Eldon R. Kenseth and Susan M. Kenseth - Page 18

                                        - 18 -                                          
          attorney’s fees, determining that the attorney’s fees constituted             
          a capital expenditure and could, therefore, not reduce ordinary               
               The Court of Federal Claims agreed with the Government.  On              
          appeal, the taxpayer argued that the portion of the recovery used             
          to pay attorney’s fees was never a part of the partnership’s                  
          gross income and should be excluded from gross income.  The                   
          Federal Circuit, rejecting the taxpayer’s argument, held that                 
          even though the partnership did not take possession of the funds              
          that were paid to the attorney, it “received the benefit of those             
          funds in that the funds served to discharge the obligation of the             
          partnership owing to the attorney as a result of the attorney’s               
          efforts to increase the settlement amount.”  Id. at 1454.  The                
          Court of Appeals for the Federal Circuit sought to prohibit                   
          taxpayers in contingency fee cases from avoiding Federal income               
          tax with “skillfully devised” fee agreements.  See id.                        
               The U.S. Court of Appeals for the Ninth Circuit reached the              
          same result as the court in Baylin regarding the includability of             
          attorney’s fees in a taxpayer’s gross income.  In Brewer v.                   
          Commissioner, 172 F.3d 875 (9th Cir. 1999), affg. without                     
          published opinion T.C. Memo. 1997-542, the Court of Appeals                   
          affirmed the Tax Court decision holding that the portion of a                 
          Title VII settlement that was paid directly to the taxpayer’s                 
          attorney was not excludable from the taxpayer’s gross income.                 

Page:  Previous  8  9  10  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  Next

Last modified: May 25, 2011