- 7 - Expenses and amounts otherwise allowable which are directly allocable to any class or classes of exempt income shall be allocated thereto; and expenses and amounts directly allocable to any class or classes of nonexempt income shall be allocated thereto. If an expense or amount otherwise allowable is indirectly allocable to both a class of nonexempt income and a class of exempt income, a reasonable proportion thereof determined in light of all the facts and circumstances in each case shall be allocated to each. Initially, petitioner hired the lawyer to protect his current employment and ensure his future employment and his ability to earn a living. To the extent that the lawyer’s services dealt with those aspects, the regulation permits allocation to nonexempt income. In that regard, to the extent that any portion of the legal fee was attributable to the protection of petitioner’s employment status, it may be deductible under section 162. The $140,000 of exempt income was attributable to the lawyer’s efforts. We have also found that $10,000 of the $55,127.03 in legal fees was attributable to the lawyer’s representation of petitioner before the school board and his efforts to protect petitioner’s current and potential for future employment. Accordingly, respondent’s determination is sustained with respect to $45,127.03 of the claimed legal fees, and petitioners are entitled to a deduction of $10,000. To reflect the foregoing, Decision will be entered under Rule 155.Page: Previous 1 2 3 4 5 6 7
Last modified: May 25, 2011