Good news for civil rights plaintiffs
October 12, 2004
Law.com has this story:
Amidst all the corporate tax benefits enacted by the Senate on Monday, one little-noticed provision may turn out to be a boon for civil rights plaintiffs, public interest groups, whistleblowers, and even trial lawyers.The American Jobs Creation Act of 2004, which now heads to President George W. Bush for signature, contains a section ending the "double taxation" of lawyer contingent fees in several types of litigation. The Internal Revenue Service has favored double taxation for years, and its policy is the subject of two cases set for argument at the Supreme Court Nov. 1.
Until now, the IRS required a victorious civil rights or other plaintiff who won, for example, a damage award of $100,000 to pay taxes on the entire amount, even though a contingent fee of $30,000 went to the plaintiff's attorney, and even though the attorney would pay taxes on that $30,000. The government's theory was that the entire award went to the client and should be taxed to the client, no matter where a chunk of the award ended up.