Tax Court denies deduction for legal fees from personal malpractice lawsuits
Joanne G. Rosso v. Commissioner of Internal Revenue, T.C. memo. 2025-115, Docket No. 12344-15 (filed November 6, 2025).
Legal fees from malpractice and contract disputes with former attorneys were not deductible because they were personal and not tied to producing or collecting income.
Holding
The Tax Court held that Joanne G. Rosso could not deduct $28,485 of 2012 legal expenses. She did not substantiate $2,194 and did not show that the remaining $26,291 was for producing or collecting income under § 212. The court sustained the IRS disallowance.
Why It Matters
Fees from suing or being sued over personal legal services are generally personal, not income-producing.
The origin-of-the-claim tests the controls, not how the taxpayer characterizes the expense.
Substantiation continues to be a crucial requirement, and amounts that are unproven cannot be deducted.
Timeline
2008: Rosso sues former attorney Horton; the trial court enters judgment for Horton in 2010.
2010: Rosso sues attorney Fleck; jury returns defense verdict in December 2012; new trial motion denied.
2012: Arbitration decision for Deckard; appellate courts affirm Horton judgment; California Supreme Court denies review.
2012 return: Rosso reports $31,070 of Schedule A miscellaneous deductions, including $28,485 in legal fees.
Feb. 9, 2015: IRS issues notice disallowing $29,708 of miscellaneous deductions and proposing a penalty; IRS later concedes the penalty and certain non-legal items.
Nov. 6, 2025: Tax Court files memorandum opinion; decision to be entered under Rule 155.
Key Facts
Petitioner: Joanne G. Rosso, pro se.
Disputes: Malpractice and contract claims involving former attorneys Horton, Deckard, and Fleck, arising from representation in a real-estate partition matter.
Deductions claimed: $31,070 total; $28,485 for legal fees.
IRS position: Disallowed $29,708 of miscellaneous deductions; conceded penalty and non-legal fee amounts; legal fees remained at issue.
Documentation: Taxpayer failed to substantiate $2,194 of the legal-fee total.
Statutory or Regulatory Framework
IRC § 212 allows deductions for expenses incurred in producing or collecting income. IRC § 262 disallows personal, living, or family expenses.
The origin-of-the-claim test determines whether legal fees are personal or income-related. Taxpayers must substantiate deductions under IRC § 6001 and the regulations.
Arguments
Taxpayer argued:
Legal fees were deductible as expenses for producing or collecting income.
Alternative theories lacked sufficient documentation.
IRS argued:
The fees arose from personal disputes with attorneys over representation quality and contracts, not from income-producing activities.
Substantiation was lacking for a portion of the claimed fees.
Court’s Reasoning
The case was fully stipulated; after concessions, only the legal-fee deduction remained.
The taxpayer did not substantiate $2,194 of the claimed legal fees.
The remaining $26,291 did not relate to producing or collecting income within IRC § 212. The disputes concerned professional negligence and contract issues with former counsel are of a personal nature.
Under the origin-of-the-claim test, the character of the expense follows the nature of the underlying dispute. Personal origin means nondeductible under IRC § 262.
The court sustained the IRS disallowance and rejected other contentions as irrelevant, moot, or meritless.
Forward-Looking Implications
Legal fees from malpractice, fee disputes, or contract claims with personal counsel are generally nondeductible unless tied to producing or collecting income or managing income-producing property.
Documentation remains critical; unsupported legal-fee amounts will be denied even if the category were otherwise eligible.
Practitioners should trace legal invoices to specific income-producing activities and segregate nondeductible personal items.
Result
Decision for the IRS: legal-fee deduction disallowed in full, with computation under Rule 155.
The Takeaway
Tie legal fees to a specific income-producing activity and keep records. Malpractice and fee-dispute litigation with personal attorneys is usually nondeductible.
List of Citations
Internal Revenue Code §§ 212, 262, 6001. Purpose: defines income-producing vs personal expenses and substantiation.
United States v. Gilmore, 372 U.S. 39 (1963). Purpose: origin-of-the-claim test framework, applied to classify legal expenses.