Taxing Litigation: Federal Tax Concerns of Personal Injury Plaintiffs and Their Lawyers

22 Florida Tax Review 120 (2018)

60 Pages Posted: 6 Jan 2020

See all articles by Gregg D. Polsky

Gregg D. Polsky

University of Georgia School of Law

Date Written: December 13, 2018

Abstract

This Article addresses the federal tax concerns of personal injury plaintiffs and the lawyers who represent them, typically on a contingency-fee basis. It explains when plaintiffs' recoveries are taxable for income and employment tax purposes and whether and how those recoveries are required to be reported by defendants to the IRS. It also discusses whether attorney's fees and costs are deductible by plaintiffs.

In addition to these tax planning and compliance issues, the Article also considers when tax evidence might be admissible. Plaintiffs and defendants often try to introduce tax evidence in an effort to increase or decrease, respectively, the amount of damages awarded. These attempts have been met with varying degrees of success, depending on the jurisdiction and context.

The Article then addresses the personal tax issues of trial lawyers themselves. Structured attorney fee arrangements, whereby these lawyers attempt to defer tax on contingent fees, are discussed. The tax deductibility of litigation costs advanced by contingent fee lawyers to their clients is considered. Finally, the Article concludes with a discussion of how provisions of the 2017 Tax Act might affect trial lawyers.

Keywords: Federal income tax, personal injury damages, personal injury settlements, trial lawyers, structured settlements, contingent attorney fees

Suggested Citation

Polsky, Gregg D., Taxing Litigation: Federal Tax Concerns of Personal Injury Plaintiffs and Their Lawyers (December 13, 2018). 22 Florida Tax Review 120 (2018). Available at SSRN: https://ssrn.com/abstract=3503512

Gregg D. Polsky (Contact Author)

University of Georgia School of Law ( email )

225 Herty Drive
Athens, GA 30602
United States

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