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explicitly held in Benci-Woodward v. Commissioner, 219 F.3d 941
(9th Cir. 2000), affg. T.C. Memo. 1998-395, that nothing in
California law acts to exclude the contingent fee portion of
damages from a client’s income. Thus, petitioner must include
the entire amount of the settlement payment in her gross income,
even the portion retained by her attorney. Sec. 61(a). We note
that although petitioner did not physically receive the portion
of the settlement proceeds used to pay the attorney’s fees, she
did receive the benefit of those funds in the form of payment for
the services required to obtain the settlement.
The second issue for decision is whether petitioner is
liable for the accuracy-related penalty under section 6662(a) for
a substantial understatement of tax. We decide this issue on the
merits based on the preponderance of the evidence, without regard
to the burden of production or the burden of proof. Sec.
7491(a), (c); Rule 142(a).
Section 6662(a) imposes a 20-percent penalty on the portion
of an underpayment attributable to any one of various factors,
one of which is any substantial understatement of income tax.
Sec. 6662(b)(2). A substantial understatement of income tax
3(...continued)
the Ninth Circuit. Sec. 7482(b)(1)(A). This Court generally
applies the law in a manner consistent with the holdings of the
Court of Appeals to which an appeal of its decision lies, Golsen
v. Commissioner, 54 T.C. 742 (1970), affd. 445 F.2d 985 (10th
Cir. 1971), even in cases subject to sec. 7463(b).
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