80R4738 DAK-D

By: Smithee H.B. No. 2638

A BILL TO BE ENTITLED

AN ACT

relating to the exclusion from total revenue in computing the franchise tax of certain funds, reimbursements, and expenses related to certain legal services.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF TEXAS:

SECTION 1. Section 171.1011(g-3), Tax Code, as effective January 1, 2008, is amended to read as follows:

(g-3) A taxable entity that provides legal services shall exclude from its total revenue, to the extent included under Subsection (c)(1)(A), (c)(2)(A), or (c)(3):

(1) the following flow-through funds that are mandated by law, contract, or fiduciary duty to be distributed to the claimant by the claimant's attorney or to other entities on behalf of a claimant by the claimant's attorney:

(A) damages due the claimant;

(B) funds subject to a lien or other contractual obligation arising out of the representation, other than fees owed to the attorney;

(C) funds subject to a subrogation interest or other third-party contractual claim; and

(D) fees paid an attorney in the matter who is not a member, partner, shareholder, or employee of the taxable entity;

(2) reimbursement of the taxable entity's expenses incurred in prosecuting a claimant's matter that are specific to the matter and that are not general operating expenses; and

(3) [the actual out-of-pocket expenses of the attorney, not to exceed] $500 per pro bono services case handled by the attorney, [of providing pro bono legal services to a person,] but only if the attorney maintains records of the pro bono services for auditing purposes in accordance with the manner in which those services are reported to the State Bar of Texas.

SECTION 2. Section 171.1011(p)(4-b), Tax Code, as effective January 1, 2008, is repealed.

SECTION 3. This Act applies only to a report originally due on or after the effective date of this Act.

SECTION 4. This Act takes effect January 1, 2008.