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against him by former patients. In 1983, a lawsuit was filed by
Dianna Dall'Occhio against Mr. Marcus (the Dall'Occhio lawsuit).
Mr. Marcus did not carry malpractice insurance at the time of the
Dall'Occhio lawsuit. An attorney, John DiCaro (DiCaro), handled
the settlement of that lawsuit. Petitioners deducted $10,112 in
legal expenses on their 1990 individual Federal income tax return
for alleged payments to five attorneys. Petitioners
substantiated all of the payments to four of the five attorneys,
in the amount of $6,368, by providing copies of canceled checks
during the audit of petitioners' 1990 Federal income tax return.
Petitioners did not provide respondent with copies of canceled
checks made payable to DiCaro. Respondent disallowed the
remaining amount which petitioners allegedly paid to DiCaro.
ULTIMATE FINDINGS OF FACT
As a substitute for a bequest of property and in settlement
of all claims which she had against her stepfather's estate, the
sisters agreed to pay Mrs. Marcus one-third of the net proceeds
from the estate when and as it was liquidated.
Petitioners did not provide any substantiation for the
alleged payments to DiCaro.
OPINION
This case deals with two separate and distinct issues, a
capital gain versus tax-free inheritance issue and a
substantiation of attorney's fees issue. Should we find for
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