Opinion ID: 775271
Heading Depth: 2
Heading Rank: 2

Heading: the equities

Text: 36 With that legal analysis resolved, I pause to note the inequitable result that befalls plaintiffs in certain of these cases. The taxation to a plaintiff of attorney's fees, combined with the operation of the Alternative Minimum Tax (AMT), sometimes leaves a victorious civil rights plaintiff with a net aftertax loss. For instance: 37 If the ratio of attorney's fees to the entire recovery is high enough, a before-tax gain may metamorphose into an after-tax loss. In Alexander v. Commissioner, [72 F.3d 938 (1st Cir. 1995),] for example, the plaintiff settled a state law employment claim for $250,000 but incurred $245,000 in attorney's fees, for a pre-tax profit of $5,000. Under the AMT, the entire $250,000 recovery was taxable but none of the $245,000 in attorney's fees was deductible. If we assume that the taxpayer files jointly and has no other income, his AMT liability would be $53,900. Under these assumptions, the nondeductibility of the employee's attorney's fees under the AMT would convert a $5,000 before-tax gain into a $48,900 after-tax loss. 38 Laura Sager & Stephen Cohen, How the Income Tax Undermines Civil Rights Law, 73 S. Cal. L. Rev. 1075, 1078 (2000) (footnotes omitted). 39 This Draconian result under the Tax Code can only undermine our civil rights laws. After all, the purpose of feeshifting provisions, like the one in the ADEA, is not only to permit plaintiffs without resources to pursue claims but to encourage meritorious civil rights litigation by defraying its cost. But in an example like the one posited above, the victorious plaintiff would have been better off without the feeshifting provision--and, indeed, better off if she had never filed her ultimately victorious suit. This result is surprising, to say the least. See Alexander v. IRS, 72 F.3d 938, 946 (1st Cir. 1995) (We recognize that, because the amounts involved trigger the AMT and, thus, Taxpayer's deficiency, the outcome smacks of injustice because Taxpayer is effectively robbed of any benefit of the Legal Fee's below the line treatment.). Although I continue to believe that this anomaly must ultimately be resolved by Congress, Benci-Woodward, 219 F.3d at 944, it cries out for speedy resolution, particularly in view of the majority's position. Of course my view is that this case need not await statutory reform because the fees were awarded pursuant to the ADEA, not under state contract law.