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promissory notes, only once did he negotiate the purchase of an
instrument on his own behalf. Moreover, as a consequence of his
accident, petitioner conducted few, if any, real estate
transactions between 1988 and 1995.
To be deductible as a Schedule C business expense, legal costs
must arise from, or be proximately related to, a business activity
of the taxpayer. Petitioner and his brother were indicted on
account of events related to the acquisition of the Forum 303 note.
AMI (not petitioner) acquired the Forum 303 note. Although
petitioner obtained the financing for the acquisition, the purchase
agreement for the Forum 303 note explicitly states the purchaser of
the note to be “AMI Resources, Inc.” Moreover, title in the note
passed from FSLIC to AMI. As a result of the transaction, AMI was
entitled to all distributions made on the note and apparently had
the ability to rescind the transaction at any time; accordingly,
AMI, rather than petitioner, retained the incidents of ownership
from the acquisition of the Forum 303 note. On the basis of the
record before us, we conclude that the Forum 303 note was purchased
and owned by AMI and is proximately related to its (not
petitioner’s) trade or business.
To conclude, we sustain respondent’s determination that the
legal fees are deductible as a Schedule A miscellaneous itemized
deduction and as such generate the alternative minimum tax and are
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