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Our reading of the Letter Agreement further supports our
conclusion, as does petitioners' reporting of the settlement
proceeds on their 1989 tax return. The first paragraph of the
Letter Agreement states clearly that Mr. Syphrett, who is
described as "the client" in the Stephens litigations, would
receive all of the benefits from the Stephens litigation, and
that Intrastate would receive none of the benefits from that
suit. Petitioners' 1989 tax return reports the full amount of
the settlement as gross proceeds. These documents, which
evidence petitioners' intent and understanding at the time of the
events with the events, support the inclusion of the full amount
of the settlement proceeds in their gross income.
We hold for respondent on the first issue. In so holding,
we need not decide petitioners' alternative argument that they
may deduct the amount that Mr. Syphrett transferred to Intrastate
under either section 162 as an employee business expense or
section 212. Even if we were to side with petitioners on this
second issue, which we do not intend to do, petitioners could
only deduct the $497,667 amount only as a miscellaneous itemized
deduction, see secs. 62(a)(2)(A) and 67, and they would receive
no benefit from such a deduction in 1989 because they are subject
to the alternative minimum tax, see sec. 56(b)(1)(A)(i).
Alexander v. Commissioner, T.C. Memo. 1995-51, affd. 72 F.3d 938,
946-947 (1st Cir. 1995).
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