Lawyers Pay To Get Out Of Liability

With the failure of Dewey & LeBoeuf early in the year, some have called the former partners of this big law firm to pay at least $50 million into the bankruptcy estate of the firm. In exchange, all liability will be waived against the firm’s partners. While the number that each partner must pay seems high, the number is actually comparatively low when a person looks at how much it will likely cost the partners in litigation expenses. In this case, the claims alone exceed $500 million.

This could create tax problems for these big law partners in other aspects. For example, it will likely be difficult for a person to take tax deductions from business expenses if a partner decides to pay back his salary from the previous year to cover his costs. The partners could also amend their prior tax returns. The option is only available either three years after the person filed that particular tax return or within two years of the date that the person paid the taxes. Finally, a partner here might be able to take advantage of I.R.C. § 1341.

See Robert W. Wood, Lawyers Giving Back, But Not the Way You Think, Forbes, Aug. 21, 2012.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.