Legal/Litigation Expenses Incurred by Banks in the Course of Foreclosing Acquired Assets are Deductible from Their Gross Income

January 24, 1992 BIR RULING NO. 034-92 39 (a) (1) (A) 000-00 034-92 Mr. William B. Go Chairman, BAP Tax Committee S i r : This refers to your letter dated November 1991 requesting for a ruling that litigation expenses incurred by banks in the course of foreclosing their acquired assets, e.g., lawyer's fees, consultation fees, etc., should be allowed as a deduction from the bank's taxable gross income during the year of payment. "Sec. 29. Deductions from Gross Income . In computing taxable income subject to tax under Sections 21(a); 24(a), (b) and (c); and 25(a)(1), there shall be allowed as deductions the items specified in paragraphs (a) to (1) of this section. In reply, please be informed that under Section 29 of the Tax Code, pertinent portion of which is quoted hereunder as follows: xxx xxx xxx "(a) Expenses . (1) Business expenses (A) In general . All ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation . . . ." legal/litigation expenses incurred by banks in the course of foreclosing acquired assets are deductible from their gross income as these are ordinary and necessary expenses incurred in the carrying on of the trade or business by banks. [(see also par. 973, p. 281, U.S. Master Tax Guide (1989 Ed.)] This option finds support in the case of Gold Green Mining Corporation vs. Tabios, CIR, CTA Case No. 1497, April 29, 1967, (1988 Ed. Araas Commentary, p. 190) holding that the so-called "legal fees" are expenses incurred in the carrying on of a trade or business. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue