Discussion:Criminal payments for Deductions
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Discussion Forum Index --> Tax Questions --> Criminal payments for Deductions
| 8 June 2006 | |
| can a taxpayer deduct payments made pursuant to a crime against the taxpayer.
ie: the taxpayer went to renew his lease and the landlord wanted large cash payments in order to renew the lease and the landlord was later convicted of a crime for the matter. | |
| June 9, 2006 | |
| No one's going to bite on this one it looks like. Some additional information might be helpful. Was taxpayer involved in a kickback scheme? Kickback payments are not deductible. Did taxpayer do anything unlawful? If not, I would say it's probably deductible. | |
| 9 June 2006 | |
| The information needed would have to do with taxpayer's recourse. | |
| 9 June 2006 | |
| I agree that more details are needed. As a general principle, illegal payments are not deductible. That would be true even if the payer is not a party to the illegal activity (ie: if a business has to pay protection money). Still, I would think that some circumstances would be able to qualify for a deduction. | |
| 9 June 2006 | |
| Can't the payments be deducted as additional costs for rent? As the landlord received them in exchange for renting the property, and the payments were not refundable, ie deposits, shouldn't they be reportable by the landlord as income? Couldn't taxpayer send landlord a 1099 for the payments, as rent payments are done?? | |
| 9 June 2006 | |
| Sec. 162. Trade or business expenses(c)(2)
(2) Other illegal payments No deduction shall be allowed under subsection (a) for any payment (other than a payment described in paragraph (1)) made, directly or indirectly, to any person, if the payment constitutes an illegal bribe, illegal kickback, or other illegal payment under any law of the United States, or under any law of a State (but only if such State law is generally enforced), which subjects the payor to a criminal penalty or the loss of license or privilege to engage in a trade or business. For purposes of this paragraph, a kickback includes a payment in consideration of the referral of a client, patient, or customer. The burden of proof in respect of the issue, for purposes of this paragraph, as to whether a payment constitutes an illegal bribe, illegal kickback, or other illegal payment shall be upon the Secretary to the same extent as he bears the burden of proof under section 7454 (concerning the burden of proof when the issue relates to fraud). | |
| 11 June 2006 | |
| Here is some additional info on the taxpayer. The taxpayer leased his office space and in the original lease the landlord requested a small additonal cash sum to approve the lease. After being there for several years the lease was up for renewal and the landlord now requested a very large cash payment to renew. The landlord also provided customers to the tenant. The landlord and associates had been under survailance for some time and now criminal charges have been brought against the landlord and company. My client gave testimony of the additonal "forced" payments and the procescution has stated in its complaint that a crime was commited against my client.
Can these additonal payments be deducted? And theses were paid monthly over several years and a lump on renewal, so what year is it deducted? Current, Amened year? | |
| 12 June 2006 | |
| numerous counts: embezzlement, fraud, organized crime type matters | |
| 12 June 2006 | |
| If the payments were additional rent or referral fees, I would say that they are deductible. The problem is that I doubt your client has any evidence of the amounts paid and I assume that those amounts were not included in Form 1099 amount to landlord so proving the deduction might not be possible. | |
| 13 June 2006 | |
| As previously noted payments that constitute kickbacks or bribes are generally nondeductible. However, I believe that there may be an exception for payments made under duress or as a result of extortion.
Any payments extracted from your client through fraudulent means would probably be deductible as a theft loss. I am not sure how the landlord's demand for lease renewal fees and lease approval fees would be a violation of any law unless the individual demanding the fees was not the owner of the property. | |
| 13 June 2006 | |
| This sounds a lot like a classic "what did he know and when did he know it". I have a feeling I know the answer and if the answer is what I think it is, the payments are not deductible. | |
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