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ordinary and necessary business expense.5 Conversely, respondent
contends that the legal fee was a capital expenditure and,
accordingly, not deductible. Alternatively, respondent contends
that if the attorney’s fee is not a capital expenditure, November
would not be entitled to deduct the entire amount for failure to
meet the all events test.
Should the $1.5 Million Legal Fee Be Capitalized?
Respondent, relying on INDOPCO, Inc. v. Commissioner, 503
U.S. 79 (1992), argues that the $1.5 million legal fee is a
nonamortizable capital expenditure. Petitioner, however,
contends that under section 162 the legal fee was an ordinary and
necessary expense that was incurred in carrying on a trade or
business. Respondent counters that section 263 provides that no
deduction is allowable for amounts paid for permanent
improvements or betterments made to increase the value of any
property or estate. Respondent, in support of his determination,
contends that petitioner instituted suit for the purpose of
asserting ownership over the bingo operation, and, ultimately, he
emerged as the owner, subject to his making certain payments to
the Lichtys and others, including Kreiger, petitioner’s attorney.
5 Petitioner also points out that respondent did not allow
the amounts actually paid by November to the attorney during
1991, 1992, and 1993. In that regard, respondent’s determination
that the expenditure should be capitalized would not depend on
the method of accounting or when the amounts were actually paid.
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