18.3 Statutory Attorney Fees

In a private letter ruling, the IRS has ruled that statutory attorney fees paid directly to a legal aid or pro bono program are not taxable to the client because the client had no obligation to pay those fees.1

However, statutory attorney fees awarded to other attorneys may trigger tax liability for the client. This comports with the theory that the client has received a benefit by having the attorney fees paid. Although statutory attorney fees awarded to the prevailing party’s attorney in many discrimination and employment cases are no longer treated as taxable income for that party,2  statutory attorney fees awarded to a prevailing party under consumer protection laws are still taxable to the client.

• 1Priv. Ltr. Rul. 135328-09 (Jan. 5, 2010). Note that private letter rulings may not be used or cited as precedent unless otherwise authorized by Treasury Regulations. I.R.C. § 6110(k)(3). However, letter rulings provide some guidance as to how the IRS might view a tax law issue under the facts assumed in the letter ruling.
• 2I.R.C. § 62(a)(20).