What are the Tax Consequences for Plaintiffs Who Hire Their Attorneys on a Contingency Fee Basis?
Commissioner of Internal Revenue v. Banks Docket No. 03-892 From: The Sixth Circuit and Commissioner of Internal Revenue v. Banaitis Docket No. 03-907 From: The Ninth Circuit Case at a Glance In these two consolidated tax cases, the Court must decide whether a plaintiff who hires his attorney on a contingency fee basis must include the attorney’s fee portion of his recovery in gross income (leaving him with a deduction for the attorney’s fees paid) or, alternatively, whether he may exclude the attorney’s fee portion of the recovery from gross income altogether. Because of the alternative minimum tax, how this issue is resolved may have significant federal income tax consequences for certain plaintiffs. • Previewed by Gregg D. Polsky, an associate professor of law at the University of Minnesota Law School in Minneapolis, Minn.
