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fiefdom,” to the exclusion of Pomeroy. The complaint alleged
further that petitioner, in his capacity as a director, officer,
and shareholder of H.K. Peach, “has engaged in a course of action
constituting illegal, fraudulent, willfully unfair and oppressive
acts”, including the establishment of certain bank accounts,
purportedly authorized by the board of directors of H.K. Peach,
the fact of which authorization was denied by Pomeroy. Remedies
sought by Pomeroy included attorney’s fees, “appropriate
damages”, recovery of the misappropriated funds on behalf of H.K.
Peach, and dissolution and liquidation of the assets and business
of H.K. Peach.
Applying the test of Commissioner v. Lincoln Sav. & Loan
Association, supra, we find that this fee (1) was paid or
incurred during 1995, (2) was incurred in connection with
carrying on petitioner’s trade or business, (3) was an expense,
(4) was a necessary expense in that petitioner was required to
defend himself in a lawsuit, and (5) was an ordinary expense in
that litigation expenses commonly arise in the course of
conducting business. Therefore, petitioner may deduct the fee in
question if no other limitations, such as section 263, indicate
that capitalization is required.
The “origin of the claim” test yields the same result. In
Oakland 3, the origin of the claim was Pomeroy’s allegations that
petitioner had breached his fiduciary duty and mismanaged the
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