Taxpayers often come to advisers seeking a way to claim a deduction for legal fees.  As we are aware, the IRC doesn’t provide a provision that broadly allows a deduction for legal fees.  Rather, taxpayers must find a provision in the IRC that allows a deduction for expenses of a type in which the current legal fees can be categorized.

The search for a provision under which to claim a deduction for legal fees was undertaken recently by the taxpayer in the case of Barry v. Commissioner, TC Memo 2017-237.  In this case the taxpayer had incurred over $25,000 of legal fees in an unsuccessful attempt to recover what he claimed was alimony which he had paid to his wife in excess of what was allowed under their agreement.

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The Tax Court found a taxpayer had not managed to convert a property from personal use to being held for profit in the case of Redisch v. Commissioner, TC Memo 2015-95.

Generally under IRC §262(a) no deduction is allowed for any personal, living or family expenses, though a deduction is allowed under IRC 212(2) for “management, conservation or maintenance of property held for the production of income.”  Similarly, while IRC 165(a) allows a deduction for a loss sustained during the year (such as due to disposing of an asset), the deduction is only allowed per IRC §165(c) if it is incurred in a trade or business, in a transaction otherwise entered into for profit or arises from a casualty or theft.