Law Offices of
PETER M. WALZER
Walzer Melcher LLP
5941 Variel Ave
Woodland Hills, CA 91367
Re: Marriage of____________
You have asked for our opinion regarding the deductibility of the legal fees you incurred in 2001 in connection with the above-captioned matter. Of the $________________ in legal fees paid by you to us in 199_, __________ percent (__%) was for tax advice and __________ percent (__%) was in connection with the production of spousal support income.
You may deduct that portion of our fee which is attributable to tax advice, i.e., (__%), including advice given for tax planning in connection with the division of your community property. I.R.C. section 212(3); Regs. section 1,212-1(1); Rev. Rul. 72-545. Generally, non-business attorney’s fees are only deductible to the extent they and your other “Miscellaneous Deductions” exceed 2% of your adjusted gross income.
You may deduct that portion of our fee allocable to the production or enforcement of spousal support, i.e., __%. Spousal support is taxable income to you (I.R.C. section 71), and an attorney’s fees incurred in its production are therefore expenses made for the production of income. See I.R.C. section 212(1); Reg. section 1.262-1(b)(7). Wild, 42 T.C. 706 (1964). This rule does not extend to child support, however, because child support is not taxable income. I.R.C. sections 71(b) and 265(1).
That portion of our fee attributable to getting you divorced and dividing your community property is not deductible. In the case of United States v. Gilmore, 372 U.S. 39 (1963), the United States Supreme Court held that because the marital status and property division expenses were “personal” rather than “business” in origin, no deduction would be allowed. I.R.C. section 262; Reg. section 1.262-1(b)(7).
Fees paid in successfully defending separate property claims may be capitalized on the basis of those assets successfully defended. Although this will not save you taxes immediately, it would lower the capital gains tax when you later sell those assets. See Gilmore v. United States, 245 F. Supp. 383 (1965) (on remand).
If there is anything else you wish to know, please do not hesitate to call me.
Yours very truly,
Peter M. Walzer