Sign In
    Wisconsin Lawyer
    April 01, 1998

    Wisconsin Lawyer April 1998: News Briefs

    News Briefs

    New IRS rule means attorneys must figure, report fees promptly

    by Robert A. Mathers

    Attorney Jones just received a $30,000 settlement check from the XYZ insurance company and hasn't figured out his attorney fee yet. Previously, he could just hold on to the insurance company's payment and the Internal Revenue Service would not know that he received the money. However, since Jan. 1, a new regulation requires that all payments made to attorneys or law firms by a trade or business be disclosed on IRS Form 1099. Now, attorney Jones must maintain records which prove how much is his income versus how much went to the client.

    Under the old law, the Internal Revenue Code and Treasury Regulations provided that attorney fees must be reported on a Form 1099 Misc if they were paid by a person in a trade or business, in the course of that trade or business. Two types of payments were excepted:

    • if payment was a gross amount for which the attorney fee was not known; or
    • if payment was made to a corporation (Treas. Reg. §1.6041 - (c)).

    Under the new law, gross proceeds reporting is required on all payments to attorneys made by a trade or business in the course of that trade or business. It is anticipated that the gross proceeds reporting would be on Form 1099 B (currently used by brokers to report gross proceeds). The new law has only one exception. Payments reported on either Form 1099 Misc (payments of income) - for example, determinable attorney fees - or Form W-2 (wages) are not subject to the new rule.

    The exception found in the Treasury Regulations exempting reporting payments of salaries or profits paid or distributed by a partnership to the individual partners continues to apply (since these amounts are reported on Form K-1). Payments to law firms are considered payments to attorneys and are subject to this reporting provision, regardless of whether the attorney (or law firm) is the exclusive payee. If an individual is making payments to an attorney or firm, that individual must file a Form 1099 B.

    Attorneys are required to promptly supply their taxpayer identification numbers to persons required to file these reports. Failure to do so could result in penalties, including backup withholding. The IRS will administer this new provision so there is no overlap between reporting under Section 6041 (income reporting) and Section 6045 (brokers' reporting). For example, if two payments are simultaneously made to an attorney, one representing the attorney fee and the second the settlement with the attorney's client, the first payment would be reported under Section 6041, but the second payment would not be reported under either section 6041 or 6045 because it is known that it represents the settlement with the client.

    Congress's rationale for the change was to increase compliance with the tax law. While many consider it inappropriate to penalize one profession with additional reporting, Congress rationalized that attorneys generally are the only professionals who receive this type of payment, a portion of which may be income to attorneys and a portion of which may belong to their clients.

    Robert A. Mathers, William Mitchell 1990, JD, CPA, is the national director of tax and financial planning at Clifton, Gunderson L.L.C., Oshkosh.

    How well is the federal appellate court system working?

    The Commission on Structural Alternatives for the Federal Courts of Appeals wants to know what you think of the federal appellate system. Does each court render timely decisions? Are those decisions consistent and nationally uniform in their interpretations of federal law? Are the decisions reached through processes that ensure that appeals receive adequate attention from judges? In December the commission will make its report to the President and Congress, including its recommendations for changes in circuit boundaries or structure.

    Specifically, the commission seeks input on:

    1. What problems or difficulties do you perceive in the federal appellate system's structure, organization, alignment, processes, and personnel that may interfere with its ability to render decisions that meet the above objectives? What criteria or standards can be used to answer this question?
    2. What measures should be adopted by Congress or the courts to ameliorate or overcome perceived problems in the federal appellate system? What are the advantages or disadvantages of these measures?
    3. What is working well in the federal appellate courts?

    To express your opinion on these issues, send a statement to the Commission on Structural Alternatives for the Federal Courts of Appeals, Washington, DC 20544, by June 1, 1998. Statements should be on both hard copy (typed, double-spaced) and computer disk in a format readable by a standard word processing program.

    Public hearings on these issues also are scheduled in several cities, including New York, Seattle, and San Francisco. To testify at a hearing, contact the commission at (202) 208-5055 for more information.

    The commission's Web site includes information on the U.S. Court of Appeals, a list of commission members, and a schedule of hearing dates, times, and locations.

    Court commissioners to operate under new supreme court rules

    Increased demands on the judicial system prompted the Wisconsin Supreme Court's Planning and Policy Advisory Committee to investigate the use and powers of judicial court commissioners in the state's circuit courts.

    The study culminated in a December 1997 public hearing on the matter, leading to the Wisconsin Supreme Court's adoption of SCR Chapter 75. SCR Chapter 75, which takes effect July 1, 1998, standardizes the appointment, discipline, continuing education, performance evaluation, and decisions of judicial court commissioners statewide. The chapter broadens the definition of judicial court commissioner to include family court commissioners; however, it does not affect court commissioners.

    According to Dennis Cimpl, judicial court commissioner for Milwaukee County Circuit Court, Branch 1, the most significant changes SCR Chapter 75 brings are continuing education requirements, disciplinary procedures, and performance evaluations. Cimpl says, "Judicial court commissioners are a cross between judges and lawyers and as such there haven't been many relevant or useful continuing education courses for us. The new rules make continuing education mandatory and directs the Office of Judicial Education to administer courses and help us receive that education."

    Full-time judicial court commissioners are required to earn 60 continuing education credits every six years. Part-time commissioners, who also may be practicing attorneys, can mix regular CLE credits with at least 20 judicial court commissioner continuing education courses in the same time frame.

    New disciplinary regulations allow the public to file complaints with the chief judge regarding the conduct of a judicial court commissioner in that judge's administrative district. Each judge is responsible for disciplining the commissioners under him/her and for determining the severity of the discipline, which may include removal.

    The chief judge of each administrative district also is responsible for appointing one or more supervising judge for each commissioner. These supervising judges conduct yearly performance evaluations of judicial court commissioners under their supervision, considering whether the commissioner has met or exceeded minimum performance standards, has complied with the education requirements, and has been subject to any disciplinary order. Supervising judges then recommend to the chief judge whether commissioners can be certified to continue in their present capacity.

    In addition to SCR Chapter 75, the supreme court created SCR 70.36 (5). This amendment prohibits judicial court commissioners from routinely taking matters under advisement. Each commissioner must decide any matter submitted within 30 days or notify the chief judge no later than five days before the end of the 30-day period. The chief judge then determines how to proceed.

    Cimpl, who also serves on the Board of Governors of the Wisconsin Association of Judicial Court Commissioners, is pleased with the new rules and the way they were developed. "The supreme court involved the commissioners in the process and considered our suggestions carefully. I think the new rules will benefit everyone - commissioners, judges, and the public."

    The full text of these new rules appears on page 40 of the print version of this issue, or online.

    Figuratively Speaking

    Percentage of the American public who believe that it is never appropriate for lawyers to use the media to influence the public, according to a Harris Company Poll: 58

    Percentage of the public who believe lawyers do influence the media in this way: 91

    Percentage who say that lawyer publicity has a negative impact upon their views of lawyers: 55

    Percentage who say that it has a positive effect on their view of lawyers: 14

    Source: Human Rights, Vol. 24, Issue 4, Fall 1997.

    Estimated annual "tax gap" - the difference between the taxes owed and those paid - in 1995 according to the Internal Revenue Service: $127 billion

    Percentage of income tax returns filed in 1995 that were reviewed by the IRS: 1

    Total number of returns audited that resulted in criminal prosecution for their filers: 5,000

    Percentage of all returns filed that this number represents: .0024

    Percentage of those charged with tax crimes that were convicted: 90

    Percentage of those persons convicted who served prison time: 80

    Source: Arizona State Law Journal, Vol. 29, No. 3, Fall 1997

    In 1990, the median award for compensatory damages in cases involving claims of wrongful dismissal or constructive discharge (employer actions deliberately force employee resignation), according to Jury Verdict Research of Horsham, Penn.: $11,168

    In 1994: $150,000

    In 1995: $149,000

    In 1996: $205,794

    Source: Nation's Business, Vol. 86, No. 2, Feb. 1998

    Name that judge ...

    Q: What Wisconsin Court of Appeals judge once performed a wedding underwater?

    In the coming months, the Wisconsin Lawyer, with the assistance of the Litigation Section's Appellate Practice Subcommittee, will test your knowledge of Wisconsin's appellate judges.

    We'll provide the question; can you provide the answer? For the answer to this month's question, click here!


Join the conversation! Log in to comment.

News & Pubs Search

-
Format: MM/DD/YYYY