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Court resolved the split in the Circuits after the submission of
the cross-motions for summary judgment in this case, rendering
moot much of the controversy here. See Commissioner v. Banks,
543 U.S. ___, 125 S. Ct. 826 (2005). The Court held that,
generally, to the extent a litigant’s recovery includes income,
that income includes the portion of recovery that constitutes an
attorney’s contingent fee. Id. The Supreme Court’s holding
follows the view consistently held by this Court. See Kenseth v.
Commissioner, 114 T.C. 399, 408 (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). Nonetheless, we
shall briefly address petitioners’ contentions.
Petitioners argue that Cotnam v. Commissioner, 263 F.2d 119
(5th Cir. 1959), affg. in part and revg. in part 28 T.C. 947
(1957), is controlling in this case.3 In Cotnam, the Court of
Appeals for the Fifth Circuit held that a contingency fee paid
directly to a taxpayer*s attorney was excludable from the
taxpayer*s gross income. In so holding, the Court of Appeals
relied heavily on the Alabama attorney lien statute, which the
court concluded afforded the taxpayer*s attorney an equitable
assignment or lien, thus enabling the attorney to hold an equity
3 The Court of Appeals for the Eleventh Circuit, which
includes Florida, has adopted as binding precedent the caselaw of
the former Court of Appeals for the Fifth Circuit, as of Sept.
30, 1981. Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir.
1981).
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