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February 28, 2020
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Race Discrimination Lawsuit Attorney Fees -where are these recorded on Adjustments to Income Sched 1?

  • February 28, 2020
  • 12 replies
  • 49 views

Client received a $250K race discrimination lawsuit award: $40K backpay; $2K interest, and the rest compensatory/punitive damages.  The $40K is W-2 income, with the $210K remainder included on a 1099-Misc box 3, which I recorded on line #8 on Schedule 1.  I didn't separate out the interest income.

Her out-of-pocket legal fees of $80K s/b an Adjustment to Income, but I can't figure out how to put it on Sched 1, because there's no 'other adjustment' line.  Do I show it on line #8 as a negative (under the $210K lawsuit other income) with the 'UDC attorney fees' description?  Or is there another way to get it on 'Adjustments to Income'?

Also, some of those attorney costs were paid as a retainer in 2018, but I didn't deduct them on the 2018 return because we had no income yet and we didn't know what the outcome of the lawsuit would be.  Can I deduct all the legal costs in 2019, even if some of the legal fees were paid in 2018?  

Thanks for your assistance!

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Best answer by Just-Lisa-Now-

I found this in the Help file for that adjustments to income smart worksheet box... looks like you type it on line Line H

 

12 replies

Intuit Community Champion
February 28, 2020

from pub 925: 

Unlawful Discrimination Claims
You may be able to deduct, as an adjustment to income
on your Schedule 1 (Form 1040 or 1040-SR), or Form
1040-NR, attorney fees and court costs for actions settled
or decided after October 22, 2004, involving a claim of unlawful discrimination, a claim against the U.S. Government, or a claim made under section 1862(b)(3)(A) of the
Social Security Act. However, the amount you can deduct
on your Schedule 1 (Form 1040 or 1040-SR), or Form
1040-NR, is limited to the amount of the judgment or settlement you are including in income for the tax year. See
Pub. 525 for more information.

Also a link to a guide from IRS: https://www.irs.gov/pub/irs-utl/lawsuitesawardssettlements.pdf

NPChristyAuthor
Level 4
February 28, 2020

Hi Terry,

Thanks for answering. Yes, I had already read 925 and had determined I could deduct the fees. What I'm asking is how to technically deduct this as an adjustment to income since there is no 'attorney fees' or blank line in the 'Adjustments to Income' tax form.  I think I'll just have to show it as a negative in 'Other Income' . . .?

My 2nd question is can I deduct the 2018 retainer fees in 2019 since they are the UDC costs.

Thx!

Just-Lisa-Now-
Intuit Community Champion
February 28, 2020

I found this in the Help file for that adjustments to income smart worksheet box... looks like you type it on line Line H

 

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