Andrew S. and Linda Hayworth Brenner - Page 1

                                 T.C. Memo. 2001-127                                  

                               UNITED STATES TAX COURT                                

                ANDREW S. AND LINDA HAYWORTH BRENNER, Petitioners v.                  
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 13700-99.                     Filed June 4, 2001.           

                    R determined that, for 1997, Ps were liable                       
               for the alternative minimum tax computed, in part,                     
               by adding back to Ps’ reported taxable income legal                    
               fees incurred by P husband (H) and treated by Ps on                    
               their original return as Schedule A miscellaneous                      
               itemized deductions.  See  sec. 56(b)(1)(A)(i), I.R.C.                 
               Ps argue that the legal fees (1) were reimbursed to H                  
               by N as part of N’s payment in settlement of an                        
               arbitration proceeding instituted by H and arising out                 
               of N’s firing of H in 1996 and (2) are reimbursed                      
               employee business expenses deductible from gross                       
               income.  See sec. 62(a)(2)(A), I.R.C.                                  
                    Held:  Because H failed to substantiate his legal                 
               fees to N as required by sec. 1.62-2(c) and (e), Income                
               Tax Regs., N’s reimbursement of such fees is treated as                
               made under a nonaccountable plan.  Therefore, they are                 
               deductible only as miscellaneous itemized deductions.                  
               See sec. 1.62-2(c)(3), (5), Income Tax Regs.  R’s                      
               deficiency determination is sustained.                                 

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