Thank you for your question, and thanks for using JustAnswer.com.
Attorney fees are only deductible to the extent that you have taxable income
So, if you had cancellation of debt income because of the debt modification, then you could deduct the attorney's fees
However, if you did not have cancellation of debt income then you would not be able to deduct the legal fees
The amount of $17,091 was the amount left in the account and not returned to us after we closed the account. We deposited funds into with the debt reduction company, not the attornies that filed the suit against them. The debt redcuction service did negoiate one settlement, then kept $17,091 that we paid for for settlement of several debts and returned $4,000 to us. We paid in at least $35,466.09 under the contract with them to settle more than one debt. Would this be deductible under consulting fees on our income tax? Joyce
Thanks for your follow up, Joyce.
Fees paid to a debt settlement company are not tax deductible, Melvin v. Commissioner, T.C. Memo. 2009-199 (T.C. 2009).
That ruling indicated that fees paid to settle debt are not deductibl e
The debts were bussiness related, but the arrarangements for payment with the debt service were personal. Thank you for your time,
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This situation was not debt income, but debts that we owed (company debts) that we took on personally and was supposed to be working with a debt reduciton company for lessening our debts.....the company had a contract with us for working with X no. of creditors; however, only one debt was settled. We did pull our after the lawsuit because of they were not going through with their job of seeing that creditors got their money after the settlement.
Thank again, Joyce