- 21 -
Woodward v. Commissioner, supra at 578. In determining whether
legal fees paid for business advice and counsel are capital, we
look to the nature of the services performed by the adviser
rather than the designation or treatment by the taxpayer. See
Honodel v. Commissioner, 76 T.C. 351, 365 (1981), affd. 722 F.2d
1462 (9th Cir. 1984); Cagle v. Commissioner, 63 T.C. 86, 96
(1974), affd. 539 F.2d 409 (5th Cir. 1976). Our inquiry focuses
on whether the services were performed in the process of
defending the business or whether the services were performed in
the process of effecting a change in corporate structure for the
benefit of future operations. See INDOPCO, Inc. v. Commissioner,
503 U.S. at 89.
In United States v. Hilton Hotels Corp., 397 U.S. 580
(1970), the Supreme Court held that litigation expenses incurred
to determine the price of stock, whose title had already passed
to the acquiring corporation under State law, were costs that
arose out of the acquisition process itself and therefore capital
and nondeductible. In Norwest Corp. & Subs. v. Commissioner, 112
T.C. 89 (1999), this Court analyzed a similar question by asking
whether the expenses were sufficiently related to the acquisition
process and essential to the achievement of the long-term
benefits of the acquisition. See id. at 102. In applying the
origin of the claim test, courts look beyond the formal
characterization of the claim. See Clark Oil & Refining Corp. v.
Page: Previous 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 NextLast modified: May 25, 2011