- 18 - attorney’s fees, determining that the attorney’s fees constituted a capital expenditure and could, therefore, not reduce ordinary income. The Court of Federal Claims agreed with the Government. On appeal, the taxpayer argued that the portion of the recovery used to pay attorney’s fees was never a part of the partnership’s gross income and should be excluded from gross income. The Federal Circuit, rejecting the taxpayer’s argument, held that even though the partnership did not take possession of the funds that were paid to the attorney, it “received the benefit of those funds in that the funds served to discharge the obligation of the partnership owing to the attorney as a result of the attorney’s efforts to increase the settlement amount.” Id. at 1454. The Court of Appeals for the Federal Circuit sought to prohibit taxpayers in contingency fee cases from avoiding Federal income tax with “skillfully devised” fee agreements. See id. The U.S. Court of Appeals for the Ninth Circuit reached the same result as the court in Baylin regarding the includability of attorney’s fees in a taxpayer’s gross income. In Brewer v. Commissioner, 172 F.3d 875 (9th Cir. 1999), affg. without published opinion T.C. Memo. 1997-542, the Court of Appeals affirmed the Tax Court decision holding that the portion of a Title VII settlement that was paid directly to the taxpayer’s attorney was not excludable from the taxpayer’s gross income.Page: Previous 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 Next
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