Thomas Scott Schrack (Myers, Brier & Kelly, Scranton, PA) has published Winning Plaintiffs May Become Losers in the End:  Award Recipients Taxed on Contingent Fees Paid to Attorneys, 30 Vt. L. Rev. 221 (2006).  Here is part of the Conclusion:

[S]ome of the harshness of this result has now been partially remedied by the American Jobs Creation Act. The Act provides taxpayers with relief that Banks and Banaitis did not have at the time of their respective transactions. Attorney’s fees that are paid in many employment litigation claims specified in the Act may now be taken as an above-the-line deduction. Thus, the limitations on the ability to take the deduction and the devastating effect of the AMT may no longer be a major issue for taxpayers in these actions.

Nonetheless, the Act does not cover all claims. There is still a possibility that a plaintiff may actually end up losing money after paying taxes on the attorney’s fees. Indeed, with the Court’s decision in Banks, it could be said that the Court has now closed the door on the issue, and the Act may be the only remedy left. As discussed above, however, some valid means may yet remain to provide taxpayers with a fighting chance against the inclusion of the fees. The door may be shut, but it is not yet locked.