Stuart O. Bronstein <spamtrap[at]lexregia.com> wrote:

- quote -

No I don't. She was referring to federal job discrimination
cases brought under "Title 7" (hope I remembered the number
correctly).

MTW

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"Michael T Wing CPA" <mtwingcpa[at]yahoo.com> wrote:

- quote -

Do you have a cite for this?

Stu

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I did some channel surfing while visiting relatives over the
weekend (they have an extended cable package <g> ) and
stumbled into a very interesting public access broadcast of
a case before the WA State Supreme Court.

The plaintiff had won a damage award brought under a STATE
anti-discrimination statute. The statute also provided for
an award of attorney's fees, on top of which the plaintiff
had requested a "tax gross-up." The lower courts had allowed
the gross-up. That issue, plus a couple of unrelated
procedural points, was now under appeal by the (losing)
respondent.

I tuned into the middle of the broadcast and didn't hear
arguments by the respondent (I assume they went first).
However, I heard three attorneys speak on behalf of the
plaintiff. The first attorney outlined the provisions of
federal tax law and noted that the 9th Circuit has
consistently ruled that fee awards were the property of the
plaintiff and therefore includable in the plaintiff's
taxable income [see comment below]. He further noted that
due to the operation of the AMT, a plaintiff's offsetting
deduction for legal fees often had no affect. He gave
examples of cases he was aware of where the plaintiff's tax
liability on the legal fees actually equaled or exceeded the
amount of the net cash damage award. Thus the plaintiff
"lost," even thought they "won," thereby frustrating
legislative intent.

The justices asked questions/made comments along these lines:

"Isn't this really a problem for Congress to solve? We [WA
state] can't do anything about federal income taxes."

"Isn't this simply a question of "damages" that the jury
would've/could've/should've considered had the issue been
raised at trial?"

"Why shouldn't we defer to the State Legislature on this?
They have chosen to remain silent on the issue of attorney's
right to the fee award and/or plaintiff's entitlement to a
tax gross-up. Why should we infer differently?"

And, my favorite: "If both the plaintiff and the attorney
pay taxes on the fee award, isn't that "double taxation?"
[Duh!]

The most cogent comments were made by an attorney from the
Trial Lawyers Association appearing as an amicus party. She
noted that:

1) The WA state anti-discrimination statute stated by it own
terms that remedies were to be "liberally construed." In her
view, this meant that no further directive was needed from
the legislature in order to craft a remedy that made the
plaintiff "whole."

2) Federal courts have generally allowed a tax gross-up on
the fee award when FEDERAL anti-discrimination statutes were
involved.

3) It would be impractical for the jury to be involved in
determining the propriety of a gross-up request since the
fee award is set by the judge (not the jury) and does not
occur until after the trial is over. She further noted that
the tax consequences could not be determined until ALL the
other numbers were set. Thus, an "equitable review" of the
fee award, as the lower courts had implemented, was
appropriate in her opinion.

Fascinating stuff! This certainly points out the continuing
problems that flow from the lack of attention to this issue
by Congress. And, were I to be advising a client in this
situation, I would most certainly suggest that they request
a "tax gross-up" as part of their damage claim (if the
nature of the case would result in TAXABLE damages).

Last comment: This case was heard in mid-September. I didn't
hear any SPECIFIC reference to the most recent 9th Circuit
case wherein they allowed the legal fees to be excluded in
Oregon. The first attorney who spoke did note that the 9th
Circuit's position appeared to be that the fee award was
includable UNLESS state law specifically stated otherwise OR
the highest court in the state had so ruled. The "high"
justices in this case didn't appear to be interested in
going down the latter path. <g
MTW

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