investment fees/legal fees - and IRA

[Catherine]

Client inherited big honking IRA from former spouse. Has substantial legal fees from wrangling with other heirs, and substantial investment advisory fees in the inherited IRA. My assumption here is that neither is deductible -- the legal fees because it is personal and not for production of income despite the fact that the RMD produces income; and the investment fees because they are within the IRA rather than paid separately.

However, I've had a nasty enough day that I don't trust my head today (headache; just enough that my brain feels fogged in and not thinking right). Looking for confirmation or refutation...

TIA,

Catherine

[grandmabee]

could you take a % of legal fees based on the RMD income for this year? no investment fee expense

[Catherine]

Reconfirmed the investment fees are NOT deductible as they are paid from within the IRA. But the legal fees... TTB just says "for production of taxable income" which this IRA definitely IS. But then there are references to business and lawsuits for injury...

So I'm still confused on that one.

[jainen]

>>"for production of taxable income" which this IRA definitely IS<<

No it isn't. The IRA is simply an inherited asset like any other bank account. Future distributions from the IRA may be taxable, but that's not what the legal fees were for. By the way, were the legal fees even itemized?

[Catherine]

Actually, the legal fees WERE to ensure the IRAs were not hijacked by intentionally-cut-off heirs -- so one could make the argument they were for acquisition of taxable income.

Yes, they were itemized. They were substantial, too.

Hence my wanting to double-check with folks here.

[Guest Taxed]

I am not sure if these facts can be applied to this question but in 99 I had a situation when my client produced an itemized bill from an attorney for legal costs relating to an IRA and 401(k) division as part of a divorce settlement. My client insisted that her attorney had advised her that she could deduct the legal fees subject to the 2% limitation. We did and it has not been challenged. The fees if i recall at that time were around $5000. Also if memory serves me right the lady cashed that IRA to pay for mortgage payment on the house which were behind due to divorce.. She was less than 59 and paid the tax plus 10% penalty.