Christine Kenton & Greg Braden - Page 6

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          originated in the taxpayer’s trade or business and only if the              
          claim is sufficiently connected to that trade or business.  See             
          United States v. Gilmore, 372 U.S. 39 (1963); Biehl v.                      
          Commissioner, 118 T.C. 467, 479 (2002), affd. 351 F.3d 982, 985             
          (9th Cir. 2003); Test v. Commissioner, T.C. Memo. 2000-362, affd.           
          49 Fed. Appx. 96 (9th Cir. 2002).                                           
               Generally, expenses not incurred in a trade or business                
          activity but in the production or collection of income are                  
          deductible only as miscellaneous itemized deductions on a                   
          Schedule A.  Secs. 67(b), 212(1).                                           
               Also, miscellaneous itemized deductions of individuals, as             
          defined by section 67(b), are not allowable for purposes of the             
          AMT and are subject to a 2-percent floor.  Secs. 56(b)(1)(A)(i),            
          67(a).                                                                      
               In seeking to avoid application of the AMT and the 2-percent           
          floor to the 2001 legal fees relating to petitioner’s arbitration           
          award, petitioners argue that the $148,744 in income relating to            
          petitioner’s arbitration award should be treated as income from a           
          trade or business, reportable on petitioners’ Schedule C, and               
          therefore that the related legal fees also should be deductible             
          on the Schedule C and not be subject to the AMT and to the 2-               
          percent floor.                                                              
               It is well established, however, that, even though a                   
          taxpayer’s employee status may be regarded as a trade or                    






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