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deduction. This Court agreed with the Commissioner, holding that
the taxpayer realized income in the full amount of the judgment,
even though the attorney received 40 percent in accordance with
the contingent fee agreement.
The U.S. Court of Appeals for the Fifth Circuit’s reversal
was based on two legal grounds. An opinion by Judge Wisdom on
behalf of the panel reasoned that, under the Alabama attorney
lien statute, an attorney has an equitable assignment or lien
enabling the attorney to hold an equity interest in the cause of
action to the extent of the contracted for fee. See id. at 125.
Under the Alabama statute, attorneys had the same right to
enforce their lien as clients have or had for the amount due the
clients. See id.
The other judges in Cotnam, Rives and Brown, in a separate
opinion, stated that the claim involved was far from being
perfected and that it was the attorney’s efforts that perfected
or converted the claim into a judgment. Judge Wisdom, in the
second of his opinions, dissented, reasoning that the taxpayer
had a right to the already-earned income and that it could not be
assigned to the attorneys without tax consequence to the
assignor. The Cotnam holding with respect to the Alabama
attorney lien statutes has been distinguished by this Court from
cases interpreting the statutes of numerous other states.
Significantly, this Court has, for nearly 40 years, not followed
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