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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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