A Tax Guide for Plaintiffs Negotiating a Commercial Litigation Funding Agreement

Jonathan Friedland and Jeremy Waitzman of Much Shelist outline the tax risks facing plaintiffs entering commercial litigation funding agreements, including whether non-recourse funding advances constitute taxable income and how a mismatch between ordinary income from litigation recoveries and capital losses on funding settlements can create significant tax liabilities, while recommending that plaintiffs structure and document claims as arising from an active trade or business to support deductions for legal fees and funding costs.

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