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Character of Income
Petitioners reported income on the 1993 Schedule C of $198.
This amount is attributable to royalties petitioner received for
consulting work he had performed prior to 1993 for an educational
video. Petitioner had provided information on anthropology and
agreed to accept as part of his compensation a percentage from
the future sales of the video.
For 1994, petitioner reported Schedule C income of $4,697
consisting of video royalties of $313, $9 for performing
unspecified research, $2,500 as a refund of legal expenses, and
$1,877 of interest. Prior to the years at issue, petitioner had
assisted an individual with his invention. A legal dispute arose
between the parties. Petitioner retained counsel in 1993 and
paid him an amount in excess of $2,500. In 1994, the matter more
or less disappeared, and petitioner’s counsel refunded $2,500 to
petitioner. Petitioner included the $2,500 in Schedule C income
because he had claimed a Schedule C deduction for legal expenses
in 1993.2
2 Petitioners claimed a deduction of $4,398 for legal and
professional services on the 1993 Schedule C. It is not apparent
whether this entire amount was paid to petitioner’s counsel
concerning the invention matter. Respondent concedes that the
$2,500 is not includable in income in 1994 and the $2,500 is not
a deductible expense for 1993, irrespective of whether we
determine that petitioner’s activity was not entered into for
profit.
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Last modified: May 25, 2011