discrimination lawsuit income/attorney fees

[fliszt]

First, I'm sorry to be asking this question. My old brain ain't what it used to be.

I recently read in one of the NATP magazines that attorney fees were deductible when collecting a discrimination lawsuit settlement. The income went on line 21? and the attorney fees went on line xx of the 1040 with an abbreviation of some letters (like DLS)(discrimination law suit). I can't find the mag nor can I remember for sure how to enter.

Can anyone out there help me?

Thanks much!
Larry

[Koss]

Lawsuit Settlement

My understanding is that recent case law established that the settlement or award for discrimination is in fact taxable, but that the attorney's fees can be backed out, right on line 21. In other words, it's an "above-the-line" deduction--not a Schedule A deduction.

So, for example, if the settlement was $100,000, and the attorney's fees were $34,000, then my approach would be to simply enter $67,000 on line 21, and attach a statement to the return reflecting the calculations.

BMK

[Gene V]

Agree with Koss, OR my software allows a deduction on line 36 with “see statement: on the dotted line. You could show the income on line 21 and the deduction on line 36.

[taxea]

I have ProSeries which has a spyglass that can be opened to detail the line information.
I would open the window on line 21 and detail it this way:
left box Discrimination Settlement, amount box 100000. next line left box Attorney fee adjustment, right box -34000. The program will do the calculation and transfer the result to line 21.
I haven't checked to see whether the entire atty fee is deductible. You might want to do that. Taxea

[fliszt]

Thank you very much!

I really appreciate the help.
Thanks again.
Larry

[Jesse]

Pub 525

Deduction for costs involved in unlawful discrimination suits. You may be able to deduct attorney fees and court costs paid to recover a judgment or settlement for a claim of unlawful discrimination under various provisions of federal, state, and local law listed in Internal Revenue Code section 62(e), a claim against the United States government, or a claim under section 1862(b)(3)(A) of the Social Security Act. You can claim this deduction as an adjustment to income on Form 1040, line 36.

The following rules apply.

*The attorney fees and court costs may be paid by you or on your behalf in connection with the claim for unlawful discrimination, the claim against the United States government, or the claim under section 1862(b)(3)(A) of the Social Security Act.

*The deduction you are claiming cannot be more than the amount of the judgment or settlement you are including in income for the tax year.

*The judgment or settlement to which your attorney fees and court costs apply must occur after October 22, 2004

Form 1040 Instructions say:
Attorney fees and court costs for actions settled or decided after October 22, 2004, involving certain unlawful discrimination claims, but only to the extent of gross income from such actions. Identify as "UDC".

Larry I think you were on the right track, wrong letters. Proseries has an adjustment Smart Worksheet where you can enter "UDC" and the amount of deduction for court costs.

[fliszt]

Jessie, I thank you

for your reply. The client won $32,500. Ruling was dtd 9/09/08. Out of pocket attorney/related expenses were $18601. Taxable income $13,899. I've put this on line 21 with the info "discrimination law suit" and ("attorney fees") = line 21. Of course this shows on line 22, but I'm not following how to put it in the "adjusted gross income" box so it shows on line 36.
Help please?
thanks
Larry

[fliszt]

Jessie, I have a red face

I just figured out how to enter the UDC on ProSeries line 35 h. And then I put the income "Dicrimination Law Suit UDC" as income on line 21.
I hope that's right.

Sorry for the bother. I'm wearing my dunce hat.
Larry

[Jesse]

I did a dummy return and entered on:

Line 21 - Unlawful discrimination suit: $32,500

Line 36 - UDC: $18601 (this amount representing the unlawful discrimination costs appears to the left of line 36 and is added to any other adjustments on line 23 thru 35)

The netted amount of $13,899 is included in Line 37 AGI

[fliszt]

Great! Thanks

again Jessie. Sometimes I just . . . .
Larry

[Jesse]

It happens to the best of us!! That is why this board is such a blessing!

[hjltax]

Topic revisited...

I've got a client bringing discrimination suit and paying legal fees. There is no court award in 2009.

Per the new law, she cannot deduct these costs above the line in 2009 (cannot exceed amount recognized in income during the tax year from the related action). So let's say it is settled or awarded in 2010. Can she deduct the 09 legal costs in '10? Assuming total legal costs are less than the 2010 award? I don't think she'd have to either put the legal fees on 09's Sch A. or once the award was granted, to amend 09.

TIA

[hjltax]

Topic revisited...

I've got a client bringing discrimination suit and paying legal fees. There is no court award in 2009.

Per the new law, she cannot deduct these costs above the line in 2009 (cannot exceed amount recognized in income during the tax year from the related action). So let's say it is settled or awarded in 2010. Can she deduct the 09 legal costs in '10? Assuming total legal costs are less than the 2010 award? I don't think she'd have to either put the legal fees on 09's Sch A. or once the award was granted, to amend 09.

TIA