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Guill v. Commissioner, supra; Boagni v. Commissioner, 59 T.C. 708
(1973). In passing on this factor, the fact finder must take
into account, among other things, the allegations set forth in
the complaint, the issues which arise from the pleadings, the
litigation’s background, nature, and purpose, and the facts
surrounding the controversy. See Guill v. Commissioner, supra;
Boagni v. Commissioner, supra at 713.
During 1990 and 1991, petitioners sent $30,000 and $30,025,
respectively, to Fariborz allegedly for legal expenses in
relation to the criminal prosecution of Ammareh. Petitioners
argue that, although they could no longer pursue a civil action
against Ammareh, they sought criminal prosecution of Ammareh in
order to protect petitioner’s business reputation. Petitioner
wanted to show that a fraud would not be committed upon him.
Petitioners claim these deductions on their Schedule C for
Huntington Harbor.
Respondent contends that the legal expenses are not
deductible on petitioners’ Schedule C for Huntington Harbor
because the legal expenses were in pursuit of a criminal matter
and these expenses paid to Fariborz were not ordinary and
necessary expenses of Huntington Harbor nor were they incurred in
the production of income.
It is not clear whether petitioner was seeking to protect
his business reputation in Iran, in the United States, or both.
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