- 6 -
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
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011