- 8 -
reduce their Federal income tax by returning the fees to the
firm).
No evidence indicates that when petitioner received the
$129,000 he had any restrictions on his use of the $129,000 or
that he had any obligation to return the $129,000 to the firm.
Petitioner does not qualify for an exclusion from income of the
$129,000 that he received from and later returned to his firm in
late 1994. See Commissioner v. Glenshaw Glass Co., supra at 431;
Jones v. Commissioner, supra at 591-592; Crary v. Commissioner,
supra.
Litigation Costs
Generally, litigation costs advanced or paid by lawyers on
behalf of their clients based on contingent fee contracts under
which the clients are obligated to repay the litigation costs to
the lawyers if the client matters are resolved successfully are
to be treated in the year paid as loans to their client, not as
ordinary and necessary business expenses. Canelo v.
Commissioner, 53 T.C. 217, 225-226 (1969), affd. per curiam 447
F.2d 484 (9th Cir. 1971); Hearn v. Commissioner, 36 T.C. 672,
674-675 (1961), affd. 309 F.2d 431 (9th Cir. 1962). Upon
resolution of the contingent fee matters, at that time, if the
lawyers do not receive repayment of the litigation costs advanced
on behalf of their clients, the lawyers are entitled to deduct
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 Next
Last modified: May 25, 2011