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

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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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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


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UHY LLP is a licensed independent CPA firm that performs attest services in an alternative practice structure with UHY Advisors, Inc. and its subsidiary entities. UHY Advisors, Inc. provides tax and business consulting services through wholly owned subsidiary entities that operate under the name of “UHY Advisors.” UHY Advisors, Inc. and its subsidiary entities are not licensed CPA firms. UHY LLP and UHY Advisors, Inc. are U.S. members of Urbach Hacker Young International Limited, a UK company, and form part of the international UHY network of legally independent accounting and consulting firms. “UHY” is the brand name for the UHY international network. Any services described herein are provided by UHY LLP and/or UHY Advisors (as the case may be) and not by UHY or any other member firm of UHY. Neither UHY nor any member of UHY has any liability for services provided by other members.

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Jessica Dalessandro
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