Client sold a business in 2008. The new owner went out of business in 2010 and is suing him for misrepresenting the business at the time of sale. He had a lot of legal bills in 2015 defending himself. Are his attorney fees deductible on his 2015 return?
Attorney Fees Related to Closed Business Deductible?
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I had a similar case about 5 years back. Same type of litigation by a new owner against the old owner (my client) for misrepresentation, fraud etc. The new owner lost the case but my client incurred about $20K of legal expenses. Because the sale of the business resulted in CG and taxable income, I researched it and we took a sch A deduction subject to 2% haircut. I asked my client to specifically get the attorney to put in the invoice that all the legal expenses related to the matter of the sale of the business in year XX.Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR
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