MTW wrote:
- quote -

The amount that the attorney actually gets is what would be
excluded (at least under my proposal). The first offer was
neither a stipulated settlement nor a result of a court
decision; it's nothing.

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D. Stussy <kd6lvw[at]bde-arc.ampr.org> wrote:

- quote -

How would you envision the handling of the following
situation:

PRIOR to hiring an attorney, I file a discrimination claim
against my employer and said employer offers me $10,000 to
"make it go away." I decide that offer is inadequate, so I
hire an attorney to pursue the claim further.

I sign an agreement with the attorney wherein I agree to pay
him 40% <gag> of any amount collected from the employer
(including, implicitly, the $10,000 that I could have had by
simply saying "yes"). The attorney eventually negotiates a
settlement of $50,000 from the employer, and thereby earns a
fee of $20,000.

How much of that fee should be excluded from my gross income
under your formulation? $20,000??? Or only $16,000??? (The
latter being the amount of the fee that "accrued" AFTER the
attorney began to work on the case.) This "assignment of
income" issue is at the heart of this matter as I understand
it.

MTW

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MTW" <mtwingcpa[at]yahoo.com> wrote:
- quote -

In Banks the 6th seemed to throw out the state law bundle of
attorney's rights argument. From the opinion:

We likewise are not inclined to draw distinctions between
contingency fees based on the attorney's lien law of the
state in which the fee originated. Given the various
distinctions among attorney's lien laws among the fifty
states, such a "state-by-state" approach would not provide
reliable precedent regarding our adherence to the Cotnam
doctrine or provide sufficient notice to taxpayers as to our
tax treatment of contingency-based attorneys fees paid from
their respective jury awards.

The 6th also said:

The Estate of Clarks holding does not primarily rest on the
rationale that separate state lien laws governing attorneys'
rights determine the correct characterization of an attorney
contingency fee. We therefore hold that Estate of Clarks is
controlling in the present case, notwithstanding the
difference in Michigan's and California's respective
attorney's lien laws. In so holding, we will follow our
precedent without protracted inquiries into "the intricacies
of an attorney's bundle of rights."

--- end quoted text

That doesn't mean the Supremes won't wiggle out making a
rule for all 50 states, I just expect them to have something
to say about those parts of the opinion. If the Supremes
say the 6th is wrong, then they have to say why. The
obvious why is that California's law doesn't create an
attorney's lien like Alabama and Michigan's laws do. Then
we are back to figuring out each state's law.

Hopefully the Supremes will agree with the 6th. Time will
tell.

Drew Edmundson, CPA (NC)

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

Banaitis cite: 2003-2 USTC 50,638

Drew Edmundson, CPA (NC)

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Drew Edmundson wrote:

- quote -

I have the feeling that the only way we will get consistency
on this is to amend the IRC to add a section that indicates:

"Gross income shall not include the amount resulting from a
claim brought before a court, whether tried or settled, to
the extent that it is required to be reported in the gross
income of the taxpayer's attorney or other representative of
the taxpayer for the same taxable period."

Other representative should include CPAs and EAs when
dealing with tax matters - cf. 5 USC 500 and 31 USC 330 (I
think those are the correct citations). I shall let the
regulations deal with other "representatives" such as jury
consultants, etc. IRC Section numbers 137-139 seem to be
the correct place to put this.

I use "period" instead of year in the event that the
attorney's tax year is not the same as the taxpayer-client's
year.

Comments?

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

Hopefully the Court will display some of that often
criticized "activism" and put this issue to rest, once and
for all (since Congress ~apparently~ doesn't want to touch
it). My worst fear is that they will simply tinker around
with the two cases in question (both of which, as I recall,
allowed an exclusion based on the idiosyncrasies of
underlying state law) without addressing broader issues
and/or providing meaningful guidance with respect to each of
the 48 OTHER states.

MTW

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Also the Supreme Court will hear the appeal of Commissioner
v. Banaitis from the ninth. This is in addition to the
Banks case.

Maybe we will finally get an answer on the taxability of
contingent attorney fees.

Drew Edmundson, CPA (NC)

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