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Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the year in issue, and
all Rule references are to the Tax Court Rules of Practice and
Procedure. All references to petitioner in the singular are to
petitioner Christine Kenton.
The primary issue remaining for decision is whether
petitioner’s legal fees relating to an employment discrimination
lawsuit are deductible by petitioners on a Schedule A, Itemized
Deductions, or on a Schedule C, Profit or Loss From Business, of
petitioners’ 2001 joint Federal income tax return. If deductible
on petitioners’ Schedule C, the deduction for the legal fees
would avoid being reduced by the pernicious alternative minimum
tax (AMT) and by the 2-percent floor generally applicable to
miscellaneous itemized deductions.
FINDINGS OF FACT
Some of the facts have been stipulated and are so found.
At the time the petition was filed, petitioners resided in
Covelo, California.
Beginning in the fall of 1995, petitioner was employed for
2 years by a television production company (Company). On or
about January 23, 1998, petitioner was terminated by the Company.
On May 28, 1998, petitioner entered into a contingent fee
agreement with an attorney under which petitioner was obligated
to pay the attorney 40 percent of amounts recovered in connection
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