- 26 -
78 T.C. 910, 918 (1982); Locke v. Commissioner, 65 T.C. 1004,
1011-1013 (1976), affd. 568 F.2d 663 (9th Cir. 1978). In Locke
v. Commissioner, supra at 1011-1013, this Court found that legal
costs incurred in defending a fraud suit brought by the seller of
stock, subsequent to the consummation of the sale, were capital
expenditures. See also Wagner v. Commissioner, supra (same
result where purchaser brought the suit). In Locke we held that
the origin of the claim was the fraud and concealment that
allegedly took place during the sale of the stock, and therefore
the legal fees incurred were capital in nature since they related
to the acquisition of the stock, a capital asset.
In the instant case, the essence of the lawsuit brought by
William against Lakeview and petitioner was an effort to rescind
the contract under which Lakeview redeemed William's stock.
Consummation of that contract, the Redemption Agreement, was a
transaction involving the acquisition and disposition of a
capital asset, stock. Sec. 1221; Frederick Weisman Co. v.
Commissioner, 97 T.C. 563, 572 (1991); Proskauer v. Commissioner,
T.C. Memo. 1983-395. Because Lakeview incurred the legal fees in
defending claims that arose from a transaction involving the
acquisition of a capital asset, under the "origin-of-the-claim"
test the cost of such fees must be capitalized.9
9 As noted previously, some portion of the legal fees may be
attributable to defending petitioner against William’s effort to
reclaim his interest in the Fence Property. Any portion so
attributable would be required to be capitalized because it arose
from a transaction involving the acquisition of interests in real
(continued...)
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