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that the fee must be included in gross income and treated as a
miscellaneous itemized deduction from adjusted gross income,
subject to the 2-percent floor under section 67(a) and disallowed
as a deduction under section 56 in computing income subject to
the alternative minimum tax (AMT) under section 55. We hold for
respondent that the fee must be treated as a miscellaneous
itemized deduction.
Background
Petitioners Frank and Barbara Biehl (Mr. Biehl and Mrs.
Biehl) resided in San Jose, California, when they filed the
petition.
Mr. Biehl was an employee, officer, shareholder, and
director of North Coast Medical, Inc. (NCMI), a manufacturer and
distributor of medical supplies. Mrs. Biehl was also a
shareholder of NCMI.
On December 6, 1990, petitioners entered into a
“shareholders agreement” with NCMI and its other shareholders.
The shareholders agreement provided, among other things, that,
for any suit brought for breach of the agreement, the prevailing
party would be entitled to recover all costs and expenses of the
suit, including attorney’s fees.
The shareholders agreement was primarily concerned with the
imposition of restrictions and requirements regarding ownership
of the shares of NCMI, providing for, among other things,
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