an attorney is the agent of his client, a receipt of settlement money which is then deposited in a trust account, will usually result in the client having to report income in that year, It does not matter when the lawyer distributes the cash. Speaking of distributions, I think there is a great deal of con-
fusion revolving around IRS Form 1099. For instance, attorneys need to send a 1099 to co-counsel. Conversely you usually (there can be exceptions) do not send a 1099 to a client. But if in settling a case you ask for a joint check (that is payable to both you and your client), then the defendant is required to issue 1099s to the both of you in the complete amount. Although there may be other consid- erations involved you might want to have separate checks issued to both of you in the appropriate amounts. We know that the taxman cometh, so what advice do you have
for your clients who have not fi led their tax returns? Tell them to fi le as soon as possible! It is best to beat IRS to the punch. T ey will attempt to match your clients W-2s, 1099s, 1098s and the like, to your clients fi led returns. Failing to fi nd those amounts reported on a form 1040, out come the letters. T e longer returns are unfi led, the more the penalties and interest can pile up. And remember, there is no statute of limitations for an unfi led return. If someone cannot pay all of their taxes they might be able to qualify for an Of- fer in Compromise, Installment Agreement or Currently Not Col- lectible Status (do not get your hopes up regarding the latter). T is following issue may seem esoteric, but as the general pop-
ulation ages we see this problem crop up more and more. Way too often clients are guilty of the improper use of “Lifetime” Trusts. Often clients are wary of the probate process so they will set up what are called “lifetime trusts” to avoid probate. While establish- ing lifetime trusts is often desirable, they can be costly. More im- portantly, if they are not funded correctly, and are not monitored completely, they can often be self-defeating. So in discussing any fi nancial planning matters with your clients, be sure to ask them if they have attempted to use such trusts, and follow up to ensure they have titled their assets appropriately. And fi nally I will close with a list of at least a few issues that
should be on your checklist, should you be involved in planning for your client: Do they have a list of the tax basis of their assets under discussion? Have State and Local tax issues been addressed in the proposed transaction? Does everyone understand the eff ects of depreciation expense on both the income statement, as well as the cash fl ow statement of the business? For that matter, is everyone clear as to the diff erences between a Cash Flow Statement versus an Income Statement? Be sure to ask your client if she is sure that she has adequately addressed her insurance needs. Oh, and never forget that your client’s CPA should be your friend! t
ABOUT THE AUTHOR James (Jimmy) S. Dickey, Jr., JD, MBA, CPA, is Chief Op- erating Offi cer and senior partner of T e Marston Group, PLC. He specializes in income, estate and gift tax planning, as well as family wealth planning and closely-held business planning. Jimmy has practiced accounting in Memphis for more than 25 years and has ten years of Big 4 accounting fi rm experience. He received his BA, MBA and JD from the
University of Memphis. 7
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