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costs, which petitioner incurred in connection with the
acquisition of a capital asset-–that is, the stock of Real
Services--are capital in nature and not currently deductible.
See Woodward v. Commissioner, 397 U.S. 572, 575 (1970);
Briarcliff Candy Corp. v. Commissioner, 475 F.2d 775, 781 (2d
Cir. 1973), revg. on other grounds and remanding T.C. Memo. 1972-
43; Lychuk v. Commissioner, 116 T.C. 374, 389 (2001).
The situation is different, however, with respect to the
other $1,000 in legal fees claimed by petitioner. Those fees,
incurred by petitioner against charges that she was using the
apartment on E. 77th Street for an illegal purpose, were incurred
in connection with the preservation of the income-producing
activities associated with her escort business and are
deductible. See Johnson v. Commissioner, 72 T.C. 340, 348
(1979).
Petitioner also maintains that she entered into a real
estate brokerage agreement with her sister and another
individual, who were owners of some valuable real estate in
Hawaii. She argues that this arrangement resulted in her making
deductible expenditures during either 1989 or 1990.20 Even if we
accept petitioner’s contention that she had a valid broker’s
19(...continued)
period beginning when its business commences. Sec. 248.
20 Although petitioner contends that the expenditures were
incurred in 1989, she claims deductions for them in 1990.
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