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Under section 212(1), taxpayers are “allowed as a deduction
all the ordinary and necessary expenses paid or incurred during
the taxable year * * * for the production or collection of
income”. The amount of the deduction is limited to expenses
related to the collection of income which is required to be
included in gross income for Federal income tax purposes. Sec.
265(a)(1); sec. 1.212-1(a)(1), Income Tax Regs. Thus,
petitioners are entitled to deduct 85 percent of the legal
expenses incurred in securing the Social Security disability
benefits (the percentage of the benefits which are included in
income). See Andrews v. Commissioner, T.C. Memo. 1992-668.3
We briefly note that the Social Security benefits paid to or
for Ms. Dela Cruz’s daughter Nerilyn are not at issue. This
amount was not determined to be includable in petitioners’ gross
income by respondent in the notice of deficiency: Only the
$11,316 in benefits paid with respect to Ms. Dela Cruz were
included.
3This deduction is a miscellaneous itemized deduction
subject to the 2-percent floor of sec. 67(a). According to the
amended return, petitioners have other itemized deductions in the
total amount of $20,148. There are few details in the notice of
deficiency concerning each of the individual deductions
comprising this total amount, and neither party introduced into
evidence a copy of petitioners’ Federal income tax return for
1997. However, the notice does state that petitioners claimed
miscellaneous itemized deductions of $1,100. This shows that a
deduction for legal fees was not taken on the original return.
No such deduction was taken on the amended return either, which
increased petitioners’ total itemized deductions by $786 “to
report additional home mortgage interest.”
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Last modified: May 25, 2011