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appealed this ruling to the State Bar Appellate Section, but was
unsuccessful. The Appellate Section not only affirmed the
referee’s determination, but, in addition, found that petitioner
had been engaged in the unauthorized practice of law.
On their 1991 Schedule A, petitioners claimed a $5,4333
employee business expense deduction as a result of the legal
expenses incurred in challenging the Committee’s determination.
This amount includes expenditures for discovery and lawyer’s
fees. In the notice of deficiency, the Commissioner disallowed
this deduction.
Discussion
Deductions are a matter of legislative grace, and
petitioners must prove that they are entitled to the claimed
deduction. Rule 142(a); INDOPCO, Inc. v. Commissioner, 503 U.S.
79, 84 (1992). Section 162 allows a deduction for all ordinary
and necessary expenses paid or incurred during the taxable year
in carrying on any trade or business. Moreover, section 212
allows a deduction for ordinary and necessary expenses paid or
incurred during the taxable year for the production or collection
of income. Personal expenditures, however, are not deductible.
Sec. 262.
3 Petitioner submitted checks totaling $5,672 in support of
the above deduction and now claims a deduction for that amount.
Respondent has agreed to accept petitioner’s increased amount if
petitioner prevails on the substantive issue.
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Last modified: May 25, 2011