- 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