Taxation Law: Tax and Fees Paid to the Attorney

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Table of Contents

Introduction
Relevant facts
Issues identified
Conclusion
Authorities and reasoning

Introduction

The tax of the $11,000 fees paid to the attorney by Sarah is a fixed amount hence no deductions will be made on the value.

This memo identifies the judgmental considerations and relevant section of the law that explains how the decision was made.

Relevant facts

In this case Sarah, the petitioner, clearly understands the market value of the property she acquired. The property, a parcel of land, is the property inherited from her mother meaning that the acquisition and ownership of the property are not meant for the sole purpose of sale. Receiving the parcel in 2009 and inquiring about the market value of the property does not rule out the prospects of a future sale.

The intentions of increasing the number of residences per acre after defining the reason as to why the price low indicated future sale. Consequently, after the Texas County Board of Supervisors began deliberating on the enactment of the zoning law, she suspended the case appeal and after the ruling, the new value of the property was raised at $25,000 from $15,750. She incurred attorney fees of $11,000. The paradox involves the determination of the status of these charges as either deductible or not.

Issues identified

The cost incurred in this case charges for the services offered by the attorney. She did not incur them in reproducing the property. In addition, she is an economist meaning she is aware of the market-value price of land, hence she will do everything possible to get the best value of the property. Should the cost incurred by Sarah as attorneys fees are deducted?

Conclusion

The amount of $11,000 is not deductible and is capitalized. This is according to IRS 263A-1T which states that in case there are costs incurred in a new building or for activities aimed at improving the quality or increasing the value of a building, there will be no deduction allowed. The amount is the attorneys fee and is not for tangible improvements to the land according to IRS 263A (g) 1 which includes the actions of building, constructing, installing, manufacturing, developing, or improving as the only means by which the amount can be deducted. It is therefore concluded that the amount should not be taxed.

An example of the regulation governing capital expenditure provided by the department of the treasury is IRS 1.263A-2T. Capital expenditure under this section has been defined as the cost incurred when acquiring or creating interest in land which includes minerals and timber rights among others. This supports that the fee paid by Sarah to the attorney should be capitalized.

Authorities and reasoning

This case is supported by the ruling of Lee D. and Marjorie L. Hustead v. Commissioner, U.S. Tax Court, CCH. 50,022(M), T.C. Memo. 50,022(M), 68 T.C.M. 342, T.C. Memo, 1994-374, (1994) case. This case was decided on the following section 263A on the general rule. Also, It is of course well established that rezoning expenses are not deductible when made, since they represent a capital outlay, as ruled by Chevy Chase Land Co. v. Commissioner, 72 T.C. 481, 487 (1979); see also Galt v. Commissioner, 19 T.C. 892, 910 (1953).

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Taxation Law: Tax and Fees Paid to the Attorney

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