- 20 - and accordingly are deductible as ordinary and necessary business expenses under the reasoning of A.E. Staley Manufacturing Co. v. Commissioner, 119 F.3d 482, 491 (7th Cir. 1997), revg. 105 T.C. 166 (1995), and Federated Dept. Stores, Inc. v. Commissioner, 171 Bankr. 603 (S.D. Ohio 1994). Petitioner further contends that to the extent any personal benefit was conferred on him, the legal expenses are nonetheless deductible by Lakeview because the corporation was a principal defendant in the lawsuit and its assets were directly threatened, citing Kopp's Co. v. Commissioner, 636 F.2d 59 (4th Cir. 1980). We disagree with both of the analyses offered by the parties, but hold for respondent for different reasons. The Supreme Court has held that the determination of whether a litigation expense is a deductible business expense or a nondeductible personal one depends upon "the origin and character of the claim" being litigated. United States v. Gilmore, supra at 49. In that case, the taxpayer sought to deduct the legal expenses he incurred in a divorce proceeding, on the grounds that he was seeking to conserve income-producing property; namely, his controlling stock interests in certain automobile dealerships, against his wife's claim to all or part of them under community property laws. Applying the "origin of the claim" test, the Court concluded that the claim arose entirely from the marital relationship, not from any income-producing activity, and consequently the expenses were nondeductible personal ones. Id.Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Next
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