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income because the nature of his relationship with the
defendants, the nature of his underlying claims, and the
retention of his attorney “for the sole purpose of culminating
the settlement agreement” distinguish his case from Commissioner
v. Banks, supra; and his relationship with his attorney
constituted a “de facto subchapter K partnership”.13 Respondent
contends that Banks is controlling and that the portion of the
settlement amount used to pay petitioner’s attorney’s fees must
be included in petitioner’s gross income. Respondent concedes
that petitioner may deduct the amount of the attorney’s fees as a
miscellaneous itemized deduction subject to the restrictions of
sections 67 and 68 and the alternative minimum tax provisions.
We agree with respondent.
13Petitioner also contends that “If any tax is determined to
be due”, the filing fees, discovery fees, and supply costs he
allegedly incurred in pursuing his claims against the bank
“should be excluded as costs of producing the taxable income.”
We interpret this as petitioner’s argument that the fees and
costs are deductible as expenses paid or incurred for the
production of income under sec. 212(1). Deductions are strictly
a matter of legislative grace, and petitioner must show that his
deductions are allowed by the Internal Revenue Code. Rule
142(a); New Colonial Ice Co. v. Helvering, 292 U.S. 435, 440
(1934). Petitioner must also keep sufficient records to
substantiate any deductions otherwise allowed by the Internal
Revenue Code. Sec. 6001; see New Colonial Ice Co. v. Helvering,
supra at 440. Petitioner provided no evidence regarding any of
the alleged fees and costs other than his own vague testimony.
In the absence of corroborating evidence, we are not required to
accept petitioner’s self-serving testimony. See Tokarski v.
Commissioner, 87 T.C. 74, 77 (1986). Because petitioner has
failed to substantiate the fees and costs, he is not entitled to
deduct them.
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