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Petitioner’s legal expense of $3,300 pertaining to
settlement of a case involving M.E. Moses stock was properly
denied by respondent. As petitioner’s investments in M.E. Moses
were through ROC FLP, this litigation expense arose through
petitioner’s membership in the partnership and therefore is not
directly related to petitioner’s individual business or income-
producing activities. This expense properly belongs to the
partnership. Partnerships constitute separate entities, distinct
from their partners, in determining the character of income and
deductibility of business expenses. Sec. 703; United States v.
Basye, 410 U.S. 441, 448 (1973). A partnership must report its
income and expenses on an aggregate approach, and once these
amounts are ascertained, the partnership form is disregarded, and
the income and expenses flow through to the individual partners.
United States v. Basye, supra.
Therefore, while petitioner may be able to deduct a portion
of this expense through the partnership, the expense must first
be aggregated with other partnership income and expenses and then
distributed to the partners. To be deductible, business expenses
must be the expenses of the taxpayer claiming the deduction.
Hewett v. Commissioner, 47 T.C. 483, 488 (1967). Petitioner
cannot convert the expense into one of his own simply by agreeing
to pay for it personally. Accordingly, respondent’s
determination on this issue is sustained.
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