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


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

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. 26 August 2015. <>.
INTERNAL REVENUE COMMISSIONER v. BANKS, The Oyez Project at IIT Chicago-Kent College of Law, (last visited August 26, 2015).
"INTERNAL REVENUE COMMISSIONER v. BANKS," The Oyez Project at IIT Chicago-Kent College of Law, accessed August 26, 2015,