From the Listserv Edited by Louise A. Lock


Louise A. Lock is a solo practitioner who received her law degree from the University of Baltimore School of Law. Her practice concen- trates in the areas of medical malpractice, drug products liability and personal injury.


The following exchanges took place on


MTLA’s listserv within the past ninety days. If you are not yet a member of MTLA’s email forum, please send a re- quest to: mtla@mdtriallawyers.com


SERVING ALLSTATE


From: Shawn Gritz <sgritz5@aol.com>:


I have to file suit in District Court against an Allstate Insured who has since moved, but they won’t tell me where. (sur- prise). 1) What address do I use to serve them and give them Interrogatories re- questing this info and 2) what’s the authority? I don’t recall the cite.


From: Eric Schloss <schlosslaw@home.com>:


Whenever I have a motor tort case in which my process server cannot locate the Defendant I have a standard Motion for Alternative Service that I file citing MD Rule 2-121(b and c) or 3-121 (b and c), Transportation Article Section 16-116(a) and Wiant v. Hudson 101 Md. App. 74. A copy of the motion is always sent to the claims adjuster. I then request that the court allow me to serve the defendant’s Writ of Summons on the adjuster cur- rently handling the claim. Many judges have granted my motion. Sometimes the adjuster will assign an attorney to fight the motion. When that occurs I can usu- ally talk some sense into the defense attorney to seek permission to file an An- swer on behalf of the defendant. Just this week an adjuster with State Farm called me with the defendant’s new address af- ter I sent her a copy of my motion.


TAX QUESTION


From: “Nicole Schultheis” <nschulth@interserv.com>:


Folks, I may be about to settle a case in which the defendant made negligent misrepresentations about a career oppor- tunity and caused my client to leave her secure, long term position at another com- pany. There are no physical injuries, but there is emotional injury as well as lost


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income from the salary, health insurance, pension contributions, etc., she lost at her old company. The case was not tremen- dously successful, and there are significant case expenses. If I just treat this as a nor- mal tort recovery or will I get myself and/ or my client into trouble with the IRS? What if anything must the defendant or I do with the client’s settlement money re reporting and/or withholding? What au- thority?


From: “Phillips O’Shaughnessy” <phil.osh@worldnet.att.net>:


Nicole: I went around on like issues not so long ago. I am writing from a loca- tion where I do not have my research file. What I remember is this: (1) find case law to support the proposition that the ele- ments of damages you claim to be tax free are in fact allowed by law for the claim you make; (2) there are two recent fed- eral circuit decisions that you can find through Lawyers Weekly USA’s web site holding that injuries to business reputa- tion are tax free, and; (3) fairly and separately negotiate each item of damage independently and state the items in the settlement sheet with their allocations, and (4) strongly suggest to the client that s/he get an independent opinion from a CPA for comfort on the tax consequences before the settlement is agreed. POS


From: Thomas J Gagliardo <gagliardo@nela.org>:


I posted a longer response some weeks ago, but here are the rules of thumb that I use:1. Compensatory damages arising from PHYSICAL INJURY are NONtaxable.2. Since 1996 compensatory damages for emotional damages WITHOUT physical injury are taxable.3. Wages are taxable in the year received. This includes back pay awards (and I suppose front pay). Such are subject to withholding, FICA, Medicare, etc. the same as if wages were earned in the normal course.4. What I don’t know is how lost earning capacity is treated.5. ALWAYS TELL YOUR CLIENT TO GET COM- PETENT TAX ADVICE AND THAT YOU DO NOT GIVE TAX ADVICE YOURSELF.


Trial Reporter


From: “Nicole Schultheis” <nschulth@interserv.com>:


What I’m worried about is that the cli- ent will wind up owing more tax than what she eventually gets from me by way of her net recovery after fees and expenses, and that would not be nice. Can I solve the problem by having the defendant write a separate check to me directly for legal fees, under my TIN, and write the balance to her, under her SSN? What if the settlement specifically breaks down legal fees in one category and lost income in another? Does that get us off the hook?


From: Thomas J Gagliardo <gagliardo@nela.org>:


In some circuits it has been held that attorneys fees paid on behalf of a client are taxable to the client — even though the client never receives the funds and the at- torney pays incometax on same. He/she probably can take them as itemized deduc- tions subject to the alternative minimum tax. Bottom line, a client can end up in the red after taxes. That’s why the National Employment Lawyers Association (NELA) and ATLA are working to pass the Civil Rights Tax Fairness Act (HR4570 S2887).


From: Ashcraft & Gerel (Bob Samet) <ashcraft@Radix.Net>:


It’s my understanding that she’d be able to deduct attorneys’ fees she incurred in any legal action to collect taxable income, so she would effectively be paying tax only on her share of the recovery and not the gross award, and let’s not forget that you’ll then be paying tax on your share too.


From: Thomas J Gagliardo <gagliardo@nela.org>:


Not exactly. There is a minimum al-


ternative tax which may be imposed on plaintiff who has deducted attorneys fees. I have attached (I think) the web page from the National Employment Lawyers Association which explains this. There are four real life examples of how settlements and awards are taxed, including the alter- native minimum tax. For more information go to www.nela.org


Winter 2001


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