In the case of Commissioner of Internal Revenue v. John W. Banks, II (2004), the U.S Supreme Court ruled that contingent fees paid to attorneys from a judgment or settlement under fee-shifting statutes are considered taxable income for plaintiffs in federal income tax purposes. The plaintiff, John W. Banks II, had received settlements in two employment discrimination lawsuits and did not include his attorney's contingency fees as part of his gross income on his federal tax return. The IRS disagreed with this exclusion and assessed a deficiency against him which led to litigation up to the Supreme Court level. In its decision, the court held that since Mr.Banks had absolute dominion over these funds when they were awarded - even though he was contractually obligated to pay some portion as legal fees - they should be included in gross income.

In the dissenting opinion for Commissioner of Internal Revenue v. John W. Banks, II, Justice Ginsburg argued that attorney fees should not be included in a plaintiff's taxable income if they are directly paid to the lawyer under a contingency fee agreement. She contended that this interpretation aligns with both legal tradition and common sense understanding of who owns what property rights in such situations. According to her view, when an attorney is entitled by contract to part of any recovery as their fee, it becomes their property right from the outset; thus it never belongs to the client and therefore shouldn't be considered part of his or her gross income for tax purposes. This approach would also avoid undue hardship on plaintiffs who might face inflated tax bills due solely to these contingent fees being counted as their income.