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In so asserting, petitioner has conceded that she is not
entitled to exclude her share of the attorney’s fees in the State
Farm class action lawsuit in computing her gross income from the
settlement. Petitioner’s concession is well taken. Both the
Court of Appeals for the Ninth Circuit and this Court have
consistently held that contingent fees paid to recover a claim to
income are not excluded in computing the gross income from the
recovery, not even in a class action such as in the case at hand,
where the claimant retains even less control over the prosecution
and settlement of the claim than she would in ordinary one-on-one
litigation. Compare Estate of Clarks v. United States, 202 F.3d
854 (6th Cir. 2000), and Cotnam v. Commissioner, 263 F.2d 119
(5th Cir. 1959), with Benci-Woodward v. Commissioner, 219 F.3d
941, 943 (9th Cir. 2000), affg. T.C. Memo. 1998-395; Coady v.
Commissioner, 213 F.3d 1187 (9th Cir. 2000), affg. T.C. Memo.
1998-291; Kenseth v. Commissioner, 114 T.C. 399 (2000); Brewer v.
Commissioner, T.C. Memo. 1997-542, affd. without published
opinion 172 F.3d 875 (9th Cir. 1999); Martinez v. Commissioner,
T.C. Memo. 1997-126, affd. without published opinion 83 AFTR 2d
99-362, 99-1 USTC par. 50,168 (9th Cir. 1998). See also Banks v.
Commissioner, T.C. Memo. 2001-48.
Although the legal expenses of an independent contractor in
prosecuting a claim arising from the conduct of his Schedule C
trade or business are entitled to above-the-line treatment as
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