Keeping 'Em Honest: A professor who crusaded against contingency abuses puts a tax formproposal before CongressAuthor(s): TERRY CARTERSource: ABA Journal, Vol. 83, No. 8 (AUGUST 1997), p. 28Published by: American Bar AssociationStable URL: http://www.jstor.org/stable/27839954 .

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NEWS

Keeping 'Em Honest A professor who crusaded against contingency abuses puts a tax form proposal before Congress BY TERRY CARTER

When

Professor Lester Brick man received a 1099 tax form

reporting some of his outside income a couple of years aero, a lightbulb in his head illuminated the obvious: Contingen cy fee lawyers receive a lot of money the In ternal Revenue Service doesn't know about.

Brickman teaches ethics at the Benjamin N. Cardozo School of Law in New York City and is known as some

thing of a conservative pit bull chewing on

contingency fee abuse. He bit into the 1099 issue about two years ago and, despite a swat by the 1RS itself, he re fused to loose his hold.

His efforts almost singlehandedly have brought about proposed legislation to reauire filing of the forms.

Part of the president's budget plan that likely will take effect next year, the proposal would require companies or individuals to report to the 1RS payments that are made in the course of business to a law yer. Under current law, such pay ments do not have to be reported if the payer does not know what por tion is for attorney fees.

Under the proposal, when a

lawyer working on contingency re ceives a check that is also written to the client, the 1RS will receive a 1099 form. And that means the lawyer must sort it all out come tax time, with an accounting for amounts given the client and other costs and fees.

Study Finds Lawyer Scoff laws Brickman's jumping-off point

was an 1RS study known as Project Esquire, begun in 1989, that found roughly 10 percent of lawyers were not filing tax returns. That rate is higher than for the overall popula tion. From there, Brickman argues that as much as $4 billion in money

Lester Brickman: 1RS loses millions yearly from unreported lawyer fees.

paid to lawyers is not reported on 1099s, leaving a crack the less scrupulous can slip through. In all, he estimates those lawyers fail to pay $25 million to $50 million in taxes each year.

But the government expects to collect considerably less than that. A staffer with the House Ways and Means Committee says, "It's going to be more like $3 million a year the first couple of years and $2 million a year after that." The estimate was made by the Treasury Department.

Whatever the amount, there likely will be new layers of paper

work for lawyers, and more red flags raised that catch the eyes of 1RS au ditors. Brickman sounds like he fin

gered the mob when he says, "I wear a bulletproof vest and have someone taste my food." But actually, Ameri ca's lawyers have shrugged.

Initially there were complaints in the press from some lawyers, in

cluding a former president of the Association of Trial Lawyers of America, that the proposal was un

duly harsh. They said it would cause more administrative head aches for already swamped solo and small-firm practitioners.

But no organized opposition developed, and the measure has wound its way through Congress. "We have bigger battles to fight,"

according to one ATLA official. Not that Brickman didn't have

a battle on his hands. He first pitched the 1099 idea to a friend who is close to some top officials at the 1RS. The friend, Edwin S. Cohen, is professor emeritus at the University of Virginia law school and is with the Washing ton, D.C., law firm of Covington & Burling.

In February 1995 Cohen wrote to the 1RS commissioner and the chief counsel, both of whom he

knows on a first name basis, passing along a letter from Brickman with his proposal.

A few weeks lat er, Cohen received a letter from the 1RS' chief compliance offi cer shooting down the idea, saying, "The potential for inaccu racy and misunder

standing about what is to be reported as taxable income out

weighs the need for having these pay ments reported."

But the lightbulb still burned in Brick

man's mind. "That reasoning" was reallv

wrong," he says. His proposal calls for reporting that is similar to that

required when securities are sold, he explains. In those cases, the in come or losses must be sorted out later on tax returns.

The rebuff failed to loose the pit bull's jaws. Brickman made a cold call to the House Ways and

Means Committee and pitched the idea to a staff lawyer. It clicked, and he was invited to write com mittee Chairman Bill Archer, R Texas, about his proposal. Eventu

ally it was tucked into the Balanced Budget Act vetoed by President Clinton in 1995.

In a letter to Clinton, Archer

complained that the president's subsequent budget proposal failed to include the lawyer fee reporting. "Your omission would appear to in dicate a special preference by the

White House staff on behalf of trial lawyers," Archer wrote.

This year Archer's staff took the proposal back off the shelf. "It won't bring in nearly as much money as Brickman thought," a staffer says, "but it's money."

28 ABA JOURNAL / AUGUST 1997 abaj/arnie adler

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