Walter Olson of PointofLaw.Com writes about a tax break that is in the works for trial lawyers:
[T]he litigation lobby is quietly preparing to push through a $1.6 billion (with a “b”) tax break for contingent-fee lawyers that would let them deduct expenses as made, rather than in the year of settling a suit.
Current Law
Personal injury (PI) lawyers usually take cases on a contingency basis. Their clients pay them from the settlement or jury awards they collect.
These lawyers pay out of their own pockets thousands – in some cases even millions – in costs for investigative expenses, trial exhibits, court reporters, expert witnesses, etc. They recover these “advance” costs at the end of the case from the amounts they collect for their clients.
An advance cost is, in effect, a loan the collectibility of which cannot be determined until the case is closed. Under current tax law these client loans cannot be deducted by the attorney as expenses until the case is concluded and a determination as to the collectibility of the loan can be made.
See Canelo v. Commissioner, 53 T.C. 217 (1969).
Implications of Proposed New Law
Eugene Volokh notes that Victor Schwartz, general counsel of the American Tort Reform Association, and Christopher Appel believe the tax break is a bad idea because it will increase the number of frivolous lawsuits thereby further burdening an already overburdened legal system:
Today the costs of litigation act as a curb against marginal and frivolous litigation. This is what makes the plaintiffs’ lawyers’ tax proposal of such great practical importance. While one cannot calculate it mathematically, having the federal government bear 40% of the initial costs allows plaintiff’s attorneys to take more cases with higher risks.
The American Association for Justice has already convinced some powerful Democrats to support the effort:
AAJ lobbyist Linda Lipsen says Sens. Harry Reid and Max Baucus and Reps. Nancy Pelosi and Charles Rangel are among those on board, as well as some Republicans, but “the problem is there is not a tax vehicle yet.”
“You cannot have a stand alone bill to help lawyers . . . so we have to tuck it into something.”
“Tuck it into something” is an Orwellian phrase designed to mislead the public. What it means is that certain congressmen want to pass this law to placate the trial lawyer lobby, but they don’t want the electorate to know they’re doing it.
So much for transparency and the age of full disclosure, huh?
2 responses so far ↓
1 David P // Aug 3, 2009 at 11:53 am
Where did that quote about “tuck it into something” come from? I cannot tell, was it Reid, Pelosi or Wrangel?
2 Peter // Aug 3, 2009 at 4:54 pm
David,
Thanks for the visiting and commenting.
The quote is from Linda Lipsen, the AAJ lobbyist who apparently knows how things get done in Washington.
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