-18-
Against this background, we conclude that OMCC paid its
share of the settlement payment to defend against the
Government's claims that its current business operations were
part of an ongoing conspiracy and that OMCC should be held
jointly and severally liable for approximately $2 million due on
the unpaid farm loans. OMCC was not named as a defendant in the
farm loan litigation. However, the second amended complaint and
the settlement agreement clearly show that the Government treated
OMCC as fair game in its hunt for assets to repay the delinquent
farm loans. The settlement agreement provides that the parties
viewed the settlement as a means to ensure that OMCC could
continue its farming operations uninhibited by any further
litigation or adversarial administrative proceedings at the
Agriculture Department.
As previously discussed, legal expenses incurred in
defending against claims that a business was being operated
fraudulently, i.e., claims that would injure or destroy a
business, are ordinary and necessary business expenses and need
not be capitalized. See Commissioner v. Heininger, 320 U.S. 467,
470 (1943); Kornhauser v. United States, 276 U.S. at 153; N. Am.
Inv. Co. v. Commissioner, 24 B.T.A. at 420. Under these
circumstances, we hold that OMCC’s payment of $350,000 of the
settlement payment was an ordinary and necessary business expense
under section 162.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011