1099 MISC, Plaintiff and Atty Fees

[LYNDAJZ6]

I have a client that won a lawsuit against his former employer.

He received $85,000.

$56,000 was part of a W2.

$29,000 was issued as a 1099-MISC in his name.

This money actually went to his attorney.

Can he deduct that as legal fees or does he have to claim the $29,000 as income?

Thanks!

[jeffmcpa2010]

Just to clarify - Did the payment come to him and he paid the attorney, or did the payment go directly to the attorney in the attorney's name?

[LYNDAJZ6]

He received the $29,000 as as final payment of fees for the atty.  The check was issued as a joint check to the lawyer and plaintiff that the plaintiff endorsed and deposited to the atty's account, so essentially the payment went to my client.

The plaintiff received the 1099 and $29,000 was reported as "other income."

[taxiowa]

Was the dispute a unlawful discrimination lawsuit?  If so the legal fees are deducted on line 24h of Schedule 1.  Income is on Line 8 of Schedule 1.  The amounts would then offset each other.

[jeffmcpa2010]

Here is my take, off of memory from classes a number of years ago. You will want to research further no doubt.

It appears that these legal fees would be considered "For the production of income"

Unfortunately I think the amount received will need to be reported as other income, and that the attorney fees are a miscellaneous itemized deduction, (and of course, Miscellaneous Itemized deductions, are no longer allowed on federal returns.) Worst of both worlds. 

[qbteachmt]

This is a nice article, as it lists various qualifications for above-the-line deduction:

https://www.americanbar.org/groups/business_law/publications/blt/2019/11/gross-recoveries/

Remember to only read articles that are after the TCJA of 2017. That's when this changed.

[LYNDAJZ6]

Thanks.

That is what I thought too!

[Cujo5209]

I am dealing with almost the same situation; however, the  amount show on 1999 (other income) i do not know if it is for legal fee, I was informed that description of the amount reported on the form 1099 Mis is non wages amount. I would like to ask you how you proceed in the preparation of that return? Did you included the amount on 1099 as other income or you deducted that amount as a legal fee only for the state? What did you do in that particular return? 

Thank you !!! 

[qbteachmt]

@Cujo5209 

You started your own topic, here:

https://proconnect.intuit.com/community/proseries-tax-discussions/discussion/discrimination-claim/00...

And are being helped there. No need to ask this same community in multiple places, and your own topic is going to be more specific to your exact issue. Let's make sure to continue there. Thanks.