"Attorney Fees and Private Annuity Rules" Revisited

Robert W. Wood, a noted tax expert, has challenged two controversial conclusions presented by Burgess J.W. Raby and William L. Raby in their article titled "Attorney Fees and Private Annuity Rules" which appeared in the January 22, 2007 edition of "Tax Notes".  S2KM reviewed the Rabys' article in this January 23, 2007 blog post.

The issue addressed in the Raby's article: "When the fees paid to the attorney are spread over time under a structured settlement, do the proposed regulations changing the private annuity rules affect them?"

Their conclusions: "We think it highly likely that if the issue is raised, the structured payments to attorneys would fit within the private annuity rules - and for cases not within the scope of section 104(a), whatever the scope may turn out to be, so too would the payments to the successful plaintiffs."

In an extended January 30, 2007 Letter to the Editor of "Tax Notes", Wood disagrees with the Raby's conclusion stating: "...I do not believe even the IRS, in its wildest dreams, would think the proposed private annuity regulations could torpedo attorney fee structures."  Wood's letter is featured on the Wood & Porter website. Structured attorney fees, according to Wood, are generally unsecured and unfunded obligations entered into for the plaintiff's convenience without necessarily eliminating the plaintiff's obligation to pay the attorney fees.

"More frightening", according Wood, is the second part of the Rabys' conclusion which Wood characterizes as "a doozy".  Wood reacts with shock to the Rabys' suggestion that plaintiff structured settlement arrangements might also be impacted by the proposed private annuity regulations calling that conclusion "an even more extreme a position than is their take on structured attorney fees."

Wood attacks the Rabys' conclusions on several fronts.

• He disagrees with their argument that an exchange of property occurs when an attorney agrees to look solely to a defendant for payment of legal fees. 
• He questions the Rabys' factual understanding of a structured attorney fee transaction and offers examples of sample settlement document language to support his position. 
• He criticizes the Rabys' assumption that the Child's case was incorrectly decided. 

In summary, Wood concludes the proposed private annuity regulations neither address nor impact structured settlements or structured attorney fees.