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anita a cash basis taxpayer sued her former employer for wage discrimination her att 698542

Anita, a cash basis taxpayer, sued her former employer for wage discrimination. Her attorney agreed to pursue the case on a contingent fee basis—the attorney would receive one third of any settlement or court award. The parties reached a settlement, and the attorney for Anita’s former employer wrote a check payable to Anita for $320,000 and a check payable to her attorney for $160,000. Anita reasons that she and the attorney were partners in the lawsuit who shared profits two thirds and one third, respectively. Therefore, she includes $320,000 in her gross income. Is Anita’s analysis correct? Explain.

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