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Under this test, petitioner’s Objections to the Third
Account do not constitute the relevant litigation for
purposes of Section 212(1) and (2). The relevant litigation
is that which was initiated by those persons who opposed
petitioner’s Objections to the Third Account and who
prosecuted both a motion for monetary sanctions and a
petition to charge petitioner’s share of the trust’s income
with the payment of such monetary sanctions.
We disagree. The motion and petition were no more than responses
to petitioner’s Objections to the Third Account. The motion and
petition would be pointless in the absence of petitioner’s
Objections and the Third Account. Indeed, even the California
Court’s decree, requiring petitioner’s Payments to be made solely
out of petitioner’s current income from her income interest in
the Trust, confirms that the California Court regarded the
consideration and resolution of the motion and petition as being
part of a dispute about petitioner’s income from the Trust.
Respondent contends as follows:
In addition, those sanctions were imposed to compensate the
victims of petitioner’s bad faith and vindictive actions.
Such sanctions bear no relation to the production or
collection of income or to the management, conservation, or
maintenance of income producing property.
We disagree.
In general, if the origin and character of the claim arise
out of a taxpayer’s personality as a seeker after profit rather
than satisfier of human needs, it does not matter that the
taxpayer’s expenditures are made because of the imposition of a
sanction to compensate the victims of the taxpayer’s improper
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