Tax
Aug. 3, 2026
How is litigation funding for lawyers taxed?
Properly structured litigation funding agreements can allow law firms to defer taxation until case proceeds are realized while ensuring taxes are imposed only on the firm's net recovery after payments to funders.
Robert W. Wood
Managing Partner
Wood LLP
333 Sacramento St
San Francisco , California 94111-3601
Phone: (415) 834-0113
Fax: (415) 789-4540
Email: wood@WoodLLP.com
Univ of Chicago Law School
Wood is a tax lawyer at Wood LLP, and often advises lawyers and litigants about tax issues.
Litigation funding involves someone (a dedicated litigation funder, a hedge or private equity fund, or a private party) handing over funds to a lawyer, a plaintiff, or both. In a sense, the funder is making a bet on the eventual success of the litigation. The money is almost invariably offered on a nonrecourse basis, so if the litigation is a bust, the plaintiff or lawyer does not owe the funder anything.
In the early days of litigation funding, plaintif...
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