This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.
By Laura Davison and Steven M. Sellers
House and Senate versions of tax bills in Congress could take an extra bite out of class action litigation earnings for some plaintiffs lawyers.
H.R. 1 and S. 1 would end a tax break for litigation expenses in some class lawsuits by no longer allowing those costs to be deductible in California and eight other Western states.
Those costs can be written off as business expenses under a 1995 Ninth Circuit decision that permits lawyers to apply a more tax-friendly deduction in contingency fee litigation expenses.
The bills would apply the no-deduction approach in the other 41 states nationwide.
“Why should plaintiffs’ lawyers in a handful of states get a handout from taxpayers that is contrary to long-established IRS tax policy in 41 other states?,” Lisa Rickard, president of the U.S. Chamber Institute for Legal Reform, said Nov. 30.
“The tax bill closes this plaintiffs’ lawyer loophole in the Ninth Circuit,” Rickard said in an email.
Several plaintiff class action lawyers either declined to comment on the bills or didn’t respond to requests for comment.
But Jay Edelson, of Edelson PC in Chicago, a prominent class action litigator, told Bloomberg Law Nov. 30 he didn’t object to this aspect of the tax legislation.
This is another way for the U.S. Chamber of Commerce “to take a shot at class actions,” Edelson said. “But I’m not crying for the class action bar on this one.”
“The rest of the tax bill is a disaster, with huge giveaways to the rich from the poor, but if we’re really fighting for consumers, it’s hypocritical to say we shouldn’t pay more taxes,” Edelson said.
Republicans have taken steps to curb class lawsuits in recent months, including a bill passed by the House in March. The Fairness in Class Action Litigation Act (H.R. 985), sponsored by Rep. Bob Goodlatte (R-Va.), would affect nearly all facets of class action practice including requiring that all potential members in a case suffer the same injuries.
The tax bill provisions would raise about $500 million over a decade, according to estimates from the congressional scorekeeper the Joint Committee on Taxation. That’s a relatively small amount within the context of a tax bill that will cost nearly $1.5 trillion.
The deduction is currently available in California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.
The inclusion of the provision in both the House and Senate bills makes it a likely candidate to end up in a final tax bill, which could reach President Donald Trump by the end of the year. The Senate is slated to vote on their version of the bill this week.
The two chambers will have to compromise on a final bill prior to it becoming law. Most of the revenue-raising provisions in the bills, such as ending the deduction for class action lawsuits, will likely stay in the legislation throughout the negotiations as lawmakers scrape to find offsets to cover their steep tax cuts.
To contact the reporters on this story: Laura Davison in Washington at ldavison@bloombergtax.com; Steven M. Sellers in Washington at ssellers@bloomberglaw.com
To contact the editor responsible for this story: Steven Patrick at spatrick@bloomberglaw.com
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to books@bna.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to research@bna.com.
Put me on standing order
Notify me when new releases are available (no standing order will be created)