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Petitioners cite Jack’s Maint. Contractors, Inc. v.
Commissioner, T.C. Memo. 1981-349, revd. per curiam 703 F.2d 154
(5th Cir. 1983), and Hood v. Commissioner, 115 T.C. 172 (2000),
as substantial authority for petitioners’ treatment of the legal
fees paid by Capital Video.
In Jack’s Maint. Contractors, Inc. v. Commissioner, supra,
we allowed a corporate taxpayer a deduction for its payment of
legal expenses of its shareholder relating to the shareholder’s
indictment for criminal tax evasion. Reversing, the Court of
Appeals for the Fifth Circuit held that the legal fees were not
deductible because the legal fees were personal in nature and did
not qualify as an ordinary and necessary business expense of the
corporation.
In Hood v. Commissioner, supra, we followed the Court of
Appeals for the Fifth Circuit’s reversal of Jack’s Maint.
Contractors, Inc. v. Commissioner, supra, and we disallowed a
corporation a deduction for legal fees the corporation had paid
relating to an indictment of its sole shareholder for tax
evasion.
Significant to the penalties involved in these cases is the
fact that in Hood, decided in 2000, we declined to impose the
accuracy-related penalty for negligence. We stated as follows:
Given that * * * [the taxpayer’s] reporting position
was consistent with our holding in Jack’s Maintenance
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