Introduction
If they observe the formalities, contingent-fee lawyers can
defer their legal fees, have them invested pretax, and have them
paid and taxed later. They must implement those arrangements before
earning the fee. Yet even in cases that have been litigated for
years, so long as the structure is implemented before the case
settles — even the night before — the tax deferral is
effective. The use of a qualified settlement fund (QSF) can
expand the potential window of time to structure an arrangement
because a QSF stands in the shoes of the defendant.
The execution of a formal settlement is the event that causes
the receipt of income to the lawyer. From a tax and accounting
viewpoint, the fee is contingent, so it is not income until the
client signs the settlement agreement, triggering the fee. With the
help of life insurance companies, lawyers have been implementing
structured fee arrangements during settlement negotiations for 40
years. However, the real
