Research Problem 1. Samuel had worked for Pearl, Inc., for 35 years when he was discharged and his position filled by a much younger person. He filed and pursued a suit for age discrimination and received an award of $1.5 million. Under the contingent fee arrangement with his attorney, one-third of the award was paid directly to the attorney with the balance going to Samuel. Samuel reported the $1 million on his income tax return but did not include the $500,000 paid to the attorney.

The IRS audited Samuel’s return and included the $500,000 contingency fee in his gross income. In addition, Samuel was allowed a miscellaneous itemized deduction

(subject to the 2% floor) for the fee paid to the attorney. The IRS adjustment caused a tax deficiency to be assessed for both the regular income tax and the AMT.

Evaluate the result reached.