Tax Break for the Trial Lawyers: A Bad Idea

John Park / July 26, 2010

Do the nation’s trial lawyers deserve a taxpayer bailout? That’s what they’re after: a special-interest tax break of $1.6 billion.

In fact, after Congress refused to consider giving them that break, they are now trying to get it from the Treasury Department. In order to bestow that gift, though, the Treasury Department would have to reverse the view it took back in the Clinton Administration (which, incidentally, was not known for its hostility to the trial lawyers) and change its 1997 ruling without any intervening change in the underlying facts or the law.

The trial lawyers, who are permitted to loan money for the “up-front” costs of a lawsuit to their clients, want to be able to deduct those loans from their taxes when they make them, even though they fully recover those loans in the vast majority of cases. In fact, these transactions are not really loans; they are a form of deferred billing. The trial lawyers expect that the loans will, almost always, be repaid from the proceeds of a settlement or a court judgment. At that time, the lawyer will recover his or her fee (usually calculated as a percentage of the recovery) and any expenses. (more…)