A new practitioner guide warns that plaintiffs negotiating commercial litigation funding agreements face two distinct tax problems — one on receipt of the funder's advances, the other on collection of proceeds — and that both must be resolved in the document itself, because afterwards a claimant's options narrow considerably.

As reported by the National Law Review, authors Jonathan Friedland and Jeremy T. Waitzman use the example of a $1 million advance at closing to illustrate the front-end risk. While loan proceeds are generally excluded from gross income, most litigation funding is non-recourse, so repayment is contingent. In Novoselsky, the Tax Court held that upfront litigation support payments documented as non-recourse "loans" were not bona fide loans, were includable as prepaid income in the year of receipt, and sustained accuracy-related penalties. The court applied an unconditional-obligation-to-repay test alongside a multi-factor indebtedness analysis covering security, interest, fixed repayment schedules, ability to repay, and whether repayments were actually made. Novoselsky involved an attorney rather than a plaintiff, but the reasoning applies equally.

Industry practice, the authors write, is to structure advances as prepaid forward contracts or absolute assignments of a portion of anticipated proceeds, deferring tax until settlement — a more defensible path, though the IRS has not formally blessed the treatment. They also flag routing: advances paid to counsel versus to the plaintiff raise constructive receipt and anticipatory assignment of income issues. Their recommendation is to have the funder disburse fee advances directly to counsel under a separate fee-funding agreement to which the plaintiff is not a party, route operating-expense advances to the plaintiff, and specify recipient, purpose and tax reporting position for each tranche before execution rather than retrofitting afterward.

On the back end, the guide identifies a character mismatch: recoveries are typically ordinary income, while the funder's return may generate a capital loss capped at $3,000 a year for individuals, stranding it as a carryforward.

Burford Capital has released a new issue of the Burford Quarterly, its journal of legal finance, arguing that the decisions law firms and corporate legal departments face on technology, growth and disputes are increasingly capital allocation decisions rather than operational ones.

As reported by Burford Capital, Vice Chair David Perla said that "capital is playing an increasingly important role in how both companies and law firms make decisions about the future," and that the issue examines how "a more commercial mindset is reshaping the business of law." The edition collects four pieces aimed at general counsel, law firm leadership and finance professionals evaluating how legal assets and legal spend sit on the balance sheet.

Managing Director Evan Meyerson opens with "The future of law firms is a capital question," positioning technology investment and expansion as competing claims on finite firm capital. A second article explains monetization, under which non-recourse capital accelerates part of an expected recovery from a pending claim while the claimholder retains control of the litigation and its upside. A third presents new Burford research produced in association with The Lawyer, "The economics of disputes: What UK GCs and law firms told us about litigation in 2026," in which cost emerged as the leading factor in deciding whether to pursue a dispute at all. The final piece, "Patents as capital: Asia's next chapter in IP monetization," looks at developments in Japan, South Korea and Taiwan.

The framing reflects a broader repositioning by the larger funders, which increasingly market themselves less as litigation financiers and more as providers of corporate capital that happens to be secured by legal claims.