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President Signs American Jobs Creation Act of 2004 Into Law Eliminating Double Taxation of Attorney’s Fees in Employment Cases

Volume 3, Issue 17
November 19, 2004

On October 22, 2004, President George W. Bush signed the American Jobs Creation Act of 2004 into law. As previously reported in Volume 3, Issue 16, Section 703 of this Act allows taxpayers to take a full deduction on their tax returns for the attorney's fees and costs incurred by them as part of a civil rights and employment discrimination settlement or damage award. In the past, successful litigants and their attorneys were both required to pay taxes on an award of attorney's fees.

The Act applies to claims under Title VII of the Civil Rights Act of 1964, the National Labor Relations Act, the Fair Labor Standards Act, the Age Discrimination in Employment Act of 1967, ERISA, the Employee Polygraph Protection Act of 1988, the Worker Adjustment and Retaining Notification Act, the Family Medical Leave Act, the Americans with Disabilities Act of 1990, any federal whistleblower law, and any federal, state or local law, or common law claims for the "enforcement of civil rights" or "regulating any aspect of the employment relationship".

Section 703 was favored by both employer and employee advocates because the double taxation policy had the effect of increasing the cost of settling suits. Tax savvy litigants and their counsel would insist on higher settlement amounts to cover the extra tax payments, particularly when the settlement proceeds or damage award implicated the alternative minimum tax. The new law only applies to judgments entered and settlements made after October 22, 2004.

Employer Report articles are for general information only; they are not intended and should not be construed to be legal advice. Reading or replying to such articles does not establish an attorney-client relationship. In addition, because the subject matters and applicable laws discussed in Employer Report articles are often in a state of change and not always applicable to every type of business entity or organization, readers should consult with counsel before making decisions based on the same.