- 13 -
the advanced costs was contingent upon the outcome of the
underlying litigation (i.e., a gross fee arrangement). See
Boccardo v. Commissioner, 56 F.3d 1016, 1018 (9th Cir. 1995),
revg. T.C. Memo. 1993-224. We disagree. In Boccardo v.
Commissioner, supra, the U.S. Court of Appeals for the Ninth
Circuit held that an attorney’s payment of costs and charges in
connection with his or her client’s litigation is deductible if
the client is under no obligation to repay the money spent.
Unlike the clients in Boccardo, B&W’s clients were obligated to
reimburse B&W for the costs it paid on their behalf regardless of
the outcome of the client’s case. Thus, Boccardo does not help
petitioners.
Similarly, B&W may not deduct as business expenses advances
it made to those clients it believed were destitute. See Hearn
v. Commissioner, supra (unreimbursed expenses advanced by
attorney to clients were nondeductible loans in year paid, even
though attorney believed it “doubtful” he would collect these
items).
Petitioners contend that, in the same tax year B&W advanced
costs, B&W was reimbursed by its clients in an amount greater
than conceded by respondent. We agree in part and disagree in
part. In fiscal year 1995, B&W’s clients reimbursed B&W $2,311
for costs paid in fiscal year 1995, over and above those conceded
by respondent, and B&W may reduce its gross receipts for that
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Next
Last modified: May 25, 2011