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with legal advice obtained while trying to protect one’s business
reputation are deductible. Petitioners’ reliance on Ahadpour,
however, is inapposite because in that case we (1) did not
consider whether the taxpayer was protecting his professional
reputation, (2) concluded that the taxpayer was not entitled to a
deduction for legal fees, and (3) did not suggest that a separate
test for determining deductibility applies when dealing with fees
for legal advice as opposed to fees for litigation. Indeed, in
Ahadpour v. Commissioner, supra, we utilized the “origin of
claim” test set forth in United States v. Gilmore, supra.
Accordingly, we find that the claim or event that prompted
petitioner to incur legal fees did not arise in connection with
petitioner’s Schedule C trade or business, and therefore we
sustain respondent’s determination that the legal fees in the
amount of $64,412.36 are deductible as unreimbursed employee
business expenses on Schedule A.
With respect to the $6,198.64 expended by petitioner for
services in connection with petitioner’s SLS business,
petitioners are entitled to claim that amount as a business
expense on the Schedule C for the 1994 taxable year.
Accordingly, to that extent, petitioners have shown respondent’s
determination to be in error.
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