Taxing Nonrecourse Litigation Funding

Posted: 3 Mar 2014

See all articles by John Gamino

John Gamino

Texas State University, San Marcos

Date Written: February 25, 2014

Abstract

This paper examines the implications of the recent and growing phenomenon of nonrecourse third-party litigation funding. The proliferating acceptance and use of such funding raises elemental federal income tax issues of characterization and timing both for funding providers and for civil plaintiffs accepting such funding in exchange for an agreement to share the cash proceeds of any settlement or judgment. Explaining and emphasizing the commercial (business-to-business) market for litigation funding as it has evolved, this paper addresses the implicit tax compliance issues by testing optional guidance models that may apply by analogy. It concludes by identifying the single model that should apply and offers a pro forma revenue ruling as a starting point for the government's further consideration of the issues and early promulgation of administrative guidance.

Suggested Citation

Gamino, John, Taxing Nonrecourse Litigation Funding (February 25, 2014). 2014 JLTR Conference, Available at SSRN: https://ssrn.com/abstract=2401189

John Gamino (Contact Author)

Texas State University, San Marcos ( email )

601 University Drive
San Marcos, TX 78666-4616
United States

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