This is the seventh in a series of articles on issues surrounding the Taxation of Settlements and Verdicts. This article addresses the question of whether the fact that attorney fees are provided for by a statute has any affect on including these fees in plaintiff’s gross income.
United States Supreme Court. The Supreme Court in Commissioner v. Banks, 125 S.Ct. 826 (2005) did not address the contention that application of the anticipatory assignment principle would be inconsistent with the purpose of statutory fee-shifting provisions, such as those applicable in Banks which was brought under 42 U.S.C. Sections 1981, 1983 and 2000(e) et. seq. In Banks, there was no court-ordered fee award or any indication in Banks’ contract with his attorney or the settlement that the contingent fee paid was in lieu of statutory fees that might otherwise have been recovered. The Court noted that the American Jobs Creation Act of 2004 redresses the concern for many, perhaps most, claims governed be fee-shifting statutes.
United States Tax Court. The United State Tax Court has addressed this issue at least twice since the Supreme Court’s decision in Banks.