Canelo v. Commissioner
United States Tax Court
Petitioners are partners in a law firm which specializes in plaintiffs' personal injury litigation. Their firm customarily advances litigation costs to clients under contingent-fee contracts. These costs are repaid by clients only in the event of a recovery. Petitioners' firm, on a cash basis, deducted the costs when paid, and included them in income when and if recovered.
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Petitioners are partners in a law firm which specializes in plaintiffs' personal injury litigation. Their firm customarily advances litigation costs to clients under contingent-fee contracts. These costs are repaid by clients only in the event of a recovery. Petitioners' firm, on a cash basis, deducted the costs when paid, and included them in income when and if recovered. Held, (1) that the advanced costs operated as loans and are not deductible business expenses under sec. 162(a), I.R.C. 1954, and (2) that the firm is not entitled to a reserve for bad debts under sec. 166(c) because no…
1Opinion of the Court
DawsoN, Judge:
In these consolidated cases respondent determined deficiencies in petitioners’ Federal income taxes as follows:
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Certain minor adjustments have been conceded by petitioners, leaving the following issues for decision: (1) Whether a law partnership on a cash basis of accounting may properly deduct under section 162(a)1 various litigation costs advanced to clients under contingent-fee contracts, where the recovery of such costs is contingent upon the successful prosecution of the claim; (2) whether petitioner Kane purchased certain parcels of real estate intending to…
2Cases cited16 opinions
- Dobson v. CommissionerSupreme Court of the United States · 1944
- Herron v. State Farm Mutual InsuranceCalifornia Supreme Court · 1961
- Block v. CommissionerUnited States Board of Tax Appeals · 1939
- Bornstein v. United StatesUnited States Court of Claims · 1965
- Union Trust Co. v. Commissioner of Internal RevenueCourt of Appeals for the Seventh Circuit · 1940
11 more not listed; retrieve them via the Exa API.
3Cited by65 opinions
- Southern Pacific Transp. Co. v. CommissionerUnited States Tax Court · 1980
- Mayfair Minerals, Inc. v. CommissionerUnited States Tax Court · 1971
- Hughes & Luce, L.L.P. v. CommissionerCourt of Appeals for the Fifth Circuit · 1995
- Kingsbury v. CommissionerUnited States Tax Court · 1976
- Unvert v. CommissionerUnited States Tax Court · 1979
60 more not listed; retrieve them via the Exa API.