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deductible.
In Church v. Commissioner, supra, we used the following
formula to calculate the correct deduction:
Total attorney's fees Nonexempt income Deductible
and legal expenses X ----------------- = expenses
Total award
We have held that a portion of the settlement proceeds is
attributable to punitive damages and interest and is includable
in petitioners' income. Accordingly, we find that $1,572,173 of
attorney's fees and legal expenses is deductible under section
212(1) as a miscellaneous itemized expense.
Issue 4. Accuracy-Related Penalty Under Section 6662
Respondent determined that petitioners are liable for
accuracy-related penalties for the substantial understatement of
tax under section 6662(a) of $237,784 and $6,607 for 1991 and
1992, respectively. See sec. 6662(b)(2). Petitioners assert
that they are not liable for the penalty, because there was
substantial authority for their reporting position, and they
relied upon the advice of their professional tax adviser.
Section 6662(a) imposes a penalty in an amount equal to 20
percent of the portion of the underpayment of tax attributable to
one or more of the items set forth in subsection (b). Section
6662(b)(2) provides that section 6662 shall apply to any portion
of the underpayment attributable to any substantial
understatement of income tax.
There is a substantial understatement of income tax if the
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