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Another deduction claimed on Schedule C of petitioner’s
income tax return for 2000 was $18,508 for legal and professional
services. This amount represented a payment by petitioner on
August 28, 2000, to a Houston, Texas, law firm, Baker & Botts.
The memorandum line on the check issued for payment of these
services indicates that the payment was for “C&C Litigation”.
Respondent does not dispute that petitioner paid the legal
expenses but contends there is no evidence that the payments were
related to petitioner’s trade or business. Respondent argues
that the expenses should, instead, be claimed as an itemized
deduction on Schedule A of petitioner’s return.
The record shows that the litigation expenses related to C&C
Partners arose out of the default on the debt of Kirshner Content
that petitioner had guaranteed. As a result, petitioner,
Thurmond, and Licht were all required to satisfy guarantees that
they had given in connection with the interim financing for
Kirshner Content. Petitioner and Thurmond credibly testified
that the litigation continued until at least 2000 and that they
still owed money to the law firm. Accordingly, the Court finds
that the litigation was proximately related to petitioner’s trade
or business and holds that the fees for legal and professional
services are allowable as a business expense deduction and not as
a Schedule A deduction. Petitioner is sustained on this issue.
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