IRS Whistleblower award legal fee exclusion from income on California 540

Forum|Forum|1 year ago
February 16, 2025
1 reply
0 views

Everything calculated correctly on form 1040, but California 540 added the legal fees back as income on Form 540 as an adjustment. Is this right? Thanks in advance for help with this.

Best answer by MonikaK1

California still does not follow Federal law on this issue. Because California still allows miscellaneous itemized deductions, the fees are still deducted on Schedule A for California and not as a deduction from gross income.

A bill, California SB 1377, was introduced in 2022 to change the treatment to conform with the Federal return, but the bill ultimately did not pass.

How were the fees entered on your Federal return? Did you make any adjustments on the California return?

MonikaK1Answer

A bill, California SB 1377, was introduced in 2022 to change the treatment to conform with the Federal return, but the bill ultimately did not pass.

How were the fees entered on your Federal return? Did you make any adjustments on the California return?

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"

JohnASmithAuthor

Employee

Thank you very much for your well informed input. The legal fees are entered on 1040 Schedule1, line 24i. I made no adjustments on the California form 540. On form 540 TurboTax entered it as an itemized deduction, but it's limited to 2% of AGI. Not very helpful considering the legal fee was 30%. The out of state attorney claims that the entire legal fee should be entered as an adjustment. This could be a very expensive mistake if he is wrong. Is he wrong? Thanks again.