Stuart Bronstein wrote:

- quote -

Why, then, does that translate into a tax break (deferral)
that no one else can easily qualify for? <g
MTW

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MTW wrote:

- quote -

I would generally agree with the idea. Reality is that we
all tend to see our profession as "different" and not able
to be treated like the others. Personally, I suspect that's
primarily because we *know* the details of our own
profession and tend to sympathize with the problems those in
our profession have to deal with. And we tend to take a
simplistic view of all other professions (that is, they are
overpaid, don't really do anything, and the members of that
profession whine too much about their imaginary problems
<grin> ).

While judges attempt to push that out of their mind, reality
is that I don't think you ever can *really* do that. So
while I doubt they sit back and consciously think about
"what breaks can I give my fellow attorneys in practice"
<grin> , there are going to be results that look that way to
others who aren't allowed similar treatments.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ed Zollars, CPA wrote:

- quote -

Technically lawyers are required to take money out of their
trust account as soon as it is earned. We're not allowed to
have any of our own money in there. But, as you indicate,
that isn't the point of the case.

- quote -

Exactly.

Stu

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Stuart Bronstein wrote:

- quote -

One of the cases I'm recalling was a formal request for
change of accounting method. So, in that case I was dealing
with people at the IRS "national office." I didn't ask for
resumes, but my experience has been that the people handling
such matters are either attorneys or CPAs with a significant
amount of tax experience. I would generally put them on the
same level as Appeals Conferees (ie: people that are a
pleasure to deal with because they know their stuff and
don't waste your time <g> ).

MTW

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Howard Kaikow wrote:

- quote -

IMO attorneys have special privileges because JUDGES are
attorneys. In my state, for example, the courts (not the
legislature) have crafted special treatment for attorneys
under the state's business gross receipt tax (known as the
"business and occupation" tax).

If CPAs were judges, then CPAs would have special
privileges. If engineers were judges - well, then, heaven
help us! (Please, don't anyone take that last comment
personally.) <g
MTW

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MTW wrote:

- quote -

I don't think I would either--I think the court is pretty
clearly limiting the applicability of its finding. It
didn't go the full distance that the law firm wanted, even
though I suppose there is an argument that, technically, the
funds are still *in* the trust until they are actually paid
over to the attorney--and, therefore not the attorneys'
income.

I think the key factor as far as the court was concerned was
that when the regulatory prohibition on taking the funds
expired it was income to the attorney whether or not the
attorney actually took the funds.

--
Ed Zollars, CPA
Phoenix, Arizona

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Howard Kaikow wrote:

- quote -

No--see the case law in question. The IRS *did* fight this
issue in court and lost it.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ed Zollars, CPA wrote:
- quote -

The legal distinction will be whether the money actually
belongs to the client, or it belongs to the holder and he
may just have to pay it back at some point. It may seem
like a distinction without a difference in practical terms,
but from a legal perspective they are completely different.

For example, if the holder should file bankruptcy, if it is
actually considered to be the client's money, the client
might have the right to get it all back. But if it is the
holder's money and the client merely has a right to get some
of it back under some circumstances, the bankruptcy estate
will be able to keep it.

The contract, then, should provide that the funds remain the
client's property until earned, and the holder (lawyer or
not) holds those funds "in trust" for the client until they
are appropriately paid out. The phrase, "in trust" is
important, since it specifies a host of legal rights and
responsibilities that get you most if not all the way where
you need to go.

Stu

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Howard Kaikow wrote:
- quote -

No, the issue is who is the legal owner of the money, and
how much discretion the holder has over those funds.

- quote -

I have no idea what this means.

- quote -

Again, it is not because lawyers have more rights, but
because the law is suspicious of the power lawyers have over
their clients, and created the rules to protect the clients
from unscrupulous lawyers.

You can do the same thing even if you are not a lawyer.
Just do it the right way.

Stu

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Why could not a contract stipulate that unused amounts are
subject to returm? Oh, I know why, Congress/IRS makes stupid
rules.

My concern is getting, say, $10000 in December to attend a
meeting, deposition, trial, etc., and then, say, have the
event cancelled after the 1st of the year.

The IRS would consider that tazable income even if I gave it
back right after learning of he cancellation, reatiaining
any portion for re-imbursement of expenditues and required
payments if notice of cancellationis less than as stipulated
in the contract.

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"Stuart Bronstein" <spamtrap[at]lexregia.com> wrote:

- quote -

The issue is ASSURING payment.

I've read a lot recently about dealing with attorneys, and
THEIR clients. ALL books, pasrticularly those oriented
towards "expert/consulting" witnesses strongly recommend
getting ALL payments in advance. Having a trust account from
which O cannot control withdrawal of finds is not
satisfactory.

Commingling, or having a separate trust account for several
clients is even worse.

I ASSuME that lawyers have this special priv because the bar
associations likely badgered the IRS into agreeing, and it
was easier to agree than to fight th ebar associations.

We mere mortals do not have that clout.

Probably, no point in continuing this thread.

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Seth Breidbart wrote:

- quote -

It won't necessarily work--absent the legal requirement
imposed on the attorney from "outside" I have my doubts the
court would have held the same. At the very least, I
suspect the account would need to have a truly independent
trustee to have a chance of working. As well, there would
likely need to be a valid business reason, independent of
taxes, to establish the account and a methodology that I
can't control for determining *when* the funds are earned.

--
Ed Zollars, CPA
Phoenix, Arizona

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Ed Zollars, CPA wrote:

- quote -

That is an excellent case, and it squarely addresses the
issue (involving attorneys, at least).

However, do you think that case has any applicability (other
than on a "Hail Mary" basis) in situations where the
handling of the funds is NOT governed by STATUTORY or
REGULATORY requirements? In other words, would you read this
case as supporting the deferral of prepaid service income
that is subject solely to CONTRACTUAL restrictions? (I
wouldn't.)

MTW

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Seth Breidbart wrote:

- quote -

I will gladly send you a dozen Mars Bars if you can prove
that you were able to sell that position (based solely on
CONTRACT restrictions) to the IRS. <g
MTW

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MTW wrote:
- quote -

If in your contract you specified the funds were held in
trust, that should have been enough. I'm not surprised that
IRS agents wouldn't go along with that if they weren't
lawyers. It can all look the same to them.

- quote -

A trust agreement doesn't need to be long. All you should
have to do is specify that you will be holding the funds in
trust. You may want to include language that says you have
a security interest over the funds, and that you are allowed
you to pay yourself when money is owed or earned.

- quote -

You should have a separate trust agreement for each client,
but it doesn't need to be much. It may depend on state law,
but I suspect that you can put all the funds for different
clients into the same account as long as you keep track of
them separately in your books.

- quote -

Attorneys only avoid the problem because nobody trusts us so
they set up the laws so that we're not allowed to have use
of any client funds until earned.

Is that necessarily a good thing?

Stu

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wrote:

- quote -

So write a contract providing that the money will go into a
commingled trust account, and you are allowed to withdraw it
only as it is earned. Then you clearly don't have an
"unrestricted right to use".

Seth

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Howard Kaikow wrote:

- quote -

I'm in a business with the same issues--but, all things
being equal, I suggest taking the money (and paying the tax)
rather than turning down the cash in order to defer the tax.

- quote -

Well, it's important to focus on those that could change
it--and that is clearly the Congress of the United States.

--
Ed Zollars, CPA
Phoenix, Arizona

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Howard Kaikow wrote:
- quote -

I guess I don't understand what you need then.

If you are not a lawyer you can still set up a trust
account. But it would be based on a written agreement
between you and your client whereby the money remains his
property, and you have no right to use it for anything but
payment of specific purposes for his benefit.

Stu

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Howard Kaikow wrote:

- quote -

If it's for business expenses, my approach would be to say
that the employee had access to the money but it never
belonged to him, so he shouldn't pay tax on it. Otherwise
bank clerks would all have taxable income for all money in
their cash drawers when they came to work, and deductions
for all money in their drawers when they left work.

In general, though, when someone receives income it is taxed
when received, even if it may have to be given back later.
I remember seeing a case where someone stole several million
dollars toward the end of the calendar year. He was caught
and the money recover after the beginning of the new year.
While the guy was sitting in his jail sell the IRS send him
an assessment charging him a lot of tax for the year of the
theft. He was told that he could get a deduction for the
following year.

Stu

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Howard Kaikow wrote:

- quote -

You should have an agreement whereby the money continues to
belong to the client, you hold it in trust for him, and you
have a security agreement (file a UCC-1 form with the
Secretary of State for your state) which allows you to seize
as much of the money as necessary for what he owes you if he
doesn't otherwise pay.

That's an off-the-top-of-my-head response, but my guess is
that it should work.

Stu

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