Plaintiff lawyers on the West Coast can continue to immediately deduct expenses in contingency fee cases -- and Sen. Lindsey Graham (R-SC) is being blamed, or given credit, for making sure an end to that practice was not included in the tax bill passed this week.
Lawyers operating within the boundaries of the 9th Circuit Court of Appeals are the only ones in the country able to deduct expenses without waiting for a resolution to case. The move follows a ruling made in a 1995 case, Boccardo v. Commissioner of the IRS. And since then, those deductions have saved the attorneys $500 million, according to Congress' Joint Committee on Taxation.
Earlier versions of the tax bill drawn up in both the House and the Senate included provisions closing the loophole. But the provisions were excluded in the final bill passed this week.
The American Tort Reform Association (ATRA) sent out an excerpt from the Congressional Record that showed Graham introduced an amendment to strike the clause from the Senate version of the law. The Senate did not vote on Graham’s amendment, but the provision was removed from the bill the Senate voted on, according to Reuters.
Darren McKinney, a spokesperson for ATRA, said Graham was working on behalf of the plaintiffs' bar. This was not unusual, he added.
"The 9th Circuit lawyers can immediately deduct those expenses and legal costs, whereas in every other circuit in the country they cannot," McKinney told the Palmetto Business Daily. "From ATRA's perspective we supported the provision that would have eliminated this special treatment."
He said the provision enables lawyers and "makes it easier for them to persevere in specious and frivolous law suits where they would have given up in other circuits," McKinney argued.
McKinney said he believes Graham had the support of one other Republican senator in removing the provision before the Senate bill went to conference. It was one point in hundreds and was either overlooked or the House decided not to fight over the elimination of the provision, McKinney said.
The Wall Street Journal, in an editorial, flagged Graham's role in removing the provision from the Senate version of the bill. The editorial described it as a tax break for certain trial lawyers. This editorial prompted South Carolina accountant Wilma Storey to write a letter to the WSJ, which was published.
Wilma Storey, an accountant from Lexington, S.C., was moved to write a letter to the Wall Street Journal.
"I just made the point that, to me, it is wrong that trial lawyers on the West Coast can get this deduction and no one else can," Storey told Palmetto Business Daily.
Storey said she has followed Graham's career for a long time but was not previously aware of his close relationship with trial lawyers and the amount of money he has received from that constituency.
"I think it was pretty darn new to me because it never came to my attention," Storey said. "It is just not fair. This is South Carolina and it is not fair that West Coast lawyers should benefit from this."
In her letter to The Wall Street Journal, Storney noted that Graham has received $4.1 million from trial lawyers over his senate career. She added that some of the money saved by lawyers will find its way into campaigns against Republicans.
In an email to Reuters, Graham spokesman Kevin Bishop said barring plaintiffs’ lawyers from deducting upfront litigation costs “disincentivizes equal access to justice for those of limited financial means.” The House provision, he said, “targets contingency fee arrangements, used mainly by individuals – who have worthy cases – that can’t pay for a lawyer up front.”