Structured Attorney Fees · Childs v. Commissioner

Won a big one?
Don't let one big year tax you at 55%.

Take your $1M / $5M / $20M contingency fee as a lump → ordinary income, all in one year → 37% federal + 13.3% California + 3.8% NIIT + 1% MHST = ~55% effective. Structure it instead → IRC §451 + Childs v. Commissioner → spread across 5–30 years → each year sits in the 22–32% bracket → effective rate drops to 35–40%. Permanent savings, not deferral.

Childs v. Commissioner (1996) Rev. Rul. 79-220 A-rated carriers NPN 20602398

Childs v. Commissioner · 103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996)

The Tax Court (and 11th Circuit) confirmed that an attorney can structure their contingency fee through a single-premium fixed annuity arranged before the fee is earned — and is taxed on each payment only as it’s received. No constructive receipt. No 409A. Reaffirmed by IRS in Rev. Rul. 79-220 and PLRs since. This is settled law. Used by personal-injury firms, mass-tort lead counsel, and class-action plaintiffs’ firms nationwide for 30+ years.

Your case

Your fee & tax picture

Six inputs. Fee + your other income drive everything.

After your firm’s cut. This is YOUR share that hits W-2 / K-1 / 1099 — the amount you’d otherwise pay full ordinary income tax on in Year 1.
W-2 / partnership K-1 / investment income — what you earn even without this fee. Stacks under the fee in bracket calc.
IRMAA matters from 65+ (already on Medicare) or 63+ (2-yr lookback applies).
AUTO from term.~3.8% @ 5yr · 4.5% @ 10yr · 4.7% @ 15yr · 4.8% @ 20yr · 5.0% @ 30yr. Real quote at placement.
510152030 yrs
051015 yrs
Useful if you’re still at the peak of your career and want the income to backstop retirement. Carrier compounds the principal at the credit rate during the deferral.
Your answer
One big check today → tax stack hits every bracket up to 37%.Spread over 15 years → tax sits in lower brackets every single year.
Take cash today
—
After Year-1 ordinary tax stack of $— on full fee
Structure over 15 yrs
—
$—/mo after-tax · carrier compounds principal at 4.5%
Structured fee keeps you ahead by
—
Pure bracket compression. Same total fee. The IRS just doesn’t get to stack you at 37% in one year — you’re back in the 28% bracket every other year.
Effective rate · cash year-1
—
Fed marg + State + NIIT + MHST
Effective rate · structured (blended)
—
Avg across 15 yrs · bracket compressed
For CPAs & tax counsel 📊 Year-by-year schedule · marginal rates · NIIT · IRMAA
YrPayment (gross)Top marginalTaxNet

Note:Marginal rate is the top bracket your fee payment touches each year, given $400,000 in other ordinary income stacked beneath it. Tax includes federal ordinary + state ordinary + NIIT on the fee portion (if applicable). IRMAA included if age 63+.

⚠ What this calc does NOT model:

Got a settlement pending? Set this up before the agreement is signed.

Constructive receipt rules mean the structuring agreement has to be in place BEFORE the contingency fee is earned/agreed. If the case is days from settling, time is short — call Hans now.

📞 213-414-2808 — Talk to Hans
For math nerds
🧮  The math we are mathing — full derivation

Pure ordinary-income bracket-stacking math. No GPR, no §453, no basis. Each year’s structured payment is treated as ordinary income, stacked on top of your other income for that year. The savings come from not getting bracket-stacked at 37% all in one year.

1. 2026 Federal ordinary income brackets (MFJ)

10%: $0 – $23,850
12%: $23,850 – $96,950
22%: $96,950 – $206,700
24%: $206,700 – $394,600
32%: $394,600 – $501,050
35%: $501,050 – $751,600
37%: $751,600 – ∞

# Single brackets are roughly half of MFJ caps · HOH falls between

2. Year-1 lump-sum stack (cash scenario)

TotalIncome = OtherOrdIncome + GrossFee
FedTaxcash = bracketTax(TotalIncome, FED_ORD) − bracketTax(OtherOrdIncome, FED_ORD)
# Marginal increment is the fee's tax — likely all in 35-37% if fee is large

3. Structured payment (no §453, no GPR — whole payment is ordinary)

PMT = Fee × r ÷ (1 − (1 + r)−n) # amortizing annuity, same as property SIS PMT formula

# Each year:
AnnualPayment = PMT (constant if no COLA)
TaxableThisYear = PMT (100% ordinary — no basis recovery, no LTCG split)

4. Per-year tax (structured scenario)

# Each year, the PMT is stacked on top of OtherOrdIncome (which may change over time):
Stackstart = OtherOrdIncomeyr
Stackend   = OtherOrdIncomeyr + PMT
FedTaxyr = Σi [bracketIncrementi] × ordRatei

StateTaxyr = stateBracketTax(Stackend) − stateBracketTax(Stackstart)
NIITyr = 0 # attorney fees are earned income, not investment income — NIIT does NOT apply to the fee itself
# NIIT may apply to OTHER investment income each year if MAGI exceeds threshold
IRMAAyr = irmaaSurcharge(MAGIyr) # if attorney is 63+ Medicare-eligible

5. Effective rate comparison

EffRatecash = TotalTaxcash ÷ Fee # likely 50-55% in CA/NY for large fees
EffRatestructured = (Σ TaxYr) ÷ (Σ PMTYr) # typically 35-42% blended

Savings = (EffRatecash − EffRatestructured) × Fee

6. Deferred-start growth (if applicable)

# If first payment delayed by d years, carrier compounds principal at r during deferral:
PMTdeferred = Fee × (1+r)d × r ÷ (1 − (1 + r)−n)
# Year-1 of payment becomes Year-(d+1) of plan; structure pays from d+1 to d+n

7. Childs v. Commissioner — the controlling precedent

103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996)
Holding: An attorney who agrees pre-settlement that contingency fee
be paid through a fixed annuity is NOT in constructive receipt of the
lump sum — only taxable on each payment as received.

Confirmed by:
 • Rev. Rul. 79-220 (annuity payments taxed when received)
 • PLR 200836019, 200847017 (attorney fee structuring approved)
 • ABA Formal Opinion 466 (ethics — fee structuring permissible)
Statutory + case-law citations:IRC §451(a) cash-basis taxpayer · Reg. §1.451-2 constructive receipt · IRC §83 (NOT applicable here — earned income not property) · IRC §409A (NOT applicable to structured attorney fees · see Rev. Rul. 2007-32) · Childs v. Comm'r, 103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996) · Rev. Rul. 79-220 · Rev. Rul. 2007-32 · PLR 200836019 · PLR 200847017 · ABA Formal Opinion 466 (2014). 2026 federal ordinary brackets per Rev. Proc. 2025-XX (TCJA-extended).

Source code transparency:This calculator’s JavaScript is inline on this page — view-source (Ctrl-U) to audit every formula, every constant. No external dependencies, no API calls.
More on the law and mechanics

Read deeper — the rest of the cluster.

The Childs case — in depthThe 1994 Tax Court ruling, the 1996 affirmation, and what it does not say. The mechanics — workflow in orderPre-settlement design, defense coordination, carrier placement, 1099 reporting. The IRS position vs the courtsCCA 201151018 in plain English — and the §409A overlay every modern structure plans around. Who structures feesProfiles + thresholds: PI, class action, mass tort, ERISA fees, solos, plus when NOT to structure. Questions every plaintiff lawyer asksCarrier risk, retirement, §409A, malpractice, PC/PLLC structures, beneficiaries, year-1 1099. For your plaintiff — structured settlement calculator§104(a)(2) tax-free side-by-side. For PI / wrongful-death recoveries.
📞 Talk to Hans · 213-414-2808