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Evaluating the Tax Impact of Legal Fees
As part of the cost-benefit analysis for deciding whether to proceed with a legal matter or settle a legal matter, the potential tax treatment of legal fees should be considered.
Unfortunately, there is no one provision in the Internal Revenue Code (“IRC”) that describes the treatment of legal fees in different situations. Rather, taxpayers must consult a case law and an assortment of general IRC sections.
Whether legal fees will be fully deductible, partially deductible, capitalizable or nondeductible for tax purposes depends upon…