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for 1996) only $93,936 remains in issue as an adjustment to
Guarino’s income for 1996. The table below summarizes the
adjustments respondent made that are still in dispute:
Capital Video Guarino
Year Ending Calendar Year
Adjustment 2/29/96 12/31/96 1996
Legal fees disallowed $343,971 $423,101
Dividend income $ 93,936
Subchapter S income 423,101
Discussion
Capital Video’s Claimed Deduction of Guarino’s Legal Fees
Generally, taxpayers may not deduct expenses of another
person and may not deduct expenses that are personal in nature.
Deputy v. du Pont, 308 U.S. 488, 494 (1940); Johnson v.
Commissioner, 72 T.C. 340, 348 (1979).
Where expenses of another are paid in order to protect a
taxpayer’s business, the taxpayer, in limited circumstances, may
be allowed to deduct the expenses. Lohrke v. Commissioner, 48
T.C. 679, 684-685 (1967). Also, legal fees paid relating to
criminal charges against a taxpayer may be deductible where the
alleged criminal activity sufficiently relates to the taxpayer’s
business. Commissioner v. Heininger, 320 U.S. 467, 474 (1943).
The origin of the criminal charges to which the legal fees
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