Lewis L. Reese - Page 7

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          apart throughout 1997.  The exact amount of the Social Security             
          benefits which petitioner must include in income will be                    
          calculated in the Rule 155 computation required in this case.               
               Separately, petitioner argues that only the portion of the             
          benefits which he received should be included in income, not the            
          portions paid for Medicare and paid to his lawyer.  As a general            
          rule, income is taxed to the person earning it even if the right            
          to receive the income is contractually assigned to another person           
          prior to its being earned.  Lucas v. Earl, 281 U.S. 111 (1930);             
          Kenseth v. Commissioner, 114 T.C. 399 (2000), affd. 259 F.3d 881            
          (7th Cir. 2001); Banks v. Commissioner, T.C. Memo. 2001-48; see             
          also S. Rept. 98-23, 26 (1983), 1983-2 C.B. 328 (stating that the           
          total amount of Social Security benefits received by a taxpayer             
          is not to be reduced by attorney’s fees or amounts withheld as              
          medical insurance premiums).  Under this principle, the Social              
          Security benefits are includable in petitioner’s income despite             
          the fact that these amounts were paid on his behalf rather than             
          to petitioner directly.                                                     
               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.             

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