Attorney Fees

[RLymanC]

I beleive I know thw answer,,,need a little support>

Attorney fees in a discrimination suit cost $20,000.

No settlement,,,no money paid to the Plantiff,,,,attorney fees none deductable????

[erchess]

I am not sure I am right

but here is what I think

1. The fact that he collected nothing is irrelevant.

2. The settlement for discrimination would have been non taxable.

3. Therefore expenses of trying for it are non deductible.

[RLymanC]

Discrimination

appears to be a taxable award according to TB 3-20, sooooo, would the attorney fees be deductable on line 36 even if no award was won?

[veritas]

The suit

originated where?

From a business? What?

[erchess]

Yes

appears to be a taxable award according to TB 3-20, sooooo, would the attorney fees be deductable on line 36 even if no award was won?

I believe it would be deductible if the award sought would have been taxable. Let's see what others think and let's hear your answer to Veritas' questions.

[RLymanC]

Veritas

The suit was originated by a minority college professor

[snowbird]

I would suggest it is not deductible .... look at pub 525 page 29

The deduction you are claiming cannot be more than the amount of the judgment or settlement you are including in income for the tax year.

IRC 62(a) (20) Costs involving discrimination
suits, etc.--Any deduction allowable under this chapter
for attorney fees and court costs paid by, or on
behalf of, the taxpayer in connection with any action
involving a claim of unlawful discrimination (as
defined in subsection (e)) or a claim of a violation of
subchapter III of chapter 37 of title 31, United States Code or
a claim made under section 1862(b)(3)(A) of the Social Security
Act (42 U.S.C. 1395y(b)(3)(A)). The preceding sentence 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 a
judgment or settlement (whether by suit or agreement and whether
as lump sum or periodic payments) resulting from such claim.

[RLymanC]

Many Thanks

for taking the time, especially now, to respond.

With this board, and the Tax Book, all questions and problems can be solved.

[snowbird]

I don't know the outcome of your research but here is a discussion with a different take on being deductable.

http://www.taxalmanac.org/index.php/Discussion:Legal_Fee_deduction_for_discrimination_settlement

The fees could (may) be deductable Sch A

[totb2007]

From The Tax Advisor/Oct 2007.

http://www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2007/CPA/Oct/Individuals.jsp

Your exact situation does not appear to be one of the examples. If any settlement from the lawsuit would be taxable, then it would seem that the expense in excess of the monies awarded would be a miscellaneous itemized deduction subject to 2% AGI in the year paid assuming the lawyer was not being paid on contingency. In the year when the settlement is received, then legal fees up to the amount of the award paid during the year would be an above the line deduction with any excess being a miscellaneous itemized deduction subject to 2% AGI. This assumes that you have successfuly developed the origin of the claim as an unlawful discrimination lawsuit.

But then again, you should double check since I this makes my head spin.