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here, respondent determined in the primary position that $380,000
of the $1 million lump-sum settlement was attributable to salary
and wages. Respondent thereby increased petitioners' taxable
income by that amount. Respondent also determined that
petitioners received $620,000 of the $1 million as business gross
receipts, rather than $200,000, as petitioners had reported on
their return. Petitioners' taxable income was thereby increased
by an additional $420,000. Consistent with that allocation,
respondent disallowed $65,946 of the $173,542 of legal fees and
costs claimed on Schedule C, and increased petitioners' adjusted
gross income (AGI) by that amount. Respondent then augmented
petitioners' miscellaneous itemized deductions by $65,946,
subject to the 2-percent AGI limitation of section 67. Pursuant
to section 68, respondent reduced the amount of itemized
deductions otherwise allowable to petitioners since their AGI was
more than $100,000 for 1991.
As an alternative position, respondent stated:
if [it] is ultimately determined that the $620,000.00
shown as corrected business gross receipts * * * is not
in fact business gross receipts, then it is determined
that wages * * * should be increased in the amount of
$1,000,000.00 in lieu of the $380,000 * * *.
Accordingly * * * taxable income from salaries and
wages is increased in the amount of $1,000,000.00 and
business gross receipts are decreased in the amount of
$200,000.00 * * *.
In connection with that alternative position, respondent further
stated:
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