Legal fees to purchase S corp shares

Forum|Forum|2 years ago
January 9, 2024
2 replies
15 views

A client of mine was a 50% owner in an Scorp with his brother last year. In December, he incurred 20K in legal fees to buy out the 50% of shares owned by his brother. Is he able to capitalize the legal fees through the Scorp?

ProSeries Professional

This topic has been closed for replies.

T

TaxGuyBill

Level 15

Did the corporation buy the shares? And did it pay for the shares?

What are the circumstances that led to $20,000 in legal fees to purchase stock?

What reasoning do you have that this would be a business expense for the corporation?

dascpa

Level 11

I will agree with TaxGuyBill but add - if the transaction is between the two brothers then it has no effect on the company books. Example - prior to sale 100 shares outstanding, owned 50 and 50 by each brother. Brother A sells his 50 shares to Brother B. On the company books there is still 100 shares outstanding. No change in the equity section of the balance sheet. Just owned by different parties then before.

If the above example fits then your question is does the buying brother have a different outside basis in the stock versus the inside basis? We need more facts of this situation.

A

Avs19Author

Level 6

Sorry, I realize my question was a bit vague. I will get some more information

Thanks

A

Avs19Author

Level 6

My client is going to get a breakdown of the legal fees. It sounds like a large portion was for restructuring the lease agreement with the landlord. In my mind, some of that should be deductible. The other part is for the purchase of the shares, which in my mind, is probably not deductible.

Sign up

Login with SSO

Let's get you signed in

Login with SSO