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Plaintiff
Attorneys:
Have You Considered Structuring Your Fees?
Explore the Many Tax Advantages
A lump sum attorney’s fee can be a
problem. It is fully taxable in the year of receipt, and frequently puts
many attorneys over the threshold for the Alternative Minimum Tax (AMT)
where deductions may not be taken. Even if AMT is not an issue, why not take
advantage of the tax savings a structured fee can provide?
IRS Endorses Fee Deferral
In Childs v. Commissioner the Tax Court (1994) and the Circuit Court of
Appeals (1996) overruled the IRS position on structuring attorneys’ fees and
upheld the validity of the tax deferral. In a more recent (2001) National
Office Field Service Advise (FSA), the IRS now favorably cites the Childs
decision. Although the FSA involves a fact pattern not involving attorneys’
fees, the favorable citation of Childs by the IRS as well as the IRS’
conclusion that “these cases demonstrate that if income is not unqualifiedly
subject to the taxpayer’s demand, it has not been constructively received”
indicates clearly that attorneys’ fees may be structured to achieve tax
deferral.
Triple Tax-Deferred Interest
Utilizing a structured settlement annuity for deferring your fees provides
you with the ability to generate triple tax-deferred interest. Money in a
structured settlement annuity earns interest on funds that would have
otherwise been lost to taxes in the year of settlement. Tax-deferred
interest is earned on the principal, accumulating interest, and taxes
deferred at settlement. Even though the amount is ultimately taxable,
deferring fees over time results in more net after tax income to you.
Predictable Income Stream
Because your income can fluctuate from year to year, you may want to
consider deferring some of your fees in order to create a predictable income
stream to cover business expenses or other costs.
Boost Your Retirement Plans
We all know the value of getting an early start to secure a comfortable
retirement, but how have your investments performed in the current market?
It isn’t so much a matter of setting funds aside, the trick is holding onto
them.
Deferring part of your income to your retirement years will add that extra
measure of security. You won’t be constrained by restrictions on the amount
you can set aside each year or when you can start collecting the funds. It’s
like having an uncapped 401(k) plan that you control.
Your Children’s Education
Deferring your fees can help you prepare for your children’s college
expenses. Tuition has been rising steadily and, like any parent, you want to
insure that your children get the best education possible. While most
education savings accounts are helpful, they do not provide a guaranteed
rate of return and are subject to contribution limitations.
Structuring your fees provides you with opportunities for legal tax
deferral, creative business and personal planning, and retirement
advantages. CCI is ready to assist. Just call to get us involved.
What Do the Recent
Amendments to NY’s CPLR Article 50-A Mean?
The New York State law that
governs periodic payment of judgments in medical malpractice actions and has
been blamed for the current malpractice insurance crisis has been changed. A
bill was recently passed by both the N.Y. State Senate and Assembly, and
signed by Gov. Pataki on June 26, 2003. The changes became effective 30 days
after it was signed into law and applies to all medical malpractice actions
commenced on or after July 26, 2003.
The Jury’s New Role
The biggest changes lie in the new role for juries. They will now determine:
• If each item of damage is permanent (if it is, payments for that
particular item of damage are paid for life);
• If an item of damage is not found to be permanent, the number of years
over which such damages are payable;
• The initial amount of the payments for each item of damage;
• The date payment will begin for each item of damage;
• The rate of inflation for each category of future payment, since the
starting amounts are based on current dollars.
Who Benefits?
There are benefits for both plaintiffs and defendants with these changes.
The plaintiff will be able to receive more in up-front cash and cannot
outlive certain future payments. Because payments are determined in current
dollars (instead of averaging under the “old” Article 50-A) the overall
amounts to be paid will not be as exorbitant as in the past. The changes are
expected to benefit hospitals by keeping malpractice premiums in check.
Marty Jacobson Co-leads NOAA and
DOJ Seminar
Marty Jacobson, CCI’s VP and General Counsel, is co-leading a seminar
with Marc Sarnoff of Sarnoff & Bayer (Coconut Grove, FL) for the National
Oceanic and Atmospheric Administration and the Department of Justice. The
seminar will serve to familiarize both agencies with structured settlements
as a tool for settling both physical injury cases and other types of
litigation. It will focus on the expanded applications for structures in
cases involving environmental damage, property damage, employment and other
types of claims outside the traditional P/I realm. The seminar is scheduled
for November 6th in Washington, DC.
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