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Although petitioner did not physically receive the portion of the
settlement proceeds used to pay attorney’s fees, he did receive
the benefit of those funds in the form of payment for the
services required to obtain the settlement.
In Kenseth v. Commissioner, 114 T.C. 399 (2000), we
reconsidered the view of the U.S. Court of Appeals for the Fifth
Circuit regarding contingent fee agreements as expressed in
Cotnam v. Commissioner, 263 F.2d 119 (5th Cir. 1959), affg. in
part and revg. in part 28 T.C. 947 (1957), in light of Estate of
Clarks v. United States, 202 F.3d 854 (6th Cir. 2000), and the
views of other Courts of Appeals. We concluded that we would
continue to adhere to our holding in O’Brien v. Commissioner, 38
T.C. 707 (1962), affd. per curiam 319 F.2d 532 (3d Cir. 1963),
that contingent fee agreements “come within the ambit of the
assignment of income doctrine and do not serve * * * to exclude
the fee from the assignor’s gross income.” Kenseth v.
Commissioner, supra at 412. We also declined to examine the
effect of States’ attorney’s lien statutes to decide the case.
See id.
Thus, petitioners cannot avoid income tax by an anticipatory
assignment of a portion of petitioner’s settlement proceeds to
his attorneys. See Coady v. Commissioner, 213 F.3d 1187, 1190
(9th Cir. 2000), affg. T.C. Memo. 1998-291; Kenseth v.
Commissioner, supra. Furthermore, petitioners have presented no
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