is this considered taxable income?
If the business is running at a loss (including legal fees) then yes that loss can be used to reduce the tax burden this year.
But since the loss burden is 100% [1],and the tax burden say 50% this is worse, not better. Sure the 5 million accumulated loss means 2.5 million less tax, but it also means 5 million gone to cover the losses..
[1] losses are funded from somewhere, and those funds typically have to be replaced sooner or later (or bankruptcy). Working capital, reserves, loans etc. Unless they're like listed on the stock exchange.
I mean in the sense that it feels like you're suggesting that "offsetting expenses" makes it better. When it makes it worse. [1]. So in answering the question "is this taxable income" - the answer is "yes". If you wanted to qualify it more it would be more along the lines of "not just tax, there's likely a lot of other expenses incurred as well."
[1] Yes, it's better in the pure sense that there's "less tax", but overall there's more expenses than the tax that was saved.
I guess the reply seemed strange to me because it started the thought, and then kinda didn't complete it.
The post could have just said "yes", or could have mentioned the additional costs and explained that taxes were not the only likely overhead. But (it read to me) like the thought was incomplete, or was somehow implying the expenses were a good thing.
Clearly though I misunderstood it - my bad.