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much (if any) of her $275,000 payment petitioner may deduct or
must capitalize.
1. Principles for Deducting Legal Fees and Expenses Under
Sections 162 and 212 and the Origin of the Claim
Doctrine
A taxpayer who is carrying on a trade or business may deduct
ordinary and necessary expenses incurred in connection with the
operation of the business. Sec. 162. Similarly, ordinary and
necessary expenses incurred in connection with an activity
conducted for the production or collection of income, or for the
management, conservation, or maintenance of property held for the
production of income, are deductible if the taxpayer itemizes his
or her deductions. Sec. 212. To be deductible under section 162
or 212, an expense must be directly connected with or proximately
result from the taxpayer's business or an activity conducted for
the production or collection of income. Kornhauser v. United
States, 276 U.S. 145, 153 (1928); Madden v. Commissioner, 514
F.2d 1149, 1150 (9th Cir. 1975), revg. 57 T.C. 513 (1972);
Stevens v. Commissioner, T.C. Memo. 1999-259.
Personal, living, and family expenses, on the other hand,
generally may not be deducted. Sec. 262(a). In addition,
expenses that would otherwise be deductible under section 162 or
212 are not currently deductible if they are capital. Secs. 263,
261, 161; Woodward v. Commissioner, 397 U.S. 572, 575-576 (1970);
BHA Enters., Inc. v. Commissioner, 74 T.C. 593, 599 (1980).
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