- 7 -
Accordingly, we conclude that petitioner is not entitled to
exclude any part of the $653,230 recovery under section
104(a)(2).
Petitioner also contends that she is entitled to exclude the
portion (i.e., $163,308) of the settlement used to pay legal
fees. Respondent contends that the legal fees are deductible
under section 212(1) as an expense for the production of income
and treated as a miscellaneous itemized deduction under section
67. We agree with respondent that the legal fees are deductible
to the extent they exceed 2 percent of petitioner's adjusted
gross income. See Alexander v. Commissioner, 72 F.3d 938, 946
(1st Cir. 1995), affg. T.C. Memo. 1995-51; see also sec. 1.67-
1T(a)(1)(ii), Temporary Income Tax Regs., 53 Fed. Reg. 9875 (Mar.
28, 1988).
We have considered all other arguments made by the parties
and found them to be either irrelevant or without merit.
To reflect the foregoing,
Decision will be entered
under Rule 155.
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