- 48 - 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.Page: Previous 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 Next
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