Deductibility of Fee

[uhtaxmba]

A company located unclaimed money from the TX State Comptroller for a client.  Client wrote a check for the fee.  This is a sizable amount.  Trying to find a way to deduct the fee.  Seems it

[IRonMaN]

Since the fee was a sizable amount, I assume the long lost money was a sizable amount?  So are you having the client pick up their new found treasure as income?  Just because someone pays someone else for something doesn't mean the fee is going to be deductible.

[sjrcpa]

Is the amount received taxable?

FYI - tell your client they could have recovered it themself for free.

[IRonMaN]

Two seconds different between posts -------- that is like a photo finish 📸

[Just-Lisa-Now-]

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@sjrcpa wrote:

Is the amount received taxable?

FYI - tell your client they could have recovered it themself for free.

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^^^^^this right here^^^^^

Ive received unclaimed funds on my own, they do make you jump through a few hoops, but Im not paying someone to do that.

I think Ive got $25 from an old savings account that sitting with the state of CA unclaimed, I dunno why they never just sent me a check when they closed the account!  Its a joint account so it requires a few more hoops to jump through, not sure if $25 is worth the effort.

[sjrcpa]

I just found out my mother, and my deceased father, have some unclaimed property. I haven't started on the hoops yet. I fear it will just be some old $.32 dividend checks she keeps getting. The hoops to get that stopped haven't been worth it to me.

[BobKamman]

Miscellaneous deductions, Schedule A, repealed for another couple years so corporations can pay less tax. 

I wish the missingmoney.com website had a dot gov address, I can't convince some of my clients to use it.  I also wish more states would post the value of the property, at least within a range -- like less than $25, $25 to $100, more than $100.  When you have nothing better to do, that is, after April 15, check for some of your clients.  You will be surprised by what you find.  

@Just-Lisa-Now-  California makes you jump through more hoops than many other states.  I have a client whose deceased sister had $10,000 in unclaimed property there.  There are other siblings, three of them deceased, one of those with kids.  Had to fill out the whole genealogy report and wait six months for $2,000.  He would also be entitled to a percentage of the deceased siblings' shares, but it's just not worth the effort, especially when California caps the fee at 20% (or was it even less than that?). 

[uhtaxmba]

Yes, new found treasure was a production payment.....oil and gas.  Yes, it is income...whether I could classify as a royalty is a long shot.  Just looking for ideas.  I am pretty sure the fee isn't deductible.  Client wasn't looking, company contacted them.  And it is sizable.

[sjrcpa]

Then perhaps it is a fee for production of that income. Maybe a Schedule E deduction.

[uhtaxmba]

It is a finder's fee.  Fee is NOT associated with the production of income.  I did think of that though.

[IRonMaN]

Well, the fee was necessary for the production of that specific payment 😉

[BobKamman]

Usually it takes two or three years for the unclaimed property to be turned over to the state, and then another two or three years for someone to find it (with or without paid help).  So the issue I see is whether 2018 income needs to be reported on a 2023 return.  

It's like the people who put off cashing their savings bonds until long after they stopped earning interest.  In what year is it taxable?  

[uhtaxmba]

Cash basis taxpayer.  Taxable in the year rec'd.

[BobKamman]

Yes, but the year received could be the year when the check was sent to them and they threw it out with the trash.  That's like saying the check your client sent December 1 is not taxable until next year because you waited until January to cash it.  

[sjrcpa]

They may have reported the 1099 income in 2018 even if they didn't cash the check.

My Mom and Dad reported all their 1099 income (I prepped the returns) but I never asked about actual receipt or cashing of checks.

[BobKamman]

There was a Tax Court case a few years back involving a retired New Jersey lawyer who claimed he never received the income that IRS listed on a CP-2000.  He won the case because the judge believed him.  Neither the judge nor the IRS lawyer bothered to look at unclaimed property, where there were dozens of items listed, most of them with his correct address.  

[uhtaxmba]

An idea struck me this morning.  Claim of Right Repayment.  For this client, there has been oil and gas revenue "found" and added to income in 2022 and now in 2023.  The fee for the income "found" in 2022 was paid in 2023.  The client counted as income the gross amount in 2022 and paid the fee in 2023 which was essentially repayment.  Any opinions on this?

[sjrcpa]

They didn't repay it. They paid a 3rd party.

[BobKamman]

If they were my clients I would have better things to do with my time than dream up these scenarios.  It didn't bother them to misplace money, nor did it bother them to pay someone when they could have found it for free.  Paying taxes on it last year didn't  bother them.  Are you sure it was even their income?  Or was it inherited from relatives who died 10 years ago?  

[uhtaxmba]

The third party wrote them the check.  Then they paid the third party.  All legit.  Not made up.  Please only serious answers.

[uhtaxmba]

But they are NOT your clients.  Why waste your time giving a frivolous response to a legitimate question.