Andrew S. and Linda Hayworth Brenner - Page 10

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          I.  Introduction                                                            
               A.  Issue                                                              
               We must determine whether petitioners have any alternative             
          minimum tax liability on account of their payment, and deduction,           
          of the legal fees.                                                          
               B.  Petitioners’ Argument                                              
               Petitioners argue as follows:  They erroneously reported               
          the legal fees as a miscellaneous itemized deduction from                   
          adjusted gross income on the original return.  Of the settlement            
          payment, $600,000 was intended by Nomura as reimbursement of                
          petitioner’s legal expenses.  That amount was paid to him                   
          pursuant to Nomura’s bylaws, Article XIII.  Article XIII                    
          constitutes “a reimbursement or other expense allowance                     
          arrangement”, as that term is used in section 62(a)(2)(A)                   
          (without distinction, a reimbursement arrangement).  The legal              
          fees (the $215,354 expended in 1997) were, therefore, deductible            
          from gross income in the determination of adjusted gross income             
          pursuant to that section.  As a so-called “above the line”                  
          deduction, such legal fees were not subject to “add back” in the            
          determination of alternative minimum taxable income.  See sec.              

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