Nov 152011
 

Since his conviction last week, Dr. Conrad Murray’s professional and financial future has looked increasingly bleak.  Forbes, however, is reporting that due to the circumstances surrounding the tragedy, the doctor found guilty in the death of Michael Jackson may be able to deduct his legal fees on his taxes.

The events and actions resulting in Jackson’s death were obviously criminal in nature.  However, because Dr. Murray’s involvement in the case was rooted in his medical practice and treatment of Jackson as a patient, his incurred legal fees are arguably deductible.  The issue of whether the fees are deductible stems from the meaning of I.R.C 162. The code allows deductions for business expenses that are “ordinary, necessary and reasonable” in nature. Other celebrities have used I.R.C. 162 for deductions of their legal costs, but only in cases involving the defense of their reputation, notably Winona Ryder, Robert Blake, and Naomi Campbell.  Since the action must stem from his professional, and not his personal life, in order for the legal costs to be deductible under I.R.C. 162, Dr. Murray should have a much easier argument than most celebrities who are defending their reputation.

Dr. Murray had been treating Michael Jackson and was being paid for it.  Legal costs related to the defense of his practice, whether facing civil or criminal charges, are considered expenses related to his trade or business. In order to be tax deductible these expenses must be “ordinary, necessary and reasonable” in nature.  As Forbes reports, this standard should be easily met.  When it comes to taxes, even a onetime expense can be considered “ordinary.”  A legal bill from a lawyer, subsequently paid by Dr. Murray is a “necessary” expense.  As for “reasonable”, “if a lawyer can charge it and someone pays, it’s probably reasonable.”  Therefore, Dr. Murray’s legal costs incurred to defend his practice are most likely deductible.