Deductibility of Legal Expenses

  1. You have chosen to ignore posts from rvd71. Show rvd71's posts

    Deductibility of Legal Expenses

    Taxpayer invests money in partnership.  Taxpayer not involved in management or operations of partnership, just a financial investor.  Partnership business fails.  Taxpayer incurs legal fees to withdraw from partnership and go after management for recovery of some of his investment. 

    Are the legal fees: deductible on sch A misc itemized deductions attempt to collect taxable income?  Deductible on Sch E as unreimbursed partner expenses?  Added to partner's basis in partnership?  Or non deductible personal expense?

    Thanks.

     
  2. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Deductibility of Legal Expenses

    In response to rvd71's comment:

    Taxpayer invests money in partnership.  Taxpayer not involved in management or operations of partnership, just a financial investor.  Partnership business fails.  Taxpayer incurs legal fees to withdraw from partnership and go after management for recovery of some of his investment. 

    Are the legal fees: deductible on sch A misc itemized deductions attempt to collect taxable income?  Deductible on Sch E as unreimbursed partner expenses?  Added to partner's basis in partnership?  Or non deductible personal expense?

    Thanks.

    Dear rvd71:

    The legal fees should not be considereed to be non-deductible.  They would only be added to the basis of the partnership interest held if they related to perfecting title to the ownership of the interest.  The expensees would be deductible as additional partnership losses only if they related to the operation of the partnerships business AND the partnership agreement permits the partner to absorb the expenses without submission to the partnership for reimbursement.  They should be deductible as relating to an attempt to generate income and, therefore, a miscellaneousl itemized deduction.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal

    Katz, Nannis + Solomon, P.C.

     
Sections
Shortcuts

Share