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claimed on Schedule C because the expenses are directly related
to petitioner’s professional reputation, and thus SLS.
Respondent argues that the origin of petitioner’s legal fees did
not arise from her Schedule C trade or business, and that under
United States v. Gilmore, supra, the consequences to petitioner’s
Schedule C business are irrelevant to the analysis.
Based upon the record, the origin of petitioner’s legal fees
stems from her status as an employee of UCSF, and not from her
Schedule C trade or business. The event that prompted petitioner
to hire attorneys in 1994 was the State audit of CPRT and the
impending release of the audit report. While the record is
replete with testimony from petitioner regarding the reasons she
retained legal counsel, it is also replete with evidence that the
event that prompted the legal services was the State audit. The
billing detail from petitioner’s attorneys indicates that the
majority of their services concerned the impending release of the
State’s audit report and centered around the State audit of CPRT.
The billing detail further indicates that the legal services
performed were directly related to her employment with UCSF as
director of CPRT. Indeed, the entire record indicates that
petitioner hired attorneys in response to the State audit of
CPRT.
We do not question whether petitioner was engaged in a
Schedule C trade or business. Nor do we doubt that petitioner
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