Legal Bills & Settlement Costs

[Gail in Virginia]

I have a corporate client that was involved in a lawsuit over ownership.  The legal bills were substantial, and the law firm that most of the money was paid to is in Boston.  When I told them they needed to do a 1099 for the legal fees, they called the law firm to get the information.  The law firm said they had never gotten a 1099.  In Virginia, almost all law firms are partnerships so I would think they would be used to getting 1099s from businesses.  But maybe it is different in Massachusetts?  Or am I missing something about 1099s?

Also, when I question this for the 1099s I found out that a substantial portion of the amount they paid the law firm was part of the settlement - they had to pay the other party's legal fees.  Should that be included on the 1099?  Is it even deductible?  

Any opinions or references would be appreciated.

[Lee B]

Deductibility depends on the ownership of what?

[Gail in Virginia]

22 minutes ago, Lee B said:

Deductibility depends on the ownership of what?

The business itself.  

[Lee B]

3 hours ago, Gail in Virginia said:

The business itself.  

Are you saying that the ownership of the corporate stock was at issue?