When it comes to legal engagements, the term contingent fee refers to a legal disbursement arrangement between the petitioner and the lawyer he or she would like to have represent them on the matter. The petitioner who may be seeking legal justice regarding an injury is able to obtain access to quality legal representation even when they do not have the funds to pay the lawyer for legal services. This is because plaintiffs are not required to pay upfront when under a written contingency contract. If the lawyer believes that the case is indeed winnable, the two parties can agree that the lawyer will be paid a percentage of the client wins should they win the case. There are a lot of rules governing contingency fees that vary from state to state so be sure to check which ones apply to your location.
The main reason the concept of contingency fees (or no win no fees, as it's called in the UK) was realized so that clients with little to no money to spare could get the legal help they need without worrying about legal expenses. In a normal arrangement, the client does not have to pay anything until the case is won. If the case is lost then the litigator shall receive no payment for services rendered.
The likelihood of attorneys to work with clients making a no win no fee claim depends on the case and the kind of damages that can be claimed. In situations where the state statutes aggressively limit the damages that can be demanded for a particular case, it will be difficult to find an attorney that will work on contingency fee in such circumstances.
Though most states allow contingent fee agreements, some state bar organizations have started placing limits on their use due to excessive fees some lawyers charge to work under contingency fee agreement. Attorneys that strongly support contingency fee agreements feel that the fees provide stimulus for the litigator to obtain the best possible outcome for the client. In order to find out more about limitations placed on contingency fees in your area you will need to see an experienced local solicitor or simply visit the state bar site for your state.
Upon reaching a contingency fee agreement, the lawyer will then be responsible for catering for all expenses related to the lawsuit. This could be anything from paying for copies of reports, fees charged for filing cases, to payments for depositions. If the litigator is successful through obtaining a favorable settlement or court judgment for the client, then the contingency contract will be used to determine how the funds will be shared. It’s not new that some contracts stipulate a graduated percentage clause. Here if the litigator needed to take the case to trial to get a win, then the percentage he earns is bigger since more effort was needed to seal the case. If the attorney was able to resolve the issue without going to trial then they may receive a smaller percentage.
Other contracts may have an expenses plus a percentage type of arrangement. This is where the lawyer is allowed to recoup his expenses off the top of the amount received from winning the case. The remainder of the amount is then shared according to the percentages in the contingency fee contract. In case you opt for such an arrangement, it’s best to maintain detailed expense report as the case proceeds to avoid shocks when the time for fund distribution comes.
Contingency fees in tax cases
Contingency fees however useful, do not apply in particular scenarios regarding tax as the IRS does not allow it. In 2007, Circular 230; which is a part of the Treasury Regulations that regulates certified public accountant and attorneys who practice before the IRS, was altered to prohibit CPAs and attorneys from doing tax related work on a contingent fee basis.
However there are exceptions that allow work on a contingent fee basis for example if the tax issue relates to an IRS audit or challenges to original tax returns. Say you need to file tax returns, then in such a case then you are required to pay a CPA or tax lawyer at a fixed rate as contingency fee agreements are not allowed. However in the case that an IRS audit claims that you still owe them money and you would like to challenge that, Then a CPA or tax lawyer is allowed to work for you under contingency fee terms with the agreement that they get to paid a certain percentage of whatever amount they believe they can save you.