As an attorney, are you treating advanced client costs as deductible business expenses in contingency cases? It’s important that you stop.  

The IRS does not consider these as business expenses to be deducted, but rather as loans. In his blog post for The Langel Firm, Jesse Langel, Esq. LL.M. writes that there are “hard costs” that are directly related to cases, which may include things such as costs of medical records, investigation costs, travel expenses, and so on, that cannot be deducted.  

Some attorneys may argue that because there is no guarantee of recovery on the money, that it should be deductible. However, the IRS may investigate an attorney’s success rate of cost recoveries to decide whether the argument that these expense deductions are legitimate because there is no guarantee that the attorney will be paid back. Still, it is safer to stop treating advanced client costs as business expenses and instead treat them as loans.  

Read more on the topic at Jesse Langel Esq. LL.M.’s blog post on the topic.

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