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3 posts from February 2010

February 28, 2010

Tax Consequences for Cancellation of Debt Income

Guest Blogger David N. Stonehill, Attorney at Law

David Stonehill  What follows is a blog post written by my colleague,David N. Stonehill, Tax and Real Estate Attorney.  I'm @HRMargo on twitter. As an HR and Social Media Consultant in his firm, I see sad stories like this every day.  Employees are drowning in debt, particularly after the recession of 2009.  Below is a case study, and a real story about one of Stonehill's clients.  He has since helped her out of this awful jam, but the fact remains clear.  Our tax code has to change.  It is my hope that those who read this post will become as outraged as we did.  There is a way out.  You are not alone.  As you read this with an open heart, and mind, remember there are people out there, good people who can and will help you.  Now, a few words from David Stonehill. 

I have a client who is a pensioner living in rural Vermont. She's 70 years young, lives by herself in a modest home, and drives a beat up pickup truck. God bless her.

And she had about $40,000 of credit card debt. She hired one of those debt consolidators, who actually did a pretty good job of negotiating her debt in half.  They stretched the payments over a couple years.

The problem is that this creates cancellation of debt ("COD") income. One creditor sent her Form 1099-C to report about $5,000 of COD income for 2007. She didn't know what to do with it, so she squirreled it away. The IRS assessed her about $1,000 for failure to report the income. She lost several nights sleep over this, because she did not have the money to pay the assessment.

Another creditor sent her a Form 1099-C in 2008. Yet another was received for 2009. Who knows if COD income will be reported in 2010. She has absolutely no control if and when a lender issues Form 1099-C.

The fix so far required: 1) a petition for reassessment for 2007, 2) an amendment of her 2008 tax return and 3) the filing of long Form 1040 for 2009. I got the 2007 assessment reversed, and avoided an assessment for 2008.

The taxation of COD income demonstrates an utter failure of our federal tax code and treasury regulations. Without question, she can exclude COD income, because she is broke ("insolvent" in IRS-speak). Between social security and her pension, she doesn't even make $20,000 a year. Yet she cannot file a simple, short form 1040-A!

The Taxpayer Advocate has pointed out this problem to Congress. While there is merit to taxing COD income in complicated financial transactions, pensioners such as my client should be exempt. This is a senseless trap for the unwary.  My client shouldn't have to hire a tax lawyer to show the IRS why her COD income should be excluded anyway.

For a good read, here's a link to the Taxpayer Advocate's 2008 report to Congress regarding the shortcomings of COD income taxation. I am not going to hold my breath waiting for the recommended changes, but I will work tirelessly on behalf of those who are dazed and confused by the maze of our tax system.  For more information, contact us www.1099advisor.com  Please feel free to reach us anytime at 877-IRS-1099.

 

February 20, 2010

What's My Personal Injury Case Worth?

Personal injury value              Is my case worth $1 million? $10 million?  We’ve all heard the stories.  “My friend broke her fingernail and got $150,000.”  “My brother-in-law’s friend’s cousin’s son’s wife got $4 million when she fell at the A & P and broke her wrist.”  “Bob Hartman got $2.7 million because he was rear-ended by a drunk driver and the drunk’s insurance company was afraid to go to court.” 

            How are these crash-to-riches cases possible?  Well, in a word, they’re not!  

Are there multi-million dollar verdicts and settlements?  Of course there are but they are based on major injuries, good liability and deep pockets.  

Click here for details about a motorcycle accident that my office settled for almost $8 Million

Urban Legends

Urban-legend-rumor             Let’s face it, folks.  Insurance companies are not in the business of handing out huge settlements – they’re in business to make money and unreasonable payouts fly in the face of their business model.  Unreasonable (and unjustified) large payouts are just not the reality, they are simply urban legends.

Snopes.com quells the examples of alleged gazillion dollar recoveries from people filing outrageous lawsuits by researching the real facts (or lack thereof).  The Stella Awards, named for Stella Liebeck, the plaintiff in the famed McDonald’s Burn Case (read the real story here) was a leader in putting out annual lists of crazy lawsuits with alleged crazy settlements and jury verdicts – but these lawsuits are not real, they are more examples of urban legends. 

Really, Now.  What’s My Case Worth?

         Reality check everyone: Every case is different.  Your rear-end case has a different value than your neighbor’s rear-end case.  Sonny’s slip & fall case has a different value than Chastity’s slip & fall case.  Chester’s product liability case is different than Field’s product liability case.

            Why?  Because every case has its own unique dynamic based on many of these factors:

*      People/entities involved

o       Parties

o       Medical providers

o       Employers

o       Eye-witnesses

o       After-the-fact witnesses

o       Expert witnesses

o       Insurance company(ies)

*      Facts of the accident

*      Who’s at fault and to what extent?

*      Injuries sustained

*      Medical bills (past, present and future)

*      Loss of earnings (past, present and future)

*      Property damage

*      Pain, suffering, inconvenience, embarrassment, disfigurement

 

Case Study

 Scalding Water Burns Tourist in Restaurant 

            As you know, personal injury cases come in all shapes and sizes. There are, to name a few, traffic collisions, injuries when someone has a slip & fall, product liability cases and premises liability cases.  I am using this premises liability case to illustrate the points raised in this particular article. 

Note: This story has been fictionalized and all persons appearing in this work are fictitious. Any resemblance to real people, living or dead, places or events is entirely coincidental. 

Boiling water              Facts: Kiki, a 30-year old female Japanese tourist visiting relatives, went to a Chinese restaurant in Los Angeles’s famed Chinatown for a family meal.    Chinese Restaurants serving large parties often place a Lazy Susan on the center of the table to make it easier to serve the meal family style.  

            Early on, the restaurant placed a teapot filled with scalding water on the edge of the Lazy Susan.  While Kiki, with her four-year old daughter Ling on her lap, and 11 other family members sat around talking, the condensation began to form on the outside of the teapot.  Engrossed in conversation, no one at the table was paying attention to the Lazy Susan or the teapot until disaster struck.

            Suddenly, the teapot was on its side and the contents spilled out all over Ling and Kiki.  Little Ling began screaming and Kiki rushed to cover her in cold water all the time unaware that her own arm was drenched in hot water.

            Kiki was able to save Ling from serious injury.  Although Ling was burned, the burns were first-degree and quickly healed, leaving no scars.

            Unfortunately, Kiki, who was wearing a long-sleeved sweater at the time, was not so lucky.  While Kiki tended to her child, the scalding water caused her polyester sweater to literally meld into the skin of her arm.  She removed the sweater and several layers of her skin in the process. 

            Kiki, suffered second degree and third degree burns as a result.  That night she went into shock and was rushed to the emergency room. 

            Kiki’s healing process was long and arduous.  She returned home and underwent a major skin graft where they replaced the damaged and dead skin on her arm with skin from her scalp (and to answer your question in advance, her arm did NOT grow hair).  She has been left with permanent, unsightly scars on her forearm.

 Who's Fault Is It That Kiki Was Hurt?

             Well, this case had some unique twists and turns.  In evaluating this case, several of the factors listed above had to be considered.  The first, of course, was who was at  fault was this incident?

            On first blush, it appears to be the restaurant’s fault.  However, it’s important to note that the plaintiff (the person making the claim) has the burden of proving that it is, in fact, the restaurant’s fault.

            Since everyone at the table was talking when the incident occurred, we had no witnesses who could honestly say how or why the teapot tipped over.  It was through the use of an expert witness’s forensic analysis that we were able to develop the viable condensation theory.

            The expert, a physicist, based his analysis on an examination of the location, the Lazy Susan, the dispenser from which the hot water was poured into the teapot, the teapot itself and the depositions of Kiki and Shuau, the restaurant employee who placed the teapot on the Lazy Susan.  Shuau testified at her deposition, under penalty of perjury, that she was instructed by the restaurant to wait until the temperature gauge on the dispenser was pointing to red before filling the teapot with water.  

            “What does it mean when the needle points to red,” I asked.

            “Dangerous.”

            “Dangerous?”

            “Yes, dangerous.”

            The restaurant’s attorney covered his face with his hands upon hearing this admission.   It is also important to note that an employer is responsible for the acts undertaken by its employees while in the course and scope of their employment. 

            This is not to say that the restaurant’s lawyers weren’t mounting a defense.  The severity and degree of the injuries were definite and obviously caused by the hot water dispensed by an employee of the restaurant.  

 Who's fault             So what could they say to mitigate their responsibility?  Simple: Kiki should have removed her sweater sooner and none of this would have happened!  Yes, this was their defense.  (Defense lawyers ALWAYS have a trick or two up their sleeve – click here to read Anderson Cooper’s relevant expose).  

There were other family members there – why didn’t they take care of Ling while Kiki took care of herself?  Actually, I hoped that the defense would bring this up at trial because what juror would buy that argument?  If anything, it would inflame them because any parent, any human being for that matter, is going to tend to a child before they tend to themselves.  That’s just human nature. 

What Is Kiki Entitled To? 

Dollar sign              There are various types of damages that someone is entitled to.  In Kiki’s case she was entitled to special damages and general damages.  She sued the restaurant for Negligence for her injuries as well as Negligent Infliction of Emotional Distress for having witnessed her daughter’s injuries.  Since this writing is devoted to damages, I’m not going to go into any detail on the actual legal theories of liability.

            Special, or economic, damages are those that are quantifiable such as past, present and future medical bills and loss of earnings that arise from the injury.  In this case, Kiki had about $40,000 in medical bills incurred for the emergency hospital visit and her skin graft.  It was agreed upon by everyone that these bills were reasonable and certainly necessary.  Therefore, she was entitled to reimbursement for $40,000.

            General, or non-economic, damages are subjective damages for pain, suffering, disfigurement, embarrassment, emotional distress, humiliation, loss of pleasure in life.  Normally, I’d put the actual figure in here upon which we settled.  However, I’m going to leave this to you.  What do you think Kiki is entitled to by way of general damages?  Please put your answer in the comments section!          

“Wait!” You Say!  “Didn’t You Forgot Something?

             Just checking to see if you were paying attention!  No, of course I didn’t forget little Ling.  That would be clumsy of me (not to mention a tad bit of legal malpractice).  Thankfully Ling suffered no permanent injuries.  She was scared and had some blisters which healed and left no scars.  Naturally (and necessarily), she was included in the lawsuit. 

            Ling’s special damages amounted to $800 for a visit to a local doctor and some healing ointments.  Again, both sides agreed that this was reasonable and necessary.

            Again, I’m going to leave it to you to decide her general damages. 

 Injured? Questions? Concerns? 

For a Free Consultation please contact Attorney Lowell Steiger immediately at

(323) 852-1100

lowell@steigerlaw.com

Skype (with or without video): Lowell_Steiger

"Treated With the Respect and Understanding That You Deserve"

February 07, 2010

Firing Your Lawyer (and hiring a new one): Can You Do It?

Note: This story has been fictionalized and all persons appearing in this work are fictitious. Any resemblance to real people, living or dead, places or events is entirely coincidental. 


What If I Want to Change Lawyers?

You_re_fired
  

            Dan P. called my office and asked to speak with a lawyer – he got me.  We chatted for a few minutes during which time he scratched the surface of his difficult, painful and frustrating story.

            Mr. P. is a South American immigrant who, along with his wife and other family members, came to this country to raise his family of four.  For many years he went to night school while working as a busboy to support his family.  Eventually, through hard work and sheer determination he earned his Bachelor of Science and Masters in psychology.  By the time that I spoke to him, he had been in the United States for 28 years, was a clinical psychologist and adjunct professor at a local university.      

            He had built quite a reputation in his community and was sought after as a public speaker.  Mr. P. took great pride in his appearance including his winning smile. 

How Mr. P. Was Injured

             One evening he attended a lecture at a large venue. When the lecture was over he discovered that he couldn’t remember exactly where he parked his car.  Since it was raining outside, he decided to hop a ride in a courtesy golf cart to help him find his car.

            The parking lot covered acres of ground.  The roads within the lot were nicely paved and well-lit and were bordered by large, unlit grassy knolls.  The golf car likewise did not have lights. 

            Manning the golf car was a young fellow – let’s call him “Bobby” -- with a bit of the daredevil in him.  Bobby decided the quickest way to the other side of the parking lot was through the grassy knoll. Unbeknownst to him and to Dan, there were rope barricades on the grass – i.e., keep off the grass!  However, in the darkness, he didn’t see these barricades which, quite significantly, were stretched wide and held taut by metal stanchions jammed into the ground.

            Well, as Bobby drove the cart at breakneck speed through the grass, he struck a rope with the front of the cart.  The stanchion came flying out of the ground, striking Dan P. in the mouth and knocking out four front upper teeth.

            Dan was rushed by ambulance to the hospital where he was examined by emergency room doctors.  His mouth required excruciatingly painful stitching.  He was sent home disfigured and in pain. 

Dan P. Hires a Lawyer

             Dan hired attorney Charles B. to represent him for his injuries and damages.  Mr. B. properly filed a lawsuit for damages against the property owners, Bobby and the organization for whom Bobby worked.  The property owners were sued under a theory of premises liability, Bobby under the theory of negligence and Bobby’s employers under the theories of negligence and respondeat superior.    

What Was Mr. P. Suing For?         

As you know, Dan P. was a distinguished professor of psychology and sought after public speaker.   However, what you might not know is that Dan donated most of his money to various charities – he was grateful for the opportunities that he received here in America and made it is life’s ambition to give back even more than he received to society.  So, not surprisingly, Dan had no savings and could not afford the dentures or dental implants that he so sorely needed. 

For obvious reasons, he could not continue to speak publicly.  His shame and humiliation forced him into a depression and he was unable to teach. 

There are two types of damages which apply in Dan’s case: Special damages and general damages. 

Special damages are those that are quantifiable such as past, present and future medical bills and loss of earnings.

General damages are for past, present and future physical or emotional pain and suffering, loss of companionship, loss of consortium, disfigurement, loss of reputation, loss or impairment of mental or physical capacity, loss of enjoyment of life, etc.

Mr. B. properly sued for these damages in an unspecified amount (which is appropriate in California). 

What Happened Was Pretty Standard Until Lawyer Mr. B.…           

            The matter proceeded through the normal course of litigation.  As in most personal injury cases, a mediation was conducted in an attempt to settle the matter before going to trial.  As far as the client Mr. P. knew, the matter did not settle at mediation – after all, he was present there and should know!!!

However, a few days after mediation, Attorney Mr. B. accepted an offer without P.’s authorization!  This is a huge no-no.  Aside from being in poor taste, it is an ethical violation. 

            Although the offer was for a large sum of money it was, in the client’s opinion, insufficient to compensate him for the harm that he suffered. 

            So he came to me to discuss this seemingly untenable situation.  He wanted to know if he was allowed to switch horses in midstream and, if in so doing, he would owe fees to both his original lawyer and his new lawyer.

            There was another potential major issue involved here but I wanted to first address his pressing concerns.           

Can A Client Change Lawyers While A Case Is Ongoing?

             Yes!  This is America, land of the free.  An attorney-client relationship is contractual relationship, akin to an employer-employee relationship, where the client hires the attorney to represent him or her.  If the client is dissatisfied, they are certainly welcome to go elsewhere.

            Dissatisfaction, of course, is a matter of degree and perception and can rear its ugly head in many different ways.   There have been many other instances where I’ve been approached by another lawyer’s dissatisfied client and, after a thorough analysis of their situation, I didn’t accept their case.  In most situations I realize that their lawyer is doing a good job for them, explain my reasoning and tell them that they should try to work it out with their present lawyer.

In Mr. P.’s case, though, it was my belief that he was justified in wanting to find and retain another attorney and I was willing to take his case.  He needed someone who was willing to go to the mat for him. 

Would He Owe Fees to Both Attorneys? 

Fees in personal injury cases are usually done on a contingency basis.  If a client fires one lawyer and hires another, the fee remains the same.  Once the case resolves, either by settlement or judgment, the lawyers will work out a fee split based on what we call “quantum meruit.”  All of this comes out of the proceeds of the case and does not in any way affect the client’s bottom line.

For example, if a case resolves for $250,000 and Lawyer #2 charges a fee of 40% or $100,000, then that is the total fee for the case.  Immediately upon assuming representation of the client, Lawyer #2 should contact Lawyer #1 and ask him or her for a breakdown of the time devoted to this case and at what reasonable hourly rate and an itemization of his actual costs. 

So, if Lawyer #1 legitimately has 20 hours in the case at $325 an hour, then he will be entitled to $6,500 (quantum meruit) plus his costs (separate and apart from the fee).  Lawyer #2 will take the $6,500 out of his fee and will a net of $93,500 in attorney’s fees.  There is absolutely no financial penalty to the client for changing lawyers!

The Other Potential Major Issue Facing Dan P. 

            I explained to Mr. P. that by switching attorneys mid-stream because he didn’t like the offer that was accepted not by him but by his attorney, the offering party was going to be angered.  After all, it was their justified belief that a settlement had been reached and everyone could put the matter behind them.  Armed with this information, and in spite of the potential negative response by the defense, Mr. P. decided to go ahead and retain me.

            I notified Sandra C., the defense attorney, of the following: that there was a misunderstanding, Mr. P. did not authorize the settlement, that I was stepping in as his new lawyer and we would have to commence further negotiations.

            Oh, wow, was she upset!  Her client, the defendants’ insurance company, cut their offer by 60% and basically told me to pound sand.  A new battle had begun!  The motions started flying and it looked like no settlement was in the offing.  Moral thus far: It’s not nice to fool Mother Nature.

We began to prepare for trial.  Expert witnesses were retained, more depositions taken, more written discovery was exchanged.     

Shortly Before Trial in the Judge’s Chambers 

            The best part of this situation, though, was the defense attorney’s comment in the judge’s chamber during the Mandatory Settlement Conference two weeks before trial.  She said “Well, Mr. P. didn’t have such great dentition in the first place.  Sure, we knocked out his teeth but they would have fallen out in the next couple of years anyway.  In fact,” she said, “this is what our dental expert will testify to.”

            Of course I was in legal heaven at this point.  “Have at it,” I thought.  What jury is going to go along with such baseless vitriol?  Juries do not like to see the injured victim attacked – especially one like Mr. P., a family man who worked his way up from busboy to adjunct professor.  I was going to have fun at trial. 

Defense Comes To Their Senses

             Unfortunately, though, the defense came to their senses about 10 days before trial by way of a very powerful tool, the Statutory Offer to Compromise (per California Code of Civil Procedure Section 998) and increased their initial "accepted" offer by almost double. Mr. P. decided to take it instead of risking the uncertainty of trial.  

When Can A Client Switch Lawyers?

            A client can switch lawyers anytime he or she wants to.  Although the client need not have actual grounds for dismissing his or her attorney and retaining someone else, here are some common situations that a client may encounter upon which the change is predicated: 

·         An attorney's conflict of interest

·         Differing case strategies or personality conflicts

·         A change in the pleadings or parties of the case

·         A change of the court hearing the case (change in venue)

·         Expanded legal needs 

Whatever the reason, it is important that the client inform their current attorney of their intention to move on.  This can be done by certified letter, e-mail or, as often happens in personal injury cases, the new attorney will notify the former attorney that they are now representing the client.

Further, if a lawsuit has already been filed in the case, the court must be notified of the new representation by way of a Substitution of Attorney Form signed by the client, his/her former attorney and the new attorney.

Mr. P. was not dissimilar in his discomfort in notifying his soon-to-be former attorney that he was retaining new counsel. Therefore, at his request, I notified the former attorney and asked him to send me Mr. P.’s entire file immediately which, of course, he did. 

Does the Former Attorney Have Continuing Duties to the Client? 

In a word, “yes.”  Immediately upon termination of the attorney-client relationship, the attorney’s actual authority to act on the client’s behalf is terminated.  However, he or she still has several continuing obligations to the client:

 

·         Protecting the Client’s Interest: If the client has not already found a new attorney, the soon-to-be-discharged attorney must explain the potential consequences of ending the relationship to the client, help find another attorney to handle the case, and return the client’s property and papers to the client.  If the client has found another attorney, then the property and papers must be delivered without delay to the new attorney.

·         Complying With Deadlines: If imminent deadlines are facing the client, the attorney may be required to get the court’s permission to extend the deadline or continue representation so that the deadline will be complied with.

·         Protecting Confidential Information: Protecting the client’s confidence continues even after representation ends!

·         Treating the Client Fairly: The former lawyer cannot use information obtained through the attorney-client relationship to take unfair advantage of the client.

 Injured? Questions? Concerns? 

For a Free Consultation please contact Attorney Lowell Steiger immediately at

(323) 852-1100

lowell@steigerlaw.com

Skype (with or without video): Lowell_Steiger

"Treated With the Respect and Understanding That You Deserve"

 

            

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