Attention Attorneys who work on a contingency fee basis.

ACTION ITEM – For cash-basis contingency-fee attorneys, consider delaying payment of case expenses until January 1, 2022.

One of the provisions in the proposed Build Back Better legislation would allow case expenses to be deducted currently (rather than treating such amounts as loans for tax purposes).  Under current law, attorneys who work on a contingency-fee basis generally must wait to deduct case expenses (costs of discovery, depositions, expert witness testimony, etc.) until the case is settled or ultimately resolved by a Court.

Under the proposed legislation, contingency-fee case expenses could be deducted as the costs are paid or incurred rather than waiting until the conclusion of the litigation for deduction.  This provision would be effective for amounts paid or incurred in years beginning AFTER the date of enactment.  So, if this provision does get enacted in 2021, it would be effective for 2022.