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because of the section 67 floor on miscellaneous itemized
deductions, and (2) petitioners became subject to the alternative
minimum tax under section 55.
Because of petitioners’ failure to timely file their 1993
Federal income tax return, respondent determined that an addition
to tax pursuant to section 6651(a)(1) should be imposed.
OPINION
The issue to be resolved is whether legal fees petitioner
incurred in 1993 in defending himself from criminal charges are
deductible as a Schedule C business expense or as a Schedule A
miscellaneous itemized deduction. If the fees are deductible as a
Schedule C business expense, then the $197,234 would be deductible
in full and petitioners would not be subject to the alternative
minimum tax. If the fees are deductible as a Schedule A expense,
then the deduction would be subject to the floor limitation placed
on miscellaneous itemized deductions pursuant to section 67(a) and
petitioners would be subject to the alternative minimum tax.
Section 162(a) allows a deduction for all “ordinary and
necessary expenses paid or incurred during the taxable year in
carrying on any trade or business”. In order to be deductible on
Schedule C, an expense must be directly connected with, or
proximately result from, a trade or business of the taxpayer. See
Kornhauser v. United States, 276 U.S. 145, 153 (1928); O’Malley v.
Commissioner, 91 T.C. 352, 361 (1988), affd. 972 F.2d 150 (7th Cir.
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