COMMISSIONER OF INTERNAL REVENUE v. BANKS

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
426 OCTOBER TERM, 2004
Syllabus
COMMISSIONER OF INTERNAL REVENUE v.
BANKS
certiorari to the united states court of appeals for
the sixth circuit
No. 03–892. Argued November 1, 2004—Decided January 24, 2005*
Respondent Banks settled his federal employment discrimination suit
against a California state agency and respondent Banaitis settled his
Oregon state case against his former employer, but neither included fees
paid to their attorneys under contingent-fee agreements as gross income
on their federal income tax returns. In each case petitioner Commis-
sioner of Internal Revenue issued a notice of deficiency, which the Tax
Court upheld. In Banks’ case, the Sixth Circuit reversed in part,
finding that the amount Banks paid to his attorney was not includable
as gross income. In Banaitis’ case, the Ninth Circuit found that because
Oregon law grants attorneys a superior lien in the contingent-fee por-
tion of any recovery, that part of Banaitis’ settlement was not includable
as gross income.
Held: When a litigant’s recovery constitutes income, the litigant’s income
includes the portion of the recovery paid to the attorney as a contingent
fee. Pp. 432–439.
(a) Two preliminary observations help clarify why this issue is of con-
sequence. First, taking the legal expenses as miscellaneous itemized
deductions would have been of no help to respondents because the Alter-
native Minimum Tax establishes a tax liability floor and does not allow
such deductions. Second, the American Jobs Creation Act of 2004—
which amended the Internal Revenue Code to allow a taxpayer, in com-
puting adjusted gross income, to deduct attorney’s fees such as those at
issue—does not apply here because it was passed after these cases arose
and is not retroactive. Pp. 432–433.
(b) The Code defines “gross income” broadly to include all economic
gains not otherwise exempted. Under the anticipatory assignment of
income doctrine, a taxpayer cannot exclude an economic gain from gross
income by assigning the gain in advance to another party, e. g., Lucas v.
Earl, 281 U. S. 111, because gains should be taxed “to those who earned
them,” id., at 114. The doctrine is meant to prevent taxpayers from
avoiding taxation through arrangements and contracts devised to pre-
*Together with No. 03–907, Commissioner of Internal Revenue v.
Banaitis, on certiorari to the United States Court of Appeals for the
Ninth Circuit.

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
427 Cite as: 543 U. S. 426 (2005)
Syllabus
vent income from vesting in the one who earned it. Id., at 115. Be-
cause the rule is preventative and motivated by administrative and sub-
stantive concerns, this Court does not inquire whether any particular
assignment has a discernible tax avoidance purpose. Pp. 433–434.
(c) The Court agrees with the Commissioner that a contingent-fee
agreement should be viewed as an anticipatory assignment to the attor-
ney of a portion of the client’s income from any litigation recovery. In
an ordinary case attribution of income is resolved by asking whether
a taxpayer exercises complete dominion over the income in question.
However, in the context of anticipatory assignments, where the assignor
may not have dominion over the income at the moment of receipt, the
question is whether the assignor retains dominion over the income-
generating asset. Looking to such control preserves the principle that
income should be taxed to the party who earns the income and enjoys
the consequent benefits. In the case of a litigation recovery the
income-generating asset is the cause of action derived from the plain-
tiff ’s legal injury. The plaintiff retains dominion over this asset
throughout the litigation. Respondents’ counterarguments are re-
jected. The legal claim’s value may be speculative at the moment of
the assignment, but the anticipatory assignment doctrine is not limited
to instances when the precise dollar value of the assigned income is
known in advance. In these cases, the taxpayer retained control over
the asset, diverted some of the income produced to another party, and
realized a benefit by doing so. Also rejected is respondents’ suggestion
that the attorney-client relationship be treated as a sort of business
partnership or joint venture for tax purposes. In fact, that relationship
is a quintessential principal-agent relationship, for the client retains ul-
timate dominion and control over the underlying claim. The attorney
can make tactical decisions without consulting the client, but the client
still must determine whether to settle or proceed to judgment and
make, as well, other critical decisions. The attorney is an agent who is
duty bound to act in the principal’s interests, and so it is appropriate to
treat the full recovery amount as income to the principal. This rule
applies regardless of whether the attorney-client contract or state law
confers any special rights or protections on the attorney, so long as such
protections do not alter the relationship’s fundamental principal-agent
character. The Court declines to comment on other theories proposed
by respondents and their amici, which were not advanced in ear-
lier stages of the litigation or examined by the Courts of Appeals.
Pp. 434–438.
(d) This Court need not address Banks’ contention that application of
the anticipatory assignment principle would be inconsistent with the
purpose of statutory fee-shifting provisions, such as those applicable in

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
428 COMMISSIONER v. BANKS
Syllabus
his case brought under 42 U. S. C. §§ 1981, 1983, and 2000e et seq. He
settled his case, and the fee paid to his attorney was calculated based
solely on the contingent-fee contract. There was no court-ordered fee
award or any indication in his contract with his attorney or the settle-
ment that the contingent fee paid was in lieu of statutory fees that might
otherwise have been recovered. Also, the American Jobs Creation Act
redresses the concern for many, perhaps most, claims governed by fee-
shifting statutes. Pp. 438–439.
No. 03–892, 345 F. 3d 373; No. 03–907, 340 F. 3d 1074, reversed and
remanded.
Kennedy, J., delivered the opinion of the Court, in which all other Mem-
bers joined, except Rehnquist, C. J., who took no part in the decision of
the cases.
David B. Salmons argued the cause pro hac vice for
petitioner in both cases. With him on the briefs were for-
mer Solicitor General Olson, Acting Solicitor General
Clement, Assistant Attorney General O’Connor, Deputy So-
licitor General Hungar, Richard Farber, and Kenneth W.
Rosenberg.
James R. Carty argued the cause pro hac vice for respond-
ent in No. 03–892. With him on the briefs were Robert G.
Wilson, Russell R. Young, Roger J. Jones, William J. Wise,
and Glenn P. Schwartz. Philip N. Jones argued the cause
for respondent in No. 03–907. With him on the briefs were
Peter J. Duffy, Holly N. Mitchell, and Eric Schnapper.†
†A brief of amici curiae urging reversal in both cases was filed for
Gregg D. Polsky et al. by Mr. Polsky, pro se, and Brant J. Hellwig, pro se.
Briefs of amici curiae urging affirmance in both cases were filed for the
Association of Trial Lawyers of America by Jeffrey Robert White and
Todd A. Smith; for the Equal Employment Advisory Council by Ann Eliz-
abeth Reesman; for the Lawyers’ Committee for Civil Rights Under Law
et al. by Jerome B. Libin, Mary E. Monahan, Barbara R. Arnwine, Mi-
chael L. Foreman, Sarah C. Crawford, Audrey J. Wiggins, Ira A. Burnim,
Vincent A. Eng, Dennis C. Hayes, and Dina R. Lassow; for the Mountain
States Legal Foundation et al. by William Perry Pendley and J. Scott
Detamore; for the National Employment Lawyers Association et al. by
Douglas B. Huron, Victoria W. Ni, Richard A. Marcantonio, Richard A.
Rothschild, Theodore M. Shaw, Norman J. Chachkin, Robert H. Stroup,

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
429 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
Justice Kennedy delivered the opinion of the Court.
The question in these consolidated cases is whether the
portion of a money judgment or settlement paid to a plain-
tiff ’s attorney under a contingent-fee agreement is income to
the plaintiff under the Internal Revenue Code, 26 U. S. C. § 1
et seq. (2000 ed. and Supp. I). The issue divides the courts
of appeals. In one of the instant cases, Banks v. Commis-
sioner, 345 F. 3d 373 (2003), the Court of Appeals for the
Sixth Circuit held the contingent-fee portion of a litigation
recovery is not included in the plaintiff ’s gross income. The
Courts of Appeals for the Fifth and Eleventh Circuits also
adhere to this view, relying on the holding, over Judge Wis-
dom’s dissent, in Cotnam v. Commissioner, 263 F. 2d 119,
125–126 (CA5 1959). Srivastava v. Commissioner, 220 F. 3d
353, 363–365 (CA5 2000); Foster v. United States, 249 F. 3d
1275, 1279–1280 (CA11 2001). In the other case under re-
view, Banaitis v. Commissioner, 340 F. 3d 1074 (2003), the
Court of Appeals for the Ninth Circuit held that the portion
of the recovery paid to the attorney as a contingent fee is
excluded from the plaintiff ’s gross income if state law gives
the plaintiff ’s attorney a special property interest in the fee,
but not otherwise. Six Courts of Appeals have held the en-
tire litigation recovery, including the portion paid to an attor-
ney as a contingent fee, is income to the plaintiff. Some of
these Courts of Appeals discuss state law, but little of their
analysis appears to turn on this factor. Raymond v. United
States, 355 F. 3d 107, 113–116 (CA2 2004); Kenseth v. Com-
missioner, 259 F. 3d 881, 883–884 (CA7 2001); Baylin v.
United States, 43 F. 3d 1451, 1454–1455 (CA Fed. 1995).
and Thomas W. Osborne; for the Taxpayers Against Fraud Education
Fund by Charles J. Cooper and Hamish P. M. Hume; and for Kenneth W.
Gideon et al. by Mr. Gideon, pro se.
Briefs of amici curiae were filed in both cases for the Oregon Trial
Lawyers Association by Richard S. Yugler; for Stephen B. Cohen by
Mr. Cohen, pro se; and for Charles Davenport by Mr. Davenport, pro se.

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
430 COMMISSIONER v. BANKS
Opinion of the Court
Other Courts of Appeals have been explicit that the fee por-
tion of the recovery is always income to the plaintiff regard-
less of the nuances of state law. O’Brien v. Commissioner,
38 T. C. 707, 712 (1962), aff ’d, 319 F. 2d 532 (CA3 1963) (per
curiam); Young v. Commissioner, 240 F. 3d 369, 377–379
(CA4 2001); Hukkanen-Campbell v. Commissioner, 274 F. 3d
1312, 1313–1314 (CA10 2001). We granted certiorari to re-
solve the conflict. 541 U. S. 958 (2004).
We hold that, as a general rule, when a litigant’s recovery
constitutes income, the litigant’s income includes the portion
of the recovery paid to the attorney as a contingent fee. We
reverse the decisions of the Courts of Appeals for the Sixth
and Ninth Circuits.
I
A. Commissioner v. Banks
In 1986, respondent John W. Banks, II, was fired from his
job as an educational consultant with the California De-
partment of Education. He retained an attorney on a
contingent-fee basis and filed a civil suit against the em-
ployer in a United States District Court. The complaint al-
leged employment discrimination in violation of 42 U. S. C.
§§ 1981 and 1983, Title VII of the Civil Rights Act of 1964,
as amended, 42 U. S. C. § 2000e et seq., and Cal. Govt. Code
Ann. § 12965 (West 1986). The original complaint asserted
various additional claims under state law, but Banks later
abandoned these. After trial commenced in 1990, the par-
ties settled for $464,000. Banks paid $150,000 of this amount
to his attorney pursuant to the fee agreement.
Banks did not include any of the $464,000 in settlement
proceeds as gross income in his 1990 federal income tax re-
turn. In 1997 the Commissioner of Internal Revenue issued
Banks a notice of deficiency for the 1990 tax year. The Tax
Court upheld the Commissioner’s determination, finding that
all the settlement proceeds, including the $150,000 Banks had
paid to his attorney, must be included in Banks’ gross income.

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
431 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
The Court of Appeals for the Sixth Circuit reversed in
part. 345 F. 3d 373 (2003). It agreed the net amount re-
ceived by Banks was included in gross income but not the
amount paid to the attorney. Relying on its prior decision
in Estate of Clarks ex rel. Brisco-Whitter v. United States,
202 F. 3d 854 (2000), the court held the contingent-fee agree-
ment was not an anticipatory assignment of Banks’ income
because the litigation recovery was not already earned,
vested, or even relatively certain to be paid when the
contingent-fee contract was made. A contingent-fee ar-
rangement, the court reasoned, is more like a partial assign-
ment of income-producing property than an assignment of
income. The attorney is not the mere beneficiary of the cli-
ent’s largess, but rather earns his fee through skill and dili-
gence. 345 F. 3d, at 384–385 (quoting Estate of Clarks,
supra, at 857–858). This reasoning, the court held, applies
whether or not state law grants the attorney any special
property interest (e. g., a superior lien) in part of the judg-
ment or settlement proceeds.
B. Commissioner v. Banaitis
After leaving his job as a vice president and loan officer
at the Bank of California in 1987, Sigitas J. Banaitis retained
an attorney on a contingent-fee basis and brought suit in
Oregon state court against the Bank of California and its
successor in ownership, the Mitsubishi Bank. The com-
plaint alleged that Mitsubishi Bank willfully interfered with
Banaitis’ employment contract, and that the Bank of Califor-
nia attempted to induce Banaitis to breach his fiduciary
duties to customers and discharged him when he refused.
The jury awarded Banaitis compensatory and punitive
damages. After resolution of all appeals and post-trial mo-
tions, the parties settled. The defendants paid $4,864,547
to Banaitis; and, following the formula set forth in the
contingent-fee contract, the defendants paid an additional
$3,864,012 directly to Banaitis’ attorney.

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
432 COMMISSIONER v. BANKS
Opinion of the Court
Banaitis did not include the amount paid to his attorney
in gross income on his federal income tax return, and the
Commissioner issued a notice of deficiency. The Tax Court
upheld the Commissioner’s determination, but the Court of
Appeals for the Ninth Circuit reversed. 340 F. 3d 1074
(2003). In contrast to the Court of Appeals for the Sixth
Circuit, the Banaitis court viewed state law as pivotal.
Where state law confers on the attorney no special property
rights in his fee, the court said, the whole amount of the
judgment or settlement ordinarily is included in the plain-
tiff ’s gross income. Id., at 1081. Oregon state law, how-
ever, like the law of some other States, grants attorneys a
superior lien in the contingent-fee portion of any recovery.
As a result, the court held, contingent-fee agreements under
Oregon law operate not as an anticipatory assignment of the
client’s income but as a partial transfer to the attorney of
some of the client’s property in the lawsuit.
II
To clarify why the issue here is of any consequence for
tax purposes, two preliminary observations are useful. The
first concerns the general issue of deductibility. For the tax
years in question the legal expenses in these cases could
have been taken as miscellaneous itemized deductions sub-
ject to the ordinary requirements, 26 U. S. C. §§ 67–68 (2000
ed. and Supp. I), but doing so would have been of no help
to respondents because of the operation of the Alternative
Minimum Tax (AMT). For noncorporate individual taxpay-
ers, the AMT establishes a tax liability floor equal to 26 per-
cent of the taxpayer’s “alternative minimum taxable income”
(minus specified exemptions) up to $175,000, plus 28 percent
of alternative minimum taxable income over $175,000.
§§ 55(a), (b) (2000 ed.). Alternative minimum taxable in-
come, unlike ordinary gross income, does not allow any mis-
cellaneous itemized deductions. § 56(b)(1)(A)(i).

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
433 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
Second, after these cases arose Congress enacted the
American Jobs Creation Act of 2004, 118 Stat. 1418. Section
703 of the Act amended the Code by adding § 62(a)(19). Id.,
at 1546. The amendment allows a taxpayer, in computing
adjusted gross income, to deduct “attorney fees and court
costs paid by, or on behalf of, the taxpayer in connection
with any action involving a claim of unlawful discrimination.”
Ibid. The Act defines “unlawful discrimination” to include
a number of specific federal statutes, §§ 62(e)(1) to (16), any
federal whistle-blower statute, § 62(e)(17), and any federal,
state, or local law “providing for the enforcement of civil
rights” or “regulating any aspect of the employment re-
lationship . . . or prohibiting the discharge of an employee,
the discrimination against an employee, or any other form of
retaliation or reprisal against an employee for asserting
rights or taking other actions permitted by law,” § 62(e)(18).
Id., at 1547–1548. These deductions are permissible even
when the AMT applies. Had the Act been in force for the
transactions now under review, these cases likely would not
have arisen. The Act is not retroactive, however, so while
it may cover future taxpayers in respondents’ position, it
does not pertain here.
III
The Internal Revenue Code defines “gross income” for fed-
eral tax purposes as “all income from whatever source
derived. ” 26 U. S. C. § 61(a). The definition extends
broadly to all economic gains not otherwise exempted.
Commissioner v. Glenshaw Glass Co., 348 U. S. 426, 429–430
(1955); Commissioner v. Jacobson, 336 U. S. 28, 49 (1949). A
taxpayer cannot exclude an economic gain from gross income
by assigning the gain in advance to another party. Lucas v.
Earl, 281 U. S. 111 (1930); Commissioner v. Sunnen, 333
U. S. 591, 604 (1948); Helvering v. Horst, 311 U. S. 112, 116–
117 (1940). The rationale for the so-called anticipatory as-
signment of income doctrine is the principle that gains
should be taxed “to those who earned them,” Lucas, supra,

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
434 COMMISSIONER v. BANKS
Opinion of the Court
at 114, a maxim we have called “the first principle of income
taxation,” Commissioner v. Culbertson, 337 U. S. 733, 739–
740 (1949). The anticipatory assignment doctrine is meant
to prevent taxpayers from avoiding taxation through “ar-
rangements and contracts however skillfully devised to pre-
vent [income] when paid from vesting even for a second in
the man who earned it.” Lucas, 281 U. S., at 115. The rule
is preventative and motivated by administrative as well as
substantive concerns, so we do not inquire whether any par-
ticular assignment has a discernible tax avoidance purpose.
As Lucas explained, “no distinction can be taken according
to the motives leading to the arrangement by which the
fruits are attributed to a different tree from that on which
they grew.” Ibid.
Respondents argue that the anticipatory assignment doc-
trine is a judge-made antifraud rule with no relevance to
contingent-fee contracts of the sort at issue here. The Com-
missioner maintains that a contingent-fee agreement should
be viewed as an anticipatory assignment to the attorney of
a portion of the client’s income from any litigation recovery.
We agree with the Commissioner.
In an ordinary case attribution of income is resolved by
asking whether a taxpayer exercises complete dominion over
the income in question. Glenshaw Glass Co., supra, at 431;
see also Commissioner v. Indianapolis Power & Light Co.,
493 U. S. 203, 209 (1990); Commissioner v. First Security
Bank of Utah, N. A., 405 U. S. 394, 403 (1972). In the con-
text of anticipatory assignments, however, the assignor often
does not have dominion over the income at the moment of
receipt. In that instance the question becomes whether the
assignor retains dominion over the income-generating asset,
because the taxpayer “who owns or controls the source of
the income, also controls the disposition of that which he
could have received himself and diverts the payment from
himself to others as the means of procuring the satisfaction
of his wants.” Horst, supra, at 116–117. See also Lucas,

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
435 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
supra, at 114–115; Helvering v. Eubank, 311 U. S. 122, 124–
125 (1940); Sunnen, supra, at 604. Looking to control over
the income-generating asset, then, preserves the principle
that income should be taxed to the party who earns the in-
come and enjoys the consequent benefits.
In the case of a litigation recovery the income-generating
asset is the cause of action that derives from the plaintiff ’s
legal injury. The plaintiff retains dominion over this asset
throughout the litigation. We do not understand respond-
ents to argue otherwise. Rather, respondents advance two
counterarguments. First, they say that, in contrast to the
bond coupons assigned in Horst, the value of a legal claim is
speculative at the moment of assignment, and may be worth
nothing at all. Second, respondents insist that the claim-
ant’s legal injury is not the only source of the ultimate
recovery. The attorney, according to respondents, also con-
tributes income-generating assets—effort and expertise—
without which the claimant likely could not prevail. On
these premises respondents urge us to treat a contingent-fee
agreement as establishing, for tax purposes, something like a
joint venture or partnership in which the client and attorney
combine their respective assets—the client’s claim and the
attorney’s skill—and apportion any resulting profits.
We reject respondents’ arguments. Though the value of
the plaintiff ’s claim may be speculative at the moment the
fee agreement is signed, the anticipatory assignment doc-
trine is not limited to instances when the precise dollar value
of the assigned income is known in advance. Lucas, supra;
United States v. Basye, 410 U. S. 441, 445, 450–452 (1973).
Though Horst involved an anticipatory assignment of a pre-
determined sum to be paid on a specific date, the holding in
that case did not depend on ascertaining a liquidated amount
at the time of assignment. In each of the cases before us,
as in Horst, the taxpayer retained control over the income-
generating asset, diverted some of the income produced to
another party, and realized a benefit by doing so. As Judge

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
436 COMMISSIONER v. BANKS
Opinion of the Court
Wesley correctly concluded in a recent case, the rationale of
Horst applies fully to a contingent-fee contract. Raymond
v. United States, 355 F. 3d, at 115–116. That the amount of
income the asset would produce was uncertain at the mo-
ment of assignment is of no consequence.
We further reject the suggestion to treat the attorney-
client relationship as a sort of business partnership or joint
venture for tax purposes. The relationship between client
and attorney, regardless of the variations in particular com-
pensation agreements or the amount of skill and effort the
attorney contributes, is a quintessential principal-agent rela-
tionship. Restatement (Second) of Agency § 1, Comment e
(1957) (hereinafter Restatement); ABA Model Rules of
Professional Conduct Rule 1.3, and Comment 1; Rule 1.7, and
Comment 1 (2002). The client may rely on the attorney’s
expertise and special skills to achieve a result the client
could not achieve alone. That, however, is true of most
principal-agent relationships, and it does not alter the fact
that the client retains ultimate dominion and control over
the underlying claim. The control is evident when it is
noted that, although the attorney can make tactical decisions
without consulting the client, the plaintiff still must deter-
mine whether to settle or proceed to judgment and make,
as well, other critical decisions. Even where the attorney
exercises independent judgment without supervision by, or
consultation with, the client, the attorney, as an agent, is
obligated to act solely on behalf of, and for the exclusive ben-
efit of, the client-principal, rather than for the benefit of the
attorney or any other party. Restatement §§ 13, 39, 387.
The attorney is an agent who is dutybound to act only in
the interests of the principal, and so it is appropriate to treat
the full amount of the recovery as income to the principal.
In this respect Judge Posner’s observation is apt: “[T]he
contingent-fee lawyer [is not] a joint owner of his client’s
claim in the legal sense any more than the commission sales-
man is a joint owner of his employer’s accounts receivable.”

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
437 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
Kenseth, 259 F. 3d, at 883. In both cases a principal relies
on an agent to realize an economic gain, and the gain realized
by the agent’s efforts is income to the principal. The por-
tion paid to the agent may be deductible, but absent some
other provision of law it is not excludable from the principal’s
gross income.
This rule applies whether or not the attorney-client con-
tract or state law confers any special rights or protections
on the attorney, so long as these protections do not alter the
fundamental principal-agent character of the relationship.
Cf. Restatement § 13, Comment b, and § 14G, Comment a (an
agency relationship is created where a principal assigns a
chose in action to an assignee for collection and grants the
assignee a security interest in the claim against the assign-
or’s debtor in order to compensate the assignee for his collec-
tion efforts). State laws vary with respect to the strength
of an attorney’s security interest in a contingent fee and the
remedies available to an attorney should the client discharge
or attempt to defraud the attorney. No state laws of which
we are aware, however, even those that purport to give at-
torneys an “ownership” interest in their fees, e. g., 340 F. 3d,
at 1082–1083 (discussing Oregon law); Cotnam, 263 F. 2d, at
125 (discussing Alabama law), convert the attorney from an
agent to a partner.
Respondents and their amici propose other theories to
exclude fees from income or permit deductibility. These
suggestions include: (1) The contingent-fee agreement estab-
lishes a Subchapter K partnership under 26 U. S. C. §§ 702,
704, and 761, Brief for Respondent in No. 03–907, pp. 5–21;
(2) litigation recoveries are proceeds from disposition of
property, so the attorney’s fee should be subtracted as a capi-
tal expense pursuant to §§ 1001, 1012, and 1016, Brief for
Association of Trial Lawyers of America as Amicus Curiae
23–28, Brief for Charles Davenport as Amicus Curiae 3–13;
and (3) the fees are deductible reimbursed employee business
expenses under § 62(a)(2)(A) (2000 ed. and Supp. I), Brief for

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
438 COMMISSIONER v. BANKS
Opinion of the Court
Stephen B. Cohen as Amicus Curiae. These arguments, it
appears, are being presented for the first time to this Court.
We are especially reluctant to entertain novel propositions
of law with broad implications for the tax system that were
not advanced in earlier stages of the litigation and not exam-
ined by the Courts of Appeals. We decline comment on
these supplementary theories. In addition, we do not reach
the instance where a relator pursues a claim on behalf of the
United States. Brief for Taxpayers Against Fraud Educa-
tion Fund as Amicus Curiae 10–20.
IV
The foregoing suffices to dispose of Banaitis’ case. Banks’
case, however, involves a further consideration. Banks
brought his claims under federal statutes that authorize fee
awards to prevailing plaintiffs’ attorneys. He contends that
application of the anticipatory assignment principle would be
inconsistent with the purpose of statutory fee-shifting pro-
visions. See Venegas v. Mitchell, 495 U. S. 82, 86 (1990)
(observing that statutory fees enable “plaintiffs to employ
reasonably competent lawyers without cost to themselves if
they prevail”). In the federal system statutory fees are typ-
ically awarded by the court under the lodestar approach,
Hensley v. Eckerhart, 461 U. S. 424, 433 (1983), and the plain-
tiff usually has little control over the amount awarded.
Sometimes, as when the plaintiff seeks only injunctive relief,
or when the statute caps plaintiffs’ recoveries, or when for
other reasons damages are substantially less than attorney’s
fees, court-awarded attorney’s fees can exceed a plaintiff ’s
monetary recovery. See, e. g., Riverside v. Rivera, 477 U. S.
561, 564–565 (1986) (compensatory and punitive damages of
$33,350; attorney’s fee award of $245,456.25). Treating the
fee award as income to the plaintiff in such cases, it is ar-
gued, can lead to the perverse result that the plaintiff loses
money by winning the suit. Furthermore, it is urged that
treating statutory fee awards as income to plaintiffs would

543US2 Unit: $U18 [03-07-07 14:10:48] PAGES PGT: OPIN
439 Cite as: 543 U. S. 426 (2005)
Opinion of the Court
undermine the effectiveness of fee-shifting statutes in depu-
tizing plaintiffs and their lawyers to act as private attor-
neys general.
We need not address these claims. After Banks settled
his case, the fee paid to his attorney was calculated solely on
the basis of the private contingent-fee contract. There was
no court-ordered fee award, nor was there any indication in
Banks’ contract with his attorney, or in the settlement agree-
ment with the defendant, that the contingent fee paid to
Banks’ attorney was in lieu of statutory fees Banks might
otherwise have been entitled to recover. Also, the amend-
ment added by the American Jobs Creation Act redresses
the concern for many, perhaps most, claims governed by fee-
shifting statutes.
* * *
For the reasons stated, the judgments of the Courts of
Appeals for the Sixth and Ninth Circuits are reversed, and
the cases are remanded for further proceedings consistent
with this opinion.
It is so ordered.
The Chief Justice took no part in the decision of these
cases.