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facts, we hold that Mr. Hood, not HIF, was the primary
beneficiary of the payment of his legal fees.
For similar reasons, we conclude that petitioners have not
shown conditions sufficient to permit HIF to deduct the expenses
of another, under the standards of Lohrke v. Commissioner, supra,
and like cases. Petitioners have not shown that Mr. Hood was
experiencing financial difficulty or was otherwise unable to pay
his legal fees. Thus, while the incarceration of Mr. Hood might
have caused HIF to cease operations, petitioners have not shown
that HIF’s failure to pay the legal fees would have led to Mr.
Hood’s incarceration. The benefits to HIF’s business of paying
Mr. Hood’s legal fees are not as direct and proximate as the
connection demonstrated in Lohrke, where the corporation’s
inability to compensate purchasers of its defective fabric
prompted its shareholder, who collected royalties from the
fabric’s production process, to make the compensatory payments.
Finally, our opinion in Jack’s Maintenance Contractors, Inc.
v. Commissioner, supra, also relied upon the holding in Holdcroft
Transp. Co. v. Commissioner, 153 F.2d 323 (8th Cir. 1946), that a
corporation could deduct legal fees paid in connection with
resolving a liability transferred to it by a predecessor
partnership in a section 351 transaction. Upon reconsideration,
we believe Holdcroft Transp. Co. is distinguishable. In that
case, the liabilities were explicitly assumed by the corporation
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