This is the fifth in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. This article presents situations when the the expense of attorneys fees may be deducted “above the line.”
Deducting Attorney Fees “Above the Line.” The American Jobs Creation Act of 2004, Section 703, amended Internal Revenue Code, Section 62(a)(20), to allow a taxpayer to take an above-the-line deduction for attorney fees and costs incurred by an individual in connection with a claim of unlawful discrimination, a claim of a violation of subchapter III of chapter 37 of Title 31, United States Code (certain claims against the government), or a claim made under section 1862(b)(3)(A) of the Social Security Act. However, the taxpayer cannot deduct more than the amount he or she received from the claim that was included in gross income for the tax year. This treatment as an above-the-line deduction is available for fees and costs paid after October 22, 2004, with respect to any judgment or settlement occurring after that date. For more information, see IRS Publication 525, Taxable and Nontaxable Income.
Unlawful Discrimination Defined. For purposes of subsection IRC Section 62 (a)(20), the term “unlawful discrimination” means an act that is unlawful under any of the following:Section 302 of the Civil Rights Act of 1991 (2 U.S.C. 1202).
Section 201, 202, 203, 204, 205, 206, or 207 of the Congressional Accountability Act of 1995 (2 U.S.C. 1311, 1312, 1313, 1314, 1315, 1316, or 1317).
The National Labor Relations Act (29 U.S.C. 201 et seq.).
The Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.).
Section 4 or 15 of the Age Discrimination in Employment Act of 1967 (29 U.S.C. 623 or 633a).
Section 501 or 504 of the Rehabilitation Act of 1973 (29 U.S.C. 791 or 794).
Section 510 of the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1140).
Title IX of the Education Amendments of 1972 (29 U.S.C. 1681 et seq.).
The Employee Polygraph Protection Act of 1988 (29 U.S.C. 2001 et seq.).
The Worker Adjustment and Retraining Notification Act (29 U.S.C. 2102 et seq.).
Section 105 of the Family and Medical Leave Act of 1993 (29 U.S.C. 2615).
Chapter 43 of title 38, United States Code (relating to employment and re-employment rights of members of the uniformed services).
Section 1977, 1979, or 1980 of the Revised Statutes (42 U.S.C. 1981, 1983, or 1985).
Section 703, 704, or 717 of the Civil Rights Act of 1964 (42 U.S.C. 2000e-2, 2000e-3, or 2000e-16).
Section 804, 805, 806, 808, or 818 of the Fair Housing Act (42 U.S.C. 3604, 3605, 3606, 3608, or 3617).
Section 102, 202, 302, or 503 of the Americans with Disabilities Act of 1990 (42 U.S.C. 12112, 12132, 12182, or 12203).
Any provision of Federal law (popularly known as whistle blower protection provisions) prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted under Federal law.
Any provision of State or local law, or common law claims permitted under Federal, State, or local law -providing for the enforcement of civil rights, or regulating any aspect of the employment relationship, including prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.