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1997-156; Berst v. Commissioner, T.C. Memo. 1997-137; Martinez v.
Commissioner, T.C. Memo. 1997-126; Fredrickson v. Commissioner, T.C.
Memo. 1997-125.
Issue 2. Excludability of Legal Fees
The second issue is whether petitioner is entitled to exclude
from gross income amounts paid as legal fees. Petitioner argues
that because her legal fees were paid to counsel from the settlement
proceeds and petitioner never received such fees, petitioner is
entitled to exclude the legal fees from her 1992 income. Respondent
contends that petitioner may deduct attorney's fees of $40,620 as
a miscellaneous itemized deduction to the extent they exceed 2
percent of petitioner's adjusted gross income.
Although State Farm issued a check jointly to petitioner and
her attorney, petitioner was responsible for her legal costs. The
settlement agreement provided, inter alia, that the State Farm
payment included petitioner's attorney's fees and that it was
petitioner's responsibility to pay her attorney's fees.
Thus, we agree with respondent that the attorney's fees are
includable in petitioner's gross income and deductible as a
miscellaneous itemized deduction. See Alexander v. Commissioner,
72 F.3d 938, 946 (1st Cir. 1995), affg. T.C. Memo. 1995-51.
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