Fifth Circuit Rules That a Partner Cannot Deduct Expenses Reimbursable by the Partnership

Tim Darmafall, CPA at UHY LLP, discusses Cir Case No. 12-60657, that a law firm's partner cannot deduct expenses reimbursable by the partnership.

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Sterling Height, MI (PRWEB) April 14, 2014

Recently, the US Court of Appeals for the Fifth Circuit ruled in McLauchlan v. Commissioner, 5th Cir., Case No. 12-60657, that a law firm’s partner could not deduct various business expenses incurred personally because they were reimbursable by the firm pursuant to the partnership agreement. The expenses which were reimbursable by the partnership included reasonable travel, client maintenance and development, interoffice travel, automobile lease and rental expenses, meals and entertainment, and continuing education.

The court’s reasoning behind the decision for disallowing the reimbursable expenses was based on the fact that by allowing the taxpayer to deduct the expenses, it would “otherwise allow a taxpayer to convert an expense of the partnership into one of his own by simply failing to seek reimbursement”.

Many times partners incur expenses on behalf of the partnership. The above case highlights that the language in the partnership agreement regarding expense reimbursement will determine whether the partner is allowed to deduct the expense incurred on their personal tax return or whether the partner must seek reimbursement from the partnership for the expenditure.

For more information or questions on this topic, please contact your professional at UHY LLP in Farmington Hills 248 355 1040 or Sterling Heights 586 254 1040 or visit us on the web at http://www.uhy-us.com.

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  • Jessica Dalessandro
    UHY LLP
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