By Paul Topolka

Section 212(3) of the Code provides in pertinent part: “In case of an individual, there shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in connection with the determination, collection, or refund of any tax.”

The reach of the above provision is very broad.  The deduction is available whether the taxing authority is the United States, a state, a municipality or a foreign country.  “Any tax” is all encompassing and includes income, estate, gift, excise, property, sales and use, and any other taxes.  As stated in Treas. Reg. § 1.212(l): “Thus, expenses paid or incurred by a taxpayer for tax counsel or expenses paid or incurred in connection with the preparation of his tax returns or in connection with any proceedings involved in determining the extent of tax liability or in contesting his tax liability are deductible.” Such expenses or professional fees include, among others, the preparation costs of a request for a private letter ruling or appraisal fees to determine the amount of a casualty loss deduction or a charitable contribution deduction.  Thus, it does not have to be a contested tax situation to qualify – the expense only needs to arise “in connection with the determination of any tax.”  See Carpenter v. United States, 338 F.2d 366 (Ct. Cl. 1964) (where taxpayer incurred legal expenses in ascertaining that substantial support payments to his former wife constituted taxable alimony to her and therefore were deductible by him).  Also, it does not matter whether the taxpayer is successful in contesting the purported tax liability; he can lose the controversy with the taxing authority and still deduct the related expenses.

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