TaxProf Blog – Lesson From The Tax Court: Accounting For Attorney Malpractice Settlements (June 14, 2021)

Bryan Camp has published an article on the TaxProf Blog, titled “Lesson From The Tax Court: Accounting For Attorney Malpractice Settlements”, which discusses the outcomes of Carol E. Holliday v. Commissioner, T.C. Memo. 2021-69 (June 7, 2021) (Judge Pugh) and Debra Jean Blum v. Commissioner, T.C. Memo. 2021-18 (Feb. 18, 2021) (Judge Urda) focusing on the extent to which an attorney malpractice settlement constitutes gross income within the two cases. The article begins as follows:

Sometimes, losing plaintiffs think their attorney messed up.  Sometimes, they are so sure that they sue their attorney for legal malpractice.  I think of those as lawsuits-within-lawsuits, kind of like the story-within-a-story literary device, perhaps most famously used by Shakespeare in Hamlet.  In a malpractice action, the original lawsuit becomes a lawsuit-within-a-lawsuit because the court decides the malpractice action in part by making a counterfactual inquiry on what could have been the outcome in the original lawsuit.

Sometimes, plaintiffs actually win the malpractice action.  More often they settle, accepting some amount of money from the attorney (or, more often, the attorney’s insurer) in exchange for promising to go away and never come back.

Click here to see the full article: “Lesson From The Tax Court: Accounting For Attorney Malpractice Settlements”

Posted by Anthony Tran, Associate Editor, Wealth Strategies Journal

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