Lobbyist: AAJ looking to quietly pass plaintiff lawyer tax break

SAN FRANCISCO - Federal legislation that would afford trial lawyers a special tax break faces an uncertain future, says one of the chief lobbyists for the nation's trial lawyers.

The proposal would allow attorneys to deduct fees and expenses up-front for filing contingency-fee lawsuits. The proposal amounts to about a $1.6 billion tax break for plaintiffs' attorneys, estimates indicate.

"Everyone wants to do it, but the problem is there is not a tax vehicle yet," said Linda Lipsen, American Association for Justice (AAJ) Senior Vice President of Public Affairs.

Lipsen was speaking to the Birth Trauma Litigation Group at the annual meeting this week of the AAJ, the trial lawyers' trade group.

"You cannot have a stand alone bill to help lawyers … so we have to tuck it into something," she said.

Currently, the expenses are considered loans to clients that are to be repaid from ultimate awards if they win or deducted on their income filings in the event of a loss.

Lipsen said that it is "unfair" that trial lawyers are unable to deduct costs connected to their cases in the year that those costs are accrued.

"No other business in America has to do it like this," she said.

Lipsen said the AAJ is working to "fix this," noting that the association has the support of Senate Majority Leader Harry Reid, D-Nev., Senate Finance Committee Chairman Max Baucus, D-Mont., and House Speaker Nancy Pelosi, D-Calif., and House Ways and Means Chairman Charles Rangel, D-N.Y.

The problem is there is not a politically palatable vehicle to carry the legislation, Lipsen said.

Another challenge facing the legislation is its cost, Lipsen acknowledged, noting that Congressional rules require that any tax break be paid for by new revenues.

"The problem for us, unfortunately, is there is no money," she said. "It costs a couple billion… so we're going to have to find what they call a 'pay-for' so that we can make it budget neutral and get it passed. This is going to be tough because there is no money."

Even so, she said senior congressional officials want to press forward with the legislation.

"Right now all these senior Democrats and some Republicans are saying, 'Let's do it,' so again let's cross our fingers," Lipsen said.

Critics say the tax break to offset the cost of filing high-dollar lawsuits would act as an incentive to file more lawsuits, particulary class actions, because attorneys could write off the up-front costs to pursue them.