Legal Fees Deductibility to a Company

[G2R]

Family business. The shareholders are in a bitter legal battle with each other over ownership, money handling, trademark infringement, etc. 

The way I understand, legal fees paid for the protection of company assets (trademark), and in the ordinary course of business (like being sued by a customer or vendor) would be deductible to the company.  But the battle over who will retain ownership, buyouts, etc, is NOT deductible to the company.  

I have asked the lawyers to be very specific in their billing so I can pick through the bill for deductible items.  

Any one have experience in this area to confirm my research.  TIA

[Lee B]

I assume the non controlling shareholders are retaining outside attorneys and the defending attorneys represent the controlling shareholders and the business.

This will take some serious research. I suspect you will find that the attorneys, representing the business and the controlling shareholders, should be able

to provide research supporting the deduction of most if not all of these fees. I know at first glance that doesn't seem right, but in the real world that is what

happens most of the time.

 

[G2R]

9 minutes ago, cbslee said:

I assume the non controlling shareholders are retaining outside attorneys and the defending attorneys represent the controlling shareholders and the business.

Correct. 

10 minutes ago, cbslee said:

This will take some serious research. I suspect you will find that the attorneys, representing the business and the controlling shareholders, should be able

to provide research supporting the deduction of most if not all of these fees. I know at first glance that doesn't seem right, but in the real world that is what happens most of the time.

Thanks for your reply @cbslee.  As always, I really appreciate it. 

When they first got into this mess, I told them "The only one that's gonna win in this are the lawyers." 

[Lee B]

Yeah, some years ago I had two brothers each with 50% ownership in an S Corp end up in court with attorneys dueling over who was going to control the business.

Just before the trial the judge held a pretrial conference where he twisted their arms into a buyout where one brother bought out the other brothers's interest.

To this day the two brothers do not speak to each other.

[G2R]

That's a damn shame @cbslee.  Wonder if they ever thought back to childhood memories and asked themselves, is this really what we've come to?

Had a client who gifted shares of his company to his children.  Easily worth millions.  The son got mad at at his dad and sold these gifted, never earned them or worked a day in his life, shares to the minority shareholders, which then gave them the majority, and they eventually pushed the owner/dad out of his own company that he had built from the ground up.  Most cold-blooded move I ever saw in my career. 

 

[DANRVAN]

10 hours ago, G2R said:

But the battle over who will retain ownership, buyouts, etc, is NOT deductible to the company.  

That sounds right, under the origin of claim doctrine those legal expenses would be capitalized.

[DANRVAN]

11 hours ago, cbslee said:

defending attorneys represent the controlling shareholders

and if they are representing at the shareholder level there would be a deemed distribution to the shareholders.

[Lee B]

9 hours ago, DANRVAN said:

and if they are representing at the shareholder level there would be a deemed distribution to the shareholders.

Your analysis is correct. However, given some creative research from the defending attorneys, I am pretty sure that these expenses would be deducted

more often than not. After all this is how this game is played. How else is Apple's effective corporate tax rate only 8 % ?