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!
Wisconsin
Lawyer
