Commissioner v. Banks

In two consolidated cases, plaintiffs Banks and Banaitis each hired attorneys on contingent-fee agreements, won or settled employment claims, and paid a substantial share of the recovery to their attorneys — Banks $150,000 out of a $464,000 settlement, and Banaitis's employer separately paid his attorney over $3.8 million under a fee-shifting statute. Neither plaintiff included the attorney's-fee portion in his own taxable income; the Sixth and Ninth Circuits reached opposite conclusions on whether those fee payments were taxable to the plaintiffs, and the Supreme Court granted certiorari to resolve the split.