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OPINION
A. Contentions of the Parties
Petitioner individually, and as a 99.5-percent partner of
OMCC, contends that either OMCC or petitioner may deduct the
$625,000 settlement payment and the $83,202 in legal fees
associated with the farm loan litigation because those amounts
were paid to protect OMCC’s ongoing business operations and its
reputation.3
Respondent asserts that OMCC may not deduct the $625,000
settlement because, according to respondent, petitioner, not
OMCC, made the settlement payment.4 Alternatively, respondent
contends that neither OMCC nor petitioner may deduct the
settlement payment or the legal fees in dispute because those
payments were capital expenditures made to defend or perfect
petitioner’s title to property. Sec. 1.263(a)-2(c), Income Tax
Regs.
3 Petitioner argues that the burden of proof in this case
should be shifted to respondent under sec. 7491(a). On the basis
of the stipulation of facts and the evidence presented at trial,
we decide this case according to the preponderance of evidence
without regard to the burden of proof.
4 Respondent contends petitioner may not argue that she
(instead of the partnership) may deduct the settlement payment
because that would be a new theory raised for the first time
after trial. We disagree. Petitioner raised the matter in her
petition, which gave respondent fair notice. See Rule 31(a).
Respondent is not prejudiced because whether petitioner may
currently deduct or must capitalize the settlement payment does
not require the presentation of any new or different evidence.
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Last modified: May 25, 2011