Thursday, March 29, 2012

Lottery Fever, and how to fix the IRS

Have you bought your ticket yet?!!?!

If I had a dime for every time I'd heard that in the last week or so, I'd have several dozen dimes.

In case you have not interacted with common folk or watched news media, the mega millions multistate lottery has risen to an all time world record amount of $540 million dollars, at current press time. This number will likely increase as well. Everyone is talking about it.

Everyone has advice. From winning strategies, to personal self-image advice, to investments once you hit it big. I have a deal going with my brother, my buddy, my other buddy, and one guy I don't even like that much. But in reality, the lottery is what it has always been. A tax on the poor, dumb, and stupid, and I admittedly throw myself into this group.

Or is it? So what if it is more likely that you will be struck by lightning 50 times than hit the jackpot. Someone has to win it, right? When I spend that $1, the next 20 minutes I look at the numbers, and wonder, what if? What would I do? What would I buy? Who would I help? Would it change me? That is worth $1 to me. It really is.

But there is something bigger here. People I know that don't have much money are spending serious cash on this silly game. I know, because they tell me.  Why? For the thrill of the game. The chance at victory. The chance of beating someone, getting a good deal, and the  chance to get rich quick. Most folks would risk it all just for a silly thing called hope.

More powerful than fear, hope is what drives this train. Which brings me to my point.

According to one report, underreporting of taxes costs the IRS some $350 BILLION a year, last calculated in 2005. That's a lot more than $540 million. According to the IRS, there were about 144 million tax returns filled in the US in 2009, roughly a million gift/estate/excise taxes combined, 30 million employment returns, and 2.5 million corporate returns.

That's a lot of players. What if you made it a game? What if you made it a lottery style game? For every valid, non-fraudulent tax return filled, you get an entry into the game. For every year you don't get audited, you get an entry. For every gift tax return, you get an entry, and so on.

Tweak the rules to have the most interest and gain the most revenue. Tie it into the extra returns generated. Then, have a nationally televised drawing. Let the President, or one of the Kardashians do it. Make it a spectacle. Do it at the Oscars, or during the State of the Union. Do it bi-annually, quarterly, whatever. Have 50 winners. I just don't see how this plan doesn't only increase compliance, but add billions to the treasury every year.

We have national budget shortfalls everywhere. If lawmakers are still going to prevent para-mutual betting, sports betting, and casinos for whatever moral or political reason, this is a much easier pill to swallow. Give the people some hope. Make it a game. People love games,  and it gives them hope.

Have you filled out your tax return yet?!?! I can just see the fever sweeping the nation.

ADDENDUM: I'm hoping this is my last ever post. If you do not hear from me again, it is most likely because I have either won the mega millions or left this world for the next.

If you, or a loved one, or anyone you might know, happens to win the mega millions or any other lottery like prize, call a tax attorney before you do anything else. I can recommend a few. They can, and will, save you millions if they know what they are doing.

EDIT, 4/17/2012: I did not win.

Thursday, March 8, 2012

Lawyer Referral Services, good or bad?

I practice in a small firm. I like that, and I choose to be here. I have had chances to go to "biglaw," (the commonly used term for big-city, big-dollar and big-number of attorney lawfirms)  but I chose then and will continue to  stay in "smalllaw" because I have not found a good enough reason($) to deal with all that comes with the aforementioned "biglaw."

However, there are trade-offs for everything. Here in smalllaw land, new clients are generated by word of mouth, family, and friends. And google. And And a host of companies who, for the low fee of $500/month, promise to get YOUR name out there. All well and good.

Upon review of one nationally prominent unnamed legal referral service, I saw that my firm was paying an average of $400/month for one specific listing on a website. It generated, on average, 2 calls to the firm per month over the past 18 months. These calls led to the grand total 0 clients. Not a tough decision here to cut that expense.

The harsh reality is that in today's world, you still generally have to advertise. I wish lawyer ads were illegal, but anyone who has driven in a major city or sat at a bus stop will tell you that is not the case. The old adage used to be the lawyer on the back of the phone book got 80% of the calls. The next guy got 18%, then everyone else split up the scraps. The same is generally true of google and other search engines today. But, to be that guy, you have to pay. If there are results, great. It is a worthwhile investment. If not...

I've long wanted to start my own lawyer referral website, thinking I could just sit back and watch the advertising dollars add up. Turns out this requires a lot of work, so it is not in place yet. Until then, I am always looking for ways to generate new clients, without paying $400/month.

Enter today. While flipping through my February edition of the "Texas Bar Journal," the publication of the entity that I paid to give me a test so I could be a lawyer, then pay annually to stay a lawyer, then pay to teach me  "continuing legal education" courses that they also require to stay a lawyer, I see a page that looks like this:

Oh great, another one. But I read on. This service is sponsored by the State Bar of Texas. Interesting:  the club I joined, that should be advocating for me, that I pay to belong to. The article talks about how they can refer new clients, build your practice, etc. All good. Then the part hits me: $125/ year in fees, and if you get a case that generates more than $500, 10% goes back to the lawyer referral service. I'm sorry, what?

A referral fee that goes back to not just the "referral service," but the State Bar of Texas? Is that legal? So I did some checking.

Rule 703(b) of the Texas Disciplinary Rules of Professional Conduct requires:

(b) A lawyer shall not pay, give, or offer to pay or give anything of value to a person not licensed
to practice law for soliciting prospective clients for, or referring clients or prospective clients to,
any lawyer or firm, except that a lawyer may pay reasonable fees for advertising and public
relations services rendered in accordance with this Rule and may pay the usual charges of a
lawyer referral service that meets the requirements of Occupational Code Title 5, Subtitle B,
Chapter 952. Full text available

Makes the above sound fishy, right? Referral fees are, subject to a few requirements, very legal and ok. They allow a lawyer who is over their head to get some help, share the love, and still get paid. All good things. However, I was always under the impression referral fees to a non-attorney were very not ok. Is that not what is going on here? And by the STATE BAR of TEXAS, who enforces and makes those same rules?

I also checked the Occupational Code, Chapter 952. See it here. Guess what it says?

(a) The state bar shall adopt reasonable rules subject to the approval of the supreme court to administer this chapter.
(b) The state bar may enforce this chapter and the rules adopted under this chapter.

 Seems like The State Bar has this one covered from both ends. The state bar sets the rules, fees, and guidelines. The pertinent rules are:

Sec. 952.151. NOTICE REQUIREMENT. (a) A lawyer referral service shall include the following statement in any advertising or other promotional effort: "This service is certified as a lawyer referral service as required by the State of Texas under Chapter 952, Occupations Code."

I don't see that anywhere on this ad.

Sec. 952.152. LAWYER PARTICIPATION. A lawyer who is licensed and in good standing in this state and who maintains an office in the geographical area served by a lawyer referral service may receive referrals of potential clients from the service if the lawyer:
(1) complies with Section 952.155; and
(2) pays a reasonable registration and membership fee not to exceed the amount set by state bar rules.

If I hit a million dollar case, is $100k reasonable? Guess who decides? The state bar.

Sec. 952.155. LIMITATIONS ON CLIENT FEES. (a) A lawyer may not charge a potential client referred to the lawyer by a referral service an amount that exceeds the total cost the client would have been required to pay, including legal fees and expenses, if a referral service had not referred the client.
(b) The combined amounts of any fee charged to a potential client by the lawyer or the referral service may not exceed $20 for the first 30 minutes of the initial office visit with the lawyer.
(c) An agreement between a lawyer and a referral service to eliminate or restrict the fee for the first 30 minutes of an initial office visit with the lawyer does not violate any statute or rule, including Chapter 15, Business & Commerce Code.
(d) A fee charged under Subsection (b) may be used only to pay:
(1) the reasonable operating expenses of the referral service; or
(2) the expenses of a public service program, including a pro bono publico legal program.

This all seems fine, but they way I read B and D, is that fees that fund this program are the $20 pops. That's it. No mention of a percent recovery and the purpose of those funds anywhere.

The more I look, the more of these type outfits there are out there. There are many, nationwide. Most that I have seen thus far have the deal where you pay to join,  you pay $20 for the consult,  and that's it. No kickback referral fee. However, some others require a percentage fee. Wisconsin has one. The City of Houston has one too, but they claim to be a non-profit. They take 15%.

The ABA has actually issued rules on referral services, which can be found here.

The one that I'm interested in is this one:

Rule IX

-- A qualified service may, in addition to any referral fee, charge a fee calculated as a percentage of legal fees earned by any lawyer panelist to whom the service has referred a matter. The income from any such percentage fee shall be used only to pay the reasonable operating expenses of the service and to fund public service activities of the service or its sponsoring organization, including the delivery of pro bono legal services.

Maybe Texas decided it was ok. However, I cannot find a rule that says it is, and Sec. 952.155 of the Occupational code seems to say otherwise, even though the Bar regulates both.  Maybe the 10% percent fee goes to legal aid, or some other good cause. But I cannot find a place that says where the money goes.  The ABA also has a list of lawyer referral services in Texas, or LRIS services, here. Some have the ABA seal of approval. The Texas State Bar LRIS program does not. I wonder why?

I am sure (really, I just hope) that there is a great, clear, explanation for this that I have totally missed. I am sure (really, I just hope) that there is some fine print I missed. I am sure (really, I just hope) that my State Bar, the group I swore allegiance to, is not trying to squeeze more money out of me and my fellow attorneys in what are tough economic times by deceptive means.

This thing has been around since 1972. I can't be the first person to ask these questions.

Thursday, March 1, 2012

Creditor's Claims in an Independent Administration

I know the topic alone gets your blood pumping. Can't contain your excitement? Read on.

In an independent administration, (IE, someone dies without a will, everybody agrees on how things will get split up, and the court appoints an independent administrator to settle things up) the independent administrator has to deal with creditors.

Example: Mother died without a will. She had $5k of credit card debt, $3k of debt at Sears, owed on her car and still had not paid off her mortgage on the condo she bought in Corpus. You were appointed independent administrator. What to do?

As an independent administrator, within 30 days after you have qualified (taken the oath and given any required bond), you must publish a notice to creditors in a local newspaper advising all creditors of your appointment. Within two months after your qualification, you must mail a registered or certified letter, return receipt requested, to each secured creditor of the estate. A secured creditor is one who holds a claim secured by a deed of trust, a mortgage, or some other lien upon property. You must file proof of the above two notices with the clerk’s office.

So what happens when the creditor's call you back?

Turns out, the creditors have options. If they are secured, then they can either proceed under the probate code, or not. If you go the probate code route, Sec. 306 provides that you can elect to take the collateral and forego any other claim against the estate, OR be treated as a matured secured debt, to be paid within due course of administration. Easy right? Not so fast.

Sec 146(b) of the Texas Probate Code provides another wrinkle: (b) Secured Claims for Money.  Within six months after the date letters are granted or within four months after the date notice is received under Section 295, whichever is later, a creditor with a claim for money secured by real or personal property of the estate must give notice to the independent executor of the creditor's election to have the creditor's claim approved as a matured secured claim to be paid in due course of administration.  If the election is not made, the claim is a preferred debt and lien against the specific property securing the indebtedness and shall be paid according to the terms of the contract that secured the lien, and the claim may not be asserted against other assets of the estate. 

So, if you don't comply with the time limit, you are stuck with the preferred debt and lien option. This means you cannot get a deficiency judgment. Further, the Independent Administrator can just say "No" or do nothing, rejecting your claim. If this happens, you have to file suit. What a pain.

Option B turns out to be good ole' fashioned foreclosure. If your secured asset included a power of sale, you can still use nonjudicial foreclosure, assuming you properly notice the independent administrator and conduct it appropriately, and still retain the ability to file suit for any remaining deficiency.

Complicated enough? Rep. Will Hartnett attempted to get a bill pushed through last legislative session to simplify things a little, but it didn't quite make it. A good analysis of the changes can be found here.

What does any of this mean?

For Independent Administrators:

  1. You don't have a choice in not paying your creditors. If you want them to maybe go away, you have to use a dependent administration, or just hope they never call you back.

  2. If creditors do call you back, sometimes they will settle on a lesser amount to save the headache of pursuing other remedies.

  3. If you want to reject a creditor's timely claim, know that they can, and often will sue you.
For Creditors:

  1. Are you secured? If so, you have options. Make sure you preserve your right to a deficiency by either foreclosing, or timely becoming a secured, approved claim under the probate code.

  2. Don't forget to send notice, if you foreclose or pursue the probate code remedies.
At the end of the day, creditor's claims can be a headache, for both the estate and the creditor, but they do not have to be.