Attorney Fees Aren't Ordinary and Necessary: - Rogers Wood Hill Starman & Gustason

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Attorney Fees Aren’t Ordinary and Necessary:

Posted by Kim Chen on February 11th, 2016

The taxpayer was a sole owner of an LLC that he used primarily to hold his investments in mineral rights. During the year in question, the LLC claimed a business deduction for fees paid to an attorney to evaluate the collection potential of a large portfolio of distressed student loans that they had been offered. The IRS disallowed the deduction, and the taxpayer took the matter to Court. According to the Court, although a taxpayer can deduct ordinary business expenses under IRC Sec. 162(a), the taxpayer’s activity with regard to the distressed loans did not amount to a trade or business, so the deduction was disallowed. The LLC held a couple of personal loans to realtors incidental to his business of buying and selling real estate but that wasn’t enough volume to rise to the level of trade or business. Rodney C. Niemann, TC Memo 2016-11 .