Robert Griffin and Julia Griffin - Page 6

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               First, the tax court must “ascertain the purpose or                    
               motive which [caused] the taxpayer to pay the                          
               obligations of the other person.”  To meet this prong,                 
               the expense must have been made primarily to benefit                   
               the taxpayer’s business; any benefit conferred on the                  
               party whose expenses are being paid must be only                       
               incidental.  Second, the tax court “must then judge                    
               whether it is an ordinary and necessary expense of the                 
               [taxpayer’s] trade or business; that is, is it an                      
               appropriate expenditure for the furtherance or                         
               promotion of that trade or business?  If so, the                       
               expense is deductible by the individual paying it.”                    
               Lohrke, 48 T.C. at 688.  [Capital Video Corp. v.                       
               Commissioner, 311 F.3d 458, 464 (1st Cir. 2002), affg.                 
               T.C. Memo. 2002-40; some citations omitted.]                           
                                                                                     
          The second part of this test requires that the expense arise in             
          connection with the business activities of the taxpayer paying              
          the expense.  Id. at 465; see also Lettie Pate Whitehead Found.,            
          Inc. v. United States, 606 F.2d 534, 538 (5th Cir. 1979)                    
          (observing in the Lohrke line of cases “a direct nexus between              
          the purpose of the payment and the taxpayer’s business or income            
          producing activities”).                                                     
               In our original opinion, we held that petitioners failed to            
          introduce “credible evidence”, within the meaning of section                
          7491(a)(1), that they were engaged in their individual capacities           
          in a trade or business for which the tax payments would have                
          represented ordinary and necessary expenses.  Griffin v.                    
          Commissioner, T.C. Memo. 2002-6.  In making this determination,             
          we adopted the following definition of “credible evidence” as               
          found in the legislative history of section 7491:                           
               “Credible evidence is the quality of evidence which,                   
               after critical analysis, the court would find                          
               sufficient upon which to base a decision on the issue                  




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