I am going to begin amending a return on Monday. One of the things I will be doing is claiming a deduction for legal fees related to collection of Social Security Benefits. Has this always been Schedule A Misc subject to 2% agi limitation? Or had I better research what the law was for that year once I know for sure what year it is I am dealing with? (I have had only phone contact with client and the only thing she is sure of is that she is incompetent when it comes to taxes and she alleges that her husband knows less than she.)
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My wife is your client?"The only function of economic forecasting is to make astrology look respectful" - John Kenneth Galbraith -
Reg. 1.212-1
" (a) An expense may be deducted under section 212 only if:
(1) It has been paid or incurred by the taxpayer during the taxable year (i) for the production or collection of income which, if and when realized, will be required to be included in income for Federal income tax purposes..."
Note "...required to be included in income...". Would this suggest that the taxable portion only of the SS (if any) would be applicable - that is, prorated collection fees?Last edited by solomon; 08-11-2007, 04:13 PM.Comment
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Good point Solomon
On the other hand some of the SS is taxable and the legal fees were not reduced by the fact that only some of the money was taxable. It may depend in part on how assertive the client feels like being.
Now I have another question: What is Section 1862(b)(3)(A) of the Social Security Act and would a clam for disability benefits fall under that section? TTB Pg 4-26 says that these claims if paid after 22 October 2004 are an adjustment to income rather than an itemized deduction.Last edited by erchess; 08-11-2007, 04:28 PM.Comment
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Does not
your cite in TTB fall under the heading of Unlawful Discrimination Claims? Is that the case with your client?Comment
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Thank You Solomon,
it does indeed fall under that heading. I hadn't noticed that but since this lady is (as far as I now know) getting ordinary SS Disability Payments, it's hard to see how they would be connected to Unlawful Discrimination. You have put my mind at ease on that score.
I would still like to hear other people react to your earlier suggestion that I may have to prorate the legal fees according to the taxable and nontaxable SS benefits. There is nothing said about that in TTB or Pub 915 that I can find, so I am thinking that there must be a case that can be made against your suggestion.Comment
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erchess
look up Revenue Ruling 87-102. Unless a subsequent ruling of some sort changed it (which I doubt in view of Sec. 212 and 265), Reg. 1.212-1 is applicable. Also, see Sec. 265 regarding tax exempt income. Here is a link for the ruling:
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