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business of the taxpayer. See Kornhauser v. United States, 276
U.S. 145, 153 (1928); O’Malley v. Commissioner, 91 T.C. 352, 361
(1988).
The deductibility of the legal fees, in the present case,
depends on the origin and character of the claim for which the
expenses were incurred and whether the claim bears a sufficient
nexus to the taxpayer’s business or income-producing activities.
See United States v. Gilmore, 372 U.S. 39 (1963). The Supreme
Court stated that “the origin and character of the claim with
respect to which an expense was incurred, rather than its
potential consequences upon the fortunes of the taxpayer, is the
controlling basic test”. Id. at 49. The origin of the claim
test is factual, and the factors to be considered include: (1)
Allegations in the complaint; (2) the legal issues involved; (3)
the nature and objectives of the litigation; (4) the defenses
asserted; (5) the purposes for which the amounts claimed as
deductible were expended; and (6) the background of litigation
and all facts pertaining to the controversy. Boagni v.
Commissioner, 59 T.C. 708, 713 (1973). Thus, in order for
petitioner’s legal fees to be deductible on his Schedule C, the
origin of those legal services must have been rooted in his
business.
In Case No. 814944, filed by petitioner on September 24,
1999, in the Superior Court of the State of California, County of
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