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During October 1996, custody of Ashley was granted to Tad,
who was living in Saudi Arabia. Petitioner’s only recovery under
the agreement with Michelle was $1,920 recovered in 1999. As of
the time of trial in this tax case, the divorce proceeding was
still pending and, by its terms, the written agreement between
petitioner and Michelle had terminated. Petitioners claimed the
$39,274 as “Legal and professional services” on a Schedule C,
Profit or Loss From Business, for “Rupert’s Engineers”, the
principal business activity of which was shown as “consulting”.
No income from consulting was reported for 1996 and none had been
reported since 1991, when $7,710 was reported. Petitioners’
source of income since 1991 has been Social Security payments,
retirement accounts, and investments. Since execution of the
agreement with Michelle, petitioner has devoted more than half of
his time to Michelle’s domestic relations problems.
OPINION
Ordinary and necessary expenses paid or incurred in carrying
on a trade or business are deductible under section 162.
Conversely, personal, living, or family expenses are not
allowable. Sec. 262. The origin and character of the claim in
litigation is determinative of whether litigation expenses are
personal or deductible. United States v. Gilmore, 372 U.S. 39
(1963). In particular we look to whether the claim arose in
connection with a profit-seeking activity. Id. at 48.
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