Q: Attorney fees paid by defendant for plaintiff deductible on 1040 Sch 1 line 24 h?
I received a lump sum settlement for disability benefits under my employer's LTD group policy last year, and I believe my claim should meet the definition of unlawful discrimination under IRC section 62 a 20 e 18 so I am likely able to deduct attorney fees and court costs on 1040 Schedule 1 line 24h. IRS Pub 525 states "The attorney fees and court costs may be paid by you or on your behalf in connection with the claim for unlawful discrimination...."
Does "costs may be paid... on your behalf" mean that if the LTD insurer paid some of my attorney costs for me that I can claim those costs as a deduction on my federal return even if I did not pay them myself? Example would be fees to appear at the arbitration which the LTD insurer is supposed to cover per the LTD group policy, or any other attorney fees/costs that I would have had to pay otherwise. Thank you!
A:
Understanding the nuances of tax deductions related to attorney fees and court costs can be complex, particularly when it comes to settlements for disability benefits under an employer's LTD group policy. According to IRS Publication 525, attorney fees and court costs associated with claims for unlawful discrimination are generally deductible. This provision indeed suggests that if these costs are paid on your behalf, they may still be considered for deduction on your federal tax return, which includes scenarios where your LTD insurer covers certain legal expenses.
In your specific situation, if the LTD insurer paid for attorney costs, like fees for appearing at arbitration, these payments made on your behalf could potentially be deductible. This aligns with the IRS guideline that allows for the deduction of legal fees and court costs paid by you or on your behalf, in connection with a claim for unlawful discrimination. However, it's important to ensure that your claim falls within the scope of what the IRS considers "unlawful discrimination" under IRC section 62(a)(20)(E)(ii).
To navigate these complexities, it would be wise to consult with a tax professional who can provide personalized advice based on the details of your case. They can help you determine the eligibility of these deductions and guide you through the process of claiming them on Form 1040, Schedule 1, line 24h. Ensuring that you meet the specific criteria and properly document your claim is crucial for compliance with IRS rules and maximizing your potential deductions.
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