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Therefore, his deductible expenses are allowed only under section
212.
Additionally, petitioner contends that the $365,000 portion
of his payment in satisfaction of Allied’s judgment, which
constitutes exemplary damages, is deductible under section 162
or, in the alternative, under section 212. Respondent contends
that, because petitioner is not carrying on a trade or business,
he is not entitled to deduct the $365,000 payment for exemplary
damages.
Payment of punitive damages may be deductible under section
162. See Kornhauser v. United States, 276 U.S. 145 (1928) (legal
expenses of taxpayer in defending against claim of former
business partner held deductible); see also Stark v.
Commissioner, T.C. Memo. 1999-1. Petitioner, however, has
presented inadequate evidence to support his claim that the
payment of punitive damages is deductible in these cases. There
is insufficient evidence explaining the basis of the award
against petitioner or to show that the expense was ordinary and
necessary. Thus, the $365,000 payment to Allied is not
deductible.
Respondent’s Motion To Amend Answer
Rule 41(a) allows for an amendment to the pleadings after a
case has been placed on the trial calendar only “by leave of the
Court or by written consent of the adverse party, and leave shall
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