Deferral only works if it's arranged before you have an unrestricted right to the fee. Once that election is made, here's exactly what happens — and the legal basis it all rests on.
Sign a deferral agreement identifying the case and the amount or percentage to defer — a fixed dollar figure, a percentage, or a formula (e.g., "80% of everything over $200,000").
At settlement, the deferred portion is directed to a segregated account with an independent, regulated custodian — not to your firm's operating account, and not held by us as principal.
Choose your investment mix, then receive payments on the schedule you designed — taxed only as each payment is actually received.
Say you defer $1,000,000 in 2026. To keep flexibility, split it into 20 quarterly payment "buckets" spread over 5 years. Well in advance of each bucket's due date, you can elect to withdraw it as scheduled.
If you don't need a given payment, it automatically rolls forward to the end of the payment stream instead of forcing a withdrawal — so you're not locked into a fixed term the way a traditional structured annuity requires.
Gold = paid as scheduled. Gray = rolled forward because it wasn't needed yet. Illustrative only.
24/7 online portal to view balances, adjust future investment allocations, and manage beneficiary designations — plus a dedicated client service contact for questions.
We'd rather explain this accurately than oversell it. Here's the actual legal basis behind everything above, plain and unembellished.
Childs v. Commissioner, 103 T.C. 634 (1994), aff'd 89 F.3d 856 (11th Cir. 1996) — the U.S. Tax Court held that a contingent fee, deferred by agreement before the attorney has an unrestricted right to receive it, is not "constructively received" until it's actually paid out. This is the foundational case the entire industry relies on.
The IRS has never issued a formal revenue ruling blessing fee deferral, but has referenced Childs favorably in informal guidance over the years without repudiating it. This is consistent, longstanding treatment — not a loophole discovered yesterday.
In 2022, the IRS Office of Chief Counsel released a Generic Legal Advice Memorandum (GLAM) questioning certain fee-deferral structures. A GLAM is an internal position paper: it has no precedential or binding authority on any taxpayer and does not overturn Childs. But it signals the IRS may scrutinize aggressive arrangements more closely going forward, which is exactly why structure and documentation matter.
Deferral has a real, three-decade legal foundation — but outcomes depend on how an individual arrangement is documented and executed. We are not your tax advisor or attorney. Have your own counsel and CPA review any deferral agreement before you sign.