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S Corporations Legal Fees are Not Trade or Business Expenses

08/15/2018

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An S corporation was not allowed to write off its shareholders’ expenses. The U.S. Tax Court concluded that legal and professional fees paid by shareholders weren’t properly deductible as ordinary and necessary business expenses of their wholly owned S corporation.

The court found that the taxpayers had failed to show that any of the $72,780 in disputed legal and professional fees were paid or incurred by the S corp. as ordinary and necessary expenses in carrying on their business. (T.C. Summary Op. 2018-38
 

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LBMC tax tips are provided as an informational and educational service for clients and friends of the firm. The communication is high-level and should not be considered as legal or tax advice to take any specific action. Individuals should consult with their personal tax or legal advisors before making any tax or legal-related decisions. In addition, the information and data presented are based on sources believed to be reliable, but we do not guarantee their accuracy or completeness. The information is current as of the date indicated and is subject to change without notice.