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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)
4(...continued)
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
(continued...)
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Last modified: May 25, 2011