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Accordingly, we have difficulty seeing how the expenses of
defending against William’s effort to reclaim the Lakeview stock
were personal to petitioner rather than an expense of Lakeview.
Such is not the case with the Fence Property, however.
Although neither party has addressed the issue, we do not believe
that Lakeview is entitled to deduct any portion of the legal fees
allocable to the defense of William's effort to reclaim his
interest in the Fence Property. Pursuant to the Redemption
Agreement, petitioner personally purchased William's interest in
the Fence Property; it was thus not a corporate asset and
Lakeview's expenditures in defense of petitioner's title to it
were, strictly speaking, a constructive dividend.8 Petitioner
has not provided, and we are unable to discern, any basis for
allocating a portion of the legal fees to the Fence Property
defense. In any event, the failure to allocate is of little
consequence because, as discussed more fully infra, the origin of
the claim related to these legal expenses was the process of
acquisition of a capital asset, in this instance an interest in
the Fence Property.
c. Capital versus Ordinary
To the extent that the fees are not personal to petitioner
8 Because we conclude, with respect to the claim that the
legal expenses were personal, that such expenses either were not
personal or were personal because expended in defense of an asset
held not by Lakeview but in petitioner's name, we find it
unnecessary to address petitioner's argument based on Kopp’s Co.
v. Commissioner, 636 F.2d 59 (4th Cir. 1980), that the legal
expenses were not personal because Lakeview's assets were
directly threatened by the litigation.
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