-2-
Petitioner held a 99.5-percent partnership interest in O.M.
Cook Co. (OMCC), a partnership engaged in the business of grass
seed production. In the notice of deficiency, respondent
disallowed (1) a $625,000 deduction that OMCC claimed with regard
to the settlement of a lawsuit, and (2) an $83,202 deduction that
OMCC claimed for legal and professional fees related to the
lawsuit. In the lawsuit, which the United States brought to
recover unpaid debts incurred by another farming partnership, the
United States sought recovery against OMCC’s assets and
petitioner’s nonbusiness assets.
The issue for decision is whether OMCC or petitioner may
deduct or must capitalize all or part of the $625,000 settlement
payment and the $83,202 payment for legal and professional fees.
We hold that OMCC may deduct a portion of each payment and that
petitioner must capitalize the remaining portions of both
payments.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.2
Petitioner resided in Independence, Oregon, when she filed the
petition.
2 Unless otherwise indicated, section references are to the
Internal Revenue Code as amended and in effect during the year in
issue and Rule references are to the Tax Court Rules of Practice
and Procedure.
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