Chronicling the high cost of our legal system
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TaxProf: “The Tax Court yesterday denied a New York tax lawyer’s claimed $100,000+ medical expense deduction for the costs of prostitutes and pornographic material.” Earlier here. More: Gothamist last year on related state-tax enforcement action (”The state auditor also argued that ‘in addition to being illegal in New York State, these expenses are not substantiated with receipts.’”
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“A federal appeals court has overturned the arson convictions of a Caltech grad student accused of torching and vandalizing 125 SUVs, ruling the trial judge wrongly barred evidence of the defendant’s Asperger’s syndrome.” [ABA Journal, L.A. Times] While we’re at it, also from the ABA Journal: “Law Prof Charged with Tax Evasion, Claims Severe ADD, Prosecutors Say“.
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Most creative of his dodges? Entering into a sham child support agreement. [Las Vegas Sun]
Not entirely unrelatedly, Richard Bales at Workplace Law Blog has more on that scheme by some Continental Airlines pilots to nab lump-sum distribution pension payouts by staging bogus divorces [earlier coverage].
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According to the U.S. Chamber-backed Legal NewsLine, the litigation lobby is quietly preparing to push through a $1.6 billion (with a “b”) tax break that would let contingent-fee lawyers deduct expenses as made, rather than in the year of settling a suit. American Association for Justice lobbyist Linda Lipsen says Sens. Harry Reid and Max Baucus and Reps. Nancy Pelosi and Charles Rangel are among those on board, as well as “some Republicans”, but “the problem is there is not a tax vehicle yet,” — “You cannot have a stand alone bill to help lawyers … so we have to tuck it into something.” [cross-posted, and slightly adapted, from Point of Law; updates and additional links there]
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A St. Louis lawyer has won big in contingency-fee tax collection by teaming up with class action firm Korein Tillery to challenge cellphone companies’ claims not to be subject to municipal taxes on landline telephone providers. At the same time he’s been town attorney for the suburban community of University City, which now finds itself in the position (with many other Missouri municipalities) of paying its share of $65 million in proposed fees. [Paul Hampel and Margaret Gillerman, "U.City lawyer wins big in class-action case", St. Louis Post-Dispatch, Jul. 23]
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It’s leading to battles in New York and other states: “In March, Michigan gave schools a week to be certified by the state or cease operations. Virginia’s cumbersome licensing rules include a $2,500 fee — a big hit for modest studios that are often little more than one-room storefronts.” [NY Times]
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What am I bid? $1.00? Not even that? (via Caron).
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The state is suing the Town Fair Tire chain, saying its outlets in New Hampshire (a state with no sales tax) should have collected tax on Massachusetts residents’ purchases and sent it off to Boston on their behalf. It was supposed to know which customers these were by checking their cars’ license plates. [Daniel J. Flynn, City Journal] More: TaxProf covered the suit in February.
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Continental Airlines says nine pilots got “paper” divorces from their spouses and then remarried after securing lump-sum distributions from the carrier’s retirement plan. Federal regulators have in the past indicated that plan administrators should disallow sham transactions intended to qualify for tax-favored retirement benefits. Two pilots have now countered with charges that the airline invaded their privacy when it investigated whether their divorces were really what they seemed. [Houston Chronicle and followup]
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In structured settlements, injury compensation is paid in installments over years rather than as a lump sum up front. It has long been argued that arrangements of this sort should be strongly favored by public policy: many accident settlements are premised on the need to cover years of needed therapy or future income lost through disability, and if it’s spent down too quickly through mishandling or “lottery winner syndrome”, the victim could wind up an expensive public charge. For reasons of this sort, structured settlements have been accorded highly favorable tax treatment.
Then an industry sprang up that offered to turn structured settlements into quick cash on the barrel, a choice that many lawsuit beneficiaries might be tempted to make (or might make after being leaned on by family members). Although laws often require that conversions of this sort be submitted for review to a court, judicial review may be cursory in the absence of adversary process to call attention to the potential drawbacks of a conversion. Not only has the structured-settlement-conversion industry managed to thrive, but somehow, as Shaun Martin notes, Congress has even been prevailed on to bestow favorable tax treatment on its doings — the same doings that tend to undermine the public benefits thought to arise from the original tax-favored structured settlement. More details are to be found in this decision, PDF, in which an appeals court recently sided with the factoring companies in a series of Fresno, California disputes (also discussed at this new blog on structured settlements, via Dan Schwartz).
Tax incentives that encourage lottery-winner syndrome? To paraphrase what Martin says, it’s almost as if someone was managing to work the system.
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They’ve taxed it to death: “A record 2,000 British pubs have closed with the loss of 20,000 jobs since the chancellor, Alistair Darling, increased beer tax in the 2008 budget, new figures published by the British Beer and Pub Association reveal today.” [Guardian via Minton, CEI Open Market] A sheet music version of the Ian Robb song referenced in the headline is here, and the Campaign for Real Ale is here.
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You’d think with all the hot and cold running lawyers the former Senate Majority Leader has spent time with there’d have been at least one good tax-advisory lawyer.
P.S. Or, as Ray Lehmann suggests, this could be a brilliant Obama scheme to balance the federal budget by exposing major tax scofflaws through the nomination process.
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That’s the explanation given by Charles J. O’Byrne’s lawyer for why his client didn’t file income taxes for year after year. I’ve never tried that one myself, but then, I’m not the chief aide to the governor of the state of New York, the way O’Byrne is. He has no plans to resign from his position. (Nicholas Confessore and Jeremy W. Peters, “Governor’s Aide Had ‘Late-Filing Syndrome,’ Lawyer Says”, New York Times, Oct. 23).
Relatedly or otherwise, Carolyn Elefant at Legal Blog Watch notes (Oct. 22) that Harpreet Singh Brar, known to Overlawyered readers for his abusive mass mailing of demand letters to California businesses,
came up with an even better defense to charges of failure to file tax returns on behalf of himself and his professional corporation: ineffective assistance of counsel. Sounds promising, except when you consider that Brar is an attorney who represented himself at trial. On appeal, he’s argued that he did not knowingly waive his right to counsel, and that he may have been under the influence of drugs and alcohol at the time of the waiver. Not surprisingly, the appeals court rejected Brar’s argument. (Source: Metropolitan News-Enterprise.)
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“A new high-tech aerial photography system that can spot an illegal porch from 5,000 feet is being marketed to tax assessors as a way to grow revenue.” Backers say the system can help assessors spot not only unauthorized building additions but also cases in which taxpayers claim farmstead exemptions but aren’t farming enough of their land to qualify. (Richard Degener, “Taxes could get sky-high with aerial technology”, Press of Atlantic City, Sept. 29).
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Point of Law Volokh