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Vol. 71, No. 4, April
1998
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:
- 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?
- 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?
- 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!
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