- 9 -
is deductible to petitioners only as a miscellaneous itemized
deduction under section 67.
OPINION
Attorney's fees and costs awarded to prevailing parties in
litigation generally are treated as received by the parties, not
by the attorneys, and as items of taxable income to the
prevailing parties. See Alexander v. Commissioner, 72 F.3d 938,
946-947 (1st Cir. 1995), affg. T.C. Memo. 1995-51; Baylin v.
United States, 43 F.3d 1451, 1455 (Fed. Cir. 1995); Bagley v.
Commissioner, 105 T.C. 396, 418-419 (1995), affd. 121 F.3d 393,
395-396 (8th Cir. 1997); Estate of Gadlow v. Commissioner, 50
T.C. 975, 979-980 (1968); Petersen v. Commissioner, 38 T.C. 137,
151-152 (1962); Coady v. Commissioner, T.C. Memo. 1998-291; Hayes
v. Commissioner, T.C. Memo. 1997-213; Hardin v. Commissioner,
T.C. Memo. 1997-202; Martinez v. Commissioner, T.C. Memo.
1997-126.
Also, taxpayers generally are treated as realizing taxable
income when their expenses are paid by another. Sec. 61;
Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955). The
Supreme Court in Old Colony Trust Co. v. Commissioner, 279 U.S.
716, 729 (1929), stated that "The discharge by a third person of
an obligation to him is equivalent to receipt by the person
taxed." See also United States v. Boston & Me. R.R., 279 U.S.
732, 734 (1929).
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