Square D Company and Subsidiaries - Page 69

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               More to the point, however, petitioner’s reliance on the               
          Lohrke line of cases and respondent’s counter argument regarding            
          who benefited are misplaced because mere benefit is, in general,            
          not dispositive regarding deductibility.27  While it is true that           
          Lohrke and like cases allow a taxpayer to deduct expenses that              
          are the legal obligation of another where the taxpayer benefits,            
          this exception has been construed narrowly.  Under Lohrke and               
          similar cases, it is not the character of the expense as                    
          benefiting the taxpayer that renders it deductible.  Rather, it             
          is the circumstances surrounding the payment of the expense.                
          Where the taxpayer can show that the payment of another’s expense           
          protected or promoted its own business, then such payment gives             
          rise to a deduction under Lohrke and like cases.  Typically in              
          these circumstances, the original obligor is unable to make                 
          payment, and the taxpayer satisfies the obligation to protect or            
          promote its own interests.  See Hood v. Commissioner, 115 T.C.              
          172, 180-181 (2000), and cases cited therein.  Petitioner has               
          made no such showing here.  There is no suggestion that Schneider           


               27 Respondent’s argument regarding who benefited from the              
          loan commitment and legal fees suggests the question of whether             
          petitioner’s payment of these costs should be considered a                  
          constructive dividend to Schneider, and therefore not deductible            
          by petitioner.  Cf. Hood v. Commissioner, 115 T.C. 172 (2000)               
          (where controlling shareholder is primary beneficiary of                    
          corporate expenditure, such expenditure is constructive dividend            
          not deductible by corporation).  However, respondent has not                
          raised this issue, and we accordingly decline to consider it.               





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