Level 7

Question

Deduction of legal fees by professor?

Forum|Forum|9 months ago
September 30, 2025
5 replies
24 views

Client, a professor, paid $32K in legal fees against his employer. He received a settlement of 75K, which broke down as: $15K reimburse legal fees, $22K back wage which had taxes withheld, 38K a separate UEI check but I don't know what it's for. What is UEI?

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George4Tacks

Level 15

https://www.google.com/search?q=What+is+UEI

Answers are easy. Questions are hard!

BobKamman

Level 15

The lawsuit, filed in California Superior Court in 2023, alleges fraud and breach of contract as well as violations of state laws banning deceptive practices and advertising and unfair business practices at United Education Institute (UEI), operating as UEI College, another school chain run by IEC.

https://www.republicreport.org/2025/disgraced-for-profit-college-chain-iec-settling-another-fraud-case-brought-by-students/

What does he say when you ask him?

G

GretaAuthor

Level 7

The university is a reputable college. My client sued them and another professor for denying him a promotion (and hence higher salary). The other professor retired, and he was given his promotion retroactively. So his $75K settlement broke down as follows: $15K... legal fees ... $22K back salary (with taxes withheld).... 38K a separate UEI check. I will have him call his lawyer to ask what the 38K represents, and whether he will get a 1099 for it. His total legal fee was $31,646 and was paid over 2-3 years. Lawyer suggested 26 USC Section 104 (regarding damages) and 26USC Section 62 (re legal fees). I am not familiar with this. Can you direct me where to research?

T

TaxGuyBill

Level 15

@Greta wrote:

Lawyer suggested 26 USC Section 104 (regarding damages) and 26USC Section 62 (re legal fees). I am not familiar with this. Can you direct me where to research?

IRC Section 104(a)(2) says lawsuit winnings for injuries, etc. are not taxable. If UEI is about health stuff, that may not be taxable. If it is not about health stuff, I'm not sure why the lawyer is mentioning that, unless it is just a generic statement he tells all clients.

IRC Section 62(a)(20) says that lawyer fees for "unlawful discrimination" can be deducted (see line 24h of Schedule 1). I don't have a citation, but in the past I've read that most lawsuits against an employer qualify.

https://www.law.cornell.edu/uscode/text/26/104

https://www.law.cornell.edu/uscode/text/26/62

sjrcpa

Level 15

Have you asked for a copy of the claim and settlement agreement or judgment?

And whether he gets a 1099 or not does not determine the taxability.

The more I know the more I don’t know.

George4Tacks

Level 15

I think that UEI is Unique Employer Identification number. There will be a W-2 from NOT the University, but rather something like the "Whozit v. University"

I am pretty sure that if you exhibit some patience, all will be revealed in the 1st couple of months of next year.

Answers are easy. Questions are hard!

BobKamman

Level 15

@George4Tacks I think it's been settled that UIE is the insurance company. Since a lawsuit was filed, the complaint should be read to determine if there is a claim of discrimination -- or, for that matter, of personal injury that would make all of the settlement nontaxable. Another factor to consider is that the legal fees were paid in more than one year. They aren't deductible unless the claim is successful, but then do amended returns have to be filed for some of them?

qbteachmt

Level 15

The argument(s) made in the complaint for your client's position will state if there is a discrimination, an injury, what are the grounds they filed as their complaint. Wrongful termination, for example, is not the same as unlawful discrimination.

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