Yes, attorney’s fees related to a trade or business (other than the trade or business of being an employee) that are deductible under section 162 are considered above-the-line deductions. Prior to 2004 a majority of attorney’s fees were considered miscellaneous itemized deductions subject to section 67 and section 68 limitations. Treating attorney’s fees as miscellaneous itemized deductions has negative implications for taxpayers subject to the alternative minimum tax (AMT), since attorney’s fees classified as miscellaneous itemized deductions are not allowable as deductions for the AMT.
The American Jobs Creation Act of 2004 provided much needed relief with above-the-line deductions for attorney’s fees and costs in connection with claims of “unlawful discrimination” and certain claims against the federal government. The amount that may be deducted above-the-line may not exceed the amount includible in the taxpayer’s gross income for the taxable year on account of a judgment or settlement. The new section 62 defines “unlawful discrimination” to include a number of specific statutes, any federal whistle-blower statute, and any federal, state, or local law “providing for the enforcement of civil rights” or “regulating any aspect of the employment relationship…or prohibiting the discharge of an employee, the discrimination against an employee, or any other form of retaliation or reprisal against an employee for asserting rights or taking other actions permitted by law.”