Proper planning must be undertaken in advance if intend to structure attorney fees. Delaying until the last minute may unnecessarily heighten the risk of not achieving the desired tax outcome
While the IRS guidance issued December 29, 2004 concerning deferred compensation states "(IRC) Section 409A also does not apply to arrangements between a service provider and a service recipient if (a) the service provider is actively engaged in the trade or business of providing substantial services, other than (I) as an employee or (II) as a director of a corporation; and (b) the service provider provides such services to two or more service recipients to which the service provider is not related and that are not related to one another."
It goes on to state
“… Section 409A does not alter or effect the application of any other provision of the Code or common law tax doctrine.
Accordingly, deferred compensation not required to be included in income under Section 409A may nevertheless be required to be included in income under Section 451, the constructive receipt doctrine, the cash equivalency doctrine, Section 83, the economic benefit doctrine, the assignment of income doctrine or any other application of the Code or common law tax doctrine.”
There are established best practices in this field. Exercise caution with a structured settlement broker or financial planner who fails to provide, or is unexpectedly unaware of, a comprehensive view of the situation. Ensure you fully understand the risk and reward profile associated with the transaction. If you intend to structure your attorney fees, collaborate with someone competent, who comprehends the broader context and is not solely focused on selling an annuity payment. Begin your planning process early!
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