On October 22, 2004, President Bush signed into law H.R. 4520, the corporate tax bill passed by Congress on October 11, 2004. The bill contains the long awaited portion of the Civil Rights Tax Relief Act that eliminates the double tax on attorney’s fees by permitting plaintiffs the right to deduct “above the line” for attorney’s fees and costs by or on behalf of the plaintiff in employment discrimination cases. Additionally, it eliminates such payments from being subject to the Alternative Minimum Tax as well as the 2 percent floor on itemized deductions.
The new legislation was effective upon passage and applies only to judgments or settlements occurring after that date. There are presently two cases relating to the proper tax treatment of contingent fees, which have been consolidated and are pending decision of the United States Supreme Court which heard oral argument on November 1, 2004. A favorable result may provide further relief to plaintiffs who have successfully tried or settled employment discrimination cases.
Both the new legislation as well as the cases presently pending fore the Supreme Court are supported by the plaintiffs’ trial bar as well as industry groups and employers, generally, as it is believed that both efforts will foster settlement of employment discrimination claims and lawsuits but at lower cost to employers as plaintiffs will net higher recoveries than under prior existing law which penalized plaintiffs and thus made settlements more expensive for employers.