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benefits. There is no dispute that petitioner received these
payments in 1991.
On her 1991 Federal income tax return, petitioner subtracted
$41,063, which represents the legal expenses she incurred in
prosecuting her action against the Postal Service, from the
$75,000 payment. She then reported the difference of $33,937 as
"Other income" on line 22 of her return. She reported $42,719 of
pension and annuity income, which included the $23,106.64 of
increased retirement benefits received for her retroactive
promotion. Petitioner also reported wages she received from her
employment with Specialty Graphics in 1991.
Respondent determined that petitioner was not entitled to
exclude the $41,063 in legal expenses from income. Respondent
further determined that petitioner's legal expenses were
deductible as a miscellaneous itemized deduction.
Petitioner now argues that, under section 104(a)(2), neither
the $75,000 payment nor the increased retirement benefits are
taxable income. Petitioner bears the burden to prove she is
entitled to exclude the payments she received in 1991 from
income. Rule 142(a).
Except as otherwise provided, gross income includes income
from all sources. Sec. 61(a); Commissioner v. Glenshaw Glass
Co., 348 U.S. 426 (1955). While section 61(a) is to be broadly
construed, statutory exclusions from income must be narrowly
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