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was paid to Mrs. Davis’s attorney for legal fees on her behalf is
taken into account in applying the formula of section 86(a).3
A portion of the amount that was paid on behalf of Mrs.
Davis to her attorney for legal fees is potentially deductible as
an itemized deduction. See secs. 212(1), 265(a)(1); sec. 1.212-
1(a)(1), Income Tax Regs.; Andrews v. Commissioner, T.C. Memo.
1992-668. The matter is academic, however, because petitioners
did not itemize their deductions in 2001 and made no effort at
trial to demonstrate that their deductible expenses exceeded the
$7,600 standard deduction that they claimed on their return.
Finally, we have considered all of petitioners’ other
arguments, and, to the extent that we have not specifically
addressed them, we conclude that they are without merit.4
3 The same analysis applies to the Medicare premiums ($100)
that were deducted from Mrs. Davis’s lump-sum payment. Indeed,
S. Rept. 98-23, 26 (1983), 1983-2 C.B. 326, expressly mentions
Medicare premiums and states that for tax purposes, they do not
serve to reduce the total amount of Social Security benefits
received by a taxpayer.
Finally, we note that the so-called workers’ compensation
offset ($163) is treated as though it were a Social Security
benefit. Sec. 86(d)(3); see Mikalonis v. Commissioner, T.C.
Memo. 2000-281; Willis v. Commissioner, T.C. Memo. 1997-290.
4 In particular, we reject, as contrary to law,
petitioners’ argument that the tax on the lump-sum payment of
Social Security benefits should be reduced pro tanto by the
amount of the attorney’s fees incurred by Mrs. Davis to obtain
that payment. We also reject, as outside our jurisdiction in an
action to redetermine a deficiency, petitioners’ arguments
regarding the designation of payments made pursuant to an
installment payment agreement involving the taxable years 1995,
1998, and 2001. In this regard, we note that the record in this
(continued...)
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