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a constructive dividend and with additional income from Capital
Video relating to the legal fees Capital Video paid, he should be
deemed to have incurred the legal fees, and the legal fees should
be treated as his miscellaneous business expenses.
The analysis herein to the effect that the legal fees in
dispute do not constitute ordinary and necessary business
expenses of Capital Video also applies to Guarino’s argument that
the legal fees should be deductible ordinary and necessary
business expenses to him. Guarino has not shown a sufficient
business nexus to the legal fees for the fees to qualify as
ordinary and necessary business expenses to him.2 We reject
Guarino’s argument as to his entitlement to miscellaneous
itemized business expense deductions relating to the legal fees
paid by Capital Video.
Sec. 6662 Penalties
Under section 6662, a penalty of 20 percent is imposed on
any portion of an understatement of tax attributable to
negligence or to disregard of the rules or regulations. For
purposes of section 6662(a), negligence constitutes a failure to
make a reasonable attempt to comply with the Internal Revenue
Code. Sec. 6662(c).
2 Petitioners make no argument that respondent has the burden
of proof under sec. 7491.
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Last modified: May 25, 2011