Attorney Fee Deferral Strategies
Attorney Fee Deferral Strategies
Plaintiff attorneys possess the unique option to put all or a percentage of their contingency fees in different kinds of tax-advantaged investments. If they choose to defer fees, an attorney also defers the tax obligation until the year payments are received. Attorneys have the choice to defer fees even if the claimant structures decides to structure their own settlement proceeds, but the ability to defer fees needs to be part of the settlement agreement.
Structured Attorney Fees
To facilitate an attorney fee structure with a fixed income annuity, the defendant (or the insurer) relays the attorney’s fees to a third-party assignment company. The assignment company then employs the fees to buy a fixed annuity that gives the attorney regular payments according to an established schedule. Payments can be deposited electronically into the attorney’s bank account and will be reported on a 1099-MISC as income solely during the years when the payments start coming in.
There are no ongoing administrative or maintenance fees associated with structured attorney fees, ensuring that attorneys get to keep more money. Monthly, quarterly, semi-annually, or annual payment schedules can be negotiated, or the payment may be paid out in a series of future lump sums beginning immediately or on a future date.
Structured Attorney Fees Tax Guidance
Very similar to structured settlement annuity for injured claimants, the tax treatment depends on the ability to avoid constructive receipt. The Tax Court ruled in Childs v. Commissioner, 103 T.C. 634 (1994), aff’d, 89 F. 3d 856 (Table)(11th Cir. 1996) that since the attorney’s fees were transferred from the defendant directly to the assignment company, the attorney didn’t have constructive receipt of the fees, thus the fees did not count yet as income that is taxable.
Non-Fixed Annuity options For Attorneys
There are several structured settlement annuity options for attorneys to choose from, along with the fixed annuity. Minimums for investment can change depending on the product, and noon-fixed annuity options may include annual administration and/or setup costs. However, non-fixed annuity options may provide the opportunity for greater growth than the fixed annuity while still offering guaranteed income. Structured settlement consultant Jay Scarola can offer thorough consultation for your annuity options.
Fee Structure Plus
Fee Structure Plus lets an attorney invest a contingency fee, tax-deferred, as part of a market-related investment portfolio. The funds can be managed by a financial advisor of the attorney’s choosing or a respected financial institution. Payments will be received on a periodic payment schedule, and taxes only apply on funds received during a specific tax year. To learn more about market-based investments, consult with Jay Scarola today.
Treasury Funded Structured Settlement
A Treasury Funded Structured Settlement (TFSS) is backed by the United States government, and the underlying investment uses U.S. Treasury Bonds. Attorneys have the option to put all or a part of their contingency fees in a TFSS as a reliable, safe fee deferral option.