18.1 Class Actions

In class action lawsuits, a class member does not have to report as income the amount of the classwide settlement fund awarded as attorney fees.1  However, in a mass tort action in which clients have entered into contingency fee agreements with individual attorneys, the portion of a client’s individual award that is taken as the lawyer’s contingency fee may be taxable.2

• 1GCM PRENO-111606-07 (May 18, 2007).
• 2See Comm’r v. Banks, 543 U.S. 426 (2005). On the treatment of contingency fees, see Section 18.2.