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rental expenses of $52,609) are not being double counted as part
of the mislabeled “cost of goods sold”. Additionally, it appears
that the 1992 disbursements journal tracks personal as well as
business expenses, without clearly differentiating between them.
Petitioner failed to introduce any further documentation or other
evidence to support his deductions. We therefore agree with
respondent’s determination allowing a trade or business expense
deduction for only $35,000 of the $93,275 wrongly claimed by
petitioner as “cost of goods sold”.
Income and Deductions in 1993 and 1994 for Amounts Withdrawn From
Trust Account
Any amounts deducted in 1992 under section 461(f) are
treated as income and subject to taxation in the year recovered
by petitioner, under the tax benefit rule. See, e.g., Hillsboro
Natl. Bank v. Commissioner, 460 U.S. 370 (1983); G.M. Standifer
Constr. Corp. v. Commissioner, 30 B.T.A. 184 (1934) (on
settlement of dispute, taxpayer subject to tax on previously
deducted litigation reserves). To prevent double deductions, no
additional deduction is allowed for amounts paid from the
attorney trust account to the attorneys on account of legal fees
and expenses.
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