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supra, is based upon an interpretation of Alabama State law.
This case involves an interpretation of Texas State law. The
Golsen rule is therefore not applicable. See Golsen v.
Commissioner, supra at 757.
In the Cotnam case, the taxpayer had entered into a
contingent fee arrangement with her attorneys, under which the
taxpayer agreed to pay the attorneys 40 percent of any amount
recovered on a claim that they litigated on her behalf. The
taxpayer received a judgment on the claim, and a check in the
amount of the judgment was made payable to both her and the
attorneys. The attorneys retained their share of the proceeds,
and remitted the balance to the taxpayer. The Commissioner
treated the amount of the judgment as taxable income and allowed
a deduction for the attorney's fees. In holding that the amount
retained by the attorneys was not includable in the taxpayer's
gross income, the Court of Appeals for the Fifth Circuit
concluded that under applicable State (Alabama) law, the
contingent fee operated to assign to the attorneys
anequitablelien and interest as to 40 percent of the judgment.5
5 As stated in the provision of the Alabama Code relied
upon by the Court of Appeals for the Fifth Circuit:
2. Upon suits, judgments, and decrees for money,
* * * [attorneys] shall have a lien superior to all
liens but tax liens, and no person shall be at liberty
to satisfy said suit, judgment or decree, until the
lien or claim of the attorney for his fees is fully
satisfied; and attorneys at law shall have the same
(continued...)
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