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those returns, the firm claimed ordinary and necessary business
expense deductions for the litigation costs that the firm during
those taxable years advanced on behalf of its contingent fee
clients in the respective amounts of $705,647 and $629,834 that
related to contingent fee client matters not resolved by yearend.
On audit, respondent, among other things, disallowed these
claimed business expense deductions and determined deficiencies
in the firm’s income taxes for those years.
Also, for the years ending November 30, 1994 and 1995,
respondent determined against the law firm additions to tax under
section 6651(a)(1) in the amounts of $13,228 and $22,056,
respectively, based on the firm’s failure to timely file its tax
returns and accuracy-related penalties under section 6662 in the
amounts of $52,912 and $44,113, respectively, based on
substantial understatements of tax due or, alternatively,
negligence or disregard of the rules or regulations.
OPINION
Returned Compensation
Section 61(a)(1) provides that “gross income” includes “all
income from whatever source derived”, including compensation for
services and fees.
The Supreme Court has held that gross income includes all
“accessions to wealth, clearly realized, and over which the
taxpayers have complete dominion”, Commissioner v. Glenshaw Glass
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Last modified: May 25, 2011