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Posted by D. Stussy on May 13, 2008, 7:56 pm
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> > If there's no tax on the recovery, then the expense is not
> > deductible.
>
> You mean if there is no current tax on the recovery. In my example I
> posited that the plaintiff had paid tax on the money in a prior year.
> He incurs attorneys fees to recover that money. Certainly there is no
> tax on recovering the money he already paid tax on. But you are saying
> that if the taxable year and the deduction for recovery of the taxable
> money do not coincide, there is no deduction, while if they do coincide
> there is a deduction.
No, I don't mean "current tax."
If a plaintiff had paid tax on the money in a prior year, then:
1) He is a cash basis taxpayer and has already received it - and therefore
no deduction (no merit to the suit). OR
2) He is an accrual basis taxpayer and therefore has a deduction under IRC
162 for the cost of collection. However, that's NOT a recovery.
You are aware that "recovery" applies to the receipt of something previously
paid out, aren't you? One cannot recover something that one never had in
the first place.
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