Case Law and Opinions
Structuring attorney fees is, from a tax standpoint, a method of deferring fees. The deferral of attorney fees has been affirmed by the Tax Court in the case Childs vs. Commissioner, 103 T.C. 634 (1994), affirmed per curiam, 89 F.3d 856 (11 Cir. 1996).
Since Childs and its affirmation in 1996, there have been no new IRS challenges, revenue rulings or court decisions. No other cases have been published dealing with structured attorney fees, nor are there any audits on this issue since the Childs decision. However, there has been more support for the deferral of contingency fees provided in recent guidance by the Treasury Department under the American Jobs Creation Act of 2004, Pub. Law No. 108-357, 118 Stat. 1418.
Late in 2004, Congress passed a sweeping revision of the tax rules for deferred compensation, which could have put a stop to structured attorney fees until further guidance was published by the Treasury Department. In response to requests from several groups concerned about taxpayers who earn fees and commissions from several (rather than single) sources of income, the Treasury Department specifically removed contingent-fee attorneys from the group of taxpayers to be affected by the American Jobs Creation Act of 2004.
The Treasury guidance, published December 20, 2004, directly removed attorneys from the new rules, ensuring that attorneys could continue to defer fees and taxes. To read more about the Treasury's recent guidance, read an article by David M. Higgins, Esquire.
Structuring an attorney fee requires the assistance of a competent tax professional. Because the facts of each particular case will differ, we recommend working with a tax advisor. During the past 15 years, we have specialized in structuring fees and assisting attorneys and tax professionals, helping to ensure that the attorney achieves his or her desired tax, estate, financial and succession planning goals.