In 2012 I settled a lawsuit and received a large sum of which 40% immediately went to my attorneys.
The grounds (and filings) of my suit were a breach of contract with the damages being the difference between the formula stock price I received from the corporation when I was obligated to sell my private shares back to them, and the value of those same shares 2 months later when the company went public. The claim of breach was because "all material facts .... prospects of company...etc" were not revealed as stipulated per my sale agreement. The company had been clandestinely dealing with the acquiring company WHILE buying my shares. No punitive damages or any other type were sought. The damage was therefore equal only to the loss of additional capital gain on the stock I would have enjoyed had I held them.
We settled out of court. Since my 40% legal fees were a direct expense in producing a capital gain which I otherwise would not have realized, I wish to calculate my tax
on the net gain rather than on the gross and then deduct the legal expense. There is a very large $$ incentive to do so.
Researching the subject I found this: "Except in rare cases, such as a compensatory recovery of self-employment income, (for example, commissions that are reported on Schedule C) or recovery of capital gain income, legal fees will be a Schedule A miscellaneous itemized deduction
, subject to the 2 percent floor and AMT."
I believe this to be one of those "rare cases". How should I proceed?