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If a lawyer on the cash basis of accounting receives a

Customer Question

If a lawyer on the cash basis of accounting receives a retainer from a client and then places that retainer into a client trust account, does the lawyer recognize the entire retainer as income when it is received or only as it is earned? Do you know what specific code sections or IRS guidance/rules talk about this?
Submitted: 1 year ago via Cornell Legal Info Institute.
Category: Legal
Expert:  Attorney-Expert replied 1 year ago.

The retainer would be taxable when received. IRM 4.10.4 discusses it in full. This can be found here:

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Attorneys-Audit-Technique-Guide-Chapter-3

The Irs has specifically referenced this exact situation with attorneys. More about this can be found here:

https://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Attorneys-Audit-Technique-Guide-Chapter-3

Expert:  Attorney-Expert replied 1 year ago.

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