Revenue Tax Briefing Issue 60, August 2005
Tax Briefing (Issue 51) outlined the tax treatment of legal fees recovered by an employee as part of a court action to recover compensation for loss of office or employment, etc. The purpose of this article is to outline the tax treatment of legal fees paid by an employer on behalf of an employee or director in certain other circumstances.
Revenue wishes to clarify that the tax treatment set out in Tax Briefing (Issue 51) referred to above applies also to legal fees recovered by an employee or director as part of an action taken for breaches of employment law by the employee or director against his or her employer.
The scope of the Schedule E charge is wide ranging and legal fees paid by an employer on behalf of an employee or director are within that charge. Notwithstanding this, the Revenue Commissioners are prepared to regard the payment of legal fees incurred by an employee or director and paid on his or her behalf by an employer as not giving rise to an income tax liability in the employee’s/director’s hands where those fees relate to an investigation / disciplinary procedure instigated by an employer and all of the following conditions are met:
Enquires on this article should be addressed to taxbrief@revenue.ie
*The tax treatment of other elements of the settlement (e.g. chargeable under Section 112 or Section 123 TCA, 1997, or whether they qualify for relief under Section 192A TCA 1997) will depend on the specific facts.