Pro bono legal practice -- business expense deductions or "hobby"?

[deaddog]

IL

I'm retiring after 40 years as a general litigator in a law firm. I intend to open a solo practice doing solely pro bono matters - I will collect no fees or other compensation for any legal work I do. I don't want to form a non-profit and seek 501(c)(3) status (don't want the hassles of forming an unrelated board; soliciting donations; or filing required reports). I'm willing to self-fund the practice but I'd like to take my losses (resulting from no revenue but necessary business expenses (malpractice insurance, supplies, maybe an office space)) against other income, incluidng investment income and retirement payments I will receive from my former firm that is subject to federal income tax. My question is whether the IRS will deem my pro bono practice a "hobby" because it is "an activity not engaged in for profit." I have no intention to make a profit and I won't no matter how many years I engage in the activity. Do I have any reasonable argument that I should be able to deduct my expenses of running a business that is not intended to make a profit?

Thanks

 

[Silverplum]

IL

I'm retiring after 40 years as a general litigator in a law firm. I intend to open a solo practice doing solely pro bono matters - I will collect no fees or other compensation for any legal work I do. I don't want to form a non-profit and seek 501(c)(3) status (don't want the hassles of forming an unrelated board; soliciting donations; or filing required reports). I'm willing to self-fund the practice but I'd like to take my losses (resulting from no revenue but necessary business expenses (malpractice insurance, supplies, maybe an office space)) against other income, incluidng investment income and retirement payments I will receive from my former firm that is subject to federal income tax. My question is whether the IRS will deem my pro bono practice a "hobby" because it is "an activity not engaged in for profit." I have no intention to make a profit and I won't no matter how many years I engage in the activity. Do I have any reasonable argument that I should be able to deduct my expenses of running a business that is not intended to make a profit?

Thanks

After I finally finished LOL-ing, I recovered enough to reply: we don't do homework.

 

[deaddog]

Nice. I assumed that lawyers on a tax law forum had more experience dealing with IRS audits than a general litigator. And I assumed that - for a good cause -- they might want to help brainstorm on ways to get around what seems like an easy answer against the taxpayer - an exercise that requires judgment borne of experience that is likely unique to a tax lawyer who deals with IRS audits and does not seem readily answerable from reviewing regs or precedent given the uniqueness of the question. I guess I was wrong.

 

[Silverplum]

Nice. I assumed that lawyers on a tax law forum had more experience dealing with IRS audits than a general litigator. And I assumed that - for a good cause -- they might want to help brainstorm on ways to get around what seems like an easy answer against the taxpayer - an exercise that requires judgment borne of experience that is likely unique to a tax lawyer who deals with IRS audits and does not seem readily answerable from reviewing regs or precedent given the uniqueness of the question. I guess I was wrong.

I don't ever accept attempts to make me feel "guilt," but you can wait for someone else to answer.

I find it completely beyond credulity that an attorney of 40 years:
A.) Knows no live human attorney, licensed in his state, to ask about important tax matters
B.) Would rather read legal info from strangers on the internet
C.) Does not know how to readily obtain the information
D.) Really thinks he can avoid hiring a tax attorney

But really, someone else will come by. Have a pleasant day.

 

[deaddog]

You must be a lot of fun at parties.

 

[adjusterjack]

Do I have any reasonable argument that I should be able to deduct my expenses of running a business that is not intended to make a profit?

Thanks

No.

And my opinion is based on reading the IRS booklet that you quoted from.

If you want a tax pro's opinion, then hire one.

 

[FlyingRon]

If you're not in business, you can't deduct business expenses. Plain and simple. Pro bono law is not a business. What you might do is find some 501(c)(3) organization that you can donate your time to, and then certain expenses directly attributable to the charitable activity (mileage, etc...) can be deducted as a charitable contribution.