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the recovery paid to his attorney for his representation.
Commissioner v. Banks, 543 U.S. 426, 429 (2005). Petitioner,
however, may deduct the attorney’s fees as a miscellaneous
itemized deduction under sections 67 and 162, subject to the
alternative minimum tax computations under sections 55 and 56.
See Commissioner v. Banks, supra at 432.
Petitioner’s Business Deductions
During preparation for trial, petitioner informed respondent
that he had a business for which he paid significant business
expenses during 2002. Respondent contends that petitioner has
not shown that his activity, if any, was actually conducted for
profit or as a business, but if it was, petitioner has not
adequately substantiated his expenses from the activity. Before
examining the issue of substantiation, consideration of
petitioner’s evidence of his carrying on a trade or business is
appropriate.
Deductions are allowed under section 162 for the ordinary
and necessary expenses of carrying on an activity that
constitutes the taxpayer’s trade or business. Deductions are
allowed under section 212(1) and (2) for the ordinary and
necessary expenses paid or incurred in connection with an
activity engaged in for the production or collection of income,
or for the management, conservation, or maintenance of property
held for the production of income.
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