deducting litigation expenses: new appellate court decision
auditors said the activity wasn’t profit-seeking.

by christopher m. demayo
withum
the fifth circuit court of appeals issued a decision on march 29, 2019, that explains some of the requirements for deducting litigation expenses.
the facts of the case are bizarre, but the controlling legal principles are not.
in a nutshell, the taxpayer was the sole shareholder of a company that was a commercial cleaning franchisor (“company”). in november 2002, the taxpayer traveled on vacation with his girlfriend and two employees of his company to the caribbean island of st. maarten, where he owned a home. one of the employees was a bodyguard and the other was a former girlfriend.


the irs listed 6 risks. the gao found 10 more.