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which petitioner paid Branton & Hall $44,730 for legal expenses.
Petitioners did not include any portion of the settlement
proceeds in their income. In the notice of deficiency,
respondent determined that the amounts paid to the attorneys did
not reduce the amount of the settlement proceeds includable in
petitioners' gross income; however, respondent allowed the
attorney's fees as a Schedule A miscellaneous itemized deduction.
OPINION
Issue 1. Whether Petitioners May Exclude From Their Gross Income
Contingent Fees Paid to Their Attorneys
Respondent determined that petitioners received $8,500,000
in settlement of their claim, and that they may not exclude from
their gross income the portion of the settlement proceeds paid to
Branton & Hall. Petitioners assert that they never realized the
amount paid to Branton & Hall, because they assigned Branton &
Hall a 40-percent-ownership interest in the cause of action.
Furthermore, petitioners assert that this issue was settled by
the Court of Appeals for the Fifth Circuit in Cotnam v.
Commissioner, 263 F.2d 119 (5th Cir. 1959), affg. in part and
revg. in part 28 T.C. 947 (1957). We disagree with petitioners
that Cotnam controls the Court's decision herein.
This case is appealable to the Court of Appeals for the
Fifth Circuit, and under the Golsen rule, we follow the law of
the circuit in which a case is appealable. Golsen v.
Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th Cir.
1971). The Court of Appeals' decision in Cotnam v. Commissioner,
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