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Will Obama Administration Give Trial Lawyers a $1.6 Billion Tax Break?


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Washington Examiner:

Will Obama administration give trial lawyers a $1.6 billion tax break?
Online Opinion Editor
07/14/10 10:20 AM EDT

America’s massive debt and deficit loom. Democrats in Congress are saving face by talking up fiscal responsibility and talking down President George W. Bush’s tax cuts for the wealthiest Americans.

But even in this context, the Obama administration may be on the verge of giving wealthy trial lawyers a special interest tax break worth $1.6 billion. Legal Newsline reports that AAJ’s top lobbyist, John Bowman, told the group’s annual convention in Vancouver, Canada yesterday that the IRS will make the change administratively in order to avoid a vote in Congress. He also warned attendees that Treasury Department officials had warned him to keep the information quiet.

This story is a testament to the plaintiff lawyers’ lobby and the influence it holds with the Obama White House and the Democratic Party. When AAJ members held a major fundraiser this week at the AAJ convention in Vancouver, Canada, ten Democratic U.S. Senate candidates took breaks from their campaigns to attend.

Trial lawyers and their main trade group, the American Association for Justice (AAJ), have pushed for a special tax break that allows them to deduct litigation costs in the same year they invest in contingency lawsuits. Legally, such costs are considered loans to clients, and the IRS does not allow them to be deducted until the case ends either with success and a fee from a judgment or settlement, or with failure and a loan default. The loan arrangement springs in part from the fact that most states consider it unethical or even illegal for lawyers to fund their clients’ lawsuits, a practice known in common law as “champerty.”

Unlike many of AAJ’s other agenda items (expansion of work discrimination suits and an end to pre-emption in medical device cases, for example), the tax break would apply to nearly every plaintiffs’ lawyer in America, and is valued at nearly $1.6 billion. AAJ, which recently suffered a 33 percent drop in membership dues collection between 2005 and 2008, views this line of advocacy as a recruitment tool. Last year, speaking before AAJ’s covention, the group’s then-chief lobbyist, who is now its CEO, said that Democrats in Congress might push the provision through by attaching it to unrelated legislation.
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