- 18 -
issue in that case was whether the taxpayer could offset
his recovery in the age discrimination suit by the
attorney's fees withheld by his attorney, $91,800.54.
We held that the taxpayer's gross income included all the
proceeds of the settlement, including the portion used to
pay his attorneys under the contingent fee agreement. We
explained our position regarding this issue as follows:
This Court has, for an extended period of
time, held the view that taxable recoveries in
lawsuits are gross income in their entirety to
the party-client and that associated legal fees–-
contingent or otherwise-–are to be treated
as deductions.5 See Bagley v. Commissioner,
105 T.C. 396, 418-419 (1995), affd. 121 F.3d 393,
395-396 (8th Cir. 1997); O'Brien v. Commissioner,
38 T.C. 707, 712 (1962), affd. per curiam 319
F.2d 532 (3d Cir. 1963); Benci-Woodward v.
Commissioner, T.C. Memo. 1998-395, on appeal
(9th Cir. Feb. 2, 1999). In O'Brien, we held
that "even if the taxpayer had made an irrevoc-
able assignment of a portion of his future
recovery to his attorney to such an extent that
he never thereafter became entitled thereto
even for a split second, it would still be gross
income to him under" assignment of income
principles. O'Brien v. Commissioner, supra at
712. "Although there may be considerable equity
to the taxpayer's position, that is not the way
the statute is written." Id. at 710. * * *
_______________________
5This view is based on the well-established
assignment of income doctrine that was originated
by the Supreme Court in Lucas v. Earl, 281 U.S. 111
(1930). Lucas v. Earl, supra, has been relied on by
this Court for assignments of income involving both
related and unrelated taxpayers. [Id. at 411.]
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