[aaronmo]

The rules around legal fees are, as many of you know, interesting, complicated and often nonsensical. You don’t get the legal fees as a straight deduction in many/most cases…even when they’re clearly expenses that should be netted against income…

Before I get into the meat of this one, I’ll start by saying I hate a lot of my clients and bite my lips an awful lot. I’ll leave it at that and leave the politics out. Suffice it to say, I’ve become increasingly angry over how ignorant, hypocritical and self serving most people are. That said…I’m paid to do a job, honestly, to the best of my ability; not to be a friend.

One of my “favorites” is a contractor type who recently got a DUI. He wants to deduct his legal fees from the DUI case as protection of income. My first reaction was…YOU SLIME BALL, OF COURSE NOT…but the more I’ve been thinking about it, he may have an argument, at least in part.

I think anything spent to fight the loss of the license…or any criminal/penalties…is clearly non-deductible. BUT…he might have an argument on fees related to restoration of the license, or special privileges while suspended. I don’t know that it’s a good argument…but he may have one. I don’t have access to case law, but cursory research (which is all I’ll do for this) seems to suggest it MIGHT be within gray.

I thought it was interesting enough to share.

[Anonymous]

No, anything DUI-related can't possibly be considered a business expense, and I would expect the tax code to be clear enough on that to show your client where he's wrong.

[Anonymous]

@calvinus,

@aaronmo,

My pet peeve on forums like this in general is when people don't take the time to read or comprehend what the OP is saying.

@calvinus, if you take the time to go back and reread what @aaronmo wrote, it is clear that he is not suggesting that the tax code allows for any DUI related deductions, but rather that in theory he might have an argument for specific deductions related to license restoration. Although I'm still a student, I've passed REG and taken undergraduate and graduate tax courses where we had to dig into the tax library pretty extensively. From what I can tell, and what my teachers have made clear, is that the IRC is vague and contradictory by design in order to allow for interpretation by the IRS, Tax Court, and appeals courts. Therefore I don't think there is anyway you can say something is expressly non-deductible unless the IRC explicitly states it.

What @aaronmo seems to be saying is that the IRS definitely excludes legal fees and fines/penalties related to the suspension, but not necessarily to the reinstatement process. So depending on the state of issue, it might be conceivable that reinstating a license could be considered by a judge or appeals court to be a separate legal procedure that is in fact a legitimate business expense. Again, no one is saying that this is in fact the legal precedent, but rather that an argument could potentially be made in its favor.

Also just in general it seems obvious to me that @aaronmo isn't seriously considering telling his client to argue this position, but rather that it seemed like an interesting topic for online debate. This makes your post seem to be both condescending and unduly dismissive, and not in the spirit of a general discussion forum.

[Anonymous]

Well, I think the problem is more that he hasn't found anything so far to support it. But if you do know something, please share with us.

[Anonymous]

@calvinus,

Rather than that being the problem, I think that was the entire point of the post. @aaronmo, while being annoyed with his client, thought there might be a valid point to some of his argument, but at the same time realized that the time spent researching the problem would probably not be cost effective, nor would it have a high probability of being sustained upon examination.

Therefore, he kicked the scenario out into the forum as a conversation starter/theory/discussion point, while expressly stating that he wasn't going to research it further. There is no ethical gray area or problem, just forum users having a discussion or debating a point. Those who have something to contribute can contribute, and those who don't can stay out of it.

I don't know enough about the topic to argue for or against it, nor do I particularly want to dig into the tax library to help a drunk driver. However, it doesn't seem that you do either, and your posts to me seem kinda negative and haven't really added anything here.

If you had stated that your professional opinion was that a CPA shouldn't being trying to help someone who committed a crime to find a loophole in the tax law, than at least that would be a potential starting point for further discussion and not just a blanket dismissal of the whole topic.

[aaronmo]

My response to the thread earlier was apparently deleted…I'll post something later.

Benj…you are clearly getting the right takeaways from your classes. Accounting is grey…and while we aren't advocates in the way that an attorney is, the reality is that when someone is paying you, both the form and the substance means you are, to an extent, serving that person's interests. While hewing to the ethical standards of our profession and to information users (in this case the IRS and state/local revenue departments).

[CPA2BEE]

No argument – would he have incurred these license restoration fees or fees for special treatment during suspension had he not gotten the DUI? No. Therefore those fees ARE directly related to the DUI.

FAR - 80
AUD - 82
BEC - 80
REG - 85

ETHICS - 90
EXPERIENCE - COMPLETE
Application for California license mailed 8/4/2016

[aaronmo]

CPA2bee…it's certainly a good counter argument, but I don't think the argument is completely knocked out…because the emergency license is certainly directly related to the DUI, but he might not NEED to do it, or incur those fees, if his license wasn't directly related to his work 😉 So, while the restoration/emergency piece is directly related to the infraction, the need for emergency recovery does hew towards the production of profits.

It doesn't have to be a GOOD argument to take the deduction either…just an argument. If the standard for a deduction/position for every return was researching case law, no one could ever file a return. In practice, the approach is often when in doubt, deduct…and let THEM make the counter argument. In terms of real world risk/reward…regardless of ethical responsibilities…that's a winner for nearly every client, and if your risk profile knocks that out, you have bigger problems.

At least that's what I see in my office…and part of why I don't care much for small practice public.

To reiterate the point above…I did not take the deduction and advised my client that it was a bad idea. He's already overly aggressive and you have to look at the return from the mile down view. To make that argument was too much work for too little juice.

BTW…I kicked this around with 3 CPAs in the office who have a combined 80+ years experience…and all three thought it was a viable argument that they'd be unlikely to make given the size of the proposed deduction, pro-rated, and the work involved in pro-rating it, researching a bit more…etc.

[Anonymous]

The road to an audit is paved with good intentions. Our owner is charging purchases for their pets to the company account, presumably because it appeared in a company social media post once so now it's all a business advertising expense. I just hope God will give me strength not to engage in this crap when I'm a CPA – I'd rather have zero clients.

[Tncincy]

Doing anything for business. Just don't forget about due diligence. Expenses for a DUI is not a business expense, nor can it be itemized. So to even play with this raises may question marks about ETHICS.

It begins with a 75
Been here too long as a cheerleader....ready to pass

[Anonymous]

[Author]

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