T.C. Summary Opinion 2001-81
UNITED STATES TAX COURT
THOMAS E. & DOROTHY J. ROSS, Petitioners v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 14285-99S. Filed June 11, 2001.
Thomas E. Ross, pro se.
Randall L. Preheim, for respondent.
PAJAK, Special Trial Judge: This case was heard pursuant to
the provisions of section 7463 of the Internal Revenue Code in
effect at the time the petition was filed. The decision to be
entered is not reviewable by any other court, and this opinion
should not be cited as authority. Unless otherwise indicated,
subsequent section references are to the Internal Revenue Code in
effect for the year in issue.
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Respondent determined a deficiency in petitioners' 1997
Federal income tax in the amount of $10,257. This Court must
decide whether petitioners are liable for the alternative minimum
tax (AMT) under section 55. Petitioners do not dispute the
computation of the AMT.
Some of the facts in this case have been stipulated and are
so found. Petitioners resided in Evergreen, Colorado, at the
time they filed their petition.
Dorothy Ross (Mrs. Ross) was the beneficiary of two trusts
during the year at issue. The trusts invested only in one mutual
fund and did not invest in rental property or engage in the
operation of a trade or business. A legal dispute arose with
respect to the beneficiaries of the trusts and the trustee bank
regarding the trustee bank's management of the trusts. In
connection with the legal dispute, petitioners personally
incurred and paid legal and accounting fees totaling $63,247 in
1997. Petitioners reported $63 of interest income and $33,370 of
dividend income from the trust in 1997. Petitioners deducted the
legal and accounting fees on Schedule A - Itemized Deductions
under line 22 "Other expenses". Petitioners did not file Form
6251, Alternative Minimum Tax - Individuals, with their 1997
return.
Respondent determined that petitioners are liable for the
AMT in the amount of $10,257. Petitioners contend that they
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incorrectly deducted the legal and accounting fees as
miscellaneous itemized deductions. They claim the fees should
have been deducted directly from the trust income, or, in other
words, from gross income, in the same manner that business or
rental property expenses are directly deducted from business or
rental income, respectively. Petitioners allege that if they had
reported the fees in this manner, then the AMT would not apply.
In their memorandum, petitioners contended that the application
of the AMT to their situation is not fair and was not intended by
Congress, but they did not pursue this argument at trial.
The alternative minimum tax is imposed on taxpayers under
section 55. The determination of an individual's alternative
minimum tax requires a recomputation of the taxable income
leading to a new tax base, the alternative minimum taxable
income. Sec. 55(b)(2). In computing the alternative minimum
taxable income, no deduction is allowed for miscellaneous
itemized deductions as defined in section 67(b). Sec. 56(b)(1).
Section 212 allows an individual a deduction for all the
ordinary and necessary expenses paid or incurred during the
taxable year for the production or collection of income or for
the management, conservation, or maintenance of property held for
the production of income. Sec. 212(1) and (2). The legal and
accounting fees in this case are such expenses. Burch v. United
States, 698 F.2d 575, 579 (2d Cir. 1983) (taxpayer allowed
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deduction for legal fees incurred to protect income-producing
property from excessive management fees); Barr v. Commissioner,
T.C. Memo. 1989-420. Under section 67(b), this deduction is a
miscellaneous itemized deduction.
Section 62(a) lists the deductions allowable in arriving at
adjusted gross income. One of these deductions is for trade or
business expenses. Sec. 62(a)(1). However, the trusts are not a
trade or business, nor do the trusts carry on a trade or
business. Section 62(a)(4) allows a deduction for expenses
allowed under section 212 if the expenses are attributable to
property held for the production of rents or royalties. Mrs.
Ross did not receive rents or royalties from the trusts.
Therefore, this section does not apply. The deduction for the
legal and accounting fees is not one of the deductions allowable
in arriving at adjusted gross income under section 62(a). We
find that petitioners correctly reported the legal and accounting
fees as a miscellaneous itemized deduction. As a result, the
AMT, as determined by respondent, applies to petitioners.
We have previously held that the text of the AMT statute is
clear and unambiguous. Klaassen v. Commissioner, T.C. Memo.
1998-241, affd. without published opinion 182 F.3d 932 (10th Cir.
1999). However unfair this statute might be to petitioners, we
must apply the law as written. Id. "The proper place for a
consideration of [petitioners'] complaint is the halls of
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Congress, not here." Hays Corp. v. Commissioner, 40 T.C. 436,
443 (1963), affd. 331 F.2d 422 (7th Cir. 1964). Accordingly, we
sustain respondent's determination.
Reviewed and adopted as the report of the Small Tax Case
Division.
Decision will be entered
for respondent.