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  • Holly Roundtree CPA

2019 – 10/30

The U.S. Tax Court has ruled that a finder’s fee wasn’t deductible. The taxpayer, a plastics manufacturer, was acquired by a large institutional investor. Before closing, the investor agreed to pay a financial advisor a $1.5 million finder’s fee for bringing the parties together. The funds came directly from the acquired business. The taxpayer deducted 70% of the fee. The IRS disallowed the deduction, arguing that the fee wasn’t an ordinary and necessary business expense. The court agreed, noting that the taxpayer hadn’t paid the fee to primarily benefit its business. The advisor’s services didn’t supply the taxpayer with a business purpose directly linked to the payment. (TC Memo 2019-140)

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