- 91 -
ownership “(and a contingent fee contract makes the lawyer in
effect a cotenant of the property represented by the plaintiff’s
claim)”, id. at 625, which could also lead to partnership/joint
venture characterization.
Adoption of the partnership/joint venture analogy could
create problems that would require attention. It has been
suggested that partnership or joint venture characterization
would open the door to tax avoidance by attorneys who enter into
contingent fee agreements.60 Examples include the possibility
that attorneys would contend that partnership characterization
entitles them to distributive shares of the tax-free recoveries
in personal injury actions and to current deductions for the
59(...continued)
Because many contracts for the sale of property that
call for contingent payments involve principal payments
that are wholly contingent, it is doubtful that these
contracts would be viewed as debt instruments and
accordingly would be subject to section 483 rather than
section 1274. * * *
It seems likely that a contingent fee contract would be treated
under a debt analysis as contingent as to both principal and
interest; both the principal and interest amounts could be
determined only when and if the claim is satisfied so as to give
rise to the lawyer’s entitlement to a fee, see Garlock supra at
4-21 and 22, and would not satisfy the form or substance
requirements of debt. As a result, there is obvious similarity
in substance if not in form to a partnership or joint venture
between attorney and client.
60 Kalinka, “A.L. Clarks’ Est. and the Taxation of
Contingent Fees Paid to an Attorney”, 78 Taxes 16, 18-20 (Apr.
2000).
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