporate attorney would be liable.
William rejected the mediation proposal, and the case proceeded
to trial. A jury found in favor of the defendants on all counts
except rescission, which was decided in favor of the defendants
by the court on November 2, 1992. Lakeview paid $93,491 in legal
fees during 1992 in connection with the foregoing litigation and
claimed a deduction therefor on its return for that year.
Sometime in late 1992 petitioner engaged a certified public
accountant to prepare amended returns for Lakeview for the years
1984 through 1990 in order to report income that petitioner
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