- 2 -
The parties filed cross-motions for summary judgment
pursuant to Rule 1211 on the sole issue as to whether amounts
paid to an attorney under a contingency fee arrangement may be
excluded from petitioners* income.
Background
Petitioners Dan C. and Cassandra T. Williams resided in
Marathon, Florida, at the time their petition was filed. During
1998, petitioners retained an attorney to represent them in a
lawsuit against Ms. Williams’s former employer for statutory
employment discrimination under Federal and State laws and for
tortious conduct under State law. As part of the retention
agreement, petitioners* attorney was entitled to a contingency
fee of 40 percent of the proceeds of the lawsuit, plus
reimbursement for all costs.
Petitioners* attorney filed suit in the U.S. District Court
for the Southern District of Florida. Prior to trial,
petitioners settled all claims against Ms. Williams’s former
employer for $500,000. The settlement agreement provided for a
release of all Federal and State claims in exchange for
petitioners’ receiving one $250,000 payment during 1998 and one
in 1999. Petitioners* attorney received the payments in accord
1 Unless otherwise indicated, all Rule references are to the
Tax Court Rules of Practice and Procedure, and all section
references are to the Internal Revenue Code in effect for the
taxable years at issue.
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Last modified: May 25, 2011