Close up of an attorney's hand holding a pen and using a laptop to calculate taxes.

How the IRS Views Structured Legal Fees

All lawyers pay taxes and know that legal fees are income. They are ordinary income and even subject to self-employment taxes. But what about timing? Much in the tax law is about timing. A classic tenet of tax-planning is to try to defer income and to accelerate deductions. For generations, tax lawyers have explored all manner of tax-deferral strategies. According to the IRS, you have income for tax purposes when you have an unqualified, vested right to receive it. Asking for payment later doesn’t change that. The idea is to prevent taxpayers from deliberately manipulating their income. A classic example is a bonus check available in December, where the employee asks to have the employer hold it until Jan. 1. Normal cash accounting suggests that the bonus is not income until paid, but the employer tried to pay in December and made the check available. To the IRS, that makes the bonus income in December, even though it is not collected until January.

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A summer day in front of the US Supreme Court Building in Washington, DC.

Important Supreme Court Cases That Could Be Impacted by Overturning Roe v. Wade

As the end of the Supreme Court’s 2021-2022 term is fast approaching, possibly one of the most anticipated decisions of the term will be the ruling in Dobbs v. Jackson Women’s Health Organization. In this case, Jackson Women’s Health Organization sued the state of Mississippi to stop the implementation of a 2018 law that prohibits abortions after 15 weeks of pregnancy. The justices heard arguments over the state’s law last year and the Court is expected to issue its ruling by June or early July. A leaked draft opinion suggests that the court is likely to rule in favor of Mississippi and overturn years of precedent established in Roe v. Wade, which would give lawmakers the ability to ban or restrict abortions. The draft is not final; however, questions remain as to what a reversal of the Court’s abortion rights precedents would mean and how it may affect other critical rulings.

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Cove of June 2022 Bar News

Status, History of Bar Structure Examined in Latest Bar News

This August, the WSBA Board of Governors is scheduled to wrap up its eight-month discussion about the very foundation of Washington’s mandatory, integrated bar and whether it should remain the same or undergo a structural change. The Board’s study process, ETHOS (Examining the Historical Organization and Structure of the Bar), is reaching the end of its mission from the Washington Supreme Court to answer three key questions about the Bar’s structure and the potential impact of federal litigation.

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Court of Appeals: New Management Entitled to Law Firm File

Division I of the Washington Court of Appeals in Seattle recently held that new management of an entity is entitled to a law firm’s file involving work prepared for the entity under prior management. Although the case does not plow any new conceptual ground, it offers Washington support for this general proposition with specific reference […]

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Books

What You Need to Know About Washington’s Silenced No More Act

On March 24, Washington Gov. Jay Inslee signed into law the Silenced No More Act, greatly restricting the scope of nondisclosure and nondisparagement provisions that employers may enter into with employees who either work or reside in Washington state. Effective June 9, the new law prohibits employers from requiring or requesting that an employment agreement contain a provision: “Not to disclose or discuss conduct, or the existence of a settlement involving conduct, that the employee reasonably believed under Washington state, federal or common law to be illegal discrimination, illegal harassment, illegal retaliation, a wage and hour violation, or sexual assault, or that is recognized as against a clear mandate of public policy….” However, employers will still be able to enter into agreements that (1) prohibit the disclosure of the amount paid in a settlement agreement; and (2) protect “trade secrets, proprietary information, or confidential information that does not involve illegal acts.” An employer that violates the law can be found liable in a civil action for “actual damages or statutory damages of $10,000, whichever is more, as well as reasonable attorneys’ fees and costs.”

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Legal Tech & Practice Management Part 2: Transform Solo- and Small-Firm Billing with Software

During a recent consultation, a lawyer shared that they regularly did not bill the clients until the end of representation. Fortunately, most clients paid after their case had concluded. Unfortunately, one client stiffed the firm on a $50,000 bill for a multiyear-long matter that even proceeded to trial. To make matters worse, the firm had not sent any bills until the matter concluded, and the large outstanding balance enraged the client. After multiple failed efforts to collect the fees, and not wanting to risk a bar complaint, the firm elected to accept its losses and walk away from the fees. The lawyer I consulted with was seeking practice management help to learn about billing software solutions and best practices. I further learned that the firm was struggling to get bills out on a regular schedule, which delayed its own timekeeping and contributed to an overall time-consuming billing process.

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Hands holding crystal globe with ESG icons. Using technology of renewable resource to reduce pollution

Environmental, Social, and Governance: What Lawyers and Firms Need to Know About Accountability

Environmental, Social, and Governance (ESG) is essentially an investing framework that brings a broad range of what have traditionally been considered nonfinancial factors into financial decision-making and risk analyses. ESG expands corporate accountability beyond shareholders to include external stakeholder expectations on a variety of factors such as climate change, use of consumer data, and racial justice (among many others), which we broadly group into the three buckets of environmental, social, and governance.

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Rear view of military formation at Arlington funeral

This Memorial Day AG Ferguson Salutes Those Who Died to Keep Our Country Safe

Each year on Memorial Day, we pause to honor those who have served in our armed forces. We hold deep gratitude and admiration for the men and women who have risked everything for our safety, security, and health. For those who are no longer with us, we keep their memory alive by solemnly remembering their sacrifice. This year, service members have been called to the front lines to continue managing the COVID-19 pandemic and fighting the natural disasters threatening communities across our state.

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Digital law and justice graphic with document, gavel, and scale icons

Legal Technology and Practice Management, Part 1: Practice Management Software as a Hub for Your Practice

Making technological investments in a law firm is fundamental for planning for the life of the practice. According to the Thomson Reuters’ 2021 Report on the State of the Legal Market, 84 percent of surveyed partners expected their firms to increase investments in technology after the pandemic. The pandemic has forever changed the use of technology in law firms and altered consumer expectations. Firms who fail to adapt will be left behind.

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Smiling female lawyer

Washington Court of Appeals Addresses ‘Professional Judgment’ Rule in Legal Malpractice

Division I of the Washington Court of Appeals recently addressed the “professional judgment” rule in Angelo v. Kindinger, 2022 WL 1008314 (Wn. App. Apr. 4, 2022). The rationale of the rule, which is a long-standing part of the decisional law of legal malpractice, is that a lawyer should not be held liable for malpractice for a good faith judgment within a range of reasonable alternatives.

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Decorative Scales of Justice in the Courtroom

Federal Court Finds No Personal Jurisdiction Over Out-of-State Attorney

The federal district court in Tacoma recently concluded that it did not have personal jurisdiction over a Mississippi attorney and his law firm who handled matters in Louisiana and Virginia for a Washington client. Bullis v. Farrell, 2022 WL 656204 (W.D. Wash. Mar. 4, 2022) (unpublished), involved claims for legal malpractice, breach of fiduciary duty, and violation of the Washington Consumer Protection Act by a Washington resident living in Dupont against a lawyer and his firm officed in Jackson, Mississippi. The claims arose out of lawsuits the lawyer handled for the client in Louisiana and Virginia. Neither of those involved conduct in Washington and the lawyer was not licensed in Washington.

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New Advisory Opinion on ‘Reply All’ Emails

Is it OK to hit “Reply All” when responding to an email from another lawyer when that lawyer cc’d their own client on the initiating email? Have you just violated RPC 4.2? Or is including the other client permissible because they were already included in the initial email?
There’s a new advisory opinion which helps you answer this question. The Committee on Professional Ethics just posted Advisory Opinion 202201 on the WSBA website, which takes a comprehensive look at the issue.

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Finance ledger and calculator

Legal Fee Tax Deduction Gets Easier

Since 2018, it’s been tough to deduct legal fees, and some plaintiffs in contingent fee cases are even taxed on their gross recoveries, not net after legal fees. Creativity is needed in this new age, since sometimes the rules seem to say you shouldn’t be deducting fees at all. Fortunately, the mechanics of deducting legal fees in employment, whistleblower, and civil rights cases have been improved, at long last.

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The Washington Capitol in Olympia

What Happened in the Washington Legislature in 2022: A WSBA Wrap Up

The 60-day 2022 Washington legislative session began on Jan. 10 and adjourned Sine Die (the final adjournment with no day set to reconvene) on March 10. Legislators passed a number of policy measures, as well as a $17 billion transportation package providing funding for new ferries, roadway maintenance, and public transportation improvements and a $64.1 billion supplemental operating budget that funds raises for state workers, rental assistance, and further support of the state’s mental health system.

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