Treasury not commenting on trial lawyer tax break; Tort reform advocate calls it 'laughable'

John O'Brien and Ann Knef Jul. 15, 2010, 6:09am



WASHINGTON - Tort reform advocate Ed Murnane called a plan to give trial lawyers a contingency fee tax break without congressional approval "laughable."

Murnane, president of the Illinois Civil Justice League and chairman of the American Tort Reform Association (ATRA), also said reports that the U.S. Treasury Department is considering issuing the tax break as an administrative order should not be surprising.

A similar proposal introduced last year by Sen. Arlen Specter (D-Pa.) failed to pass in Congress. It would have allowed attorneys to deduct fees and expenses up-front for filing contingency fee lawsuits.

"The trial lawyers pour tons of money into the pockets of their favorite politicians," Murnane said. "It's only logical to expect them to have access to tons of money in exchange."

A Treasury spokesperson said Wednesday that the department did not have a comment on a member of the nation's trial lawyer group, the American Association for Justice (AAJ), revealing the Treasury's plan to order a tax break for lawyers working on contingency fee lawsuits.

Sources at an AAJ convention in Vancouver, Canada, told a reporter that John Bowman, the Director of Federal Relations for the AAJ, said in response to a question from a state delegate regarding recruiting new members that an administrative order from the Treasury Department could come soon.

A message with the AAJ was not returned.

U.S. Rep. John Shimkus (R-19) questioned whether the proposed tax break was a good risk for taxpayers, especially in tough economic times.

"My friends in the trial bar make business decisions every day about whether or not to bring a lawsuit forward on a contingency basis – is this a good risk of our capital?" Shimkus said.

"[A]llowing attorneys to get a tax break when no other business gets such a tax break for taking a risk doesn't seem fair to me," he said in a statement.

"It could very well increase the number of lawsuits brought that otherwise would not be. That would then increase the cost of doing business, in other words a hidden tax -- that's something we definitely do not need when our economy is in such uncertain times."

National Association of Manufacturing spokesperson Carter Wood called the proposal "outrageous." He also said "speculative" lawsuits could cost taxpayers $1.6 billion.

"A revenue ruling or new guidance from Treasury would also represent yet more of the current Executive Branch's disregard for the policymaking branch of government, Congress," Wood added.

The president of the ATRA, Sherman Joyce, called the tax break for lawyers "baffling."

"The Obama administration insists that it's determined to create jobs and help the private sector economy expand. But by forcing taxpayers to subsidize still more litigation, it would do the just the opposite," Joyce said Wednesday.

"We can either create more jobs or more lawsuits."

The Treasury Department cautioned the AAJ not to go public with the information yet, according to Bowman, sources also said.

"Writing off the costs each year would substantially boost their after-tax income and increase the attractiveness of contingency-fee cases as an investment, much as tax writeoffs on drilling expenses dramatically increase the odds of financial success in the oil and gas business," Daniel Fisher wrote in Forbes.

"The change would be poorly timed from a political standpoint, though: At the same time as legislators are trying to take away the lucrative carried-interest tax break from hedge-fund operators, Treasury would be giving it to another group of well-heeled and politically powerful professionals."

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