-13-
our view, the fact that OMCC and petitioner jointly borrowed
$550,000 of the funds used to pay the settlement is compelling
evidence that OMCC and petitioner joined in paying that portion
of the settlement.
OMCC was as much a target of the Government’s efforts to
collect the unpaid farm loans as petitioner. The Government
requested that the District Court enter a judgment against OMCC
and petitioner, jointly and severally, for the full amount of the
unpaid farm loans, and OMCC was a party to the settlement
agreement that ended the farm loan litigation.
Considering the claims that the Government made against
petitioner and OMCC in the farm loan litigation (discussed in
detail below at par. C-2) and the bank loan records identifying
petitioner and OMCC as co-borrowers on the $550,000 loan, we
conclude that petitioner and OMCC each paid one-half of $550,000
of the $625,000 settlement payment. We also conclude that OMCC
paid the remaining $75,000 of the $625,000 settlement payment
inasmuch as it borrowed that amount against its own line of
credit. Thus, we conclude that petitioner paid $275,000 of the
$625,000 settlement payment and that OMCC paid the remaining
$350,000.
C. Whether OMCC and Petitioner May Deduct Their Shares of the
Settlement Payment
We next consider how much (if any) of its $350,000 payment
OMCC may deduct under section 162 or must capitalize, and how
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