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Article: Legal costs to recover punitive damages are a deductible business expense
- Article from:
- The CPA Journal
- Article date:
- October 1, 1999
- Author:
CopyrightCopyright New York State Society of Certified Public Accountants Oct 1999. Provided by ProQuest LLC. (Hide copyright information)
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By Peter C Barton, JD CPA, and Clayton R.Sager, PhD, University of Wisconsin-Whitewater
In Guill v. Commissioner, the Tax Court recently ruled that legal costs to recover taxable punitive damages were deductible as an IRC section 162(a) business expense rather than as a miscellaneous itemized deduction under IRC section 212, thereby avoiding an alternate minimum tax (AMT) problem. This issue is timely because the Y2K bill passed by Congress in July 1999 allows punitive damages.
In 1989, Congress amended IRC section 104(a) to tax punitive damages where no physical injury is involved. For cases before the 1989 amendment, in O'Gilvie v. US., 519 U.S. 79 (1996), the Supreme Court ruled that ...