I am uncertain why you said these legal fees would be classified as an "expense to collect taxable income".
The origin of the contingency fees was to overturn an unjustified denial of a long-term disability claim governed by ERISA and this falls under 26 USC 62(e)(18) (IRS private ruling Number [removed]). However, this tax code is a vague, and its unclear if the above the line deduction is only applicable during litigation or if it also cover the administrative appeal process which is required by ERISA regulation prior to proceeding to litigation.
IRC Section 62 (20) Costs involving discrimination suits, etc.
Any deduction allowable under this chapter for attorney fees and court costs paid by, or on behalf of, the taxpayer in connection with any action involving a claim of unlawful discrimination (as defined in subsection (e)) ---- IRC Section 62(e)(18), unlawful discrimination is defined to include: “any provision of Federal, State, or local law, or common law claims permitted under Federal, State, or local law… regulating any aspect of the employment relationship, including claims for wages, compensation, or benefits.
The above tax code specifically says "suites, etc." and "any action", and it does not state the tax code is only applicable during the litigation, and for all employer benefits governed by ERISA the employee MUST go through the internal administrative appeal, prior to submitting a lawsuit). Therefore, I wanted to know if anyone is familiar with this particular tax code
