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Treasury and IRS provide favorable clarification of new tax law that might have affected
Structuring Attorneys’ Fees
Section 409A of the Internal Revenue Code (included in the recently passed American Jobs Creation Act of 2004) brought concerns of changes to the tax treatment of structured attorneys’ fees.
On December 20, 2004 the Department of Treasury ("Treasury") and Internal Revenue Service issued comprehensive guidance interpreting new Section 409A. The guidance in Notice 2005-1 excludes most service provider arrangements from the scope of Section 409A. The Notice states:
Q-8 To Which Service Providers Does § 409A Apply?
A-8…Section 409A…DOES NOT APPLY to arrangements between a service provider and a service recipient if (a) the service provider is actively engaged in the trade or business of providing substantial services, other than (I) as an employee or (II) as a director of a corporation; and (b) the service provider provides such services to two or more service recipients to which the service provider is not related and that are not related to one another.
While many annuity issuers had begun a moratorium on new structured attorney fee cases from 1/1/2005, some have begun to lift the moratorium in light of the clarification from Treasury. We are ready to assist you in structuring your fees.
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