American Stores Company and Subsidiaries - Page 1

                                   114 T.C. No. 27                                    

                               UNITED STATES TAX COURT                                

               AMERICAN STORES COMPANY AND SUBSIDIARIES, Petitioner v.                
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 13142-97.                     Filed May 26, 2000.           

                    P purchased the stock of LS.  Prior to purchasing                 
               LS, P had negotiated with the Federal Trade Commission                 
               to satisfy the antitrust concerns about the purchase.                  
               Shortly after P’s purchase of LS, and 1 day after the                  
               FTC entered its final consent order, the State of                      
               California filed an antitrust suit in Federal District                 
               Court objecting to P’s purchase of LS.  The State asked                
               for various remedies including divestiture.  The                       
               District Court issued a temporary injunction                           
               prohibiting P from integrating the business operations                 
               of LS and P.  The District Court’s opinion was the                     
               subject of an appeal and was ultimately resolved by the                
               Supreme Court.  Thereafter, P and the State settled the                
               antitrust suit.  P incurred substantial legal fees in                  
               defending against the State’s antitrust suit.  Those                   
               legal fees were deducted as ordinary and necessary                     
               business expenses.  R disallowed those deductions based                
               on R’s determination that the legal fees should be                     

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