Christine Kenton & Greg Braden - Page 10

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          that represents the contingent legal fees paid to petitioner’s              
          attorney.  In Commissioner v. Banks, 543 U.S. 426 (2005), the               
          Supreme Court just recently concluded that legal fees incurred by           
          taxpayers under contingent fee agreements could not be excluded             
          from gross income.                                                          
               Also, in Test v. Commissioner, T.C. Memo. 2000-362, we                 
          relieved a taxpayer of an accuracy-related penalty relating to              
          the taxpayer’s erroneous placement of legal costs on a Schedule             
          C, instead of on a Schedule A.                                              
               On the facts of this case and in our discretion, we believe            
          it inappropriate to apply the section 6662(a) accuracy-related              
          penalty to the $59,498 portion of the arbitration award that was            
          used to pay legal fees.                                                     
               With regard to the accuracy-related penalty applicable to              
          the $89,246 balance of the arbitration award paid by the Company            
          in 2001 ($148,744 less $59,498 equals $89,246), petitioners claim           
          that an enrolled agent advised them in 2001 that the arbitration            
          award was not includable in their income.  Petitioners, however,            
          failed to call the enrolled agent as a witness.  See Hann v.                
          Venetian Blind Corp., 111 F.2d 455 (9th Cir. 1940); Wichita                 
          Terminal Elevator v. Commissioner, 6 T.C. 1158, 1165 (1946),                
          affd. 162 F.2d 513 (10th Cir. 1947).                                        
               Respondent’s imposition of the section 6662(a) accuracy-               
          related penalty with respect to the $89,246 portion of the                  
          arbitration award in excess of the 2001 legal fees is sustained.            




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