Treasury hasn't offered trial lawyer tax break info to Iowa senator

By John O'Brien | Aug 31, 2010


WASHINGTON (Legal Newsline) - The U.S. Department of the Treasury has not yet complied with U.S. Sen. Chuck Grassley's request for information regarding a possible tax break for trial lawyers who are working on a contingency fee basis.

Grassley, of Iowa, was the first of 25 Republican senators to write the Treasury after a Legal Newsline report quoted sources at a convention who said the nation's trial lawyer group was waiting on an order granting the tax break.

"We haven't gotten a response," said Jill Gerber, press secretary for Grassley. "We haven't been told to expect one. We're not expecting anything anytime soon."

Sources at an American Association of Justice convention in July in Vancouver, Canada, told Legal Newsline that John Bowman, the Director of Federal Relations for the AAJ, said an order from the Treasury could come soon. He said this in response to a question from a state delegate regarding recruiting new members.

The AAJ is the nation's trial lawyer group and did not return an earlier message.

"We urge you not to make such changes in the government's enforcement of the tax laws absent a clear direction from Congress or to comply with court decisions," Grassley and U.S. Rep. Dave Camp, R-Mich., wrote to Geithner July 23.

The tax break has an estimated value of $1.6 billion. Congress has opted not to approve legislation that would have granted it.

The Treasury Department has refused to comment on the possible tax break. Sources also said Bowman cautioned AAJ members not to go public with the news the order would soon be issued, for fear of raising public ire to the proposal.

At issue is a 1997 Field Service Advice that followed a decision by the U.S. Court of Appeals for the Ninth Circuit.

That decision held attorneys who represent clients in gross fee contingency cases are not extending loans to clients and therefore can treat litigation costs as deductible business expenses.

The FSA instructed Internal Revenue Service staff to continue to categorize contingency fee expenses as loans to clients, except in the Ninth Circuit.

"The position the IRS instructed its employees to take in the 1997 FSA has remained the service's position for over a decade," Grassley and Camp wrote. "To our knowledge, the IRS has not been reversed in any other circuit, suggesting that this long-held stance remains a valid view of the law outside the Ninth Circuit."

The highest ranking member of the Finance Committee, Sen. Max Baucus, D-Mont., was joined by Sen. Dick Durbin, D-Ill., in an April letter to the Treasury's assistant secretary for tax policy, Law.com reported.

They asked Michael Mundaca to "clarify the position of the Treasury Department and the Internal Revenue Service with regard to the (Ninth Circuit's) decision." Mundaca said his office "is considering issuing guidance to clarify this issue."

Grassley and Camp requested that the following information be provided if new regulations are being drafted:

-Documentation of conversations regarding the Treasury's authority to issue such an order;

-Copies of all drafts of such regulations and "indicate when these are expected to be effective and whether these were expected to be released for public comment before becoming effective";

-An explanation of when and why the order was considered urgent since the issue is not in a March 16 Priority Guidance Plan released by the Treasury; and

-Copies of communications between the Treasury and outside parties regarding the issuance of such regulations.

Twenty-four other senators joined in a similar letter to the Treasury written by South Dakota's John Thune.

A spokesperson for Thune's office said the Treasury has not responded to that letter, either.

From Legal Newsline: Reach John O'Brien by e-mail at jobrienwv@gmail.com.

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