A structured legal fee is when a contingent fee lawyer, typically right before a case is resolved, decides to structure their fee through a third party for payments over time instead of receiving the fee all at once, says Rob Wood, a tax attorney with Wood, LLP in San Francisco, California.
One might think that a lawyer, who's entitled to a contingent fee, has already earned that fee but authorities say as long as the lawyer, before earning the fee and signing the documents to settle the case, says that they don't want to take a percentage, rather have it distributed over time through a third party, it's perfectly legitimate and not a tax scam, says Wood.
This allows for firms to have cash flow, Wood says. Most lawyers charge hourly or flat fees but contingent fees are the staple of a large segment of the plaintiff's bar and they frequently complain about the ebbs and flows and ups and downs, says Wood. "This is a way of leveling out income," he adds.
As a tax lawyer, Wood is surprised that this is still allowed and in the tax code only because there are relatively few professions where you can do this and it's a function of the way contingent fees are earned. "It's not earned until the deal is done and that's the key," Wood says.
For more information on the article written in Forbes magazine about this, click here. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.