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A. Legal and Professional Fees
Petitioner claimed a deduction of $57,92411 for legal and
professional expenses. The amounts in issue relate to expenses
associated with petitioner’s personal bankruptcy proceeding and
with defending against the lawsuit filed by Mr. Cotter.
Petitioner argues that such expenses are deductible because they
are related to his trade or business interests. Respondent
argues that such expenses are not ordinary and necessary and that
petitioner has failed to provide a basis for allocating the costs
between business and personal expenses.
Section 162(a) allows a deduction for all ordinary and
necessary expenses paid or incurred during the year in carrying
on a trade or business. Section 262(a) disallows a deduction for
personal expenses. To decide whether an expense is deductible as
a trade or business expense as opposed to a nondeductible
personal expense, we look to the origin and character of the
expense. See Woodward v. Commissioner, 397 U.S. 572, 577 (1970);
United States v. Gilmore, 372 U.S. 39, 48 (1963);12 American
11Petitioner concedes that $1,635 of this amount was
incorrectly reported on his Schedule C but contends that it may
be deductible on Schedule A as a miscellaneous itemized
deduction. Petitioner failed to provide computations or other
evidence to support this contention.
12“[T]he origin and character of the claim with respect to
which an expense was incurred, rather than its potential
consequences upon the fortunes of the taxpayer, is the
controlling basic test of whether the expense was ‘business’ or
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