-20-
a contingent fee agreement was includable in the plaintiff’s
gross income. The Supreme Court held that a contingent fee
agreement between an attorney and a client should be viewed as an
anticipatory assignment to the attorney of a portion of the
client’s income from any litigation recovery12 and that, “as a
general rule, when a litigant’s recovery constitutes income, the
litigant’s income includes the portion of the recovery paid to
the attorney as a contingent fee.” Id. at ___, ___, 125 S. Ct.
at 829, 831. The Supreme Court’s holding is consistent with
prior opinions of this Court holding that the portion of a
recovery paid to an attorney as a contingent fee is includable in
the litigant’s income. See Kenseth v. Commissioner, 114 T.C. 399
(2000), affd. 259 F.3d 881 (7th Cir. 2001); O’Brien v.
Commissioner, 38 T.C. 707, 712 (1962), affd. per curiam 319 F.2d
532 (3d Cir. 1963).
2. The Parties’ Contentions
Petitioner argues that the portion of the settlement amount
used to pay his attorney’s fees is not includable in his gross
12Under the anticipatory assignment of income doctrine, a
taxpayer cannot exclude an economic gain from gross income by
assigning the gain in advance to another party. Commissioner v.
Banks, 543 U.S. ___, ___, 125 S. Ct. 826, 831 (2005). The
rationale for this doctrine is that “gains should be taxed ‘to
those who earn them’, a maxim we have called ‘the first principle
of income taxation’”. Id. at ___, 125 S. Ct. at 831 (citations
omitted). In order to preserve this principle, when income is
anticipatorily assigned it is attributed to the taxpayer who
retains dominion over the income-generating asset. Id. at ___,
125 S. Ct. at 831-832.
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