- 7 - Litigation expenses may be deductible under either section 162 or section 212. Guill v. Commissioner, 112 T.C. 325, 328 (1999); Noons v. Commissioner, T.C. Memo. 2000-106. Section 162(a) allows a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. Under section 212, a taxpayer may deduct all the ordinary and necessary expenses paid or incurred during the taxable year for the production or collection of income, if such income will be taxable when received. Andrews v. Commissioner, T.C. Memo. 1992-668; Orr v. Commissioner, T.C. Memo. 1992-566; sec. 1.212-1(a), Income Tax Regs. Section 265(a)(1) provides that no deduction is allowable for expenses allocable to income which is wholly exempt from income tax. In the lawsuit, petitioners "claim that they suffered personal injuries and property damage". Land v. United States, 35 Fed. Cl. 345, 346 (1996), affd. 37 Fed. Cl. 231 (1997). Under section 104(a)(2), gross income does not include "the amount of any damages received (whether by suit or agreement * * *) on account of personal injuries or sickness". Any damages that petitioners potentially could have received on account of their personal injuries would not be taxable under section 104. Therefore, the expenses associated with the personal injury portion of their suit are not deductible. Sec. 265. Petitioners provided no allocation of the fees they paid. Nevertheless, we recognize that some part of the legal fees wasPage: Previous 1 2 3 4 5 6 7 8 9 Next
Last modified: May 25, 2011