Welcome to TaxBlawg, a resource from Chamberlain Hrdlicka for news and analysis of current legal issues facing tax practitioners. Although blawg.com identifies nearly 1,400 active “blawgs,” including 20+ blawgs related to taxation and estate planning, the needs of tax professionals have received surprisingly little attention.
The Wall Street Journal's Tax Blog gives “tips and advice for filers,” and Paul Caron’s legendary TaxProf Blog is an excellent clearinghouse for academic and policy-oriented news. Yet, tax practitioners still lack a dedicated resource to call their own. For those intrepid souls, we offer TaxBlawg, a forum of tax talk for tax pros.
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All taxpayers, whether individuals or not, may deduct as business expenses the costs relating to tax matters that are ordinary and necessary in the conduct of their trade or business under Section 162 of the Internal Revenue Code. However, certain non-business expenses are also deductible under Section 212, "Expenses for production of income." Notwithstanding the somewhat limiting title of Section 212, subsection (3) currently permits a deduction for non-business expenses that can have nothing to do with the production of income, namely expenses paid or incurred "in connection with the determination, collection or refund of any tax."
Because of subsection 212(3), many taxpayers are able to deduct their expenditures for a broad range of tax services, regardless of whether the taxes in question were incurred in the course of a trade or business, for investment purposes or for personal reasons. For example, the legal costs arising in resolving asserted tax deficiencies are deductible, including litigating expenses. See e.g., Rev. Rul. 92-29, 1992-1 CB 20. The same holds true even in the defense of criminal tax cases See e.g. Commissioner v. Shapiro, 278 F. 2d 556 (7th Cir. 1960).
A provision in the recently released House tax bill (H. R. 1) that has not received a lot of attention but could significantly impact many taxpayers is Section 1307, entitled “Repeal of Deduction for Tax Preparation Expenses.” The proposed change is broader than the title implies because it repeals Code subsection 212(3) in its entirety, effective January 1, 2018.
If the proposed repeal of subsection 212(3) is enacted into law, the fees taxpayers pay for these services will likely have to be treated in the same manner as as legal fees in general, which are not deductible when incurred for personal reasons. See, United States v. Gilmore, 372 U.S. 39 (1963). Therefore, cash basis taxpayers may have additional incentive to pay their non-business tax-related fees before year-end or risk losing a deduction to which they are presently entitled.