Court Opinion

ID: 9382787
Source: CourtListenerOpinion
Date Created: 2023-03-28 19:01:24.709558+00
Date Added: 2024-06-11T17:17:41.672090
License: Public Domain

United States Tax Court

                               T.C. Memo. 2023-42

 WILLIAM FRENCH ANDERSON AND KATHRYN D. ANDERSON,
                     Petitioners

                                           v.

               COMMISSIONER OF INTERNAL REVENUE,
                           Respondent

                                     —————

Docket No. 23789-16.                                         Filed March 28, 2023.

                                     —————

Charles David Harrison, for petitioners.

William F. Castor and Vassiliki Economides Farrior, for respondent.

         MEMORANDUM FINDINGS OF FACT AND OPINION

      PARIS, Judge: By notice of deficiency dated August 11, 2016,
respondent determined deficiencies in petitioners’ income tax of $97,686
and $34,047 for 2013 and 2014, respectively.

      After concessions, the issue for decision is whether petitioners
may deduct legal expenses of $292,175 and $68,120 reported on
Schedule C, Profit or Loss From Business, on their 2013 and 2014 tax
returns, respectively.

        Petitioners bear the burden of proof. See Rule 142(a). 1

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references
are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant
times, and all Rule references are to the Tax Court Rules of Practice and Procedure.

                                 Served 03/28/23
                                    2

[*2]                      FINDINGS OF FACT

I.     Background

       Petitioners, William French Anderson (Dr. Anderson) and
Kathryn D. Anderson (Dr. Kathryn Anderson), husband and wife,
resided in California at the time they filed the Petition in this case. The
parties have stipulated that venue for any appeal in this case is the U.S.
Court of Appeals for the Tenth Circuit. See § 7482(b)(2) (providing that
decisions of the Tax Court “may be reviewed by any United States Court
of Appeals which may be designated by the Secretary and the taxpayer
by stipulation in writing”); Greene v. Commissioner, T.C. Memo. 1996-
531, 1996 WL 687032, at *1 n.2.

       During the years relevant to this case, Dr. Anderson was a
physician, geneticist, and molecular biologist. He is considered a pioneer
in the field of gene therapy. Both Dr. Anderson and Dr. Kathryn
Anderson are renowned pediatric specialists, she as a pediatric surgeon
and director of multiple hospital pediatric surgery programs and he as
a pediatric geneticist. He previously discovered genetic and other
treatments for cancer, immune deficiencies, and other illnesses, and has
successfully worked with pharmaceutical companies to bring them to
market. Dr. Anderson has held multiple leadership positions in medical
institutions on the East Coast and oversaw multiple research
laboratories.

       Beginning in 1992 Dr. Anderson served as Director of the Gene
Therapy Laboratories at the University of Southern California (USC)
Keck School of Medicine. Dr. Anderson holds over 34 patents related to
gene therapy, including several related to the use of the molecule
interleukin-12 (IL-12). While employed at USC, Dr. Anderson was
involved in numerous business ventures in the biomedical industry.
Through one such venture, Farmal, LLC (Farmal), Dr. Anderson, along
with other scientists and investors, sought to develop IL-12 and bring it
to market as a cancer treatment that could reduce the side effects of
radiation and chemotherapy.

       During Dr. Anderson’s years at USC, his research assistant, a
Chinese national and licensed medical doctor, actively participated in
Dr. Anderson’s research and was included by name as a co-inventor of
IL-12 in the patent issued in July 2003. Soon after the patent application
was filed, she approached Dr. Anderson with a proposal to bring the IL-
12 research to a new laboratory in China. After unsuccessful meetings
                                     3

[*3] with government officials in China in July 2003, Dr. Anderson
refused the medical research laboratory proposal.

       In July 2004 Dr. Anderson was arrested in Los Angeles on
allegations of sexual abuse of a minor, the daughter of his research
assistant at the USC Gene Therapy Laboratories. The criminal acts
were alleged to have occurred at petitioners’ home, where Dr. Anderson
tutored the minor and taught her martial arts to improve her self-
confidence. Dr. Anderson had agreed to tutor the minor at the request
of her mother because she was struggling both academically and
socially. He did not receive payment and was not in the trade or business
of tutoring or of martial arts instruction. Dr. Anderson was found guilty
of the charges and sentenced to 14 years’ imprisonment. Dr. Anderson
was discharged for cause from the university following his arrest and
subsequent criminal conviction. The conviction was affirmed on appeal
to the California Court of Appeal, which found that the evidence
demonstrated that Dr. Anderson was guilty of the criminal conduct.
People v. Anderson, 144 Cal. Rptr. 3d 606, 640 (Ct. App. 2012).

II.   Petitions for Writs of Habeas Corpus

      A.     State Habeas Case

      In 2011 Dr. Anderson filed a petition for writ of habeas corpus in
the California Court of Appeal (state habeas case). In re Anderson, No.
B232746, 2013 WL 4759680 (Cal. Ct. App. Sept. 5, 2013). In the state
habeas case, Dr. Anderson was represented by Douglas W. Otto, an
attorney based in California.

       In the state habeas case, Dr. Anderson challenged his conviction
on four grounds, all relating to claims of ineffective assistance of counsel
and prosecutorial misconduct in connection with a surreptitious
recording of a conversation between Dr. Anderson and the minor that
led to his arrest. Oral argument was held on April 9, 2013. The Court of
Appeal denied Dr. Anderson’s petition by unpublished opinion issued on
September 5, 2013. Id. at *17. Dr. Anderson petitioned the Supreme
Court of California for review of the Court of Appeal’s decision, and the
Supreme Court of California denied his petition on December 11, 2013.

      B.     Federal Habeas Case

       In December 2014 Dr. Anderson, acting pro se, filed a petition for
writ of habeas corpus in the U.S. District Court for the Central District
                                         4

[*4] of California (federal habeas case). Anderson v. Perez, No. CV 14-
09463R, 2016 WL 8078147 (C.D. Cal. Nov. 8, 2016). The petition set
forth nine grounds for relief, the ninth of which alleged: “Petitioner is
Entitled to Habeas Corpus Relief because Newly Discovered Evidence
Establishes his Actual Innocence.”

       On January 2, 2015, Dr. Anderson filed a memorandum of points
and authorities in support of his petition. He raised five arguments, four
of which dealt with his claims of ineffective assistance of counsel or
allegations of misconduct by the government. Dr. Anderson additionally
argued that new evidence demonstrated that the charges against him
were fabricated by the minor’s mother as part of an effort to sabotage
his business and gain control over the IL-12 intellectual property
following the failure of their biotech startup Farmal.

      On August 19, 2015, Dr. Anderson filed a reply to respondent’s
answer to petition for writ of habeas corpus (reply), alleging that the
minor’s mother was involved in espionage and leveled the charges
against him in an effort to hide her deliberate attempts to sabotage the
biotech startup. Attached to the reply as exhibit G was the declaration
of Daniel Haste.

       Mr. Haste is an information technology (IT) consultant with over
30 years’ experience. He began providing IT services to Dr. Anderson in
1994. Following Dr. Anderson’s 2004 arrest, Mr. Haste assisted Dr.
Anderson’s criminal defense team as a digital forensic consultant. After
Dr. Anderson was convicted in 2006, he continued to perform data
recovery and digital forensic analysis for Dr. Anderson in connection
with the state and federal habeas cases, including investigation emails
and other digital evidence related to the failure of Farmal and the
potential theft of Dr. Anderson’s intellectual property. On the basis of
the research of Mr. Haste and other experts who worked with his legal
team, Dr. Anderson became convinced that his former colleague had
deliberately sabotaged Farmal and had stolen his intellectual property
related to the use of IL-12. 2 Noting that she had held a research position
in a nearby laboratory while he practiced on the East Coast and that she
had moved to southern California in the early 1990s, around the same
time that he did, Dr. Anderson came to believe that she had long ago

       2 Dr. Anderson believes, on the basis of articles and other evidence uncovered

in investigations after the years at issue, that his former colleague now heads a
research lab in Qingdao, a city in Shandong Province, China, where she works on drugs
and medication exploiting the IL-12 discovery.
                                          5

[*5] selected him and his research as a target for theft and joined his
research team to gain access to his research.

       On November 8, 2016, the magistrate in the federal habeas case
filed a document titled Report and Recommendation, recommending
that the district court deny Dr. Anderson’s petition. In recommending
that the petition be denied, the reviewing magistrate found that the
evidence presented by Dr. Anderson “d[id] not demonstrate that [Dr.
Anderson] was convicted as an innocent person.” Anderson, 2016 WL
8078147, at *25. The district court accepted the magistrate’s
recommendation and entered a judgment denying Dr. Anderson’s
petition for writ of habeas corpus on January 24, 2017.

III.   Legal Fees and Other Expenditures

       A.      Legal Representation

      Mr. Otto represented Dr. Anderson in the state habeas case,
including appeals.

       During 2013 petitioners paid Mr. Otto $292,175 in legal expenses.
Out of those funds, Mr. Otto paid from Dr. Anderson’s trust account
$24,410 to Attorney Eric Multhaup for assistance on the state habeas
case; $575 to BEKTEK; $21,000 to Pablo Valencia, an expert in signal
analysis; $5,302 to Attorney G. Paul; $1,250 and $3,137 to audio experts
Brian Shepard and Yi Xu, respectively; $10,000 to Attorney Dennis
Fischer for assistance on the appeal of the state habeas case; and $1,500
to Tully Investigations, a consulting firm engaged to attempt to find and
interview the now-adult accuser. The remaining $225,000 went to Mr.
Otto directly.

      During 2014 petitioners paid legal expenses totaling $68,120. 3
They paid $60,000 cash to Mr. Otto for continued work on Dr. Anderson’s
state habeas case. 4 They additionally paid $4,385 to the Phelps Law

       3  The parties stipulated that the $68,120 in legal expenses was paid to Mr.
Otto. The evidence shows, however, that only $60,000 was paid to Mr. Otto while the
remaining $8,120 was paid by Dr. Kathryn Anderson to various persons as described
above. The Court is not bound by stipulations of fact that appear contrary to the facts
disclosed by the record. See Rule 91(e); Estate of Eddy v. Commissioner, 115 T.C. 135,
137 n.4 (2000).
        4 During 2014 Mr. Otto paid $480 to the law firm Russell & Russell and another

$4,883 (in the form of two checks) to Mr. Multhaup. These amounts appear to have
                                          6

[*6] Group for assistance in obtaining documents, $1,500 to Attorney
Kent A. Russell to assist Mr. Otto on the state habeas case, and $3,000
to Daniel Haste for website redesign to promote “[Dr.] Anderson’s
overall business image” and engage in “legal advocacy as instructed by
Doug Otto.” 5

       B.      Daniel Haste

       As discussed supra, Mr. Haste is an IT consultant who performed
data recovery and digital forensic analysis for Dr. Anderson in
connection with the state and federal habeas cases. During the years at
issue, Mr. Haste also worked directly for petitioners and was paid by
check from Dr. Kathryn Anderson’s bank account.

       In 2014 Mr. Haste sent petitioners no fewer than three invoices.
The first, dated September 18, 2014, was for $3,000 for “Labor, Anderson
Website September redesign and upgrade” and contained the following
comment: “Bookkeepers Notes: This project promotes Anderson’s overall
business image as well as legal advocacy as instructed by Dough Otto,
Esq. Either ‘marketing,’ ‘IT’, or ‘legal services/consultants’ or any
combination is customary.” The second and third invoices, dated
November 22 and December 10, 2014, respectively, were for $5,000 each
and related to expenses, interviews and meetings, and research and
investigation regarding potential conflicts of interest and undisclosed
representation. Dr. Kathryn Anderson paid each invoice by separate
personal check. Petitioners offered no evidence that any invoices were
paid to Mr. Haste in 2013.

IV.    Tax Returns

       Petitioners timely filed joint federal individual income tax
returns for 2013 and 2014. On their 2013 return they reported a
business loss of $292,300. On Dr. Anderson’s Schedule C attached to
that return they reported gross receipts of $584 and legal and
professional services expenses of $292,175, for a net loss of $291,591. 6
Petitioners also claimed deductions on Schedule A, Itemized Deductions,

been paid out of the $60,000 paid to Mr. Otto and do not represent additional payments
by petitioners.
       5 These amounts, totaling $68,885, were then reduced by $765 for unspecified
“accounting fees.”
       6 Petitioners’ 2013 return also included Dr. Kathryn Anderson’s Schedule C,

on which petitioners reported a net loss of $709.
                                         7

[*7] totaling $105,377 and a personal exemption of $7,800. They also
disclosed a nontaxable state refund of $2,638. They reported a total tax
of $50,971, including alternative minimum tax of $20,581.

      On their 2014 return petitioners reported business income of
$2,274. On Dr. Anderson’s Schedule C attached to that return they
reported gross receipts of $70,702 and legal and professional services
expenses of $68,120, 7 for a net profit of $2,582. 8 Petitioners also claimed
itemized deductions on Schedule A totaling $58,722 and a personal
exemption of $7,900. Petitioners reported a total tax of $22,538,
including alternative minimum tax of $2,573.

V.     Notice of Deficiency

       Respondent examined petitioners’ returns and determined
deficiencies of $97,686 and $34,047 for 2013 and 2014, respectively. The
deficiencies were determined on the basis of the following adjustments:

                                                      2013          2014

        State Refunds, Credits, or Offsets              $2,638      $35,130

        Sch C2 – Legal and Professional Services      292,175         68,120

        SE AGI Adjustment 9                               (42)       (4,812)

        Itemized Deductions                             13,733         1,969

        Exemptions                                       7,800       ---

      Respondent concedes that petitioners’ state tax refunds are not
taxable. This item will not be further addressed.

        7 Petitioners paid a total of $68,885 to Mr. Otto, the Phelps Law Group, Mr.

Russell, and Mr. Haste, but they reduced that amount by $765 for “accounting fees.”
The Court deems petitioners to have conceded that the $765 is not deductible.
       8 Petitioners’ 2014 return also included Dr. Kathryn Anderson’s Schedule C,
on which petitioners reported a net loss of $308.
       9 Respondent’s adjustments to self-employment tax deductions, itemized

deductions, and personal exemptions are computational, and the Court will not further
address them.
                                           8

[*8] Respondent issued the notice of deficiency on August 11, 2016,
and petitioners timely petitioned the Court for redetermination.

                                     OPINION

I.      Overview

       On their 2013 and 2014 tax returns petitioners claimed
deductions on Schedule C for legal expenses of $292,175 and $68,120,
respectively, relating to amounts paid to Mr. Otto for legal services
rendered in connection with Dr. Anderson’s state and federal habeas
cases. The parties agree that those amounts were paid but disagree as
to whether they were deductible business expenses or nondeductible
personal expenses.

       In general, the Commissioner’s determination set forth in a notice
of deficiency is presumed correct, and the taxpayer bears the burden of
proving that the determination is in error. Rule 142(a); Welch v.
Helvering, 290 U.S. 111, 115 (1933). 10 Deductions are a matter of
legislative grace, and the taxpayer bears the burden of proving that he
or she is entitled to any deduction claimed. See Rule 142(a); Deputy v.
du Pont, 308 U.S. 488, 493 (1940); New Colonial Ice Co. v. Helvering, 292
U.S. 435, 440 (1934).

II.     Legal Fees

        A.      Section 162

        Section 162(a) allows a deduction for all ordinary and necessary
expenses paid or incurred during the taxable year in carrying on any
trade or business. An ordinary and necessary expense is one which is
appropriate and helpful to the taxpayer’s business and results from an
activity that is common and accepted practice in the business. Amdahl
Corp. & Consol. Subs. v. Commissioner, 108 T.C. 507, 523 (1997);
Blossom Day Care Ctrs., Inc. v. Commissioner, T.C. Memo. 2021-87, at
*36. Whether a payment qualifies for a deduction under section 162(a)
is a factual issue which must be decided on the basis of all relevant facts
and circumstances. See Commissioner v. Heininger, 320 U.S. 467, 475
(1943). To prove entitlement to deduct an expense, the taxpayer must

        10 Pursuant to section 7491(a), the burden of proof as to factual matters shifts

to the Commissioner under certain circumstances. Petitioners have neither alleged
that section 7491(a) applies nor established compliance with its requirements.
Petitioners therefore bear the burden of proof.
                                     9

[*9] prove not only the fact of the expenditure but also the business
purpose (or other deductible character) of the expense. “Business
expenses deductible from gross income include the ordinary and
necessary expenditures directly connected with or pertaining to the
taxpayer’s trade or business . . . .” Treas. Reg. § 1.162-1(a). The taxpayer
must show that a reported business expense was incurred primarily for
business rather than personal reasons and that there was a proximate
relationship between the expense and the business. Walliser v.
Commissioner, 72 T.C. 433, 437 (1979); Rogers v. Commissioner, T.C.
Memo. 2014-141, at *18. No deduction is allowed for personal, living, or
family expenses. § 262(a).

      B.     Origin of the Claim

        The deductibility of legal fees 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, 48–49 (1963). The
Supreme Court has 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. If the claim arose “in connection with the taxpayer’s
profit-seeking activities,” the fees are deductible. Id. at 48. If not, then
they are not deductible, regardless of “the consequences that might
result to a taxpayer’s income-producing property” from losing the case.
Id. Ascertainment of a claim’s origin and character is a factual
determination made on the basis of the facts and circumstances of the
litigation. Id. at 47–49; Stewart v. Commissioner, T.C. Memo. 2010-184,
2010 WL 3239176, at *7. Public policy does not prohibit the deduction of
legal fees relating to criminal activity so long as the legal fees are an
ordinary and necessary expense of a trade or business. Commissioner v.
Tellier, 383 U.S. 687, 694–95 (1966).

        Petitioners maintain that the legal fees at issue are deductible
business expenses. In their seriatim Opening Brief petitioners argue
that the legal fees at issue are deductible business expenses because the
claim with respect to which they were incurred (that is, the criminal
charges against Dr. Anderson) “arose from his gene therapy business
and the for-profit business activity of bringing a cancer treatment drug
. . . to market.” Petitioners maintain that new evidence discovered in
2013 and 2014, during the preparation of the state and federal habeas
cases, reveals an extensive scheme by Dr. Anderson’s former colleague
                                         10

[*10] to sabotage his business and steal his intellectual property. 11 That
alleged theft, petitioners argue, is the proximate cause of the charges
brought against Dr. Anderson, and thus the legal fees expended in 2013
and 2014 in pursuit of the writs of habeas corpus were deductible
business expenses.

       In their seriatim Reply Brief, petitioners narrow their argument
somewhat. Describing the legal expenses as “investigatory legal
expenses,” petitioners contend that the fees were incurred entirely to
investigate the conduct of Dr. Anderson’s former colleague. Petitioners
allege that the so-called investigatory legal expenses were paid to Mr.
Haste, through Mr. Otto, to investigate potential corporate sabotage and
intellectual property theft by Dr. Anderson’s former colleague.
Petitioners claim that Mr. Haste’s investigation revealed extensive
wrongdoing by Dr. Anderson’s former colleague, that Mr. Haste was
employed by Mr. Otto to investigate this wrongdoing, and that the legal
fees at issue paid for that investigation.

       Petitioners’ first argument is unavailing. Dr. Anderson was
charged with and convicted of various counts of sexual abuse of a minor.
Petitioners are correct that public policy does not prohibit the deduction
of legal fees relating to criminal activity so long as the legal fees are an
ordinary and necessary expense of a trade or business. Commissioner v.
Tellier, 383 U.S. at 694–95. In Dr. Anderson’s case, however, the
criminal acts were alleged to have occurred at petitioners’ home, where
Dr. Anderson tutored the minor academically and provided her with
martial arts training. Those activities were personal, occurring at
petitioners’ private residence and arising out of Dr. Anderson’s personal
relationship with his former employee and her daughter. Dr. Anderson
did not receive payment for either the tutoring or the martial arts
training, and he was not in the trade or business of providing either
service. The charges did not involve Dr. Anderson’s gene therapy
business or any other trade or business or activity engaged in for the
production or collection of income. The connection between his arrest

        11 In the Court’s Order dated September 28, 2021, the Court granted

respondent’s Motion in Limine to preclude any evidence or arguments that Dr.
Anderson was framed on false charges. In contravention of that Order, petitioners
continue to argue in their Opening Brief that Dr. Anderson was falsely accused of the
criminal charges for which he was convicted and that these accusations were part of
the corporate sabotage and intellectual property theft scheme. Dr. Anderson was
convicted by a jury of the charges brought against him, and the California Court of
Appeal upheld that conviction. Anderson, 144 Cal. Rptr. 3d at 640. The Court will not
further address this argument.
                                           11

[*11] and his occupation was tangential. Cf. Argyle v. Commissioner,
T.C. Memo. 2009-218, 2009 WL 2972888, at *4 (disallowing deduction
for CPA’s legal fees in defending against criminal charges brought by
client’s employee after he kissed her during an evening spent at his
home over 40 miles away from client’s business), aff’d, 397 F. App’x 823
(3d Cir. 2010); Siket v. Commissioner, T.C. Memo. 1978-124 (disallowing
deduction for legal fees paid by police officer to defend against charge of
off-duty criminal assault against other police officers). Any economic
loss to or other impact on Dr. Anderson’s gene therapy business
following the conviction was a collateral consequence and not its origin.

       With respect to petitioners’ second argument, the Court
recognizes that, “when appropriate, litigation costs must be apportioned
between business and personal claims.” Guill v. Commissioner, 112 T.C.
325, 331 (1999). The Court agrees that investigating and combatting
potential security threats, such as sabotage and intellectual property
theft, are ordinary and necessary business expenses. Although the
criminal charges against Dr. Anderson generally relate to his personal
conduct and relationship with the minor, petitioners’ investigation into
and analysis of the alleged malfeasance by the former colleague directly
pertain to Dr. Anderson’s gene therapy business, and legal fees
expended specifically to those ends are deductible business expenses.
See id.

       Petitioners’ framing of the facts, however, is inconsistent with the
evidence. Petitioners contend that the legal fees were entirely
“investigatory,” that the purpose of hiring Mr. Otto was to investigate
the collapse of Dr. Anderson’s companies and the theft of the intellectual
property he was developing, and that it was Mr. Otto who employed Mr.
Haste to conduct his investigation. 12 Petitioners’ documentation of their
legal expenses shows otherwise. In 2013 petitioners paid $292,175 to
Mr. Otto. Mr. Otto’s records reflect that a portion of these funds was
paid to various attorneys, audio experts, and investigators, but Mr.
Haste was not among those payees. The documents detail the work
performed, the amount of time spent, and the cost. The descriptions of
work contain no reference to investigatory work of the nature alleged,
instead primarily focusing on Dr. Anderson’s ineffective assistance of
counsel argument, analysis of the audio recording used against Dr.

        12 Dr. Anderson additionally testified that he has filed a civil action against his

former colleague with respect to the alleged intellectual property theft. The record does
not indicate when this lawsuit was filed or whether any legal expenses were paid in
connection with that lawsuit during the years at issue.
                                    12

[*12] Anderson during his criminal trial, and attempts to contact Dr.
Anderson’s now-adult accuser. No invoices or other documentation for
2013 reference Mr. Haste or his investigation, and there is no evidence
that any of the 2013 legal expenses went toward researching,
investigating, or analyzing the corporate sabotage or espionage
allegations. Rather, the 2013 legal fees all expressly pertain to the state
habeas appeal, on which Dr. Anderson raised claims of ineffective
assistance of counsel, challenged the integrity of the recording, and
alleged other misconduct by government officials.

       For 2014 the parties have stipulated that petitioners paid legal
expenses totaling $68,120 to Mr. Otto. The record indicates, however,
that only $60,000 of the stipulated legal expenses was paid to Mr. Otto
while the remaining amounts were paid to Mr. Russell, Mr. Haste, and
the Phelps Law Group. Petitioners did not introduce invoices or other
documentation describing the work Mr. Otto performed or whether any
portion of it relates to Dr. Anderson’s business. Nor is there any evidence
that the fees paid to Mr. Russell or the Phelps Law Group were business
related. Rather, Dr. Anderson’s testimony and documentation show that
Mr. Russell provided assistance with the state habeas case (which did
not involve the corporate sabotage allegations) while the Phelps Law
Group assisted in obtaining documents from Mr. Otto. These expenses,
then, are personal expenses and not deductible.

       Only the $3,000 paid to Mr. Haste, as evidenced by the invoice
dated September 18, 2014, relates to Dr. Anderson’s gene therapy
business. That invoice shows that Mr. Haste performed IT services for
Dr. Anderson’s website under the instruction of Mr. Otto, including legal
advocacy and promotion of Dr. Anderson’s business image. While the
invoice contains no reference to the alleged wrongdoing by Dr.
Anderson’s former colleague, the work detailed in the invoice is clearly
a business expense, and the Court will allow a deduction in that amount.
Similarly, the two additional 2014 invoices from Mr. Haste, for $5,000
each, do detail work performed in the course of his investigation. Those
invoices were paid by Dr. Kathryn Anderson in December 2014. The
Court finds that these invoices represent additional business expenses
and will allow a further deduction of $10,000.

III.   Conclusion

       For the foregoing reasons, respondent’s disallowance of
petitioners’ legal expense deduction for 2013 is sustained. Petitioners
are entitled to deduct legal expenses of $13,000 for 2014.
                                 13

[*13] The Court has considered all of the arguments made by the
parties, and to the extent they are not addressed herein, they are
considered moot, irrelevant, or otherwise without merit.

     To reflect the foregoing,

     Decision will be entered under Rule 155.