WASHINGTON -- The Supreme Court, minus ailing Chief Justice William Rehnquist, yesterday heard arguments in a case in which the Internal Revenue Service is asserting the right to make successful plaintiffs in some civil lawsuits pay taxes on the often-hefty fees paid to their lawyers.

At issue are employment-discrimination lawsuits in which, as the television commercials say, "You pay only if we win." Two federal appeals courts have ruled that the IRS may not treat such "contingency fees" for lawyers as part of the plaintiffs' gross income.

The issue arises under the so-called Alternative Minimum Tax, which imposes levies on high-income taxpayers even when their itemized deductions would spare them any tax liability. Treating lawyers' fees as part of the plaintiff's taxable income can lead to situations in which a plaintiff pays more in taxes than he takes home from a successful lawsuit -- a scenario that Justice Sandra Day O'Connor yesterday called "an appalling situation."

O'Connor wasn't the only justice to express skepticism about the claim by David B. Salmons, a lawyer for the U.S. Solicitor General's Office, that contingency fees for lawyers are part of a plaintiff's taxable income, even if the plaintiff never actually lays hands on the money. Justice Stephen Breyer observed that a contingency fee paid directly to a lawyer "is not income in the real sense."

Justice Anthony Kennedy asked James R. Carty, a lawyer for one of two plaintiffs who successfully challenged the IRS policy in lower courts, how a lawyer's contingency fee differed from the commission that Hollywood talent agents receive when they negotiate a contract for an entertainer.

Breyer pressed Philip N. Jones, the lawyer for another taxpayer who had sued for wrongful discharge, to enunciate a "legal proposition" that, if embraced by the court, would not complicate other areas of tax law. Jones suggested that the key point was that successful plaintiffs don't control the disposition of funds that go to lawyers under a contingency agreement.

However the court rules in these cases, Congress has taken steps to minimize the chance of a plaintiff paying more in taxes than he collects from a lawsuit. On Oct. 22, President Bush signed the American Jobs Creation Act of 2004, which allows most, though not all, successful plaintiffs to deduct their attorneys' fees under the Alternative Minimum Tax.

The court yesterday issued a flurry of orders, most of them declining to hear appeals.

The justices rebuffed Philadelphia's appeal of a federal appeals court ruling granting a new trial to Arnold Holloway, an African-American who was sentenced to death after being convicted of murdering a fellow drug dealer.

Prosecutors had used their peremptory challenges to exclude 11 blacks from Holloway's jury, and, according to the 3rd U.S. Circuit Court of Appeals, they failed to offer non-racial justifications for the challenges. In 1986, the Supreme Court ruled that peremptory challenges couldn't be used in a racially discriminatory way.

One case the court did agree to review raises an important women's rights issue: whether a Colorado woman may sue law enforcement officers who failed to arrest her estranged husband after he violated a protective order by kidnapping their three daughters, whom he later murdered.