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Petitioners argue that Congress never intended legal
expenses attributable to punitive damages to fall within the
category of miscellaneous itemized deductions. In that
connection, petitioners maintain that
Since punitive damage awards were not definitively
determined to be taxable until recently, there was no
prior need for a determination that attorney fees
should be allowed as an itemized deduction excluded
from the miscellaneous itemized deduction "catch-all"
of section 67(b).
Petitioners cite no authority in support of their
proposition, and their argument is, in fact, untenable. The
treatment of legal expenses attributable to punitive damages as
miscellaneous itemized deductions results from the purely
mechanical application of section 67. Moreover, such treatment
accords with the treatment of legal fees attributable to damages
awarded in, or settlements connected with, contractual disputes,
for example, which have always been subject to tax. Alexander v.
Commissioner, 72 F.3d 938 (1st Cir. 1995), affg. T.C. Memo. 1995-
51; see also Brewer v. Commissioner, T.C. Memo. 1997-542 (holding
that a deduction for legal fees attributable to settlement of
Title VII gender discrimination suit is a miscellaneous itemized
deduction subject to the 2-percent floor); Glassman v.
Commissioner, T.C. Memo. 1997-497 (holding that section 212
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