1040-Can I deduct and when can I deduct Attorney's Costs

[momona]

Client has paid attorney in 2019 to sue her employer for retaliating against her after testifying against her boss who is under federal investigation. She asked if she can deduct the fees for 2019. I am unclear if it is even deductible because of the kind of lawsuit it is.

If it is deductible,is it deductible in the year she paid it or if the fee is limited to the amount she received, is it in the year she receives the settlement?

[spanel]

Attorneys Fees are no longer deductible as an itemization as of 2018.

Chris

[TAXNJ]

since you know all the specifics of your scenario:

See the attached “Employment Discrimination Cases”.

https://www.lawyers.com/legal-info/t...eductible.html

BUT, always consult with the attorney involved to see if applicable or NOT to your scenario.

[Uncle Sam]

That's not entirely true. There is a write-in line for an Adjustment to Income where you can deduct attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from the action, with a description UDC.
As TAXNJ usually says - refer to TTB, P. 3-20

[TAXNJ]

That's not entirely true. There is a write-in line for an Adjustment to Income where you can deduct attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from the action, with a description UDC.
As TAXNJ usually says - refer to TTB, P. 3-20

Uncle Sam

good TTB reference for additional support

[New York Enrolled Agent]

Client has paid attorney in 2019 to sue her employer for retaliating against her after testifying against her boss who is under federal investigation. She asked if she can deduct the fees for 2019. I am unclear if it is even deductible because of the kind of lawsuit it is.

If it is deductible,is it deductible in the year she paid it or if the fee is limited to the amount she received, is it in the year she receives the settlement?

This sounds more like a whistleblower suit rather than a discrimination claim. You should check IRC 7623(b) to see if it is indeed a whistleblower suit.

IRC 62(a)(20) and (21) provide for the attorney deductions and in both cases you need to have a settlement awarding gross income. A snip from 62(a)(21)


(B) May not exceed award. Subparagraph (A) shall not apply to any deduction in excess of the amount includible in the taxpayer's gross income for the taxable year on account of such award.

[momona]

Thank you for the feedback. I wasn't sure if this was a whistleblower or a UDC or none but you are right about going back to the attorney and asking.

I know that if deductible, the fees are limited to the settlement. She paid $20,000 in 2019 which I am assuming is the retainer. So does she deduct it at the time of the settlement because it is unknown if or what she will get and when. Or do I deduct it now and do an amendment in the event that she gets less than the retainer she paid? I am also making the assumption that if she can deduct it 2019, it's the full retainer amount instead of what they billed for services?

[New York Enrolled Agent]

Thank you for the feedback. I wasn't sure if this was a whistleblower or a UDC or none but you are right about going back to the attorney and asking.

I know that if deductible, the fees are limited to the settlement. She paid $20,000 in 2019 which I am assuming is the retainer. So does she deduct it at the time of the settlement because it is unknown if or what she will get and when. Or do I deduct it now and do an amendment in the event that she gets less than the retainer she paid? I am also making the assumption that if she can deduct it 2019, it's the full retainer amount instead of what they billed for services?

Exactly what part of the Internal Revenue Code don't you get?

(B)

May not exceed award.

Subparagraph (A) shall not apply to any deduction in excess of the amount includible in the taxpayer's

gross income for the taxable year on account of such award.