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Unless otherwise indicated, all section references are to the
Internal Revenue Code in effect for the years in issue, and all
Rule references are to the Tax Court Rules of Practice and
Procedure. After concessions, the issue for decision is whether
certain legal fees received by petitioners were taxable when
received or were unearned “retainers” during the years in issue.
FINDINGS OF FACT
Some of the facts have been stipulated, and the stipulated
facts are incorporated in our findings by this reference.
Petitioners resided in Corpus Christi, Texas, at the time that
they filed their petition. During 1992 and 1993, petitioner
Colin Kelly Kaufman (petitioner) practiced bankruptcy law in
Corpus Christi. Petitioner Sharon K. Kaufman worked as the
office supervisor in petitioner’s law practice.
During the years in issue, petitioner received payments from
clients for work that had been performed and “retainers” from
clients for work to be performed in the future. Petitioner did
not enter into written agreements with the clients explaining the
terms under which the retainers were received and applied.
Petitioners did not maintain any books or records that indicated
which payments received by petitioners were for fees earned and
which payments received were retainers or when retainers were
earned. Some retainers were deposited into petitioners’ trust
account, and amounts from the trust account were later
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Last modified: May 25, 2011