Attorney Fees

[S T]

I have a Sched C Biz client that filed for bankruptcy in 2010 (both personal and Biz - more Biz due to A/P) - Fees $ 2,500

1 - can I deduct a portion of these fees on the Biz return since a portion relates to Biz Payables?

2 - If I can deduct - how to allocate??

Sandy

[taxea]

Sandy I would allocate by % of buz payables against total of buz payables and personal

[S T]

Bankruptcy

Bankruptcy attorney fees - would others agree that I might be able to pro-rate some of the $ 2,500 Attorney Fee cost to part personal (non deductible) and part Sched C Biz (deductible) Cash Basis Tax Payer

I have the paperwork, and there were a lot of the Biz Creditors under Sched C listed.

Thanks,
Sandy

[MAJ]

Attorney Fees..

You could - but....

Attorney fees are only deductible when it comes to protecting or creating INCOME. Something that the IRS can make money from.

Payables are not income. They are debt.

Just a thought... Hopefully I am wrong.. And if so - Have much more studying to do than I want to realize!!

[newbie]

Would it be an ordinary and necessary business expenses?

I lean towards agree with MAJ and disagree with taxea.

[MAJ]

Who's on the Fence??

Location: Paradise, Wahiawa Hawaii
I just became very jealous (again).......

Truth is - This could fall both ways on thinking further.
Was this Attorney paid by the company on a company check?
Who was he advised by to see this Attorney? His Accountant?

I can see this as a possible deduction under the business.
However, I believe the Attorney would have to supplied an Invoice for services to the Company and Company only. Otherwise there's question about percentages, etc.
If the person had debt of $100,000 and the company had debt of $20,000 then you know where I'm headed.

There's lots of ways this can be taken and TWISTED. There would have to be more discovery of the facts (for argument sakes).

But in the hard and fast Attorney / Bancruptcy question - It's nope! Income, Not Expense.

Protect a Patent that could potentially bring in KA-Billions - And, would that just relate to Taxable Income? A settlement for injury is not taxable even if a portion was to make up lost wages - But since you are protecting income or more importantly receiving income would the legal fees be deductible? Remember, this guy just received up to 1/3 of the filers settlement. So we're not talking chump change in my big sum scenario.

Why would that NOT be a business expense?? I'm so on the Fench, but hold my ground with original post....

[S T]

Thanks for the posts and thoughts.

I did find an article that was in the "Tax Adviser" Publication in August 2009, co-authored by 3 PhD- CPA's.
In that article it is being stated that

* Costs incurred in a bankruptcy-filing can be categorized as either personal or business related. A taxpayer cannot deduct those categorized as personal expenses but can deduct those categorized as business expenses.

* Whether bankruptcy costs are treated as personal expenses or business expenses is determined under the origin-of-the-claim doctrine. This doctrine states that a taxpayer may deduct a legal expense if it arises out of a claim that is directly connected with or proximately caused by the taxpayer's profit-seeking activities. In bankruptcy cases, this generally means that an expense will be treated as a deductible business expense if it is related to a taxpayer's failed business.

* Bankruptcy expenses related to a failed business may be considered deductible business expenses even when the business failed in a year prior to the bankruptcy filing.

Then there are several examples of different scenarios - top lengthy to post quote from article, but does give examples on how to calculate the amount to be allocated to business, when the fees are for both personal and business.

Here is the link http://www.allbusiness.com/legal/tax...2733616-1.html
I am reviewing to see if this will work for the client that I posted on. Seems like it might.

Sandy

[MAJ]

My final word on this.... 8-)

As a matter of precaution I would (if you are taking the deduction) would be to pro-rate the expense. If it was 75% business and 25% personal then treat the expense the same.