MN dhawk Posted April 13, 2009 Report Share Posted April 13, 2009 Client thinks his step siblings in another state ran off with his share of inheritance. Hired a lawyer to intervene but necessary court filings were not done on time. Client lost his share which he estimated at about 150k. Hired another attorney to sue the first one. Collected 50K but it cost 38k. If 51k goes on line 21 and 38K is a misc deduction on sch a, the AMT kicks in. If the 50k and 38k are netted on line 21, it seems fair and saves almost 8k! But is it legal?? Thanks. Quote Link to comment Share on other sites More sharing options...
OkieTaxGal Posted April 13, 2009 Report Share Posted April 13, 2009 I didn't know you could deduct personal attorney fees?? Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted April 13, 2009 Report Share Posted April 13, 2009 http://www.hoffmanandhoffman.com/modules/s...m.php?itemid=13 taxbilly Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 13, 2009 Report Share Posted April 13, 2009 No, you can not net them, because this was to collect non-taxable income [inheritance], not for the protection or collection of taxable income. I agree it does not feel fair, but it is the law. Quote Link to comment Share on other sites More sharing options...
Slippery Pencil Posted April 13, 2009 Report Share Posted April 13, 2009 Why are you including the settlement in taxable income? Quote Link to comment Share on other sites More sharing options...
MN dhawk Posted April 13, 2009 Author Report Share Posted April 13, 2009 Client got a 1099MISC from The Bar Plan Mutual Insurance Company. In box3 is 50K. The 38K was his cost of collecting the 50K from the attorney who filed late and lost the claim to the inheritance. The 38k was a cost in collecting this taxable income. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 13, 2009 Report Share Posted April 13, 2009 I do not think the 50K is taxable, MN. It was a payment to him for a tort against him, and should not be taxable to him. Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 13, 2009 Report Share Posted April 13, 2009 Think you need to find out why the BPMIC thinks this is income in the first place. Would the inheritance have been taxable income to him? Probably not, but some portion could have been. Just because the malpractice insurance company issued a 1099misc, does not make it correct. Was there any judgement from a court on this settlement? If so you should look at that as well, as it may add some insight to what this really is. I would tend to think that this shouldn't be taxable income at all. Quote Link to comment Share on other sites More sharing options...
MN dhawk Posted April 13, 2009 Author Report Share Posted April 13, 2009 Thank you. We are going with the position that the 50k is just a replacement of the non-taxable inheritance. Then the attorney fees would not be a deduction. Quote Link to comment Share on other sites More sharing options...
lbbwest Posted April 13, 2009 Report Share Posted April 13, 2009 I smell extension. Has anyone here READ the case? At first blush it appears to me that taxpayer "thinks" his siblings ran off with his inheritance???? He hired an attorney. Attorney FAILED to file timely; sued the aforementioned attorney. We don't know if he would have even won the initial case; had his lawsuit been filed in a timely mannter. He sued the attorney for presumably negligence and malpractice.....by specific statutes ONLY can proceeds from lawsuits be exempt from taxation....Warning Will Robinson WARNING. lbb Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 14, 2009 Report Share Posted April 14, 2009 I smell extension. Has anyone here READ the case? At first blush it appears to me that taxpayer "thinks" his siblings ran off with his inheritance???? He hired an attorney. Attorney FAILED to file timely; sued the aforementioned attorney. We don't know if he would have even won the initial case; had his lawsuit been filed in a timely mannter. He sued the attorney for presumably negligence and malpractice.....by specific statutes ONLY can proceeds from lawsuits be exempt from taxation....Warning Will Robinson WARNING. lbb This part is not a tax question but a pure legal question. So as a lawyer here is my answer. It is not enough for the court to find that the attorney committed malpractice for there to be an award to the client. In cases like these you also need a likelyhood that the original attorney would have prevailed in he original case to get damages in the 2nd malpractice case. So there is a connection to the inheritance. Quote Link to comment Share on other sites More sharing options...
lbbwest Posted April 14, 2009 Report Share Posted April 14, 2009 This part is not a tax question but a pure legal question. So as a lawyer here is my answer. It is not enough for the court to find that the attorney committed malpractice for there to be an award to the client. In cases like these you also need a likelyhood that the original attorney would have prevailed in he original case to get damages in the 2nd malpractice case. So there is a connection to the inheritance. Okay buddy, there is a "connection" to an inheritance (you are the mouthpiece we'll ASSume you are correct. What if the inheritance was all in a pre-tax retirement account? I'm just a lowly CPA & EA, but I was trained that until one SAW some documents one can't ASSume anything. My suggestion was to file an extension until all FACTS can be reviewed sans emotion and stress. I stand by that opinion. But then I don't have to defend the mail-in audit when the IRS computers match up the 1099 to the return. So perhaps simply filing the return as if the proceeds from the lawsuit are not taxable is great. Personally, having done precisely this same scenario and successfully proving it nontaxble (sexual harassment suit in the year that 6th circuit said was nontaxable 9th circuit said it was or vice versa; a few years back , taxpayer lived in one circuit sued in other circuit etc etc etc) the computer will automatically generate a collection letter due to 1099; my professional opinion is that one's ducks should be in a row when one KNOWS the issue will be contested. Collection letter will most likely be requesting SE also. Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 14, 2009 Report Share Posted April 14, 2009 Okay buddy, there is a "connection" to an inheritance (you are the mouthpiece we'll ASSume you are correct. What if the inheritance was all in a pre-tax retirement account? I'm just a lowly CPA & EA, but I was trained that until one SAW some documents one can't ASSume anything. My suggestion was to file an extension until all FACTS can be reviewed sans emotion and stress. I stand by that opinion. But then I don't have to defend the mail-in audit when the IRS computers match up the 1099 to the return. So perhaps simply filing the return as if the proceeds from the lawsuit are not taxable is great. Personally, having done precisely this same scenario and successfully proving it nontaxble (sexual harassment suit in the year that 6th circuit said was nontaxable 9th circuit said it was or vice versa; a few years back , taxpayer lived in one circuit sued in other circuit etc etc etc) the computer will automatically generate a collection letter due to 1099; my professional opinion is that one's ducks should be in a row when one KNOWS the issue will be contested. Collection letter will most likely be requesting SE also. In my first post I did say the following: MY ORIG QUOTE "Think you need to find out why the BPMIC thinks this is income in the first place. Would the inheritance have been taxable income to him? Probably not, but some portion could have been. Just because the malpractice insurance company issued a 1099misc, does not make it correct." Definitely need more facts here to ascertain the tax consequences. And yes there is a matching issue to deal with that no-one addressed. Guess we all felt that DHAWK was aware that this needed to be dealt with and wasn't asking about that. As for my last post, (the one before this one), I was addressing why the Malpractice insurance company or a Court (in this case it appears to be an agreed settlement) would award the client the $50,000. They still have to come to a conclusion of damages when there is malpractice, unless they award punitive damages for the attorney's behavior. Here though we have a second possibility (and I did not discuss this prob because of how close to 04/15/09 we are). Very often malpractice insurance companies settle cases just because it is more expensive to fight them. I have seen settlements where potentially there was no malpractice, just because it was the cheapest solution for the Ins Co. And although I said in my second post that there is a connection to the inheritance, I did not say that this in and of itself makes it non-taxable. You have to look at the case, the order and or the settlement agreement and I suggest speaking with both the client's second attorney and the insurance company, before determining that the 1099 is correct. Not to blow my own horn, as this is not my intention and because I think many here could have done this, but several years ago I was doing a tax return for someone that worked for Ameritech (now SBC). When looking at the W-2 there appeared to be an error. I called Arthur Anderson, their accountants, and asked them to correct it. They swore to me it was correct and I had to go all the way to the partner in charge of the job, until I got him to understand what they did wrong. (this is the short version) . My point here is not that I was smarter than all the accountants at AA (I got lucky), but that even a firm of this stature makes mistakes. How do we know that BPMIC did not make a mistake? Don't we all find mistakes in w-2's, 1099's etc all the time? As you suggested, this return needs to be extended! I agree with that and add that the proper research needs to be done to determine what happened and the correct tax resolution. Geesh had to edit this 4 times till I got it right. Okay never said I was perfect or infallible that is why I also have may questions here that I rely on our community members advice for! Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 14, 2009 Report Share Posted April 14, 2009 BTW, LLB, I have a question about your CPA & EA licenses. Please take this right way, as I am asking out of my own ignorance here and to educate myself. Even at my age I can learn something. I understand why someone that is not a CPA or an Attorney would get the EA, but is there a reason to have both if you already have either the CPA or law degree? Also, my partner is not an attorney or a CPA and I am working on him to take the exam and get his EA. Is there any advantage in having both? Quote Link to comment Share on other sites More sharing options...
Lion EA Posted April 14, 2009 Report Share Posted April 14, 2009 I don't have multiple designations, but a couple of thoughts. If EA came first before CPA, why not keep both licenses current. If lots of out of state work in multiple states, perhaps the EA which is a national license was an expedient way to supplement a CPA which is specific to one state and would require meeting the requirements in each and every state needed. Quote Link to comment Share on other sites More sharing options...
lbbwest Posted April 14, 2009 Report Share Posted April 14, 2009 BTW, LLB, I have a question about your CPA & EA licenses. Please take this right way, as I am asking out of my own ignorance here and to educate myself. Even at my age I can learn something. I understand why someone that is not a CPA or an Attorney would get the EA, but is there a reason to have both if you already have either the CPA or law degree? Also, my partner is not an attorney or a CPA and I am working on him to take the exam and get his EA. Is there any advantage in having both? Yes, the major advantage is that the CPA designation is a STATE license and the EA is good in all Federal jurisdictions (remember last year the big debates about representation requirements???) I can move from Michigan anywhere else and use the EA designation. Personally, I'm hoping to retire to a sunny area, either next door to is it Taxbilly or OldJack in Florida???? I always get them confused because both of them make so much sense so often; or I could move next door to jainen in CA and finish my golden years having my thinking clarified. Thank you for your repost, you are doing very well for the 14th, as opposed to me who is biting off people's heads. BTW my MST is through the University of Utah school of law, they have a video program just for cpas & lawyers, where we come out with our MST and you get your llm. Happy Tomorrow! Quote Link to comment Share on other sites More sharing options...
Catherine Posted April 14, 2009 Report Share Posted April 14, 2009 Another reason is if you want to do non-management-only financial statements or audits -- and EA can't do those but a CPA can. I know several people who have both designations, and they like it that way , for whatever reason. Some got the EA first, others the CPA first. So they must have specific reasons to want one or the other. Most of the CPA's I know think I was crazy to sit for the EA exam; they're scared of it! However, getting a CPA wasn't possible for me. My degree is Earth & Materials Sciences, not accounting, and I could no longer stand to work for a "regular" company long enough to meet the work requirements anyway. Catherine Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 14, 2009 Report Share Posted April 14, 2009 Yes, the major advantage is that the CPA designation is a STATE license and the EA is good in all Federal jurisdictions (remember last year the big debates about representation requirements???) I can move from Michigan anywhere else and use the EA designation. Personally, I'm hoping to retire to a sunny area, either next door to is it Taxbilly or OldJack in Florida???? I always get them confused because both of them make so much sense so often; or I could move next door to jainen in CA and finish my golden years having my thinking clarified. Thank you for your repost, you are doing very well for the 14th, as opposed to me who is biting off people's heads. BTW my MST is through the University of Utah school of law, they have a video program just for cpas & lawyers, where we come out with our MST and you get your llm. Happy Tomorrow! Thx for the info. Never thought of that and now that I am in NV, it seems to make some sense to get the EA Although not old enough to retire yet, think Las Vegas is it for me. Almost like living on vacation now that I am here. Bye Bye Chgo IL, don't miss you or your winters! Quote Link to comment Share on other sites More sharing options...
joelgilb Posted April 14, 2009 Report Share Posted April 14, 2009 Another reason is if you want to do non-management-only financial statements or audits -- and EA can't do those but a CPA can. I know several people who have both designations, and they like it that way , for whatever reason. Some got the EA first, others the CPA first. So they must have specific reasons to want one or the other. Most of the CPA's I know think I was crazy to sit for the EA exam; they're scared of it! However, getting a CPA wasn't possible for me. My degree is Earth & Materials Sciences, not accounting, and I could no longer stand to work for a "regular" company long enough to meet the work requirements anyway. Catherine Never been afraid of the EA like some, just never thought about it, since I had the other 2 designations. And honestly, I never saw a CPA that also had the EA. Never to old to learn new tricks. Sit Ubu! Quote Link to comment Share on other sites More sharing options...
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