- 87 -
because the recoveries related to taxpayer’s wrongful termination
as an employee, that the fees so deducted by the taxpayer were
employee business expenses properly treated as itemized
deductions subject to the 2-percent floor and the AMT. In so
doing, the courts rejected the taxpayer’s argument that the
deductible legal fees were Schedule C expenses because,
notwithstanding his wrongful termination as an employee, he had
thereafter gone into the management consulting business as an
independent contractor. The settlement proceeds were
compensation ordinary income and did not represent amounts
received on the disposition of intangible assets. Consequently,
the legal fees were not incurred in a disposition and could not
be netted against the settlement proceeds received.58
58 Respondent argues in the alternative in the case at hand
that if Mr. Kenseth was able to assign an interest in his cause
of action to Fox & Fox, that assignment was itself a taxable
transaction. Mr. Kenseth entered into the contingent fee
agreement in 1991; that year is not before us. Therefore, we are
not required to consider the tax consequences, if any, of the
signing of the contingent fee agreement. See Schulze v.
Commissioner, T.C. Memo. 1983-263 (assignment of claim in 1975 by
husband to wife in connection with divorce shifted burden of
taxation on amounts recovered on that claim in 1976; we found it
unnecessary to consider the Commissioner's alternative argument
that the assignment was a taxable event in the earlier year,
because that year was not before us).
The Justice Department in its brief on appeal to the Court
of Appeals for the Eleventh Circuit in Davis v. Commissioner,
T.C. Memo. 1998-248, affd. per curiam F.3d (11th Cir.
2000) (see supra note 36), also made the alternative argument--
not raised by the Commissioner in the Tax Court--that the
contingent fee agreement is a transfer of an interest in the fee
(continued...)
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