TAX ADVICE from Julian Block
tax advisor and Larchmont neighbor, Julian Block, provides
help for Gazette readers
Legal Fees For a Divorce: What Is Or Is Not Deductible
(October 9, 2003) Generally, the IRS refuses to allow a tax
deduction to ease the pain for a couple who split and incur
legal fees and other costs to obtain a divorce, separation
or decree of support. You, might, though, be able to salvage
a deduction for the part of the expenses specifically allocable
to tax advice in connection with a divorce or separation,
as well as for legal fees to obtain taxable alimony. Here
is a rundown of the rules.
NONDEDUCTIBLE EXPENSES: The IRS bars any
deduction for the cost of personal advice, counseling and
legal action in a divorce. For example, a husband gets no
write-off for the cost of resisting his wife's demands for
more alimony or to set aside an antenuptial property
These expenses are nondeductible even though they are partly
incurred in arriving at a financial settlement or to combat
a claim to income-producing property. This restriction has
been upheld by the Supreme Court.
More than one taxpayer has learned the hard way that the
courts will not bend these rules to permit a deduction for
divorce fees. In one case, a court threw out a deduction by
a company for legal expenses paid on behalf of its principal
shareholder in a divorce action in which his wife sought to
acquire an interest in his stock. The company got nowhere
with its argument that the wife suffered from mental problems
and that her intrusion in its affairs would have jeopardized
its continued success.
Nor would another court approve a husband's medical deduction
for attorney's fees for a divorce that was recommended by
his psychiatrist. The husband failed to prove that had it
not been for the illness that the divorce was supposed to
cure, he would not have incurred the fee.
FEES FOR ALIMONY: The portion of legal fees
specifically paid (usually by the wife) to collect alimony
that is taxable to her can be included, just like the cost
of preparing her return, with her other itemized deductibles
under "miscellaneous deductions" at the bottom of
Schedule A of Form 1040.This break is available for the original
proceeding by which she procures taxable alimony, as well
as for any subsequent proceeding to increase it or collect
But these legal fees and most other miscellaneous deductions
are allowable only to the extent that their total in any one
year exceeds 2 percent of her AGI, short for adjusted gross
income. AGI is the amount listed on the last line of page
one of Form 1040 after reporting salaries and other sources
of income and claiming certain deductions such as alimony
payments and money placed in traditional IRAs. The AGI amount
is before itemizing and claiming dependency exemptions.
To keep the math simple, suppose a woman with an AGI of $100,000
has miscellaneous outlays of $9,000. The 2 percent floor shrinks
the deduction to just $7,000 -- what is left after the $9,000
is offset by $2,000, which is 2 percent of $100,000.
CAUTION: In no event can she deduct the cost of obtaining
income that is not taxable to her -- say, back child support
or temporary alimony while a joint return was still being
FEES FOR TAX ADVICE: Subject to that 2 percent
benchmark for miscellaneous expenses, she gets to deduct fees
that cover tax research and advice on such items as home sales
and other property transfers and dependency exemptions for
the children. But she can do so only if the bill specifies
in a reasonable way how much is for tax counseling. Moreover,
no deduction at all for her payment of her spouse’s
legal fees, even if they are for tax advice only. The deduction
is allowed just for advice on her own tax problems.
ALLOCATING FEES BETWEEN TAX AND NON-TAX MATTERS:
Does your attorney's services include counseling on taxes?
Remind the attorney to prepare a bill that breaks down deductible
and nondeductible charges. That way, assuming you overcome
the 2 percent hurdle, you are able to substantiate your deduction
in the event of an audit.
According to an IRS ruling, the agency will accept a lawyer's
allocation of his or her fee between tax and nontax matters
where the attorney allocates primarily on the basis of the
amount of time attributable to each, the customary charge
in the locality for similar services and the results obtained
in the divorce negotiations (Revenue Ruling 72-545).
CAUTION: You suffer a partial disallowance of your allowable
write-off for most itemized deductions, including fees for
tax advice and other miscellaneous expenses when AGI is above
a specified amount that is adjusted annually to reflect inflation
-- $139,500 for 2003. The disallowance is 3 percent of the
amount by which AGI exceeds $139,500.
Put another way, every $1,000 of AGI above $139,500 causes
the loss of $30 in total deductions. No miscellaneous deductions
are allowed if you are subject to the alternative minimum
ADULT EDUCATION COURSES:Want Julian’s answers to your
questions about the tax pitfalls of divorce? And for a nominal
cost that is just a fraction of what you would pay to meet
with a qualified tax professional on a face-to-face basis?
Enroll in his adult education course, “Divorce And Taxes.”
You can sign up for his one-evening course during the fall
of 2003 at these locat ions:
NEW YORK CITY. The New School, 66 West 12th St., Monday,
Sept. 29, 8:00 P.M. $45. Registration. 212-229-5690.
WHITE PLAINS, NY. White Plains Continuing Education. White
PlainsHigh School, 550 North St., Wednesday, Nov. 12, 7:30
P.M. $35 for residents; $40 for nonresidents. Registration.
IRVINGTON, NY. Inter-Village ContinuingEducation. IrvingtonHigh
School, Tuesday, Oct. 14, 7:30 P.M. $25. Registration. 914-693-6300,
ext. 2283. Director@intervillage.org.
VALHALLA, NY. WestchesterCommunity College. Monday, Oct.
20, 7:00 P.M. $30. Registration. 914-785-6830. Continuinged@sunywcc.edu.
Julian Block is a syndicated columnist, attorney
and former IRS investigator who has been cited by the
New York Times as “a leading tax professional”
and by the Wall Street Journal as an “accomplished
writer on taxes.” His “Year Round Tax Savings”
covers key changes introduced by the 2003 tax act, shows
how to save truly big money on taxes – legally
– and explains the steps you should take to reduce
taxes for this year and even gain a head start for future
Send $9.95 for an e-mailed copy or $14.95 (in the U.S.)
for a postpaid copy to: J. Block, 3 Washington Square,
#1-G, Larchmont, NY 10538-2032. He can be contacted
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