INTERNAL REVENUE COMMISSIONER v. BANKS

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Case Basics
Docket No. 
03-892
Petitioner 
Commissioner of Internal Revenue
Respondent 
Sigitas J. Banaitis
Consolidation 
Commissioner of Internal Revenue v. Sigitas J. Banaitis, No. 03-907
Advocates
(argued the cause for Respondent Banks)
(argued the cause for Petitioner)
(argued the cause for Respondent Banaitis)
Tags
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Facts of the Case 

Sigitas Banaitis and John Banks separately argued to the U.S. Tax Court that contingency fees paid to lawyers could be deducted from taxable gross income. The court disagreed and ruled for the Internal Revenue Service. The IRS said Banaitis and Banks owed taxes on contingency fees. Banaitis appealed to the Ninth Circuit Court of Appeals, which ruled that under Oregon law contingency fees could not be taxed as income. Banks appealed to the Sixth Circuit Court of Appeals, which ruled contingency fees were never taxable income. Other federal appeals courts ruled to the contrary. The U.S. Supreme Court consolidated Banaitis' and Banks' cases.

Question 

Does a taxpayer's gross income from litigation proceeds include contingency fees paid to lawyers?

Conclusion 
Decision: 8 votes for Internal Revenue Commissioner, 0 vote(s) against
Legal provision: Internal Revenue Code

Yes. In a unanimous, 8-0 opinion delivered by Justice Anthony Kennedy, the Court held that if a litigant's recovery constituted income, the litigant's income included the contingency fee paid to his or her lawyer. The Court held that an economic gain assigned in advance to another party - as in a contingency-fee agreement - could not be excluded from gross income.

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INTERNAL REVENUE COMMISSIONER v. BANKS. The Oyez Project at IIT Chicago-Kent College of Law. 10 September 2014. <http://www.oyez.org/cases/2000-2009/2004/2004_03_892>.
INTERNAL REVENUE COMMISSIONER v. BANKS, The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/2000-2009/2004/2004_03_892 (last visited September 10, 2014).
"INTERNAL REVENUE COMMISSIONER v. BANKS," The Oyez Project at IIT Chicago-Kent College of Law, accessed September 10, 2014, http://www.oyez.org/cases/2000-2009/2004/2004_03_892.