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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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