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January 13, 2004

Another Great Reason for Clients to Negotiate Contingency Fee Levels

Filed under: pre-06-2006 — David Giacalone @ 10:00 pm

The New York Law Journal reports that “A taxpayer who won a recovery of backpay and paid his attorneys on a contingency fee basis must include the amount of the contingency payment in his gross income for tax purposes, the 2nd U.S. Circuit Court of Appeals ruled Tuesday.”   (NYLJ, “Contingency Payment Considered Part of Taxpayer’s Gross Income,” by Mark Hamblett, 01-14-2004):

Judge Wesley said that “it makes little sense to distinguish between circumstances in which an attorney is paid on a hourly basis and those in which the client and attorney have agreed to a contingent fee arrangement.”

When a client pays an attorney on an hourly basis, the same fund generates gross income for each; the fund simply passes through the client’s hands first, he said. “There seems no reason to treat contingent fee arrangements differently.”

“piggy broken”  Are p/i lawyers and others using contingency fees telling their clients about the income tax liability?  They certainly should be.  ‘Nuff said.  (How Appealing noted  the decision earlier today, and provided a link.)

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