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MequonCPA
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience:  CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
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Situation: S Corporation was operating selling incense (Mojo),

Resolved Question:

Situation:

S Corporation was operating selling incense (Mojo), the law changed and it became illegal - law enforcement raided and arrested owner and employees. The business reported all income and paid both sales tax and income tax on the profits of the business. S Corp paid $ 72K to a bail bondsman to release owner/employee from jail. The case is in limbo and the charges may or may not be dropped due to a technicality. However, a 2012 S Corp. return must be filed. The $ 72K bail bondman fee is non-refundable and is lost regardless.
Question:
Is the $ 72K a deductible business expense on the S Corp return?
Submitted: 1 year ago.
Category: Tax
Expert:  Megan C replied 1 year ago.

MyVirtualCPA :

Hello! I am a CPA here to assist you with your tax questions. My goal is to provide you with excellent service today.

MyVirtualCPA :

How are you today?

MyVirtualCPA :

I hate to be the bearer of bad news, and please don't shoot the messenger, but bail funds are not tax deductible as business expense

MyVirtualCPA :

So no, this bail fee is not tax deductible.

MyVirtualCPA :

Is there anything else that I can assist you with today? If not, please rate my response as "excellent" so that I may receive credit for assisting you today

Customer:

Can you provide as IRS code section or court case that supports this?

MyVirtualCPA :

I do not have a link to a code or section or case, but I do have articles that support this

MyVirtualCPA :

http://www.bailbondinformationcenter.com/Bail-Tax.php

Customer:

This is in refernce to an individual, not in reference to an operating business. There are many deductions that not deductible to the individual, but are as legitimate business expenses. I really was looking something more specific to situation.

MyVirtualCPA :

If the expense is "ordinary" and "necessary" then it is deductible

MyVirtualCPA :

Bail fees are still not tax deductible.

MyVirtualCPA :

losses attributed to criminal activity are not tax deductible under any circumstances.

MyVirtualCPA :

Unless you are a victim

Customer:

One other issue: If the charges are dismissed, then it is not a criminal activity.

Customer:

One other Issue: If the charges are dropped, then it is not a criminal activity and therefore necessary and ordinary and not in connection with a criminal activity. Correct?

MyVirtualCPA :

Still yet, bail fees are not deductible.

MyVirtualCPA :

I'm truly sorry if you expected otherwise.

Customer:

Please site a court case or IRS code section that says bail fees are not deductible under any circumstance. The article you cited is not nearly sufficient to support your position.

MyVirtualCPA :

I am sorry, but I do not have a court case or IRS code section that outlines this particular issue.

Customer:

Let me explain my position to you. I am a tax accountant, not a CPA, but 35 years experience in this business. Therefore, I know that IRS code, regs, and court cases are everything. You hold yourself out as an expert and charge customers for expert advive, but you cite some article that has no meaning in the context of the question posed and has nothing that legally supports your position. I thought I would pay the $ 38.00 and evaluate. What if I paid

Customer:

What if I paid $ 1,500.00, would I have received a reliable answer that would hold up?

Customer:

I will not pay $ 38.00, $ 5.00, $1.00 or one penny for what provided as evidence to support yours position. This is just a google search for a complex situation, I already knew that bail cost could not be deducted as a tax expense for an individual taxpayer. I will quote you here, "



Still yet, bail fees are not deductible". OK, if this is true, state your authority for this, show me something from IRS code, regs, or a court case that can be used in the event of an audit. This is too important an issue to rely upon coming from a totally unrealated example. Please advise.


Customer:

Since I did not identify myself as a professional, therefore you did not realize who you are dealing with,I will give you a day or two to provide me with a meaningful answer that includes a legitimate legal and quotable resourse before formally evaluating your performance.

Expert:  MequonCPA replied 1 year ago.
Hi and welcome to JustAnswer:

Different expert here.

Below is an excerpt from RIA Checkpoint. You may or may not be deduct the bail bond fees depending on the specifics of your situation.

¶L-2936. Deductibility of legal fees to defend business-related criminal charges.

Attorney's fees, court costs, and other legal expenses can qualify as deductible trade or business expenses or as deductible nonbusiness expenses incurred for the production of income or the management, conservation, or maintenance of income producing property, but legal expenses aren't deductible if they are capital expenditures or personal expenses of the taxpayer, see ¶ L-2900 et seq.

Legal fees incurred by an individual in defense against criminal charges arising out of his business activities are deductible, 11 even though the individual is convicted. 12

So, legal expenses and bail bond fees incurred in an unsuccessful defense against extortion charges were deductible by a taxpayer who had been a purchasing agent for a city and had taken part in a kickback scheme. The Tax Court held that he was in the trade or business of being an employee of that city. 13

The Tax Court permitted a member of an organized crime family convicted of conspiracy and mail and wire fraud to deduct legal fees. The charges related to a plan to invest in an Indian Reservation gambling operation and use it to launder funds from other illegal activities of the crime family. The criminal charges originated from his business activities as a member of the crime family. 13.1 Similarly, a taxpayer could deduct the legal expenses incurred in creating the Virginia Environmental Endowment Fund to alleviate the effects of a highly toxic chemical pesticide that taxpayer allegedly discharged into local waters. Payment to the Fund was considered, in substance, to be a criminal fine. 14

The Eighth Circuit upheld deductions of attorneys' fees incurred in an unsuccessful defense of quo warranto proceedings brought by a state against an outside corporation for intentional violation of state laws. 15

. . . Balance of paragraph omitted.



11
IRS Letter Ruling(NNN) NNN-NNNN IRS Letter Ruling(NNN) NNN-NNNN Citron-Byer Co, (1930) 21 BTA 308; Headley, Hal, (1938) 37 BTA 738; International Trading Co, (1958) TC Memo 1958-104, PH TCM ¶58104, 17 CCH TCM 521, affd on other issue (1960, CA7) 5 AFTR 2d 970, 275 F2d 578, 60-1 USTC ¶9335; Kaufman, Morgan S., (1949) 12 TC 1114, acq.

12
Com. v. Tellier, Walter F., (1966, S Ct) 17 AFTR 2d 633, 383 US 687, 16 L Ed 2d 185, 66-1 USTC ¶9319, affg on this issue(1965, CA2) 15 AFTR 2d 416, 342 F2d 690, 65-1 USTC ¶9252, revg on this issue (1963) TC Memo 1963-212, PH TCM ¶63212, 22 CCH TCM 1062.

13
Murphy, Bernard G., (1980) TC Memo 1980-25, PH TCM ¶80025, 39 CCH TCM 958.

13.1
Difronzo, John, (1998) TC Memo 1998-41, RIA TC Memo ¶98041, 75 CCH TCM 1693.

14
Allied-Signal Inc, (1992) TC Memo 1992-204, RIA TC Memo ¶92204, 63 CCH TCM 2672, affd(1995, CA3) 75 AFTR 2d 95-1287, 54 F3d 767, 95-1 USTC ¶50151.

15
Riss & Co Inc, (1964) TC Memo 1964-190, PH TCM ¶64190, 23 CCH TCM 1113, affd, revd & remdsub nom Com. v. Richard Riss Sr., (1967, CA8) 19 AFTR 2d 880, 374 F2d 161, 67-1 USTC ¶9292.


© 2013 Thomson Reuters/RIA. All rights reserved.
Customer: replied 1 year ago.


Now, this is what I was looking for!!!


I will give the rookie a high rating because she escalated it to someone who could provide support for the position. Thank you so much!!! Maybe I won't receive a preparer penalty in the event of audit. At least I have some letter rulings and court cases to rely on. I don't know how all of this works, but if I had not pushed the issue and had so much experience, I would have received and paid for bad advise.


 

Expert:  MequonCPA replied 1 year ago.
Glad I could help.
MequonCPA, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 2325
Experience: CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.
MequonCPA and 8 other Tax Specialists are ready to help you
Expert:  MequonCPA replied 1 year ago.
Hi -

Just a note regarding this service. Each expert is paid and rated separately based on the answers provided.
Customer: replied 1 year ago.


I just gave you a $ 100.00 bonus, please let me know if this has been credited to you.I prepare over 1500 indivudual returns annually and approximately 100 combined 1120,1120S,1065, and 1041 returns. I have two local CPA firms that I exchange information and tips with. The issue I have is that they never know the answer to any issues I bring to them and they actually refer clients to me. I am SO happy to find another resource. Thanks again, Joan Toups - XXXXX@XXXXXX.XXX

Expert:  MequonCPA replied 1 year ago.
Hi Joan -

Thanks for the accept and the very generous bonus. I'm a one man shop. Only around 225 Individuals, similar number of other returns. Clients in 15 states 3 foreign countries. I also have a divorce practice.

I'm the go to guy for a couple of other CPAs in the area, so I know what you're talking about.

Glad we can provide an additional resource.

Thanks again.

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