Contingency Fee Trap

Thursday, April 19th, 2018 BY Les Marsh

A 2005 U.S. Supreme Court ruling established that in certain types of contingency fee arrangement cases, the attorney fee portion of the recovery must be included in the Plaintiff’s gross income. Including the attorney portion of the recovery in gross income, without a corresponding deduction, results in substantially higher federal and state income taxes on the Plaintiff. This “tax trap” is called the “Contingency Fee Trap,” and the National Coalition for Equitable Settlements has designed a simple and easy solution to avoid it and substantially increase the Plaintiff’s after-tax settlement proceeds.

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