According to the U.S. Chamber-backed Legal NewsLine, the litigation lobby is quietly preparing to push through a $1.6 billion (with a “b”) tax break that would let contingent-fee lawyers deduct expenses as made, rather than in the year of settling a suit. American Association for Justice lobbyist Linda Lipsen says Sens. Harry Reid and Max Baucus and Reps. Nancy Pelosi and Charles Rangel are among those on board, as well as “some Republicans”, but “the problem is there is not a tax vehicle yet,” — “You cannot have a stand alone bill to help lawyers … so we have to tuck it into something.” [cross-posted, and slightly adapted, from Point of Law; updates and additional links there]
Posts Tagged ‘taxes’
Tales of contingent-fee tax collection
A St. Louis lawyer has won big in contingency-fee tax collection by teaming up with class action firm Korein Tillery to challenge cellphone companies’ claims not to be subject to municipal taxes on landline telephone providers. At the same time he’s been town attorney for the suburban community of University City, which now finds itself in the position (with many other Missouri municipalities) of paying its share of $65 million in proposed fees. [Paul Hampel and Margaret Gillerman, “U.City lawyer wins big in class-action case”, St. Louis Post-Dispatch, Jul. 23]
Regulation of yoga-instructor training
It’s leading to battles in New York and other states: “In March, Michigan gave schools a week to be certified by the state or cease operations. Virginia’s cumbersome licensing rules include a $2,500 fee — a big hit for modest studios that are often little more than one-room storefronts.” [NY Times]
Complete federal tax code and regs in 8 volumes
What am I bid? $1.00? Not even that? (via Caron).
Massachusetts’s long tax arm
The state is suing the Town Fair Tire chain, saying its outlets in New Hampshire (a state with no sales tax) should have collected tax on Massachusetts residents’ purchases and sent it off to Boston on their behalf. It was supposed to know which customers these were by checking their cars’ license plates. [Daniel J. Flynn, City Journal] More: TaxProf covered the suit in February.
Continental charges pilots with sham divorces
Continental Airlines says nine pilots got “paper” divorces from their spouses and then remarried after securing lump-sum distributions from the carrier’s retirement plan. Federal regulators have in the past indicated that plan administrators should disallow sham transactions intended to qualify for tax-favored retirement benefits. Two pilots have now countered with charges that the airline invaded their privacy when it investigated whether their divorces were really what they seemed. [Houston Chronicle and followup]
May 22 roundup
- Recruiting municipalities to sue: “Class-action lawyers target online travel sites” [Roger Parloff, Fortune, earlier]
- “New York press shield law would extend to bloggers (and define blogging)” [Turkewitz]
- Keep publishing that paper or else? Arizona Attorney General sues Gannett to make it keep Tucson Citizen alive [Legal NewsLine] More: Ken at Popehat has further thoughts on entanglement of government and press.
- Prediction if the feds bail out Sacramento: “bondholders will get 10 cents on the dollar, and the SEIU will be given 55% ownership of California.” [Coyote, Nick Gillespie/Reason]
- “Top Conservatives on Twitter” organizer takes critic to court [Citizen Media Law, Patrick @ Popehat]
- Louisiana woman sues Wal-Mart over unwanted in-store encounter with nutria (muskrat-like rodent) [Lowering the Bar, On Point News]
- Annals of zero tolerance: student expelled over eyebrow trimmer [KDKA, Pittsburgh, via Obscure Store]
- Program encourages Brits to report their neighbors to the cops if they seem to be living beyond their means [Radley Balko]
Trial lawyer earmarks: ending deductions for punitive damage payments
One can certainly see why ending tax deductions for punitive damages is a superficially appealing idea.
But the main effect will be to increase settlement pressure in cases where there are unjust punitive damages awards. Because settlements can be characterized as “compensatory” and tax-deductible while court-ordered judgments cannot, trial lawyers will be able to use the tax differential to discourage defendants from seeking appellate review. So one cannot expect very much tax revenue from this: “punitive damages” will drop precipitously, but money going to trial lawyers will go up. Moreover, appellate courts will have fewer opportunities to correct bad decisions by trial courts, creating more uncertainty in litigation, which raises litigation expenses because it will be harder to predict outcomes.
Note that taxpayers are not subsidizing punitive damages award deductions by businesses: the income “lost” because a defendant deducted the punitive damages award will be income realized by the plaintiff and his or her attorney. If the deduction is forbidden, the government will be, in effect, double-taxing the same money.
The Obama administration makes much of its claim of being pragmatic, rather than ideological, but this looks like an indirect giveaway to the trial bar rather than a source of government revenue. More: Walter at Point of Law; and my shining mug quoted at the Southeast Texas Record.
Taxes and structured settlements
In structured settlements, injury compensation is paid in installments over years rather than as a lump sum up front. It has long been argued that arrangements of this sort should be strongly favored by public policy: many accident settlements are premised on the need to cover years of needed therapy or future income lost through disability, and if it’s spent down too quickly through mishandling or “lottery winner syndrome”, the victim could wind up an expensive public charge. For reasons of this sort, structured settlements have been accorded highly favorable tax treatment.
Then an industry sprang up that offered to turn structured settlements into quick cash on the barrel, a choice that many lawsuit beneficiaries might be tempted to make (or might make after being leaned on by family members). Although laws often require that conversions of this sort be submitted for review to a court, judicial review may be cursory in the absence of adversary process to call attention to the potential drawbacks of a conversion. Not only has the structured-settlement-conversion industry managed to thrive, but somehow, as Shaun Martin notes, Congress has even been prevailed on to bestow favorable tax treatment on its doings — the same doings that tend to undermine the public benefits thought to arise from the original tax-favored structured settlement. More details are to be found in this decision, PDF, in which an appeals court recently sided with the factoring companies in a series of Fresno, California disputes (also discussed at this new blog on structured settlements, via Dan Schwartz).
Tax incentives that encourage lottery-winner syndrome? To paraphrase what Martin says, it’s almost as if someone was managing to work the system.
What have they done with the old Rose and Crown?
They’ve taxed it to death: “A record 2,000 British pubs have closed with the loss of 20,000 jobs since the chancellor, Alistair Darling, increased beer tax in the 2008 budget, new figures published by the British Beer and Pub Association reveal today.” [Guardian via Minton, CEI Open Market] A sheet music version of the Ian Robb song referenced in the headline is here, and the Campaign for Real Ale is here.