Personal Injury Contingency Fee Trap Under Tax Reform: Avoiding Hidden Settlement Obstacles and Malpractice Issues

A live 90-minute CLE webinar with interactive Q&A


Wednesday, August 8, 2018

1:00pm-2:30pm EDT, 10:00am-11:30am PDT

or call 1-800-926-7926

This CLE webinar will discuss the hidden “contingency fee trap” caused by the 2017 Tax Cuts and Jobs Act, which affects most personal injury plaintiffs. This webinar will explore the latent obstacles to settlement and possible malpractice issues that may arise for personal injury attorneys under the new law.

Description

The U.S. Supreme Court ruling in Commissioner v. Banks conclusively established that in certain types of contingency fee arrangement cases, the plaintiff must include the attorney fee portion of the recovery in his/her gross income and report it as income on the plaintiff’s Form 1040. That is, a plaintiff may not report their recovery “net” of the attorney fee.

Under tax reform, there is no longer any available corresponding, separate deduction for attorney fees from 2018 through 2025, except for in particular types of litigation. The combination of the Supreme Court ruling and the changes to the tax law is very adverse for plaintiffs.

By having to include the attorney portion of the recovery in gross income without a corresponding deduction, the result is substantially higher federal and state income taxes on the plaintiff because the attorney fee portion of the settlement cannot be “written off.” This is known as the “contingency fee trap,” and the result is that plaintiffs may end up with a much lower “net” recovery. In fact, plaintiffs may see 80% or more of their recovery go to taxes and attorney fees, particularly in states with high income tax requirements.

Listen as our expert panelists explain the contingency fee trap, who it affects and the best tactics for mitigating it. Our panelists will also walk attendees through case studies and examples of the contingency fee trap to show how this issue bears out in real life.

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Outline

  1. Overview of contingency fee tax treatment before and after the 2017 Tax Cuts and Jobs Act
  2. Case studies and figures with redacted real life examples of the contingency fee trap
  3. Discussion of what tactics will and will not work to sidestep the fee trap under the wording of the tax code and Commissioner v. Banks
  4. Practice tips for attorneys to provide adequate counsel on the contingency fee trap and avoid possible malpractice claims

Benefits

The panel will review these and other high priority issues:

  • What is the contingency fee trap and how was it created?
  • Who does the contingency fee trap affect?
  • What are the real life implications and effects of the contingency fee trap?
  • How can practitioners best mitigate the contingency fee trap?

Faculty

Armand, Glen
Glen Armand

Chief Executive Officer, Chief Compliance Officer
Eastern Point Trust
Eisenberg, Lawrence
Lawrence J. Eisenberg

Atty
Lawrence J. Eisenberg

Mr. Eisenberg has been practicing law for over 34 years, and has specialized exclusively in ERISA, pensions, executive...  |  Read More

Krause, Phillip
Phillip M. Krause, CSSC, CLMP

Managing Director of Strategic Planning
Ringler Associates

Mr. Krause serves as the Managing Director of Strategic Planning for Ringler Associates, the largest and oldest...  |  Read More

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