Eldon R. Kenseth and Susan M. Kenseth - Page 17

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          Cotnam with respect to the analysis in the opinion of Judges                  
          Rives and Brown that the attorney’s fee came within an exception              
          to the assignment of income doctrine.  See, e.g., Estate of                   
          Gadlow v. Commissioner, 50 T.C. 975, 979-980 (1968) (Pennsylvania             
          law); O’Brien v. Commissioner, 38 T.C. 707, 712 (1962), affd. per             
          curiam 319 F.2d 532 (3d Cir. 1963); Petersen v. Commissioner, 38              
          T.C. 137, 151-152 (1962) (Nebraska law and South Dakota law);                 
          Srivastava v. Commissioner, T.C. Memo. 1998-362, on appeal (5th               
          Cir., June 14, 1998) (Texas law); Coady v. Commissioner, T.C.                 
          Memo. 1998-291, on appeal (9th Cir., Nov. 3, 1998) (Alaska law).              
               Addressing the assignment of income question in similar                  
          circumstances, the U.S. Court of Appeals for the Federal Circuit              
          reached a result opposite from that reached in Cotnam.  See                   
          Baylin v. United States, 43 F.3d 1451, 1454-1455 (Fed. Cir.                   
          1995).  In Baylin, a tax matters partner entered into a                       
          contingent fee agreement with the partnership’s attorney in a                 
          condemnation proceeding.  When the litigants entered into a                   
          settlement, the attorney received his one-third contingency fee               
          directly from the court in accordance with the fee agreement.  On             
          its tax return, the partnership reduced the amount realized from              
          the condemnation by the amount of attorney’s fees attributable to             
          recovery of principal and deducted from ordinary income the                   
          attorney’s fees attributed to the interest income portion of the              
          settlement.  The Government challenged this classification of the             

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