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(and consequently petitioner) to become legally obligated to pay
some of the commitment fee and all of the legal fees. At the
same time, Schneider, which was originally responsible for both,
was not absolved of its responsibility.
While we conclude that Schneider, and not petitioner, bore
the legal obligation to pay most of the commitment fee and
originally bore the obligation for the legal fees, this is not
dispositive of whether petitioner is entitled to deduct these
amounts. As more fully discussed below, a corporation may in
certain circumstances deduct expenditures incurred on its behalf
by a shareholder, where it makes reimbursement.
B. Reimbursed Expenses
As a general matter, a taxpayer may not deduct payments
voluntarily made on another’s behalf, even where there is a moral
obligation to do so. Williams v. Commissioner, T.C. Memo. 1960-
19. Indeed, this is true even where the cost would have been
deductible had the taxpayer incurred it. Id. Moreover,
corporations generally may not deduct payments made that
discharge shareholder obligations. Justice Steel, Inc. v.
Commissioner, T.C. Memo. 1980-466.
Petitioner advances two arguments to support its contention
that legal obligation does not control under these facts. First,
petitioner argues that the costs associated with obtaining a loan
are deductible by the person who receives the loan proceeds.
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