- 21 -
at 51-52.
The "origin of the claim" test is likewise used to determine
whether litigation expenses are to be classified as ordinary or
capital. Woodward v. Commissioner, 397 U.S. 572 (1970); United
States v. Hilton Hotels Corp., 397 U.S. 580 (1970).
Application of the "origin of the claim" test requires an
examination of all the facts and circumstances and focuses on the
"kind of transaction" from which the litigation stems. Boagni v.
Commissioner, 59 T.C. 708, 713 (1973).
b. Personal versus Business Expense
The lawsuit in which the legal expenses were incurred was
brought by William against petitioner, Lakeview, and Lakeview's
attorney7 because William believed he had been cheated in the
Redemption Agreement and wanted to get back his Lakeview stock
and the management role that such ownership entailed, as well as
his interest in the Fence Property. William believed that
petitioner and the corporate attorney had taken advantage of his
diminished capacity, caused by a serious heart ailment and
emotional distress, to pressure him into the buyout against his
best interests and at an unconscionable price. William further
alleged that he had been improperly pressured into entering the
Redemption Agreement due to petitioner's tantrums designed to
frustrate business decision-making or to embarrass him in front
7 The legal expenses incurred by Lakeview's corporate
attorney in defending against William's lawsuit were not paid by
Lakeview and are not at issue in this case.
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011