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Petitioner argues that our holding in Cox v. Commissioner,
T.C. Memo. 1981-552, is applicable here to allow him to deduct
his bankruptcy fees under section 162. We agree. In Cox, we
found that taxpayers’ bankruptcy had been “proximately caused” by
their business liabilities where $159,823 out of $163,820 (or
more than 97 percent) of the taxpayers’ liabilities in bankruptcy
were attributable to their business creditors. We held that an
allocable portion of the bankruptcy fees was deductible as an
ordinary and necessary business expense under section 162. See
also Scofield v. Commissioner, T.C. Memo. 1997-547 (permitting
taxpayer to deduct bankruptcy legal expenses where the debts
listed in his bankruptcy petition related “almost exclusively” to
his corporation).
Here, $2,915,21514 out of $3,108,38215 (or 93.79 percent) of
petitioner’s liabilities in bankruptcy was business
14This figure represents five lawsuits relating to
petitioner’s businesses in which he was personally named as a
defendant. The claimants were as follows: Carbon Beach Property
Venture ($500,000), Florin Meadows I & II ($1,958,797), John
Schueler ($6,418), Frank L. & Margie Hammersley ($50,000), and
Milton & John Ullman ($400,000).
15Petitioner’s bankruptcy schedules report total liabilities
of $6,350,812. We exclude the mortgages on petitioner’s two
homes (in the amounts of $675,419 and $1,345,609) from his
personal debts because they were nonrecourse and/or fully
collateralized and thus a bankruptcy discharge would not have
affected their collectibility. We also exclude the full
$1,221,402 indebtedness on petitioner’s office building from his
business debts because he did not establish that the loan was
recourse and undersecured.
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