Grassley, Camp question possible tax change for trial lawyers

Leading tax policy lawmakers are questioning a possible move by the Treasury Department that would reverse a policy that trial lawyers may not deduct loans to clients as business expenses in certain contingency cases.  

House Ways and Means ranking member Dave Camp (R-Mich.) and Senate Finance ranking member Chuck Grassley (R-Iowa) expressed concern in a letter Friday to Treasury Secretary Timothy Geithner asking about the implementation of the new policy that would benefit trial lawyers while bypassing Congress and IRS precedent.

They estimate the change could cost the federal government more than $1.5 billion over 10 years.

"We urge you not to make such changes in the government’s enforcement of the tax laws, absent a clear direction from Congress or to comply with court decisions," Grassley and Camp wrote.

The issue cropped up after Michael Mundaca, Treasury's assistant secretary for Tax Policy, said the department may change the policy. 

"While the Ninth Circuit Court of Appeals ruled such deductions are allowable fifteen years ago, the IRS has continued to enforce its rule disallowing such tax deductions in all other Circuits," the lawmakers said. 

In the letter, Grassley and Camp said they are concerned that Treasury might be establishing a pattern of "unilaterally making tax changes in contravention of congressional intent."  

In the letter the lawmakers are requesting: 

• Copies of all legal documents, including e-mails and records of conversations, documenting Treasury’s authority to issue such regulations or guidance.

• Copies of all drafts of such regulations or guidance and an indication of when these are expected to be effective and whether these were expected to be released for public comment before becoming effective.

• An explanation of when and why such regulations or guidance were deemed to be urgent and necessary since the issue does not appear to be included in the March 16, 2010, Treasury update of the 2009-2010 Priority Guidance Plan.

• Copies of all communications, including e-mails, letters and records of conversations, between Treasury and outside parties regarding the issuance of such regulations or guidance.