Careful planning must be done in advance should you wish to structure your attorney fees! Do not wait until the last minute or your are unnecessarily increasing your risk of not achieving the tax result you desire.
While the IRS guidance issued December 29, 2004 concerning deferred compensation states "(IRC) Section 409A also does not apply to arrangements between a service provider and a service recipient if (a) the service provider is actively engaged in the trade or business of providing substantial services, other than (I) as an employee or (II) as a director of a corporation; and (b) the service provider provides such services to two or more service recipients to which the service provider is not related and that are not related to one another."
It goes on to state “… Section 409A does not alter or effect the application of any other provision of the Code or common law tax doctrine. Accordingly, deferred compensation not required to be included in income under Section 409A may nevertheless be required to be included in income under Section 451, the constructive receipt doctrine, the cash equivalency doctrine, Section 83, the economic benefit doctrine, the assignment of income doctrine or any other application of the Code or common law tax doctrine.”
There are best practices in this area. Be wary of a structured settlement broker or financial planner who doesn't appear to give you, or who surprisingly may not even be aware of, the whole picture. Understand the risk/reward profile for the transaction. If you would like to structure your attorney fees work with someone who is capable, who understands the big picture and not merely interested in selling you an annuity payment stream. Start planning early!