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The Tax Side of Litigation Funding Transactions
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Subscribe18 JUN 2026 / ACCOUNTING & TAXES
Litigation funding for plaintiffs, lawyers, and law firms can be problematic for tax purposes due to questions over whether the arrangement constitutes a loan or part of a future recovery depending on the case's success. The IRS's perspective on litigation funding matters, as it has implications for tax treatment, and even potential legislative action, such as the proposed Tackling Predatory Litigation Funding Act that aims to impose a large tax on litigation proceeds received by third-party funders.
Litigation funding sounds simple until the tax bill walks into the room wearing reading glasses. A plaintiff, lawyer, or law firm gets cash before a case ends. The funder takes a slice of the recovery if the case succeeds. If the case fails, the recipient...
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