The IRS issued a field service advice 3 stating that it would not follow Boccardo except in the Ninth Circuit. Even if there is a recovery, the split between lawyer and client is not adjusted to account for the costs.īoccardo did not end the controversy. In a true gross fee contract, the attorney receives no reimbursement of expenses if there is no recovery. Any other fee agreement is really a loan of the costs, with the attorney and client settling up later.

The key to the deductions was a gross fee contract.Ī gross fee contract is simply an arrangement under which the attorney receives a percentage of any gross recovery, with litigation costs paid by the attorney out of his own percentage. There were three Boccardo cases, but in its final iteration the Ninth Circuit held that some attorneys could currently deduct costs as ordinary and necessary business expenses. Commissioner, but even it has some history 2. The seminal client-cost tax deduction case is Boccardo v.

Durbin, D-Ill., have complained about to the IRS. The IRS’s position has generally been a denial of deductions, some- thing even Senate Finance Committee Chair Max Baucus, D-Mont., and Sen. For that matter, many tax professionals do, too. Is the lawyer advancing those costs or simply undertaking to pay them? Can the lawyer deduct the costs as they are paid? Many lawyers still find it difficult to answer those questions. That way the lawyer and client can tally the costs when they divide the proceeds of a settlement or verdict. In the meantime, the lawyer records the costs as an expense of the case. When a contingent fee attorney agrees to represent a client in an accident case, taking 40 percent of the recovery as his fee, how does he account for costs? Most lawyers cannot get a client to pay out-of-pocket costs on an ongoing basis, so the lawyer must pay them. It may or may not be for tax purposes, as we’ll see. What could be more ordinary or necessary to being a lawyer? Contingent fee lawyers know that it may be years before the case settles, and no recovery may mean that the lawyer recoups nothing. 2009 with 2012 Supplement, ( he can be reached at lawyers assume that if they pay $1,000 for a deposition transcript or court reporter, they can deduct it as a business expense. Wood is a tax lawyer with a nationwide practice ( The author of more than 30 tax books, including Taxation of Damage Awards & Settlement Payments (4th ed.

Risk of flat fee tax attorney