Kenneth Frank Diller - Page 8




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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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