Ivan A. Jasko and Judith L. Jasko - Page 4

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          1992, which they claimed as a miscellaneous deduction on their              
          1992 return.                                                                
               At the outset, we note that we have no direct evidence that            
          petitioners realized taxable gain, i.e., an excess of the                   
          insurance proceeds over cost, from their receipt of replacement             
          cost under the insurance policy.  Sec. 1033(a)(2); see Central              
          Tablet Manufacturing Co. v. United States, 417 U.S. 673, 676                
          (1974); Tobias v. Commissioner, 40 T.C. 84, 95 (1963).  However,            
          neither party has suggested that a gain is not involved herein,             
          and we think that the existence of a gain is a permissible                  
          premise upon which to base our analysis and decision herein.1               
               The issue before us is whether petitioners are entitled to             
          deduct the $25,000 legal fees under section 212(1) which provides           
          in pertinent part:                                                          
                    In the case of an individual, there shall be                      
               allowed as a deduction all the ordinary and necessary                  
               expenses paid or incurred during the taxable year--                    
                         (1) for the production or collection of                      
                    income;                                                           
               Respondent contends that petitioners' home was not held for            
          the production of income and, thus, the legal fees incurred by              
          petitioners were incurred to recover a loss, not for the                    
          production of income, and are therefore not deductible.                     

          1  No gain was reported on petitioners' 1992 return based on the            
          payment received in that year.  It appears that petitioners were            
          waiting until the expiration of the applicable period in which to           
          replace the residence without current recognition of gain.  See             
          sec. 1033(a)(2).                                                            




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