Taxation of Contingency Fees: Deductions for Expenses?

The Supreme Court’s decision in Commissioner v. Banks may have unintentionally changed the nature of lawsuit income. However, the Court did not claim to overturn the “origin of the claim” doctrine with respect to the deduction of attorney’s fees and costs. Thus, the Court has created a two-part analysis for taxation: one for the income from lawsuits and another for the deductions.