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Helping Plaintiffs Keep More of Their Settlement Proceeds
Maximizing plaintiff recoveries — before the case closes.
The Plaintiff Double Tax:
A Permanent Tax Problem with a Practical Solution
For non-business plaintiffs with taxable settlements, a significant and often-overlooked tax trap exists. The Tax Cuts and Jobs Act of 2017, made permanent in 2025, eliminated the above-the-line deduction for attorney fees in most taxable individual plaintiff recoveries.
The result: plaintiffs may be taxed on the total gross recovery — including the portion paid directly to counsel — while receiving only their net share.
This is a structural feature of the current tax code that affects a broad range of contingency-fee cases. Most plaintiffs are not informed until it is too late to act.
The Plaintiff Recovery Trust (PRT) was designed to address this issue directly. Implementing a properly structured PRT early can increase a plaintiff’s net after-tax proceeds by 40% to 150%, making early setup crucial for maximizing tax savings. This difference depends on establishing the PRT before case closure.
⚠️ Timing Is Critical: Delaying action until after your dispute is finalized forfeits the potential benefits of the PRT and its tax savings, underscoring the need for early planning.
The Plaintiff Double Tax:
A Permanent Tax Problem with a Practical Solution
Understanding the Plaintiff Double Tax
Mechanics of the Problem
Under current law, in many taxable disputes with contingency fees, the IRS considers the full gross recovery as taxable income, including counsel fees and pass-through costs, because the suspension and elimination of miscellaneous deductions mean plaintiffs often lack an offsetting deduction.
Illustrative Example
A plaintiff with a $1,000,000 taxable settlement and a 40% contingency fee receives $600,000 after attorney fees. However, the IRS taxes the full $1,000,000 — including the $400,000 attorney-fee portion that the plaintiff never received.
Depending on the plaintiff’s tax bracket and state of residency, this can result in an additional federal tax of up to $185,000.
Why This Issue Is Often Discovered Too Late
Contingency-fee attorneys are often unaware of the plaintiff double tax, and settlement discussions rarely address it proactively. Once a case settles without a PRT in place, the tax exposure typically cannot be mitigated.
Raising this issue early — before reaching a final resolution — is the only effective way to get relief.
The Plaintiff Recovery Trust
The Plaintiff Recovery Trust uses a specialized trust structure — adapted from established charitable planning techniques — designed to realign the tax treatment of plaintiff recoveries with the economic reality of how proceeds are distributed.
EPTC, in conjunction with other highly respected tax professionals, developed and administers the PRT. It is available with no setup cost and can be established quickly once a case is identified as a candidate.
In taxable cases, plaintiffs are taxed on the gross recovery, including attorney fees they never received.
The plaintiff is generally taxed only on the net amount they actually receive, increasing net after-tax proceeds by 40% to 150%.
Available to model your specific parameters and estimate how much the PRT can increase your net proceeds.
How the Plaintiff Recovery Trust Works
The PRT process integrates cleanly into the existing settlement and litigation workflow in five steps.
The claim is transferred to the Plaintiff Recovery Trust before final resolution. The PRT can be established quickly with no setup fee.
Whether through litigation or settlement, the recovery is paid to the PRT. The PRT is compatible with structured settlements for both plaintiff and attorney, and with cases involving both taxable and tax-free recoveries.
When there is a recovery, it is paid to the PRT. The PRT pays the plaintiff their net share and the attorney their fee — preserving the economic deal while restructuring the tax recognition.
Taxation on amounts the plaintiff does not receive is eliminated from the plaintiff’s income recognition — thereby reducing the taxation to the plaintiff.
The plaintiff’s taxable income reflects what they received, resulting in meaningful tax savings and an improved after-tax result.
Representative Case Outcomes
The hypothetical scenarios below illustrate how the PRT positively affects net after-tax plaintiff proceeds. Individual results will vary based on case-specific facts, recovery allocation, applicable tax rates, and fee arrangements.
| Case Type | Gross Recovery | Attorney Fee (40%) | PRT Charitable Contrib. (3%) | Tax Without PRT (Double Tax) | Tax With PRT | Tax Savings | Net Proceeds Increase* |
|---|---|---|---|---|---|---|---|
| Case 1 — Business Fraud / Breach of Contract | $750,000 | $300,000 | $22,500 | $262,500‡ | $149,625‡ | $112,875 | +48% |
| Case 2 — Securities Litigation | $2,000,000 | $800,000 | $60,000 | $820,000§ | $467,400§ | $352,600 | +77% |
| Case 3 — IP Infringement / Defamation | $5,000,000 | $2,000,000 | $150,000 | $2,000,000 | $1,140,000 | $860,000 | +71% |
| Case 4 — Punitive Damages + Pre-Judgment Interest † | $12,000,000 | $4,800,000 | $360,000 | $5,400,000† | $3,078,000† | $2,322,000 | +109% |
| * Net Proceeds Increase: (Net With PRT − Net Without PRT) ÷ Net Without PRT. ‡ 35% combined rate (FL/TX). § 41% combined rate. † 45% combined rate (CA/NY). Hypothetical illustrations only — past results do not guarantee future results. The PRT must be established before the matter is finally resolved. | |||||||
- The PRT Calculator is only for hypothetical illustration and informational purposes, not for financial or tax advice. Hypothetical projections are based on user inputs and assumptions (e.g., tax rates), which are intended only as estimates and may not reflect actual outcomes.
- Results are not guaranteed. Statutory or regulatory changes, inaccurate inputs, or other factors may lead to inaccuracies.
- The User is responsible for input accuracy and should consult a financial advisor before making decisions.
- EPTC, its affiliates, and agents are not liable for the accuracy of information or results.
- By submitting data and using the service, you, the User, reaffirm your agreement to the associated Terms and Conditions and Privacy Policy.
- By using the PRT Calculator, the User and all Parties in Interest release EPTC, its affiliates, and agents from all claims, damages, or losses resulting from relying on the PRT Calculator’s projections, including those caused by inaccuracies or negligence, as permitted by law.
- The User and all Parties in Interest assume all risk when using the PRT Calculator and relying on its projections, and they agree to indemnify EPTC against any claims resulting from their use of the PRT Calculator.
The Financial Case for the Plaintiff Recovery Trust
Hypothetical comparison of tax liability and net plaintiff proceeds across four representative case types — with and without a properly structured PRT.
Figure 1
Income Tax Paid by Plaintiff
Total federal & state income tax assessed on the plaintiff’s recovery. Without a PRT (Red Bar), plaintiff pays tax on the full gross recovery including attorney fees never received. The PRT reduces the plaintiff’s taxes (Green Bar).
↓ Tax Reduction Achieved with PRT
Figure 2
Net After-Tax Proceeds to Plaintiff
The plaintiff’s net proceeds after attorney fees. The PRT eliminates taxation of contingent attorney fees, significantly increasing net proceeds. (Red without PRT — Green with PRT)
↑ Net Proceeds Increase with PRT
Figure 3
Additional Net Proceeds the Plaintiff Gains Through the PRT
The additional after-tax dollars the plaintiff receives by using a PRT. Calculated as Net Proceeds With PRT − Net Proceeds Without PRT. Percentage labels above each bar indicate the proportional gain. Each bar represents amounts that would be lost due to the double-tax treatment of attorney fees under current law.
↑ Full Breakdown — Dollar Gain & Percentage Increase per Case
Hypothetical Illustrations Only. These figures do not reflect actual client outcomes. Past results do not guarantee future results. The PRT must be established before the matter is finally resolved. Tax rates: Case 1=35%; Case 2=41%; Case 3=40%; Case 4=45%. Attorney fee=40% gross recovery. PRT contribution=3% gross recovery. “Without PRT” tax on full gross recovery. “With PRT” tax on net distributable share only. Figure 3: Case 1: +$90,375 (+48%). Case 2: +$292,600 (+77%). Case 3: +$710,000 (+71%). Case 4: +$1,962,000 (+109%).
Table Assumptions & Disclosures
These are only hypothetical illustrations. They do not reflect actual client outcomes. Past results do not guarantee future results. The PRT must be set up before the matter is finally resolved.
Attorney Fee: Assumed at 40% of gross recovery in all scenarios. Actual contingency fee rates vary by case and engagement agreement, and pass-through costs may also be subject to double taxation.
PRT Charitable Contribution: 3% of gross recovery. This amount is paid to a qualifying charitable organization as part of the trust structure. The charitable contribution is required to support the PRT's economic structure.
Tax Rate (Case 1 — Business Fraud): 35% combined federal and state effective income tax rate. Reflects a plaintiff in a lower tax bracket or a state with no or low state income tax (e.g., Florida or Texas). Net after-tax proceeds increase approximately 48% with PRT.
Tax Rate (Case 2 — Securities Litigation): 41% combined federal and state effective income tax rate. Reflects a plaintiff in a moderate-to-high-tax jurisdiction. Net after-tax proceeds increase approximately 77% with the PRT.
Tax Rate (Case 3 — IP Infringement / Defamation): 40% combined federal and state effective income tax rate. Baseline scenario. Net after-tax proceeds increase 71% with the PRT.
Tax Rate (Case 4 — Punitive Damages + Interest): 45% combined federal and state effective income tax rate. Reflects a high-income plaintiff in a high-tax state (e.g., California or New York). Net after-tax proceeds increase approximately 109% with the PRT.
Without PRT — Double Tax Calculation: Plaintiff's income tax is calculated on the full gross recovery (including the attorney fee portion). No offsetting deduction for attorney fees is assumed, consistent with the permanent elimination of the above-the-line deduction under current law.
With PRT — Tax Calculation: Plaintiff's taxable income is limited to the net distributable share (Gross Recovery minus Attorney Fee minus PRT Charitable Contribution). Tax is applied to this reduced base.
* Net Proceeds Increase: Percentage by which the plaintiff's net after-tax proceeds improve with the PRT versus without. Formula: (Net With PRT - Net Without PRT) / Net Without PRT.
Case Types Well-Suited for the Plaintiff Recovery Trust
The PRT is intended for non-business taxable settlements where attorney fees are paid on a contingency basis. It is especially relevant in:
Why EPTC Administers the Plaintiff Recovery Trust
Eastern Point Trust Company (EPTC) is an independent, licensed fiduciary with more than 20 years of experience administering billions of dollars in specialty trusts in the settlement and recovery space. EPTC does not sell financial products and does not act as a broker.
- Originator and administrator of the Plaintiff Recovery Trust structure
- Experience structuring taxable settlements with net-recovery tax mitigation
- Established presence and recognized expertise in the plaintiff settlement community
- Pure-play fiduciary — no product sales, no conflicts of interest
For Advisors, Planners & Settlement Brokers
Attorneys, financial advisors, and settlement professionals play a critical role in identifying plaintiffs who may benefit from a Plaintiff Recovery Trust.
Raising the issue proactively — before final resolution — is essential, as the PRT must be established before the settlement or judgment becomes final.
Eligible professionals whose clients adopt a PRT may receive a consulting fee from the charity.
To discuss a specific matter or learn more about Plaintiff Recovery Trusts, contact EPTC directly.
Learn More About the Plaintiff Recovery Trust
Download the Plaintiff Recovery Trust brochure for a detailed overview of the double-tax problem, how the PRT works structurally, and the steps to engage.
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