Tax
Dec. 3, 2025
Plaintiff legal fee deductions under 'beautiful' tax law
Most plaintiffs in contingent fee cases must report the entire settlement as income under Commissioner v. Banks, even though their lawyer is paid a share, but with careful tax planning -- such as using above-the-line deductions for qualifying claims -- they can usually avoid paying tax on the portion of the recovery that goes to their attorney.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Most plaintiffs in lawsuits pay their lawyer a contingent fee. If the case settles for $1 million the lawyer is paid a percentage, say 40%. Checks can be cut in different ways, but in most cases, the lawyer receives the gross proceeds, deducts the fee and expenses, and sends the balance to the client. As a result of these mechanics, many plaintiffs assume that at most, their tax obligations apply to $600,000, the amount they receive.
However, under
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