Information reporting on payments of gross proceeds to attorneys.

October 1, 1999

On October 1, 1999, Tax Executives Institute submitted the following comments to the Internal Revenue Service on proposed regulations under section 6045(g) of the Internal Revenue Code, relating to information reporting for payments of gross proceeds to attorneys. The comments were prepared under the aegis of the Institute's Federal Tax Committee, whose chair is Philip G. Cohen of Unilever United States Inc., and its Subcommittee on Employee Benefits, whose chair is Mitchell S. Trager of Georgia-Pacific Corporation. Leslie A. Honig of The Chase Manhattan Bank and Michael J. Nesbitt of Paychex, Inc. also contributed to the development of the Institute's comments.

Section 6045(f) of the Internal Revenue Code provides for information reporting for payments of gross proceeds made in the course of a trade or business to attorneys in connection with legal services (whether or not the services are performed for the payer). On May 20, 1999, the Internal Revenue Service issued proposed regulations (REG-105312-98) providing guidance to payers that must comply with this provision. The proposed rules were published in the FEDERAL REGISTER (64 Fed. Reg. 277730) and in the Internal Revenue Bulletin (1999-23 I.R.B. 14). A hearing on the proposed rules was held on September 22, 1999.

Background

Tax Executives Institute is the preeminent association of business tax executives in North America. Our more than 5,000 members represent 2,800 of the leading corporations in the United States and Canada. TEI represents a cross-section of the business community, and is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and government alike. As a professional association, TEI is firmly committed to maintaining a tax system that works -- one that is administrable and with which taxpayers can comply.

Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the tax law relating to the operation of business enterprises. We believe that the diversity and professional training of our members enable us to bring an important, balanced, and practical perspective to the issues raised by the proposed regulations under section 6045(f), relating to information returns for payments of gross proceeds to attorneys.

Overview

Prior to 1998, attorney's fees paid in the course of a trade or business were reported on information returns only to the extent that the payment amounts related to legal services performed by the attorney for the payer. Section 6045(f)(1), which was added to the Internal Revenue Code by The Taxpayer Relief Act of 1997 (hereinafter "the 1997 Act"), states that "any person engaged in a trade or business and making a payment (in the course of such trade or business) to which this subsection applies shall file a return under subsection (a) and a statement under subsection (b) with respect to such payment." Section 6045(f)(2)(A) states that section 6045(f) "shall apply to any payment to an attorney in connection with legal services (whether or not such services are performed for the payor)." Section 6045(f)(2)(B) carves out exceptions to eliminate duplicate reporting for payments reportable under section 6041(a) (nonwage, compensatory information reporting) and section 6051 (employee wage reporting). Hence, section 6045(f) now requires that payments to attorneys be reported to the IRS and to the attorneys even though (1) the payment is not solely for legal services performed for the payer and (2) the attorneys' clients may be entitled to a portion of the payment, whether as settlement proceeds, reimbursement of expenses, or for some other purpose (e.g., interest or liquidated damages for breach of contract).

The preamble to the proposed regulations notes that, prior to the release of these proposed regulations, a number of comments were submitted to the IRS in an attempt to make the provision workable. The IRS's Information Reporting Program Advisory Committee (IRPAC) developed a working paper on the provision and TEI commends the IRS for incorporating several of those recommendations in the proposed regulations and for demonstrating its willingness to address the concerns raised by taxpayers and other commentators. For example, the legislative history of the 1997 Act suggests that Form 1099-B (Broker Proceeds) should be employed as the designated form for reporting payments made to attorneys. Since this suggestion in the legislative history is at odds with current taxpayer reporting practices for attorney's fees and other reportable nonwage compensation for services, the proposed rules sensibly require such payments to be reported instead on Form 1099-MISC. In addition, the IRS's policy decision to refrain from requiring certification of the recipient attorney's Taxpayer Identification Number is a helpful step in minimizing taxpayer administrative burdens.

Notwithstanding these beneficial features, TEI is concerned about the administrability of the proposed rules. The following comments set forth our concerns and recommendations.

Payroll Tax Consequences of Reportable Payments

The proposed regulations generally address payments to attorneys made by payers in connection with a trade or business and the reporting of those payments on Form 1099-MISC. Notwithstanding the large variety of factual circumstances in which payments are made to attorneys, whether for services rendered or as agents collecting a payment on behalf of a client, the proposed regulations are exceedingly brief. Indeed, the six simple examples in Prop. Reg. [sections] 1.6045-5(f) provide minimal, "bare bones" guidance to illustrate the far-reaching application of the statute and proposed rules. As important, the proposed regulations, and the examples especially so, raise broader issues than information reporting for payments to attorneys because they assume that the tax treatment of many payments are known. Examples 1 and 2 of Prop. Reg. [sections] 1.6045-5(f), in particular, assume that the payroll tax consequences of settlement payments related to claims for backpay and related attorney's fees are well-settled under current law. In many cases, however, such issues either have not been addressed previously or the treatment in the proposed regulations seemingly conflicts with extant guidance.

Indeed, until the Small Business Jobs Protection Act of 1996 diminished the scope of the income exclusion under section 104(a)(2), settlement payments and damage awards were frequently structured to permit the amount to be excluded from a claimant's income and, hence, not subject to either information reporting or payroll or withholding taxes. The 1996 amendment to section 104(a)(2) diminishing the scope of the income tax exclusion and the 1997 addition of section 6045(f) Act expanding the scope of tax information reporting for payments to attorneys have left employers with a substantial need for guidance on the issues of (1) how to report damages, including attorney's fees, paid to settle employment claims and (2) whether, and the extent to, which payments are subject to employment taxes and income and FICA tax withholding. (Hereinafter references to FICA taxes include the Social Security and Medicare tax components.) The proposed regulations, however, provide insufficient guidance on both issues.

What guidance there is is set forth in Examples 1 and 2 of Prop. Reg. [sections] 1.6045-5(f), which state that, where plaintiff A settles a suit for lost wages against T (presumably A's employer or former employer), the defendant-employer must file a Form W-2 reporting the full amount of the settlement paid to A. According to the facts of both examples, the settlement amount is $300,000 and payment is made by a single check payable jointly to A and to B, who is A's attorney. The only difference between the two examples is that in Example 2, defendant T "knows" the attorney's fees are one-third of the settlement, or $100,000. The facts of Example 2 are silent about how T "knows" the amount of the attorney's fee, but the amount and method of payment -- one check payable jointly to A and B for $300,000 with delivery to B -- are the same as in Example 1.

Example 1 states as a conclusion that the defendant T must file (1) a Form W-2 for A in the full amount of the $300,000 under section 6051 (which generally addresses employee wage reporting), and (2) to comply with Prop. Reg. [sections] 1.6045-5(a)(i), a Form 1099-MISC with respect to B for the same amount of $300,000. Example 2 states that the defendant T must, under section 6051, file a Form W-2 with respect to plaintiff A for the entire $300,000 and file a Form 1099-MISC with respect to attorney B in the amount of $100,000, which is already included in the gross payment to A.

A. The Obligation to Withhold Payroll Taxes Should Be Clearly Stated

Where an employer (or former employer) is subject to a requirement to withhold income or FICA taxes or pay payroll taxes in respect of amounts paid to settle wage claims, more is at stake for the employer than filing an information return. If the employer is required to withhold and fails to do so, the employer is responsible not only for the employer's share of FICA, but also remains liable under section 3402 for payment of the nonwithheld taxes (plus interest and perhaps penalties as well) unless the employee pays the tax. Moreover, negotiations over settlement of a wage claim are frequently and directly affected by the tax reporting for the settlement. Hence, TEI recommends that the employer's tax reporting obligations in Examples 1 and 2 of Prop. Reg. [sections] 1.6045-5(f) be clarified. Specifically, the examples should state that the defendant-employer T makes a cash settlement payment of $300,000 (the settlement amount in Example 1) or $200,000 (the settlement amount in Example 2), respectively, less the proper amount of income and FICA tax withholding.

B. The Definition of "Wages" Should Not Include Separately Stated Attorney's Fees and Other Nonwage Amounts

The preamble states that the proposed regulations follow the well-established principle of tax law that the income portion of a plaintiff's settlement is not reportable net of the attorney's fees.(1) That statement, however, glosses over an essential point that only a portion of the settlement proceeds may be attributable to wages or remuneration for services and thereby subject to employment taxes and income and FICA tax withholding. For example, interest and punitive damages awarded in a suit for backpay, while fully taxable, are not wages subject to payroll taxes or withholding and should not be reported on Form W-2. In addition, damages awarded for pain and suffering in connection with a wrongful dismissal suit or other employment claim, while taxable to the recipient, are not "remuneration for services."

In addition, in many employment claims, attorney's fees generally constitute a separate component of a plaintiff's damage claim that are payable directly to the attorney. For example, under Title VII of the Civil Rights Act of 1964 (hereinafter "Title VII"),(2) the Americans With Disabilities Act (hereinafter the "ADA"),(3) and the Age Discrimination in Employment Act (hereinafter the "ADEA"),(4) attorney's fees are generally available as a separate damage claim.(5) While the IRS would likely maintain that payment of such amounts constitutes income to the plaintiff that is no longer excluded under section 104(a)(2), that result is far from clear in all situations.(6) More important, the payment of the attorney's fees to the attorney under these statutes clearly is not remuneration for the employee's (or former employee's) services since they are payable on account of the employer's wrongful action or failure to act.

Rev. Rul. 80-364,(7) which is cited in the preamble, generally addresses the tax treatment of attorney's fees and interest paid in connection with the settlement of employment litigation actions. Situation 1 of the ruling sets forth the following facts:

After termination of employment by a company, an individual filed a complaint against the company for back pay owed to the individual. The court awarded the individual 8x dollars as back pay, and also awarded interest of 1x dollars and an attorney's fee of 1x dollars.

   The ruling holds:

   In Situation 1, while the full amount of the award is income to the
   employee and must be included in the employee's gross income, only the back
   pay award of 8x dollars is wages for federal employment tax purposes. The
   payments for interest and the attorney's fee are not wages, because they
   are not remuneration for employment.

Moreover, as a practical matter, a defendant-employer (or former employer) will only "know" (as Example 2 of the proposed regulations assumes) the amount of plaintiff's attorney's fees where the fees are separately stated in a settlement agreement or judgment. As a result, TEI recommends that the examples in Prop. Reg. [sections] 1.6045-5(f) be clarified to state that separately stated attorney's fees (1) are not treated as wages subject to employment taxes or income or FICA tax withholding and (2) are not reportable on Form W-2. Similarly, the IRS should clarify that other nonwage payments (such as interest or liquidated damages(8)) paid by an employer to a current or former employee in connection with a settlement do not constitute "remuneration for services" under section 6051 and are not subject to withholding or employment taxes. At a minimum, Example 2 of Prop. Reg. [sections] 1.6045-5(f) should be modified to state that (1) the settlement amount is $300,000, (2) $100,000 of the total settlement amount is separately stated as B's (the plaintiff's attorney) fees, and (3) $200,000 constitutes wages reportable on Form W-2 that are subject to income and payroll tax withholding.

Administrative Burdens and Mismatches Arise from Multiple Reporting Requirements

Prop. Reg. [sections] 1.6045-5(a)(1)(iii) states that the requirements of the proposed regulations "apply whether or not ... [o]ther information returns are required with respect to some or all of a payment under other applicable provisions of the Internal Revenue Code and the regulations thereunder." The preamble explains that the exception [to reporting contemplated] in section 6045(f)(2)(B) is limited to situations where the amount of the attorney fee is already reportable to the attorney as income or wages."(9) Hence, the proposed regulations generally contemplate that multiple Forms 1099 (or a Form W-2 and a Form 1099) will be issued to different parties for the same (or included) amounts arising from the same transaction or payment. We believe that the approach adopted in the proposed regulations expands payer reporting obligations beyond what is required to be reported under the plain language of the statute. As important, the proposed rules will exacerbate, rather than mitigate, the overlapping information reporting requirements to which payers are subject. Consequently, the proposed regulations contravene the clear congressional directive that the regulations minimize duplicative reporting of payments on information returns.

A. Only Single Reporting Is Required Under Section 6045(f)

By its own terms, section 6045(f) requires one and only one report of a payment. Specifically, section 6045(f)(2)(B) states:

   This subsection shall not apply to the portion of any payment which is
   required to be reported under section 6041(a) (or would be so required but
   for the dollar limitation contained therein) or section 6051.

   The legislative history adds:

   The only exception to this new reporting requirement would be for any
   payments reported on either Form 1099-MISC (reports of payment of income)
   or on Form W-2 section 6051 (payments of wages).... [T]he IRS should
   administer this provision so that there is no overlap between reporting
   under section 6041 and reporting under section 6045.(10) (Emphasis added.)

Thus, a payment should not be reportable under both (1) section 6045(f) and (2) either section 6041 or section 6051. Regrettably, the IRS interprets the congressional directive to minimize overlapping reporting requirements in an exceedingly restrictive fashion. Specifically, the preamble states that congressional injunction is limited to those legal fees that would otherwise have been reported to an attorney prior to the enactment of section 6045(f) -- i.e., amounts reportable on Form 1099-MISC for payments to a defendant's attorney or on Form W-2 to an in-house attorney. Section 6045(f), however, is not nearly so limited as the preamble avers and the proposed regulations suppose. It unambiguously states "[subsection (f)] shall not apply to the portion of any payment which is required to be reported under section 6041(a) ... or section 6051." We recommend that the IRS reconsider its stringent interpretation and limit the number of instances of multiple reporting for a single transaction or payment.

B. Multiple Reporting Is Burdensome for Payers and Confusing for Recipients

Examples 1 and 2 of Prop. Reg. [sections] 1.6045-5(f) illustrate the multiple reporting burdens engendered by the proposed rules in a claim for wages. Example I involves an unallocated $300,000 settlement paid jointly to a plaintiff and the plaintiff's attorney, and requires the $300,000 to be reported once on Form W-2 to the plaintiff and again on Form 1099-MISC to the plaintiff's attorney (presumably in box 13).(11) Example 2 involves a $300,000 settlement paid jointly to a plaintiff and the plaintiff's attorney where the defendant "knows" the plaintiff's attorney's fee is $100,000. The example states that the full $300,000 is reported on Form W-2 for A and the $100,000 allocated to the attorney's fees included in the settlement be reported on Form 1099-MISC to the attorney (presumably in box 7).(12)

Multiple reporting will be extremely burdensome for taxpayers generally, but especially so in connection with settling wage claims subject to payroll taxes and withholding. Many if not most payroll and accounts payable systems are designed to (1) generate an aggregate Form W-2 or Form 1099 with respect to all payments to a single payee, and (2) take every payment into account once -- and only once -- not two or more times. As a result, the multiple reporting envisioned by the proposed regulations will require manual processing (once for the amount reported to the employee or former employee on Form W-2 and again for the same or an included amount for the attorney) and, hence, will be prone to errors. In addition, to satisfy a multiple reporting requirement, taxpayers may well issue separate Forms 1099-MISC for payments to attorneys under section 6045(f) in addition to the Forms 1099 issued to those same attorneys under section 6041. Even without such double reporting to the attorneys, which is likely to occur given the confusing and overlapping requirements under sections 6045(f) and 6041 that the proposed rules exacerbate, the multiple reporting sanctioned under the proposed rules will engender confusion for payees and the IRS alike about the includible amounts and will likely yield a substantial number of erroneous notices under the IRS matching program. We urge the IRS to (1) eliminate multiple reporting requirements under the proposed rules and (2) mitigate the number of instances of multiple reporting that will arise owing to the overlapping requirements among sections 6045(f), 6041, and 6051.

C. The Multiple Reporting Requirement Report in a Nonwage Action Should Be Eliminated or Clarified

Example 3 of Prop. Reg. [sections] 1.6045-5(f) illustrates the application of the proposed rules for payments settling a claim for physical injuries subject to the section 104(a)(2) exclusion. There, the settlement is paid jointly to the plaintiff and the plaintiff's attorney, but no allocation of the settlement payment is made among the attorney's fee, the nontaxable settlement, or other amounts. The example states that the full amount of the payment must be reported to the attorney by the payer (presumably on Form 1099-MISC, Box 13, but clarification would be helpful), but, since the payment is excludable from the plaintiff's income under section 104(a)(2), the payer-defendant is not required to report any amount to the plaintiff.

Example 4, which involves an unallocated payment for wrongful injury, similarly requires the payment to be reported to the attorney (presumably on Form 1099-MISC, Box 13, but again clarification would be helpful). Example 4 is seemingly intended to illustrate the application of the delivery rule since (1) the attorney is not a payee, (2) the check is delivered to the attorney's office, and (3) the defendant "knows" that the plaintiff is represented by the attorney taking delivery. The facts of Examples 3 and 4 are not identical and Example 4 does not explicitly state whether the payment is to be reported to the plaintiff, so a reader must assume that the section 104(a)(2) exclusion applies to obviate information reporting to the plaintiff.

Examples 3 and 4 should be modified, or a new example added, to address whether (1) where an unallocated payment in a nonwage claim is made to the plaintiff's attorney, the defendant should report the payment separately on Forms 1099-MISC to both the plaintiff (if the settlement or judgment amount would constitute income to the plaintiff) and the attorney; and (2) when attorney's fees in a nonwage action are separately stated and paid to the plaintiff's attorney, the defendant should report the attorney's fees separately to both the plaintiff (if the settlement or judgment amount would constitute income to the plaintiff) and the attorney. While multiple reporting obligations should be minimized, the regulations should at least clearly provide guidance about the circumstances and manner in which payers are required to report the same payment (or an included amount) multiple times. In other words, the proposed regulations should be revised to state explicitly (rather than imply) whether the IRS requires payments to plaintiff's attorney to be double reported -- once to the attorney on Form 1099 and again to the plaintiff (whether on Form 1099 or a W-2).

Delivery Rules

A. Nonpayee Attorney

Prop. Reg. [sections] 1.6045-5(b)(1) requires a payer to file an information return where the check is delivered to an attorney who is not a payee and it is reasonable for the payer to believe the attorney is receiving the check in connection with legal services. The expansive definition of "legal services" in Prop. Reg. [sections] 1.6045-5(d)(2) to include "all services performed by, or under the supervision of, an attorney" ensures that nearly every payment physically (or electronically) delivered to an attorney must be reported under section 6045(f).

The requirement to report payments that are merely "delivered" to an attorney who is not a payee on a check poses a significant, if not impossible, compliance burden for most businesses. Automated accounts payable systems are designed to generate information returns based on the attributes of a payee on the check and the purpose for which the payment is made. Few if any systems are designed to capture information about where (physical address) or to whom, apart from payees, a payment is delivered. Indeed, it may not be possible to automate a system to address the myriad facts and circumstances in which a payment is physically delivered to, or by way of an attorney, since the attorney may be acting as an attorney for a client or as a conduit (or agent) for delivery of payment in connection with other services or products. Finally, it is unclear how, from a legal or pragmatic perspective, the backup withholding rules of section 3406(a)(1)(B) can be applied to a nonpayee recipient of a payment. Moreover, where the proposed regulations require double (or multiple) reporting, it is even more troubling that the payer could be subject to a requirement to apply the backup withholding rules with respect to each recipient of the information returns.

Even apart from those practical concerns, we believe the so-called "delivery" rule is beyond the authority conferred by the statute. Section 6045(f) requires reporting of "... any payment to an attorney in connection with legal services" and applies to any person making such payment in the course of a trade or business. Under a plain reading of the statute, where there is no payment by the payer to an attorney, there is no information-reporting requirement under section 6045(f). We recommend that the proposed delivery rule be abandoned because it is unadministrable and beyond the authority of the statute.

B. Multiple Payees

Under Prop. Reg. [sections] 1.6045-5(b)(2)(i), where a check is payable to multiple attorney payees (whether as joint or alternative payees), the payer is required to file an information return with respect to the attorney taking physical delivery of the check. Under Prop. Reg. [sections] 1.6045-5(b)(ii), where a check is payable to attorney and nonattorney payees and the payer delivers the check to a nonattorney, the payer is required to file an information return with respect to the first listed attorney payee. In either case, Prop. Reg. [sections] 1.6045-5(b)(3) requires an attorney payee receiving the information return to report payments made subsequently to the other named attorney payees.

TEI believes the regulations would be improved by adoption of a single rule that applies in every instance where there are multiple payees regardless of whether the identity of the first payee is an attorney or nonattorney. Specifically, we recommend that the regulations require that the information report be made in respect of the first listed attorney payee regardless of whether that payee takes physical delivery of the check. Such a rule will permit the payer to employ its automated systems for making and reporting the payment thereby simplifying its reporting obligations. Since Prop. Reg. [sections] 1.6045-5(b)(3) requires attorneys who receive information returns issued under Prop. Reg. [sections] 1.6045(b)(1) or (2) to report the subsequent payments remitted to other attorneys, the identity of the attorney receiving the initial information return should be irrelevant.

Effective Date

Prop. Reg. [sections] 1.6045-5(h) states that the regulations apply to payments made after December 31, 1999. TEI believes that regulations in respect of new or modified information reporting requirements should generally apply only to payments made subsequent to the effective date and that the applicable effective date should be deferred beyond the date the regulations are released. In other words, we believe taxpayers should be accorded time between the release of the final regulations and the effective date in order to design, code, test, and implement their information systems to ensure compliance. Moreover, in order to generate accurate returns and payee information slips the effective date for new or modified information reporting should generally coincide with the beginning of the applicable reporting period (i.e., the calendar year generally). Hence, a December 31, 1999, effective date was seemingly reasonable when the proposed regulations were released. In view of the concerns that TEI and other commentators have expressed in respect of the administrability of the proposed rules, however, we are concerned that workable regulations may not be released in time to permit taxpayers to redesign their systems to collect and compile the proper payment data necessary to generate accurate information returns. Hence, TEI recommends that the IRS delay the effective date of the proposed rules until December 31, 2000. In addition to affording taxpayers time to make the necessary system changes to implement these regulations, a deferred effective date will permit taxpayers to complete other important information system projects (e.g., century-date (or Y2K) hardware and software system remediation) on a timely basis and minimize the disruptions and burdens that complying with the regulations might otherwise engender.

De Minimis Exception

Prop. Reg. [sections] 1.6045-5(a)(1)(i) states that proposed regulations will apply notwithstanding that "payments to an attorney aggregate less than $600 for the calendar year." Hence, a Form 1099-MISC will be required for any payment made in the course of a trade or business to an attorney in connection with legal services rendered. The lower threshold or, more properly, the lack of a de minimis exception for reporting gross proceeds, will likely require modification of companies' accounts payable information systems. Indeed, it may not be possible for large payers to comply with the twin requirements of this rule and section 6041 except by establishing procedures whereby any or all payments to attorneys (regardless of whether practicing as incorporated entities) are coded to trigger the issuance of a Form 1099. Alternatively, payer companies will be required to review all such payments manually and, to the extent permitted by their information systems, override the normal processing routine to ensure the issuance of correct Form 1099s. The former may breed confusion for information recipients (including the IRS), while the latter is inefficient and costly for large and frequent payers.

Treas. Reg. [sections] 31.6011(a)-10 provides that the IRS may waive certain filing requirements where appropriate. We recommend that the IRS consider employing its authority under this provision to adopt a de minimis threshold of $600 (or higher) for payment of proceeds to attorneys. The adoption of a rule consistent with the 6041(a) threshold will permit large taxpayers making substantial and frequent payments to minimize the amount of manual processing and review spawned by inconsistent reporting thresholds.

Conclusion

Tax Executives Institute appreciates this opportunity to present its views on the proposed regulations issued under section 6045(f) on information returns relating to payments to attorneys. The Institute's comments were prepared under the aegis of its Federal Tax Committee, whose chair is Philip G. Cohen. If you have any questions, please do not hesitate to call Mr. Cohen at [phone], or Jeffery P. Rasmussen of the Institute's professional staff at [phone].

(1) 1999-23 I.R.B. 14, 15.

(2) 42 U.S.C. [sections] 2000e, et seq.

(3) 42 U.S.C. [sections] 12101, et seq.

(4) 29 U.S.C. [sections] 621, et seq.

(5) See 42 U.S.C. [subsections] 2000e-5(k) (Title VII); 42 U.S.C. [sections] 12117 (ADA); and 29 U.S.C. [sections] 626(b) (ADEA); Lightfoot v. Union Carbide Corp., 110 F. 3d 898, 913 (2d Cir. 1997) (ADEA).

(6) See, e.g., Burgess Raby and William L. Raby, "Deducting Legal Fees -- Before Tax and After Tax," 79 Tax Notes 1295, 1298 (June 8, 1998) (arguing that plaintiffs may be shielded from tax by a properly drafted contingent fee contract that employs language similar to an Alabama statute granting lawyers a direct interest in a lawsuit.) But cf., Farley P. Katz, "Reporting and Withholding Rules for Litigation Settlements and Judgments," 81 Tax Notes 1265, 1278 & n.66 (December 7, 1998), which states that the general rule is that a right to recover attorney's fees belongs to the plaintiff but also acknowledging contrary authority.

(7) 1980-2 C.B. 294.

(8) See Rev. Rul.72-268, 1972-1 C.B. 313.

(9) 1999-23 I.R.B. 14, 15.

(10) See H.R. Rep. No. 105-220, 105th Cong., 1st Sess. 214-15 (1997) (Conference Report).

(11) Prior to the release of the proposed regulations, the only guidance on section 6045(f) was set forth in the 1998 Instructions to the Form 1099 Information Return. Those instructions require that amounts payable to attorneys as nonwage miscellaneous compensation be shown in box 7 of Form 1099-MISC. Gross proceeds are to be reported on Form 1099-MISC, Box 13, "Code A."

(12) Id.