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produce, grains, and other products you raised". Respondent
determined that the $12,000 installment payment should not have
been reported on Schedule F, but it should have been reported on
Schedule D as capital gain income of $6,619. Petitioner appeared
to agree to this adjustment. We sustain respondent’s
determination.
Respondent also disallowed $11,561 of the deductions on
petitioners' Schedule F. The deductions consist of $10,600 of
legal fees, $100 of accounting fees, $3 for office expense, $434
of telephone expense, $224 of miscellaneous expense, and $200 of
other interest expense. Respondent contends that the expenses
are not farm expenses and that the majority of the expenses are
personal expenses. Aside from the legal fees, petitioners did
not substantiate the remaining $961 of claimed expenses.
Petitioner has been engaged in a law suit against the United
States for damage done to his cattle and family when the U.S.
Army allegedly disposed of nerve agents into the water supply of
the farm.
Respondent concedes that petitioners paid $10,600 of legal
expenses in 1995 in connection with the lawsuits. Respondent
contends that the lawsuits were principally for personal injuries
suffered by petitioner and his family, and that the legal fees
would not be deductible because any recovery from the lawsuits
would be nontaxable under section 104.
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