Paul L. Caron

Thursday, April 27, 2006

Taxability of Former Illinois Gov. Ryan's Free Legal Defense

Interesting article in yesterday's Chicago Tribune:  Is Ryan's Free Legal Defense Taxable? Connections Cloud Issue of Outright Gift, by Susan Chandler:

Some critics complained that former Illinois Gov. George Ryan received an unfair, political insider's advantage when one of Chicago's most powerful law firms agreed to provide him with top-flight criminal defense free of charge. But the legal services provided by Winston & Strawn did not save Ryan from a guilty verdict in his corruption trial and it may set him up with a tax problem he was not expecting. The millions of dollars in pro bono legal services Ryan received from the firm could be viewed by the IRS as taxable income, according to the IRS and several tax experts contacted by the Tribune. ...

At the crux of the matter is whether Winston & Strawn was making a gift to Ryan of its services or whether the firm expected to receive something in exchange, which is known as a quid pro quo....

In the Ryan case the law firm got front-page exposure in exchange for its legal services, argues David Cameron, associate director of the Graduate Tax Program at Northwestern University Law School. That applies even though publicity is an intangible benefit and in the Ryan case it was not all favorable, he said. "There's a strong argument here that there is income on George Ryan's part," Cameron said. "The case is bringing a great deal of attention to the firm. The firm is receiving the benefits of that as well as the chance to have its young associates engaged in major litigation," he said. "They're getting something from this."

(Hat Tip:  Howard Bashman.)

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Tracked on May 9, 2006 8:40:15 AM


We went through this with Bill Clinton, where supporters actually paid cash for his defense. It's gross income, but I suspect it isn't going to be reported, and the IRS isn't going to say anything. Add it to the other gazllions in the "tax gap."

Posted by: Jack Bogdanski | Apr 27, 2006 4:38:28 AM

But the law firm is not receiving the benefit from the other party, it's receiving the benefit from the media! How is that quid pro quo?

Posted by: Richard | Apr 27, 2006 6:44:02 AM

Seems to me that Ryan got what he paid for.

Posted by: Robert Schwartz | Apr 27, 2006 7:32:44 AM