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62(a)(1) and will be treated as a miscellaneous itemized
deduction pursuant to section 67.
The parties agree that petitioners are entitled to deduct
the legal fees as a trade or business expense under section 162.3
The parties disagree, however, regarding the nature of
petitioner’s relationship with RHB and the appropriate treatment
of the legal fees deduction. Petitioners argue that petitioner
was not an employee of RHB but was engaged in the trade or
business of being an independent professional fiduciary.
Petitioners assert that the lawsuit arose from petitioner’s trade
or business of being an independent professional fiduciary,
entitling them to deduct the legal fees from their adjusted gross
income under section 62(a)(1). Respondent argues petitioner was
an employee of RHB, and petitioners must deduct the legal fees as
a miscellaneous itemized deduction under section 67 because the
legal fees arose from petitioner’s employment. See Alexander v.
3 Petitioners argue, under the origin of the claim test,
the legal fees are solely attributable to petitioner’s fiduciary
services and are therefore deductible under sec. 162, citing
Guill v. Commissioner, 112 T.C. 325, 328-329 (1999). The origin
of the claim test is typically used to determine whether legal
fees are deductible under sec. 162(a) (as a trade or business
expense) or sec. 212 (as a nonbusiness expense for the production
of income), or whether the legal fees are nondeductible personal
expenses. See United States v. Gilmore, 372 U.S. 39 (1963);
Guill v. Commissioner, supra. The origin of the claim test is
inapplicable to this case because the parties agree that the
legal fees are deductible under sec. 162(a) as a trade or
business expense. Instead, the dispute is over the nature of
petitioner’s trade or business--whether he was an employee or an
“independent professional fiduciary”.
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