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Megan C
Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12581
Experience:  Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
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Were worked with a debt reducition serivice until they were

Resolved Question:

Were worked with a debt reducition serivice until they were sued by a group of attornies. We were a part of the Class Law Suit and afterward, the attorney's we worked with intended to again sue the company on behalf of some of the clients. We joined in the 2 nd law suit, but the attoney's did not proceed, due to not being able to determine that the company had sufficient funds to pay the law suit. My questiion is the company had settled one debt for us before we pulled out and their fees totaled (by the amount not returned to us) $17,091. Is the $17,091 an expense we can take as a deduction on our income tax? Thank you for any information you can provide.
Submitted: 10 months ago.
Category: Finance
Expert:  Megan C replied 10 months ago.

Megan C :

Thank you for your question, and thanks for using JustAnswer.com.

Megan C :

Attorney fees are only deductible to the extent that you have taxable income

Megan C :

So, if you had cancellation of debt income because of the debt modification, then you could deduct the attorney's fees

Megan C :

However, if you did not have cancellation of debt income then you would not be able to deduct the legal fees

Customer:

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

Megan C :

Thanks for your follow up, Joyce.

Megan C :

Fees paid to a debt settlement company are not tax deductible, Melvin v. Commissioner, T.C. Memo. 2009-199 (T.C. 2009).

Megan C :

That ruling indicated that fees paid to settle debt are not deductibl e

Customer:

The debts were bussiness related, but the arrarangements for payment with the debt service were personal. Thank you for your time,

Megan C :

You're welcome. If there is nothing else I can assist you with, please take a moment to rate my response as "excellent" so that I may receive credit for assisting you todya

Megan C :

today*

Megan C, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 12581
Experience: Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
Megan C and 3 other Finance Specialists are ready to help you
Expert:  Megan C replied 10 months ago.
Thanks, Joyce for your positive rating. Please come back and visit me for any of your tax, finance, or social security questions. It was a pleasure working with you today.

In the future you may receive a short survey. Your positive feedback on that survey would be appreciated, as it will help with rankings on the site. Thanks again for being a valued JustAnswer.com customer.
Customer: replied 10 months ago.


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

Expert:  Megan C replied 10 months ago.
Thank you for your follow up. The result is the same...the amount paid to the debt reduction agency is not tax deductible. Please let me know if you need further assistance.

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