Ivor F. and Debra A. Benci-Woodward, et al. - Page 7

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          disallowed petitioners' miscellaneous itemized deductions for               
          legal fees completely, and determined AMT liability for the                 
          Benci-Woodwards, the Mangums, and the Ragatzes in the respective            
          amounts of $85,009, $73,787, and $75,694.                                   
               Howard reported on Schedule C, Profit or Loss From Business            
          (Sole Proprietorship), attached to his 1992 individual tax return           
          as gross receipts from his legal practice all of the attorney's             
          fees he received from plaintiffs.                                           
                                     Discussion                                       
               The dispute here concerns the appropriate treatment for the            
          legal fees and costs attributable to punitive damages that the              
          plaintiffs incurred in pursuing their lawsuit against the                   
          defendants.  Section 67(a) imposes a 2-percent floor on the                 
          miscellaneous itemized deductions of individuals for all taxable            
          years beginning after December 31, 1986.  In other words,                   
          miscellaneous itemized deductions may be taken only to the extent           
          that they exceed 2 percent of an individual taxpayer's adjusted             
          gross income.  Miscellaneous itemized deductions are defined in             
          section 67(b) as those itemized deductions that are not                     
          specifically enumerated therein.  Legal expenses related to the             
          production or collection of income and thereby deductible under             
          section 212(1), as here, are not specifically enumerated in                 
          section 67(b).                                                              







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