- 13 -
U.S. 39, 44-45 (1963); see also Peckham v. Commissioner, 327 F.2d
855, 856 (4th Cir. 1964), affg. 40 T.C. 315 (1963); Guill v.
Commissioner, 112 T.C. 325 (1999). Ordinary and necessary
litigation costs are generally deductible under section 162(a)
when the matter giving rise to the costs arises from, or is
proximately related to, a business activity. See Woodward v.
Commissioner, supra; Kornhauser v. United States, 276 U.S. 145,
153 (1928). Litigation costs must be "attributable to a trade or
business carried on by the taxpayer" in order to be deductible as
a business expense. Sec. 62(a)(1); see Guill v. Commissioner,
supra.
The ascertainment of a claim’s origin and character is a
factual determination that must be made on the basis of the facts
and circumstances out of which the litigation arose. See United
States v. Gilmore, supra at 47-49. The most important factor to
consider is the circumstances out of which the litigation arose.
See Guill v. Commissioner, supra; Boagni v. Commissioner, 59 T.C.
708 (1973). In passing on this factor, the fact finder must take
into account, among other things, the allegations set forth in
the complaint, the issues which arise from the pleadings, the
litigation’s background, nature, and purpose, and the facts
surrounding the controversy. See Davis v. Commissioner, T.C.
Memo. 1999-250; see also Guill v. Commissioner, supra; Boagni v.
Commissioner, supra at 713.
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