Trial Lawyers Still Lobbying for Their $1.6 Billion Tax Break

The latest lobbying disclosure report from American Association for Justice reveals the trial lawyers to still be working Congress and the Treasury Department to finagle a $1.6 billion tax break for its members, a sort of stimulus bill for suing people.

The AAJ’s first quarter lobbying report filed April 15 lists the U.S. House and Senate as targets on the issue, “Lobbying with regard to the deduction of attorney-advanced expenses and court costs in contigency [sic] fee cases.” (The AAJ reported $850,000 in lobbying expenses for the period, down from the $910,000 reported in the fourth quarter of 2010.)

We last wrote about the issue in October, so to recap: Under current law, the IRS does not permit lawyers to deduct expenses advanced to clients in contingency suits — “we only get paid if you win!” — because the agency considers the money a loan. Deductions are only permitted after the case comes to end, either with a judgment or settlement, or if the client loses the case and default on the loan. These kind of arrangements allow lawyers to front cases even though most states outlaw “champerty,” i.e., direct financing of suits. (For more on champerty, see this discussion by Barry Barnett.)

This special interest tax break erupted into controversy in 2009 when Legal Newsline reported that the AAJ’s top lobbyist, Linda Lipsen, told members the group hoped to sneak the tax break through Congress by quietly “tucking it into” another bill. When the publicity worked against the legislation the AAJ moved to a backup plan: just having the Treasury Department grant the tax break through a tax interpretation or other action.

A widespread outcry greeted news of the Treasury maneuver, but the AAJ continues to pursue it. In the first quarter, the AAJ paid the tax specialists at the Washington Tax Group to work the issue, not just with Congress but also the Treasury Department. The $10,000 reported lobbying expenditures for the quarter is down from the $40,000 the previous quarter.

No tax-lawyer-tax-break bill has been introduced yet in the 112th Congress, and one suspects members will be reluctant to sponsor the legislation. After all, last session’s Democratic sponsors, Rep. Artur Davis of Alabama (H.R. 2519) and Sen. Arlen Specter of Pennsylvania (S. 437) both lost elections and are out of Congress.

So the Treasury remains the lobbying target. We trust the House Ways and Means Committee will continue to pay close attention to the issue. The last thing the economy needs is tax subsidies for more speculative lawsuits.

Earlier reporting here.

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