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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.
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