Commissioner of Internal Revenue v. John W. Banks, Ii (543 U.S. 426)
U.S. Supreme Court · decided January 24, 2005 · Supreme Court Database (Spaeth)
- Citation
- 543 U.S. 426 · 125 S. Ct. 826
- Decided
- January 24, 2005
- Term
- October Term 2004
- Vote
- 8–0
- Majority author
- Justice Kennedy
- Issue area
- Federal Taxation
- Disposition
- Reversed and remanded
- Outcome
- Petitioning party won
- Ideological direction
- Liberal
Opinion excerpt
Justice Kennedy delivered the opinion of the Court. The question in these consolidated cases is whether the portion of a money judgment or settlement paid to a plaintiff’s attorney under a contingent-fee agreement is income to the plaintiff under the Internal Revenue Code, 26 U. S. C. § 1 et seq. (2000 ed. and Supp. I). The issue divides the courts of appeals. In one of the instant cases, Banks v. Commissioner, 345 F. 3d 373 (2003), the Court of Appeals for the Sixth Circuit held the contingent-fee portion of a litigation recovery is not included in the plaintiff’s gross income. The Courts of Appeals for the Fifth and Eleventh Circuits also adhere to this view, relying on the holding, over Judge Wisdom’s dissent, in Cotnam v. Commissioner, 263 F. 2d 119, 125-126 (CA5 1959). Srivastava v. Commissioner, 220 F. 3d 353, 363-365 (CA5 2000); Foster v. United States, 249 F. 3d 1275, 1279-1280 (CA11 2001). In the other case under review, Banaitis v. Commissioner, 340 F. 3d 1074 (2003), the Court of Appeals for the Ninth Circuit held that the portion of the recovery paid to the attorney as a contingent fee is excluded from the plaintiff’s gross income if state law gives the plaintiff’s attorney a special property interest in the fee, but not otherwise. Six Courts of Appeals have held the entire litigation recovery, including the portion paid to an attorney as a contingent fee, is…
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