NUMBER 330 1935

Question. An attorney was retained to secure a refund of income taxes paid on a tax return filed by a client. The agreement between attorney and client was that the former should have, as his compensation, one-third of any amount he might recover, and a claim for refund was duly filed. Shortly after the claim for refund was filed, the government made a demand upon the client for payment of additional taxes for the very year to which the refund claim was directed. The client consulted his attorney about the claim of the government, and after discussion, the attorney required a fixed additional fee in the event he defeated the claim of the government and to this request the client acceded. The attorney succeeded not only in defeating the claim of the government, but in securing a refund which the government paid to the attorney for the account of the client. When the decision of the court was communicated to the client, the latter recanted his agreement for additional compensation, claiming that the attorney had no right to require such compensation, but admitting the attorney’s right to the full amount of his contingent fee.

Would it be professionally proper for the attorney under such circumstances to deduct out of the refund check not only the amount of the original agreed fee, but also the amount of the additional fee agreed upon, and remit to his client only the remainder of the amount received as refund?

Answer. The inquiry involves questions of law, on which the Committee expresses no opinion. Assuming that the lawyer has satisfied himself of his legal right to assert a lien for what he claims to have been the amount of his agreed compensation for relieving his client from payment of additional taxes, then in the opinion of the Committee he may properly withhold the amount of such agreed compensation, but subject, in case of objection by the client, to a judicial determination of his right so to do. In such case, however, as in general when a lawyer withholds a client’s funds, the amount so withheld should not be mingled with the lawyer’s own funds, but should be held in a special account, so that the lawyer will be at all times in a position to comply promptly with such judicial determination should his client prevail against him.


The foregoing answer is in consonance with the published answers of this Committee in Opinion 7 and Opinion 66, to which attention is directed.