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If you are taxed on the proceeds from a lawsuit, it seems like you should be able to deduct the legal fees involved at least to the extent of your income. Only that is not the way it generally works. There are a couple of exceptions with AGI deductions for discrimination suits (IRC 62(a)(20) and whistleblower suits (IRC 62(a)(21)), but that was no help to couple suing credit reporting companies.

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Couple Gets Lawsuit Settlement And Comes Out Behind After Tax