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Stores Co. & Subs. v. Commissioner, 114 T.C. 458, 470 (2000).
Legal expenses are deductible if the claim arises in connection
with the taxpayer’s profit-seeking activities. See United States
v. Gilmore, supra at 48. In the present case, if petitioner’s
personal bankruptcy is proximately related to his trade or
business, then the legal expenses associated with the bankruptcy
are deductible. See Kornhauser v. United States, 276 U.S. 145,
153 (1928); Dowd v. Commissioner, 68 T.C. 294, 303-304 (1977);
Ainsworth v. Commissioner, T.C. Memo. 1987-398; Cox v.
Commissioner, T.C. Memo. 1981-552.
In April of 1993, petitioner filed for bankruptcy in order
to avoid paying the rent Aeternum owed under the facilities
lease. Petitioner argues that his bankruptcy resulted from the
liabilities of Aeternum, and, thus, the expenses originated from
the business affairs of Aeternum and are deductible under section
162. The origin of the claim in this case was petitioner’s share
of the liability for the debt owed by Aeternum, a business in
which petitioner had a 50-percent interest. Aeternum’s failure
to pay rent forced petitioner into seeking bankruptcy protection.
The legal expenses incurred by petitioner were related to the
business activities of Aeternum and are deductible. See sec.
162(a); see also Scofield v. Commissioner, T.C. Memo. 1997-547.
12(...continued)
‘personal’”. United States v. Gilmore, 372 U.S. 39, 49 (1963).
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