Frank and Barbara Biehl - Page 11

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          Section 62(a) defines the adjusted gross income of an individual            
          as gross income minus deductions enumerated in the paragraphs               
          that follow.  Paragraphs (1) (entitled “Trade and Business                  
          Deductions”--without limitation) and (2) (entitled “Certain Trade           
          and Business Deductions of Employees” (emphasis added)) give                
          effect to a longstanding disparity in treatment between (1)                 
          business owners, partners in firms, and independent contractors,            
          and (2) employees.5  The former are favored under paragraph (1)             

          Act, employees, irrespective of whether they itemized their                 
          deductions or claimed the standard deduction, were entitled to              
          deduct, in arriving at adjusted gross income, only-–under par.              
          (2)–-“expenses of travel, meals, and lodging paid or incurred by            
          the taxpayer while away from home in connection with the                    
          performance by him of services as an employee” and–-under par.              
          (3)-–“other than expenses * * * under a reimbursement or other              
          expense-allowance arrangement with his employer”.  See H. Rept.             
          1365, 78th Cong., 2d Sess. (1944), 1944 C.B. 821, 838-839.                  
               5In the area under consideration, the deductibility of                 
          attorney’s fees incurred in prosecuting unlawful termination                
          claims, the disparity between sec. 62(a)(1) and (2)(A), and the             
          corresponding limitations on itemized expenses and liability for            
          the AMT of former employees are illustrated by Guill v.                     
          Commissioner, 112 T.C. 325 (1999), and Kenseth v. Commissioner,             
          114 T.C. 399 (2000), affd. 259 F.3d 881 (7th Cir. 2001).  In                
          Guill v. Commissioner, supra at 329-330, an independent                     
          contractor former insurance agent’s attorney’s fee of $151,896,             
          incurred in prosecuting his civil action against the insurance              
          company that fired him, were held to be deductible from gross               
          income in arriving at adjusted gross income pursuant to sec.                
          62(a)(1).  Conversely, in Kenseth v. Commissioner, supra at 407-            
          408, the taxpayer’s attorney’s fee of $91,800 in connection with            
          a Federal age discrimination claim against his former employer,             
          did not reduce his gross income from the recovery and were                  
          instead found to be allowable only as an itemized deduction from            
          adjusted gross income.  The results from the differing treatments           
          are striking:  the taxpayer in Guill enjoyed the full tax benefit           

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