Accounting for Client Advances - Do's & Don'ts 
Attorneys usually incur out-of-pocket expenses on behalf of their clients. Such fees are not immediately deductible in most cases. Instead, they are usually treated as advances ("loans") to the client. Therefore, when they are reimbursed by the client, they are neither revenue nor expense.
Uncollectible client advances generally can be expensed when they are determined to be non-collectible or not billable.
Of course, every rule is subject to exceptions. Amounts advanced in contingency cases under a net fee arrangement are not deductible until the case is settled and the recovery or lack thereof is known. The Ninth Circuit has overruled the Tax Court in holding that where litigation costs are advanced under a gross fee arrangement, the costs are currently deductible. (Boccardo, James v. Com. (1995 CA9)). As far as I know, this precedent applies only to the Ninth Circuit.
Of course, payment received from a client for in-house services - photocopying, word processing etc. - is income and the associated in-house expenses are deductible.
The bottom line is that attorneys need to take care to distinguish between professional fees and client advances and expenses for proper tax treatment.
Please feel free to contact me if you wish to discuss these or any other matters further. And always consult a tax professional before taking any action based on this or any other information.