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Issue XX. Whether the Kanters Are Entitled to a Business
Deduction of $104,231 for 1980 (STJ report at 173-177)
Respondent disallowed a deduction of $104,231 that
petitioners claimed on Schedule C of their 1980 tax return. The
deduction related to a joint venture between two of Kanter’s
clients, Feigan and Rappaport, to purchase a painting of George
Washington. Kanter was instrumental in bringing the two
businessmen together at the start of the venture. The
transaction subsequently soured, the painting was returned to its
original owner, and, although the seller returned the full
purchase price, Rappaport, who provided the funds for the
purchase, lost money on account of an intervening decline in the
value of the British pound against the U.S. dollar. A dispute
between Rappaport and Feigan ensued, Kanter convinced Feigan to
make Rappaport whole, and Kanter contributed $104,231 to
reimburse Rappaport.
OPINION
A. The STJ Report
The STJ report recommended findings of fact and conclusions
of law that Kanter was not engaged in a trade or business of
dealing in art, and, therefore, respondent’s determination
disallowing the deduction should be sustained.
B. The Parties’ Arguments
Kanter argued the deduction should be permitted because he
made the $104,231 payment to protect his professional reputation
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