Taxation of Contingent Fee Awards

By Schnee, Edward J. | Journal of Accountancy, August 2000 | Go to article overview

Taxation of Contingent Fee Awards


Schnee, Edward J., Journal of Accountancy


In many tort cases, as well as in class action lawsuits, the attorneys receive a contingent fee equal to a fixed percentage of the award or recovery. Whether the taxpayer must include the full award in his or her income or only the part remaining after paying the contingent legal fee, however, has not always been clear.

In June 1988 Arthur Clarks was awarded $5,600,000 in damages from K-Mart for injuries he sustained while unloading his truck. In 1991 K-Mart paid Clarks $11,307,875 ($5,600,000 award plus $5,707,875 interest) to satisfy the judgment. Clarks' attorney received $3,766,471; Clarks received the balance.

Following Clarks' death, his estate filed form 1040 and included only $3,806,532--the amount of interest income he actually received. The estate excluded the interest that was paid to his attorney. The IRS audited the return and included the full amount of interest in Clarks' taxable income, assessing a tax deficiency of $254,298. The district court held for the IRS and the taxpayer appealed.

Result. For the taxpayer. Prior appeals courts that considered this issue were split. The Fifth Circuit Court of Appeals, in Cotnam, 263 F.2d 119, held that the taxpayer did not have to include the contingent fee in income. The Fifth Circuit based its decision on Alabama law, which gives attorneys a unique lien on any award received under a contingent fee contract. In contrast, the Federal Circuit Court of Appeals, in Baylin, 43 F. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Taxation of Contingent Fee Awards
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.