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The situation we consider is quite novel. Initially,
petitioner acted as a front for others who were constrained not
to reveal their ownership interests. Under his agreement with
the true owners, petitioner was to receive a $50,000 salary (ten
times more than he had reported as income in the past), with the
potential to make $150,000 in exchange for acting as owner and
for operating the bingo business. It was not until the Lichtys
advised petitioner that they were going to remove him from that
position that petitioner hired Krieger and sought to protect his
income stream under the agreement. Petitioner’s lawyer advised
him to approach the litigation by attempting to perfect the
ostensible ownership that he had been permitted by the true
owners. Petitioner’s attorney believed that it was the Lichtys’
inability to assert their ownership that was the main reason for
petitioner’s success in arriving at a settlement under which he
was able to continue receiving income from the bingo operation.
Respondent’s position that the legal fees were not
deductible in the ordinary course of business and constitute a
capital expenditure does not fit the unique factual circumstances
here. In substance, petitioner was not seeking to perfect
control and/or ownership of the bingo operation. Instead, he
knew that he was merely a shill or front for others with a
promise of income for acting in that capacity and managing the
business. In effect, he was seeking to keep the true owners from
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