00-2966 Reynolds v. Commissioner of Internal Revenue

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“In the case before us, the origin of the claim lies in Charles Reynold’s conduct as an IRS employee, not in his trade or business as a self-employed attorney. Charles Reynolds incurred these legal costs because an IRS investigation had been commenced to determine whether he was practicing law during his prescribed hours of employment at the IRS. Under Gilmore, the business-related consequences that may flow from the IRS’s inquiry-that it may result in withdrawal of IRS approval for the part-time law practice or damage to Charles Reynolds’ professional reputation – do not control the question whether the fees are deductible as a business expense. Since the taxpayer bears the burden of showing that he has a right to a business deduction, A.E. Staley Mfg. Co., 119 F.3d at 486, and no additional arguments have been advanced on this issue, the Reynolds cannot prevail. The disputed legal fees are properly classified as miscellaneous itemized deductions, which are subject to the 2% floor contained in § 67(a).”

Affirmed.

Appeal from the United States Tax Court, Cudahy, J.