Plaintiff Double Tax Becomes Permanent Under the BBB Act
The recently passed One Big Beautiful Bill Act (BBB) made sweeping changes to U.S. tax law, with lasting implications for plaintiffs and the attorneys who represent them.
In a recent Forbes article, tax attorney Jeremy Babener broke down the impact of these changes on litigation, settlement planning, and law firm finances. Below, we highlight key takeaways and share what they mean for your practice.
The “Plaintiff Double Tax” Is Now Permanent
As Babener explains, plaintiffs are taxed on 100% of their recovery — even when a significant portion is paid out as contingency fees to their attorneys. This creates a “double tax,” as both the plaintiff and the lawyer pay tax on the same dollars.
Our take: With this rule now permanent, it’s more important than ever for firms to guide clients through smart post-settlement strategies. Thoughtful planning tools can help protect plaintiffs’ recoveries and minimize tax surprises.
No Litigation Finance Tax (For Now)
An earlier version of the BBB included a steep new tax on litigation finance companies. That provision was ultimately removed, preserving access to funding that helps level the playing field for plaintiffs against deep-pocketed defendants. Still, Babener warns that the proposal could reemerge in future legislation.
Our take: Firms relying on litigation finance should stay vigilant. Exploring diversified funding strategies today can help insulate cases from sudden shifts in tax law tomorrow.
AI Regulation Remains in State Hands
The bill initially included a moratorium that would have blocked states from regulating artificial intelligence for 10 years, leaving oversight solely to the federal government. That provision was dropped in the final version.
Our take: Law firms using AI tools — in discovery, employment, or client intake — must track both state and federal developments. Compliance obligations may vary by jurisdiction, and risks will only grow as the technology evolves.
SALT Deduction & PTET Workarounds Continue
The BBB temporarily raised the state and local tax (SALT) deduction cap for many taxpayers and left the popular pass-through entity tax (PTET) workaround intact. This offers some relief to law firm owners operating as partnerships, LLCs, or S corporations.
Our take: Owners of pass-through entities should review their tax structures with advisors to ensure they’re maximizing available deductions under the BBB.
The Bottom Line
The One Big Beautiful Bill Act delivers permanent tax changes that plaintiffs and their attorneys cannot afford to ignore. From the double tax on recoveries to evolving questions around funding and AI regulation, staying informed is key to protecting both firms and the clients they serve.
For a deeper dive, we encourage you to read Jeremy Babener’s full article in Forbes: Big Beautiful Bill Just Made the Plaintiff Double Tax Permanent.