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Payday: Trial lawyers could get major tax cut despite major federal deficit

Posted By Chris Moody On 12:49 AM 07/15/2010 In Blog - Chris Moody | 16 Comments

After years of filling Democratic coffers with massive campaign donations, trial lawyers are cashing in their chips with a sweetheart deal from the government that will save the industry billions of dollars over the next few years.

According to a Legal Newsline report from the annual meeting of the American Association for Justice, the nation’s lobbying arm for trial lawyers, the industry may get a tax break from the U.S. Treasury Department that would give trial lawyers the ability to write off expenses involved in contingency fee cases much in the same way businesses write off expenses. But unlike businesses, lawyers will benefit from the tax write-off in addition to the fee they charge clients.

“They’re trying to get the best of both worlds,” said Christopher Appel, an attorney in the public policy group at the Washington-based law firm Shook, Hardy, and Bacon. “It’s not really a business expense. It’s a loan made to the other person the attorney fully expects to get back.”

Congress shot down a similar provision in 2009 that would have given trial lawyers a tax break on contingency fee lawsuits. An analysis of the bill at the time concluded that such a measure would ensure the government pays up to 40 percent of the costs involved in filing lawsuits. Now, it appears the group will get the tax break without having to go through the legislative process.

“In other words, the federal government will pick up a big chunk of the tab for trial lawyers,” said Brad Dayspring, press secretary for Republican Whip Eric Cantor.

Trial lawyers have long advocated for the favorable change in tax policy, which would offer them a major income boost. A review of lobbying expenditures by the Heartland Institute while the provision was being considered in Congress concluded that “virtually the entire AAJ lobbying team is directed at helping ensure the passage of the proposal.”

The Obama administration has gone to great lengths to increase taxes and regulation on businesses, and now a federal agency is taking a step toward cutting taxes for a group that has donated more than 90 percent of its total of $31.6 million in campaign contributions to Democrats over the past two decades. With the nation still reeling from a major recession, some wonder why the Treasury Department would open the door to such a loss of tax revenue.

“Why would you give an organization, in this economic climate with deficits out of control, a huge tax break? It can only be a product of close ties through lobbying the administration,” Appel said.

“If only Democrats cared as much about job creators as they do trial lawyers,” Dayspring lamented. “Tax breaks for trial lawyers; tax hikes for business.”

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