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incorrectly deducted the legal and accounting fees as
miscellaneous itemized deductions. They claim the fees should
have been deducted directly from the trust income, or, in other
words, from gross income, in the same manner that business or
rental property expenses are directly deducted from business or
rental income, respectively. Petitioners allege that if they had
reported the fees in this manner, then the AMT would not apply.
In their memorandum, petitioners contended that the application
of the AMT to their situation is not fair and was not intended by
Congress, but they did not pursue this argument at trial.
The alternative minimum tax is imposed on taxpayers under
section 55. The determination of an individual's alternative
minimum tax requires a recomputation of the taxable income
leading to a new tax base, the alternative minimum taxable
income. Sec. 55(b)(2). In computing the alternative minimum
taxable income, no deduction is allowed for miscellaneous
itemized deductions as defined in section 67(b). Sec. 56(b)(1).
Section 212 allows an individual a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income or for
the management, conservation, or maintenance of property held for
the production of income. Sec. 212(1) and (2). The legal and
accounting fees in this case are such expenses. Burch v. United
States, 698 F.2d 575, 579 (2d Cir. 1983) (taxpayer allowed
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Last modified: May 25, 2011