- 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.
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