[Congressional Record Volume 154, Number 95 (Tuesday, June 10, 2008)]
[Senate]
[Page S5438]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       LITIGATION COST DEDUCTIONS

  Mr. SPECTER. Mr. President, on March 8, 2007, I introduced S. 814. 
The bill has nine cosponsors: Senators Graham, Smith, Crapo, Martinez, 
Landrieu, Wyden, Leahy, Salazar, and Stabenow. It was included in the 
energy/business tax extenders package, on which a vote on the motion to 
proceed failed today.
  S. 814, would allow attorneys to deduct reimbursable court costs and 
expenses--expert witness fees, copying and transcription costs, travel 
expenses--in the same tax period in which they are paid or incurred. 
For attorneys paid on a contingency fee basis, the Internal Revenue 
Service treats these expenditures as ``loans'' that may be repaid from 
any award or settlement at the end of the case. For this reason, 
currently most attorneys may take a deduction only in the same period 
he recognizes the income from the award--which may be years after the 
attorney has paid the expense/cost. This is a burden on, and often 
unfair to, solo practitioners and attorneys in small firms who may have 
to assume costly loans because they do not have the resources to carry 
these expenses for multiple years.
  In addition, the tax treatment of these expenses is not uniform in 
all jurisdictions--as some courts have disagreed with the IRS on the 
current treatment. This is another reason the current rule is unfair 
and should be changed. Finally, I note that the IRS interpretation is 
based on State legal ethics rules about advances to clients that have 
since been changed.
  I voted against cloture on the motion to proceed even though I 
obviously support S. 814, and although I also support the tax extenders 
that expired at the end of 2007--including the R&D tax credit, teacher 
expenses deduction, tuition deduction, and accelerated depreciation for 
leasehold and restaurant improvements. I also support some tax 
extenders that are set to expire at the end of 2008 --including 
renewable energy tax incentives.
  The main sticking point between Democrats and Republicans is whether 
temporary extensions of tax relief should be offset with permanent tax 
increases elsewhere. On April 23, 2008, I, along with 40 other 
Republicans, wrote to Finance Chairman Baucus to support ``enacting a 
2008 AMT patch and extending the various expiring tax provision without 
offsetting tax increases.''
  The vote was a demonstration by Republicans that they have numbers 
and that they need to be included in the process of drafting the bill. 
Republican leadership had no expectation that any Republican amendments 
would be allowed because of Leader Reid's standard operating procedure 
of filling the tree and filing cloture.
  I am told that the leadership on both sides and the chairman and 
ranking member of Finance will now sit down to discuss the next steps. 
I think this is a positive development and I will encourage the 
inclusion in a bipartisan bill of the proposed amendment to the 
Internal Revenue Code that is embodied in S. 814.

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