Treasury not commenting on trial lawyer tax break

By John O'Brien | Jul 14, 2010

WASHINGTON (Legal Newsline) - While some are reacting to news that trial lawyers may soon receive a tax break, the U.S. Department of the Treasury is not commenting.

A Treasury spokesperson said Wednesday that the department did not have a comment on a member of the nation's trial lawyer group, the American Association for Justice, revealing the Treasury's plan to order a tax break for lawyers working on contingency fee lawsuits.

Sources at an AAJ convention in Vancouver, Canada, told Legal Newsline that John Bowman, the director of Federal Relations for the AAJ, said in response to a question from a state delegate regarding recruiting new members that an administrative order from the Treasury Department could come soon.

A message with the AAJ was not returned.

"If so, it's outrageous, using the taxpayers to subsidize speculative lawsuits to the tune of (an estimated) $1.6 billion," said Carter Wood, of the National Association of Manufacturing.

The tax break could be similar to proposed legislation that didn't make it through Congress last year. That proposal, sponsored by U.S. Sen. Arlen Specter, D-Pa., would have allowed attorneys to deduct fees and expenses up-front for filing contingency fee lawsuits.

"A revenue ruling or new guidance from Treasury would also represent yet more of the current Executive Branch's disregard for the policymaking branch of government, Congress," Wood added.

The president of the American Tort Reform Association called a tax break for lawyers "baffling."

"The Obama administration insists that it's determined to create jobs and help the private sector economy expand. But by forcing taxpayers to subsidize still more litigation, it would do the just the opposite," Joyce said Wednesday.

"We can either create more jobs or more lawsuits."

The Treasury Department cautioned the AAJ not to go public with the information yet, according to Bowman, sources also said.

"Writing off the costs each year would substantially boost their after-tax income and increase the attractiveness of contingency-fee cases as an investment, much as tax writeoffs on drilling expenses dramatically increase the odds of financial success in the oil and gas business," Daniel Fisher wrote in Forbes.

"The change would be poorly timed from a political standpoint, though: At the same time as legislators are trying to take away the lucrative carried-interest tax break from hedge-fund operators, Treasury would be giving it to another group of well-heeled and politically powerful professionals."

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