Coming back to my miserable partnership dissolution. Each of the partners has legal expenses for issues regarding the dissolved partnership, or should I say, because they don't talk to each other. I cannot see how this would be deductible. I don't see any relation to income producing property or such. Or is this deductible because it involves the partnership that produced income in the past? In any case, if deductible, Sch.A subject to 2%, right?
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Not knowing (or remembering) all of the facts, it seems to me legal expenses in trying to liquidate a partnership would be related to the partner's interest in the partnership. Thus if liquidation proceeds (cash) received upon liquidating a partnership interest are taxable as a capital gain, then any legal fees related to trying to get that cash would be used to increase cost basis and thus reduce the capital gain (or increase the capital loss). -
Bees
Thanks Bees. There is not taxable gain or loss left. Just an adjustment of basis on property received, which of course has an effect on taxes. The outcome of the legal battle could effect the basis of property received by each partner. however, the tax return is done following the requirements of the partnership agreement plus the economic effect rules. Most likely the only issue the lawyers have to solve is that the cash owed to one partner is actually received by him. You still think the legal fees will qualify if I use the right arguments?Comment
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Yes because you are still arguing over how much each was suppose to get upon liquidation. Even though it is after the partnership assets have been distributed, any adjustment to what got distributed is an adjustment to basis.Comment
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