Frank and Barbara Biehl - Page 3

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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.                                                         
               Petitioners Frank and Barbara Biehl (Mr. Biehl and Mrs.                
          Biehl) resided in San Jose, California, when they filed the                 
               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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