- 4 -
(1993); Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985). In
this controversy, there is no dispute over any material fact, and
a decision may be rendered as a matter of law. Consequently,
this case is ripe for summary judgment.
Petitioners argue that they did not earn or have control
over the contingency fee portion of the settlement payments and
that the portion of the settlement that paid the attorney’s fees
is therefore not includable in their gross income. Conversely,
respondent asserts that the contingency fee was an anticipatory
assignment of income from petitioners to their attorney and
includable in petitioners* gross income.
Until recently, there was a split of authority among the
Courts of Appeals on this issue.2 However, the U.S. Supreme
2 Some Courts of Appeals held that taxpayers may not exclude
attorney’s fees from their gross income. See Hukkanen-Campbell
v. Commissioner, 274 F.3d 1312 (10th Cir. 2001), affg. T.C. Memo.
2000-180; Kenseth v. Commissioner, 259 F.3d 881 (7th Cir. 2001),
affg. 114 T.C. 399 (2000); Young v. Commissioner, 240 F.3d 369
(4th Cir. 2001), affg. 113 T.C. 152 (1999); Alexander v. IRS, 72
F.3d 938 (1st Cir. 1995), affg. T.C. Memo. 1995-51; Baylin v.
United States, 43 F.3d 1451 (Fed. Cir. 1995); O*Brien v.
Commissioner, 319 F.2d 532 (3d Cir. 1963), affg. per curiam 38
T.C. 707 (1962). Other Courts of Appeals held that a contingency
fee paid to an attorney is not income to the taxpayer receiving a
settlement. See Foster v. United States, 249 F.3d 1275 (11th
Cir. 2001); Estate of Clarks v. United States, 202 F.3d 854 (6th
Cir. 2000); Cotnam v. Commissioner, 263 F.2d 119 (5th Cir. 1959),
affg. in part and revg. in part 28 T.C. 947 (1957). The Court of
Appeals for the Ninth Circuit ruled on both sides of this issue.
See Banaitis v. Commissioner, 340 F.3d 1074 (9th Cir. 2003),
affg. in part and revg. in part T.C. Memo. 2002-5; Coady v.
Commissioner, 213 F.3d 1187 (9th Cir. 2000), affg. T.C. Memo.
1998-291.
Page: Previous 1 2 3 4 5 6 7 Next
Last modified: May 25, 2011