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income-producing property. Sec. 212(3); Page v. Commissioner,
T.C. Memo. 1993-398, affd. 58 F.3d 1342 (8th Cir. 1995).
In 1989, petitioners received a condemnation award and paid
attorney fees of $26,341 in connection with the condemnation
proceedings. Petitioners treated the condemnation award as tax
free under section 1033. Accordingly, petitioners did not deduct
the attorney's fees because they thought they were precluded from
doing so, as the fees were allocable to what they believed to be
tax-free income. Sec. 1.212-1(e), Income Tax Regs.
In Wilson I, we held that the condemnation award received by
petitioners in 1989 did not qualify for nonrecognition treatment
under section 1033. Therefore, the condemnation award was
includable in petitioners' income for 1989. As petitioners are
required to include the condemnation award in their taxable
income for 1989, they are also entitled to claim a deduction for
the legal expenses incurred in litigating the condemnation
dispute. Accordingly, we find that in 1989 petitioners paid and
therefore may claim a miscellaneous itemized deduction for
attorney's fees of $26,341. Sec. 67(a) and (b).
III. Unreported Dividend Income
In the notice of deficiency for 1989, respondent determined
that petitioners had unreported dividend income of $1,677. On
brief, respondent conceded that petitioners had only $573 in
unreported dividend income. To reflect this concession,
respondent's Rule 155 computation should have subtracted $1,104
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