Marjorie is a software systems engineer for Hacker Corporation. In November 2008, she inherited two parcels of land in Brower Township from her grandfather. Her grandfather’s estate valued the parcels, which are adjacent to each other and total 25 acres, at $11,000. Marjorie thought the parcels were worth more than $11,000, so she asked the estate’s appraiser why the parcels weren’t valued higher. The appraiser told her that the zoning on the land allows only one residence every two acres, which severely diminishes the resale value.
In 2009, Marjorie applied to Brower Township for a change of zoning. The Brower Township Board of Supervisors denied her application in November 2009. Marjorie filed a constitutional challenge to Brower Township’s zoning ordinance in 2010. The board of supervisors denied her constitutional challenge. Marjorie filed an appeal of the denial in Brower County District Court on September 25, 2010. On October 5, 2010, the Brower Township Board of Supervisors began consideration of a new zoning ordinance. Under the ordinance, Marjorie’s land would be rezoned to a designation that would allow three residences per acre. At this point, Marjorie withdrew her court appeal, pending the outcome of the new zoning ordinance. On January 10, 2011, the new zoning ordinance was adopted. Marjorie estimated that the value of the land increased to at least $21,000 as a result of the rezoning.
Marjorie incurred $14,000 in attorney’s fees and other costs in challenging the zoning ordinance. She paid $3,500 of the expenditures in 2010 and $10,500 in 2011.
She would like to know the proper income tax treatment of these expenses. Can Marjorie deduct the costs of challenging the zoning ordinance? Write a memorandum explaining the deductibility of the costs of challenging the zoning ordinance.