In The News . . . . Treasury Department May Give Write-Off Relief to Gross Contingency Attorneys and Orly Taitz Has A Busy “Birther” Summer

$1.6 Billion Tax Write-offs At Issue Over 10 Year Period.

     In Boccardo v. Commissioner, 56 F.3d 1016 (9^th Cir. 1995), the Ninth Circuit Court of Appeals held that lawyers who represent clients in “gross fee” contingency fee cases—those situations where the lawyer pays off all the expenses and the lawyer and client later divide up any gross recovery later—are not extending loans to clients such that litigation costs are deductible as business expenses under Internal Revenue Code section 162(a). The IRS issued a “Field Service Advice” (IRS FSA 442) in 1997 instructing staff members to follow Boccardo only in the Ninth Circuit but disallow deductions in other circuits. Since then, two Tax Court decisions appear to line up with the Ninth Circuit’s view in Boccardo. See, e.g., Pelton & Gunther v. Commissioner, T.C. Memo. 1999-339, Doc. 1999-32749, 1999 TNT 196-58; Baddell v. Commissioner, T.C. Memo. 2000-303, Doc 2000-24769, 2000 TNT 188-8.

     However, there are signs that the U.S. Department of Treasury may soon rule that gross contingency attorneys may be getting deductions in all circuits for fronting expenses in these types of contingency fee cases, with the estimated costs of the write-offs at almost $1.6 billion over a 10-year period. Congressional legislation in both 2008 and 2009 stalled on this front. Treasury isn’t commenting, at least yet.

      Above:  Sec. of Treasury Dept. Office.  Library of Congress.

     If Internet comments from one website are any indication (see July 14, 2010 post and comments at SayAnythingBlog.com), individuals responding to the possible tax write-offs are somewhat evenly divided, with many individuals expressing the sentiment that contingency attorneys should be able to deduct expenses in the year that they are incurred just like Corporate America or that the current system results in an artificially delayed deduction that is unfair in nature.

     For more on this, see the July 15, 2010 post entitled “Is a Big Tax Break for Plaintiffs’ Lawyers on the Way?” at The Wall Street Journal website. For more information on Boccardo and tips for structuring contingency fee agreements for deductibility purposes, see Robert W. Wood, “Lawyers Who Deduct Client Costs: Revisiting Boccardo,” Tax Notes, June 14, 2010, pp. 1287-1290.

Ms. Taitz Continues to Fight Sanctions from Birther Case.

     In past posts in our “In the News” category, we have reported on the $20,000 sanctions imposed on local attorney Orly Taitz in a “birther” case brought in a Georgia federal court. Ms. Taitz is still fighting the sanctions award. As reported by Martin Wisckol in “The Buzz” (August 2, 2010 The Orange County Register), Ms. Taitz requested Associate Justice Clarence Thomas of the U.S. Supreme Court to stay the fine. This request was summarily dismissed on July 15, 2010, but Ms. Taitz is questioning why the dismissal did not have Justice Thomas’ signature on it. Ms. Taitz apparently has resubmitted the stay request to Associate Justice Samuel Alito. We can only say that the summer is still busy for Ms. Taitz in her continuing battles to demonstrate that President Obama is not a natural-born citizen for presidential qualification purposes.