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Bill And Hillary Case

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In general, according to IRS, there are no tax deductions that might ease the pain of divorce. However, even though it has no sympathy for the legal fees incurred by a couple who split, a husband and wife might be able to salvage a deduction for the portion of expenses in some circumstances such as tax advice in connection with a divorce, as well as legal fees to obtain taxable alimony. This research paper is going to explore these questions more deeply by examining the provided situation of Bill and Hillary.
In provided case, Bill is a counselor who was accused by his wife in an affair with another woman. In order to prevent the divorce, he spends $5,000 in legal fees. According to Reg §1.262-1, “General legal fees relating to a divorce or …show more content…

Since the court required Bill to pay alimony to Hillary, legal fee costs incurred by Hillary in the process of collecting alimony from Bill are “deductible as ordinary and necessary expense incurred for the production or collection of income” (Elsie B. Gale., 13 TC 661, Code Sec(s) 22). This decision was reinforced in the case of Barbara B. LeMond v. Commissioner of Internal Revenue when tax court decided that “attorneys' fees paid or incurred by the petitioner during the taxable years in connection with securing a financial settlement with her husband incident to separation and divorce are deductible as nonbusiness expenses … in so far as they resulted in the production or collection of income taxable to the petitioner.” However, Reg §1.67-1T 2-percent floor on miscellaneous itemized deductions “disallows deductions for miscellaneous itemized deductions … in computing taxable income … to the extent that such otherwise allowable deductions do not exceed 2 percent of the individual's adjusted gross income.” As a result, Hillary can deduct $2,000 in legal fees but her adjusted gross income should be at least $100,000.
Therefore, IRS provides taxpayers with the set of rules and tax court cases which help to identify the possible tax consequences. Through the above case study, $5,000 in legal fees spent by Bill in the divorce process are nondeductible personal expenses. On the other hand, Hillary is able to claim a deduction of $2,000 for legal fees related to collecting alimony taking into account that her adjusted gross income is $100,000 or

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