Kevin R. Johnston - Page 40




                                       - 40 -                                         

          IV.  Is Petitioner Entitled to Additional Deductions?                       
               The statutory notice did not allow petitioner any deductions           
          for trade or business expenses.  On the basis of copies of a few            
          checks drawn on the Universal account, respondent has conceded              
          that petitioner is entitled to deduct, as trade or business                 
          expenses, the following amounts paid by Universal:  $914 for                
          postage, $220 to sponsor sports teams, and $441 for printing.               




               12(...continued)                                                       
          States, 202 F.3d 854 (6th Cir. 2000) (contingent-fee agreement is           
          not invalid assignment of income, and client’s income does not              
          include portion of recovery paid to attorney pursuant to the                
          agreement); Cotnam v. Commissioner, 263 F.2d 119 (5th Cir. 1959),           
          affg. in part and revg. in part 28 T.C. 947 (1957).                         
               Petitioner’s argument has no merit.  Not only do other                 
          Courts of Appeals (including the Court of Appeals for the Ninth             
          Circuit, to which the present case is appealable) and the Tax               
          Court disagree with Estate of Clarks and Cotnam, see, e.g., Coady           
          v. Commissioner, 213 F.3d 1187 (9th Cir. 2000); Baylin v. United            
          States, 43 F.3d 1451 (Fed. Cir. 1995); Kenseth v. Commissioner,             
          114 T.C. 399 (2000), but, more importantly, the purported trust             
          arrangement in the case at hand is completely different from the            
          contingent fee agreements at issue in Estate of Clarks and                  
          Cotnam.                                                                     
               In Estate of Clarks and Cotnam, the Courts of Appeals                  
          stressed that the client’s claim was, for all practical purposes,           
          worthless without the services of the attorney who could bring it           
          to fruition; in Estate of Clarks, the Court of Appeals even                 
          characterized the attorney-client relationship in a contingent-             
          fee arrangement as similar to a joint venture or partnership.  By           
          contrast, in the case at hand, the record shows that petitioner’s           
          services had value by themselves; Universal had nothing to do               
          with, and no control over, the earning of petitioner’s service              
          income.  In short, petitioner’s control of the income generated             
          by his services was more than sufficient to make him the party              
          taxable on that income.                                                     





Page:  Previous  29  30  31  32  33  34  35  36  37  38  39  40  41  42  43  44  45  46  47  48  Next

Last modified: May 25, 2011