Tax Treatment of Class Action Attorneys' Fees: After Banks

1the Supreme Court held that contingent attorneys’ fees generally represent income to the plaintiff, resolving a bitter dispute among the Circuit Courts. Unfortunately, this decision did not address all types of litigation or all fact patterns and thus provides incomplete answers to the puzzle of attorneys’ fees taxation. 2 Although the Court announces that contingent attorneys’ fees are income to the plaintiff, it expressly provides that this is only a general rule. Moreover, the Supreme Court carves out several substantive issues it says it will not address. Some of these issues are huge, such as the appropriate tax treatment in cases involving injunctive relief, and in cases involving statutory fee shifting provisions. The Supreme Court implicitly creates exceptions to the general rule, but says it is not going to discuss or analyze them. In the end, the Banks decision may have raised more questions than it answered. Shortly before the Banks decision, Congress also decided to address the tax treatment of attorneys’ fees. The American Jobs Creation Act of 2004 (the ”Jobs Act”),