Taxing Litigation: Federal Tax Concerns of Personal Injury Plaintiffs and Their Lawyers

This Article addresses the federal tax concerns ofpersonal injury plaintiffs and the lawyers who represent them, typically on a contingencyfee basis. It explains when plaintiffs\u27 recoveries are taxable for income and employment tax purposes and whether and how those recoveries are required to be reported by defendants to the IRS. It also discusses whether attorney\u27s fees and costs are deductible by plaintiffs. In addition to these tax planning and compliance issues, the Article also considers when tax evidence might be admissible. Plaintiffs and defendants often try to introduce tax evidence in an effort to increase or decrease, respectively, the amount of damages awarded. These attempts have been met with varying degrees of success, depending on the jurisdiction and context. The Article then addresses the personal tax issues of trial lawyers themselves. Structured attorney fee arrangements, whereby these lawyers attempt to defer tax on contingent fees, are discussed. The tax deductibility of litigation costs advanced by contingent fee lawyers to their clients is considered. Finally, the Article concludes with a discussion of how provisions of the 2017 Tax Act might affect trial lawyers