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Petitioner concedes that if the entire $150,000 award is
included in her gross income, the proper treatment of the
attorney’s fees is as a miscellaneous itemized deduction as
reported on petitioner’s 1993 original return. Section 162(a)
provides that there “shall be allowed as a deduction all the
ordinary and necessary expenses paid or incurred during the
taxable year in carrying on any trade or business”. Legal fees
incurred by a taxpayer as an expense of employment are
miscellaneous itemized deductions, subject to the overall
limitation on itemized deductions. See secs. 67 and 68;
Alexander v. Commissioner, 72 F.3d 938 (1st Cir. 1995), affg.
T.C. Memo. 1995-51; Bagley v. Commissioner, 105 T.C. at 419.
Accordingly, petitioner’s legal fees are deductible as a
miscellaneous itemized deduction.
Petitioner does not dispute respondent’s contention that the
treatment of the attorney’s fees as a miscellaneous itemized
deduction triggers the application of the AMT under sections 55
and 56. Under section 56(b)(1)(A)(i), an individual taxpayer’s
deduction for miscellaneous itemized deductions is not allowed in
computing alternative minimum taxable income. See Alexander v.
Commissioner, supra at 946-947. Therefore, petitioner is not
permitted to deduct her attorney’s fees as a miscellaneous
itemized deduction for purposes of computing AMT.
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