Law Commons^™

A Capital Gains Anomaly: Commissioner V. Banks And The Proceeds From Lawsuits., Stephen T. Black, Katherine D. Black, Michael D. Black

St. Mary's Law Journal

When a litigant receives an award of damages or agrees to a settlement of a lawsuit for which the litigant and her attorney have agreed to a contingent fee, a portion of those damages or the settlement is paid to the attorney. For income tax purposes, there is a question of whether the litigant should include the portion paid to her attorney as her own income. The question is not merely academic. In a tax system that does not always allow the litigant to deduct her attorney's fees, the litigant may end up paying tax on money that she never …