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Inclusion of United Ready Mixed Settlement Proceeds
Petitioner reported the United Ready Mixed settlement
proceeds of $797,225 as gross receipts or sales on his 1992
individual return. Petitioner also offset his gross income with
a reduction of $925,500 described as “cost of goods sold”.
Petitioner included the United Ready Mixed settlement proceeds of
$797,225 in his computation of “cost of goods sold” because,
according to petitioner, the amounts were not available to him in
1992. The funds were not available to him because they were paid
and deposited to the Lurie & Zepeda trust account and withheld
pending resolution of his fee dispute with Lurie & Zepeda. The
balance of the amounts claimed as “cost of goods sold”
represented other alleged business expenses.
In the notice of deficiency, respondent disallowed a
reduction or deduction for all but $35,000 of the “cost of goods
sold” claimed by petitioner. Petitioner now concedes that the
United Ready Mixed settlement proceeds did not constitute a “cost
of goods sold”. Petitioner argues instead that the settlement
funds should have been excluded from his income in 1992 because
he did not have constructive receipt of the funds in 1992 because
of his attorney’s restriction on his use of the funds.
The Court of Appeals for the Ninth Circuit and this Court
have repeatedly held that legal fees paid to recover income,
whether contingent or based on hourly rates, are not offsets in
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