Dec 12 Bar Tax Bull: Fiscal Cliff?

1)  The Fiscal Cliff

2) Tax Rates or Deductions

3) Sandy and IRS

1). I woke in the middle of the night after dreaming that I was back at Rutgers in the 60s. As an undergraduate I was required to take a course called the “Geography and Geology of New Jersey”. Professors organized bus trips to interesting geological sites in our fair state. In my dream, I missed the bus. But in an instant I was conveyed to the beautiful Cliffs of Moher in Ireland. I could feel the sea spray in my face looking down from the Emerald Isle's most intriguing geological viewpoint into the sea. The next morning I searched for deep meaning to the dream. Of course, staring at the New York Times brought it all home. The Fiscal Cliff. This bit of congressional irresponsibility has led the country to the brink of another recession or worse, with automatic tax hikes, budget and entitlement cuts and a return to Prohibition. Okay, that last part's not true. But close. The Fed has warned of an economic disaster. Little old ladies are selling their stock before the fiscal cliff’s tsunami wave hits. Where did this cliff come from? Now the geology lesson: The world's highest cliff is Nanga Parbat (Naked Mountain) in Pakistan. The mountain itself is 26,660 feet to the summit and is the 9^th highest mountain in the world. Its cliff is known as the “Rupal Face” and is almost two miles high. I yanked out my Rutgers geology and geography book and searched for a scientific explanation for cliffs. I found it. “Cliffs are formed due to the process of erosion and weathering”. I realized then that the Fiscal Cliff has a lot in common with Nanga Parbat. Nature’s work requires millions of years. Our Congress has managed to create its cliff in less than four years, but it too is the product of erosion and weathering. Instead of making decisions which benefit the country, politicians have taken silly pledges ( honestly ,would you swear to a pledge by a guy named "Grover"?) and have simply avoided fiscal reality. There is another coincidence looking at real life cliffs, some of the most spectacular in the world include Ronda in Spain, Positano in Italy and Santorini in Greece. All of these countries are also finding themselves behind the fiscal eight ball.

2). At the time of this writing, Republicans and Democrats continue to try to position and control tax damage to their respective constituents. The president argues that tax rates must go up on income above $500,000 a year because reducing tax deductions alone on the rich cannot raise the $1.6 trillion he seeks. Congressional Republicans on the other hand, argue that they will not accept tax rate increases but may be willing to hear a reduction of tax breaks. In order to accomplish that sleight of hand a very bitter pill is in the offing. The kinds of tax deductions which would be yanked from the tax code would have to include perhaps all mortgage interest, charitable and medical deductions. Many of these are often claimed by the middle class. At best a cap of deductions may be necessary. Surveys have indicated that the rich will not stop investing in their businesses if their tax rates go up several points. Nonetheless, the battle continues. When all is said and done, it is pretty safe to say that tax rates will go up and deductions will go down. Some tax planners are advising their clients to take income before the end of 2012 especially if derived from capital gains and dividends. Democrats have targeted these two “evils” as requiring higher tax rate reform. They believe, and it may be true, that America's wealthiest live on income derived from these sources. Taxpayers counting on mortgage interest deductions in 2013 should watch the legislation carefully as it proceeds through Congress.

3). Hurricane Sandy's devastation of New Jersey is depressing. Even Chris Christie was moved to tears seeing the Wild Mouse in the ocean at Seaside Heights. People up and down the coast have seen their homes destroyed and their memories tarnished. The IRS has responded somewhat to the emergency situation. Many tax filers have had the time to file payroll and excise tax returns for the third and fourth quarters of 2012 extended to February 1, 2013. This is true also of estimated tax payments for the quarter ending December 31, 2012. The IRS relief applies to individuals and businesses in disaster areas in New York, New Jersey and Connecticut. Better yet, in an internal memorandum IRS collection agents have also been advised that its enforcement activities would be suspended beginning October 26, 2012 through February 1, 2013 in what the memo calls the IRS Designated Disaster Areas which includes most all of New Jersey. The IRS memo specifically lists Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, Somerset and Union counties. These counties were designated by FEMA to be eligible for individual assistance. If FEMA declares additional counties so eligible the suspension of enforcement action by IRS agents will be extended to those additional counties as well.

Can Lawyers Beat Anxiety?

Can Lawyers Beat Anxiety?

Excerpts from: Finding Serenity in the Age of Anxiety   by Robert Gerzon

Charlie Brown tells Lucy that he worries a lot. Lucy, as the world renown psychologist asks him why? He says: “I worry a lot about worrying a lot”. She adds: “Your anxieties have anxieties”.

Anxiety is the shadow cast by human consciousness. Anxiety is one of the most profound problems facing human beings. We are often anxious about the wrong things.

Peace of mind is not a static state, not something we find once and for all.

As a culture we lack accurate models and effective methods to help us deal with everyday anxieties. Not to mention the overwhelming existential ones. Anxiety and depression are closely related. Mixed anxiety depression and mood disorders are a rapidly growing diagnostic category. One out of five Americans will struggle with the hopelessness of depression during their lifetime. Anxiety can block our growth more effectively than anything else; more than poverty, illness, misfortune or any environmental factor. Why? Because anxiety affects the way we think.

In our society when someone is feeling tired and anxious and discouraged it is usually more socially acceptable to say “I'm stressed out” rather than “I'm feeling anxious”.

Anxiety comes in three varieties, Natural, Toxic, and Sacred.

Natural anxiety includes the positive protective kind of anxiety that instantly responds to an immediate danger and is quickly channeled into an effective response. Both proportionate and appropriate to the situation. Natural anxiety disappears as soon as the object of the anxiety has been acknowledged.

Toxic anxiety is a powerful self destructive force symbolized in myth and story by the image of a monster. It has been called the fear of fear itself, being anxious about being anxious, according to Lucy Brown. This is a form of anxiety that Freud called toxic anxiety that may affect us physically as chronic tension, pain, or illness. Toxic anxiety is antithetical to human happiness and the enemy of life and growth. It is a state of inner conflict. Humans try to suppress the anxious feelings by pushing them down inside in the hope that they will disappear after they are out of sight.

Sacred anxiety is the life and death dimension of anxiety. The awareness of our own death is the gateway from natural to sacred anxiety. Sacred anxiety confronts the unknown and uncertain future and life's ultimate questions. Sacred anxiety is the area where we relate to our most basic values and beliefs that is the very meaning and purpose of life. Sacred anxiety brings us into the realm of ethics, philosophy and religion. Sacred anxiety is the origin of all our fears and apprehensions.

Learning to distinguish among the three levels of anxiety is the first step toward mastering anxiety. We must learn to channel the powerful energy of anxiety into tangible achievements and spiritual growth. Natural and sacred anxiety are fundamental to human life. There is no escaping them.

Dealing with Anxiety

The A+ anxiety formula: Acceptance, Awareness, Analysis, Action, and Appreciation.

1. Acceptance: accept the anxiety or the problem as an opportunity to learn and grow.

2. Awareness: practice active awareness. Relax with the anxiety and bring attention to breathing with awareness. Step back and gain more self-awareness by compassionately observing your physical sensations, emotions, and thoughts. Detach from your habitual reactions and imagine new options.

3. Analysis: tell yourself the highest truth about the situation. Separate the strands of toxic, natural and sacred anxiety. Develop a clear picture of your situation. Decide on a “next step” strategy to deal with it, one that is goal achieving as well as anxiety relieving.

4. Action: Just do it! Put your awareness into action and take your next step. Becoming aware of the type of anxiety and its causes leads to action such as using anxiety mastering techniques, exploring inner emotional healing, taking steps toward a goal or letting go to your higher power. Channeling the energy of anxiety appropriately leads to events such as feeling calmer, learning about yourself, or achieving a goal.

5. Appreciation: review what you ever learned and accomplished. Appreciate who you are and what you have done. Choose an attitude of gratitude as you notice all of the blessings in your life.

The Don't s:

Don't ignore anxiety or use denial and distraction.

Don't try to fight anxiety. Fighting it just feeds it and makes it escalate.

Don't give in and let anxiety defeat you.

Don't obsess on anxiety or try to figure it out.

Don't criticize yourself for experiencing anxiety or get sidetracked by guilt and shame.

Read the Gerzon book for more on the subject!

What to Do When Your Client Owes a Bundle to IRS

What to do when your client owes a bundle to the Internal Revenue Service

The first question is: How did he get into this shape?

Filed tax returns with balance due?

Non-filer where IRS has created the returns under the IRS substitute for returns program?

Result of audit examination?

Is this an individual or a business tax problem?

Most popular business tax not paid is trust fund withholding  Section 6672 allows the government to assess this tax against responsible persons which can include officers and shareholders and others including accountants and lawyers who exercise some control over the business finances.

Liability for trust fund taxes exists as to the company with regard to all taxes due. With regard to officers and other responsible persons, the liability is for amounts which were withheld and not paid over to the Internal Revenue Service.

Employment tax returns can be created by the Internal Revenue Service in a summary fashion. They are not required to go the same procedure as income taxes and do not require issuance of a statutory notice of deficiency.

If this is an individual non-filer recognize that the designation 1040 A. indicates a return was created by the IRS. This type of return allows no deductions or credits, and is usually calculated for a married individual based on married filing separate rendering the highest tax rate.

In most cases at least four notices from the Internal Revenue Service will be sent as to amounts due. Check to see that these notices are sent to the last known address. Often, clients will simply throw these notices away or filed out of sight. Each notice becomes more threatening. The last notice form CP 504 advises the client that it will begin to search for refunds at the taxpayer is due for purposes of Levy. The failure to pay penalty goes from one half of one percent to 1% a month after the notice 504 is issued. The final notice that the taxpayer will receive will be clearly designated:“Notice of Intent to Levy and Your Right to a Hearing under section 6330 and 6320.” This notice cannot be disregarded as it will result in a Levy after 30 days. If sufficient grounds exist, Form 12153 should be filed requesting a collection due process hearing. To avoid Levy examine all notices that the taxpayer has received to determine where he or it is in the procedure.

Be careful that your power of attorney covers all of the tax periods for which tax liability exists. If there are other years not stated on the power of attorney you will not receive notices and the client may have due dates pass without action. The client may believe that you are receiving these notices as well. It is best to have the client forward or fax copies of any notices received at once.

The statute of limitations:

No matter the tax year is involved. Check to see the statute of limitations is still viable. The fact IRS has issued a notice does not necessarily mean that the statute is open. Prove to yourself that the statute of limitations has not expired. Request an IRS transcript to show dates of filing and other information for this purpose. The general tax collection statute is 10 years.

Options that exist with regard to back tax liabilities:

An Installment Agreement.

Offers in Compromise.

Code 53 (currently uncollectible)

Bankruptcy.

An installment agreement can be requested either by filing form 9465 or by a letter to the Internal Revenue Service requesting and suggesting an amount for an installment agreement area. An installment agreement provides the taxpayer will pay the amount on a monthly basis until it is fully liquidated. Interest and penalties continue to run.

Prior law did not allow the Internal Revenue Service to allow for a partial installment agreement. Current law allows a partial installment agreement which will result in less than full payment of the tax liability over the period of the statute of limitations. If the statute expires during the term of the installment agreement, the balance of the tax is not collectible.

Note that the Internal Revenue Service can request an extension of the collection statute of limitations under 6502 at the time an installment agreement is entered. It is the current policy of IRS not to request these extensions unless circumstances warrant. For example, the chance of a pending  inheritance to be received by the taxpayer or some other change in financial circumstances outside the normal statute of limitations. Note that the IRS can also have an assessment reduced to judgment thereby extending the period of collection to 20 to 25 years.

Current federal law offers a guarantee installment agreement for taxpayers with tax liability less than $10,000. This provides the taxpayer an ability to pay the amount over three years. If the amount of liability is $25,000 or less, the taxpayer may be able to arrange a stream line installment agreement for five years. This arrangement is not guaranteed under federal law. Both types of these agreements require less information than is normally submitted to the Internal Revenue Service for verification of income and expenses. Form 433F.

Obtaining an installment agreement requires the filing of form 433A for individuals and 433 B for businesses. These forms are basically income statements and balance sheets and they are signed under penalties of perjury and that any false statement can result in criminal prosecution and punishment in the same way ordinary tax returns can. Questions on the form also solicit information about prior transfers within the last 10 years. By providing all information on a financial disclosure form may set the taxpayer up for Levy by the Internal Revenue Service.  You should attempt to arrange an installment agreement without filing a formal financial disclosure form if at allpossible.

It is possible in business arrangements to be made especially where liability is $25,000 or less.

Federal tax liens:

An automatic tax lien arises when the taxpayer has received a notice and demand for payment and does not pay the tax liability within 10 days. This lien covers all of the taxpayer's property. However, it is not until recordation do buyers without actual notice get legal notice of the filed federal tax lien. Note when the total amount owed is less than $10,000 IRS may decide not to file a lien. This amount had been $5000. If evidence of asset dissipation or pending bankruptcy filing exists a lien will be filed notwithstanding its amount.

A direct debit arrangement with the client’s bank account may avoid the filing of a lien or permit the withdrawal of the filed lien. The IRS believes that it is more likely that the taxpayer will continue paying an installment agreement where direct debit exists.

In prior law when the tax liability was full paid the IRS was required to file notice of release of tax lien. Under current law IRS may withdraw that lien and thereby expunge all record of the lien being filed. Request a withdrawal of any lien which has been full paid. If the client has gone on to direct debit and the amount of liability is less than $25,000, the lien can also be withdrawn.

After the lien is filed, the taxpayer will receive notice of its filing and be given 30 days to request a collection due process hearing before the IRS appeals branch with regard to the lien. Unlike the Levy, this notice is sent after the lien has already been filed. In the Levy situations requesting a CDP hearing is a means of preventing the Levy action itself until after an appeals hearing. Note that IRS can reject a request for such a hearing if it deems it to be frivolous. It can also seek a $5000 penalty for frivolous filing.

Offer in Compromise:

Taxes penalty and interest can be the subject of the compromise filed on form 656. Offers are allowed on three grounds:

Doubt as to liability.

Doubt as to collectibility.

Effective tax administration.

Most offers are based on an inability to pay the tax. Taxpayers are required to file financial disclosure forms 433. IRS considers both the quick sale values of the taxpayers’ assets as well as an income stream over either four or five years depending upon the type of offer made. For cash offers this is 48 months and for deferred offers is 60 months. Note that if an offer in compromise is accepted the taxpayer must remain current, and in compliance with all tax laws for the next five years if not the offer will be terminated and the amount of the tax liability reinstated.

An offer suspends the statute of limitations on collection, while it is pending plus one year. You must advise the client of this serious consequence.

A down payment, which is not refundable of 20% of the amount of the offer must be made with the offer. A down payment is also required where a deferred offer is being considered. Many clients will simply not be able to make the down payment required.

IRS works the offer in compromise program through its campuses or service centers in Memphis,TN and Brookhaven, New York.

In the calculation of the amount of the offer there is no set percentage. Adverts of pennies on the dollar are misleading. The IRS website offers a calculation worksheet.

IRS is attempting to simplify and streamline the offer in compromise program is especially for offers of $50,000 or less. In these instances IRS offer examiners will be permitted to call taxpayers to ask for additional information. IRS uses guidelines that it publishes. Be advised that these are, in fact, just guidelines lines from which the IRS may deviate.

The failure to accept an offer in compromise will allow the client and appeal to the IRS appeals branch for review. Many times IRS will negotiate the amount of the offer at this administrative appeal level.

Offers based on doubt as to liability are examined by the IRS examination division. No amount of the payment is necessary and financial disclosure forms are not required. This may be an opportunity for the taxpayer to have a review of an assessment where no other opportunity was granted.

Offers based on effective tax administration are grounded on fairness. This is a catchall area based on all facts and circumstances. Few offers are accepted in this area.

Code 53:

Internal Revenue Service is allowed to make the determination that a taxpayer's tax liability is currently uncollectible. This is usually based upon financial disclosure forms which have been filed. Once placed in code 53, the taxpayer will no longer receive threatening notices from IRS with regard to tax liabilities. He will receive an annual notice of the total amount still do. Code 53 does not eliminate the tax liability. The statute of limitations on collection does continue to run when the taxpayers file is in this suspension account. Therefore at the end of this section 6502 limitations. The tax will no longer be collectible. In this regard, this can be a very favorable handling of the clients matter. IRS will set the file to tickle at a certain income level, which will then cause a re-examination of the uncollectible status.

Bankruptcy:

It should be noted that under certain limited circumstances income taxes are dischargeable in bankruptcy. Trust fund tax liabilities are not dischargeable in bankruptcy.

Stopping the IRS Levy:

Once Notice of Intent to Levy and Right to a Hearing is given a taxpayer Form 12153 should be considered to request an IRS appeals hearing.

IRS appeals branch consists of seasoned IRS employees whose job it is to settle cases. In the CDP hearing procedure, the appeals officer will first determine whether proper procedures were followed by the Internal Revenue Service including mailing of all notices to the last known address. Taxpayers can raise the underlying tax liability unless a  statutory notice has been issued which was not petitioned to the Tax Court or if a trust fund notice was sent and no request for hearing was made. It is possible at the appeals branch to arrange alternative collection handling of any tax liability. This can include offers in compromise, installment agreements, interest and penalties waivers and the failure to properly apply payments or the application of the Innocent Spouse provisions of section 6015. The appeals branch can also pass on the withdrawal of liens.

After appeals hearing, the appeals officer will issue the notice of determination, which gives the client 30 days to appeal to the United States Tax Court if all matters have not been settled. The Tax Court will consider all the issues that were raised in the CDP hearing. The Tax Court may remand the case back to the appeals branch for further hearing if necessary.

When it's time to come clean with the IRS

TAX CRIMES - GENERAL
IRM 9.5.11.9
Voluntary Disclosure Practice
(1)  It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.  This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel.  Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.
(2)  A voluntary disclosure will not automatically guarantee immunity from  prosecution; however, a voluntary disclosure may result in prosecution not being recommended.  This practice does not apply to taxpayers with illegal source income.
(3)  A voluntary disclosure occurs when the communication is truthful, timely, complete, and when:
a.  the taxpayer shows a willingness to cooperate (and  does in fact cooperate) with the IRS in determining his or her correct tax liability; and
b.   the taxpayer makes good faith arrangements with the IRS to pay in full, the tax, interest, and any penalties determined by the IRS to be applicable.
(4) A disclosure is timely if it is received before:
a.  the IRS has initiated a civil examination or criminal investigation of the taxpayer, or has notified the taxpayer that it intends to commence such an examination or investigation;
b.  the IRS has received information from a third party (e.g., informant, other governmental agency, or the media) alerting the IRS to the specific taxpayer’s noncompliance;
c.  the IRS has initiated a civil examination or criminal investigation which is directly related to the specific liability of the taxpayer; or
d.  the IRS has acquired information directly related to the specific liability of the taxpayer from a criminal enforcement action (e.g., search warrant, grand jury

Can Lawyers Learn to Be Happy?

 " Can Lawyers Learn To be Happy?
Ted David
“We’re lost, but we’re making good time.” — Yogi
Berra
Maybe it started when you were in college. You know
— that dream to become a lawyer. Certainly by the time
you entered law school you were convinced that the profession
was for you. I can just bet you told your friends you
wanted to be a criminal lawyer or a constitutional lawyer.
By the time you got out of law school, you may have realized
that tax law or corporate law was for you. But no
matter, the thought of practicing law simply made you
happy. So what happened? Study after study has revealed
that lawyers are often unhappy in the profession. Is this
because of the work we do — advocates and adversaries?
Or is there something more to it? Perhaps, as the cliché
goes, we are only human.
The statistics are not encouraging. Out of 105 professions,
according to a John Hopkins University study,
lawyers topped the list for major depression. One in four
suffer psychological distress from feelings of inadequacy,
inferiority, and anxiety. We are depressed at a rate
3.4 times higher than employed persons generally. We
lawyers are twice as likely to commit suicide than ordinary
folk in the population. And when we are not thinking
about doing ourselves in, one in five is alcohol addicted.
Substance abuse for lawyers is double the national level.
Though statistics are scarce, divorce among lawyers is said


to be higher than other professionals. One study of
female lawyers found that they were twice as likely
to divorce than female doctors and 20 percent to
40 percent more likely to divorce than teachers in
secondary schools. Frankly, 52 percent of us simply
describe ourselves as unhappy.
Now, if you’re sitting in your office or comfy at
home reading this article and a feeling of happiness
overwhelms you, there may be no need for you to
read the rest. But if not, this article may explain
some of the reasons lawyers are unhappy and how
perhaps we can change our tune.
Happiness? • What is happiness? This is a ticklish
question. It is that emotion that evokes joy to some,
to others it is meeting the ordinary necessities of
life. To quote the sage young lawyer from Illinois,
Abraham Lincoln: “Most people are about as happy
as they make up their minds to be.”
Ours is a profession with money, that root of all
evil, at its core, in which the chief complaints are
long hours and decreasing time for personal and
family life.
An article in the English Sunday Times a few years
ago, focused on the misery of American lawyers. It
attributed the situation to an excessive workload,
mind-numbing work, that was self-inflicted upon
individuals who were basically pessimistic. The article
concluded that lawyers were part of the least
popular American profession. Swell.
The Golden Ratio
Mathematicians may find comfort in referring to
a formula for happiness. One such formula is called
the “Golden ratio.” In that ratio, the numerator is
what you have, the denominator is what you want.
There are therefore two ways of achieving happiness
by the numbers: increase the number of things
you have or reduce the number of things you want.
It does depend on what and how much you want.
That is, what are your desires: A car or a Porsche, a
house or a mansion, a child or a family of eight. Often,
ever-expanding wants result in excessive work,
burnout, heart attacks, miserable family life, frustration,
and resentment. On the other hand, attempting
to be satisfied with what you have is not easy
and can also result in similar feelings of inadequacy,
failure, and depression. The Golden ratio, it would
seem, may have been fine for Pythagoras, but it is
tough to apply in today’s modern legal world.
The Plight Of The Overachiever
Are we as lawyers trained to be overachievers?
And worse yet, overachiever pessimists? There are
law school studies that show students who describe
themselves as pessimists do better in law school.
They are better able to see the legal issues in fact
patterns. A child is struck by a motor vehicle. A
non-lawyer thinks, “What a tragedy, is she hurt?”; a
lawyer thinks, “Who is liable? And is the insurance
adequate?” A pessimist believes a good day is just a
bad day about to happen. An optimist on the other
hand, is “a person who travels on nothing from nowhere
to happiness” according to Mark Twain. Often
neither the pessimist nor the overachiever is on
the road to happiness. These days, schools early on
begin to sort out the overachievers from the underachievers.
Class work is labeled “advanced placement,”
which is sought out by the overachievers and
their parents. Society soon labels the underachiever
as its also-rans.
The poor underachiever is to be pitied for it is
the overachiever that gets the A in the course, the
corner window office and the partnership designation.
Often, however, the overachiever is stressed
for perfection. He needs medication of some sort,
counseling, and by 35 is burned out. The underachiever,
on the other hand has more fun, time off,
and a better lifestyle and often better health, family,
and friends. He can work happily well into old
age without difficulty, looks back on his life work
experience fondly and in fact does incidentally accumulate
more things than his overachiever brethren.
The underachiever is not a no-achiever. The
Happiness as a Lawyer | 31
no-achiever is a real mess. For a no-achiever, there
is no job, no career, no friends, and no respect. The
no-achiever is at an opposite end from the overachiever,
but has the same problems, but with no
rewards. He is both defeated as well as burned out
before he even begins. But is overachieving necessary
for happiness?
As lawyers, should we be aiming to become true
underachievers? What an outrageous suggestion. Is
the reasonable man of negligence law a reasonable
underachiever? Or have we created a standard,
which is driving many of us to think twice about
the profession? If underachieving is the objective,
who then can be our role models?
Who is the ideal underachiever? My personal
favorite is none other than Homer Simpson. Just
consider his laws of the workplace: “It was broken
when I got here”; “I’ll look into that”; “That’s a
great idea, boss.”
Homer is oblivious to his work colleagues. He is
immune to peer pressure and failure. He is familycentered,
happy, and well-adjusted. He desires nothing
from life and receives little in return. “If you
really need money, you can sell your kidney or even
your car,” per Homer. The weekly television show
creates situations in which Homer deviates and tries
to be like others, that is, an overachiever. By the end
of the half hour, he fails, falling back into Marge’s
arms and he learns another valuable lesson. The
theme is not unique. Jackie Gleason in The Honeymooners
in the 1950s played out the same story as the
loudmouth bus driver threatening to send Alice to
the moon for her level-headed comments to one of
Ralph’s outrageous ideas. They never moved out of
that tiny apartment in Brooklyn, but they did seem
to live happily ever after. Underachievers tend to be
moderates. Their expectations of life are less and so
are their disappointments. Life, like practicing law,
may be about negotiating a decent settlement between
over- and underachieving.
International Underachievers?
International studies have rated Denmark as
the happiest country on earth and it’s not because
of the weather. It is said to be a culture of relatively
low expectations, but in 50 years there have been no
wars, there is little national turmoil and it has one
of the lowest murder and crime rates in the world.
There is simply less worry and more contentment.
All education is free, and students can take as long
as they want to graduate. Healthcare, elder care,
and nursing homes are provided as is Social Security.
The average vacation is six weeks from a 37-hour
work week. By comparison, out of 79 countries the
United States has turned up a dismal 15th in the
happiness department.
Are You Unhappy?
How does unhappiness manifest itself ? Here is
a simple self-test. Do you suffer with anger, frustration,
isolation, extremism, depression, physical illness,
or sleeplessness? Is life an adventure or full of
endless drudgery? And if you are miserable, do you
make those around you miserable, too? Or is your
life one of peacefulness, serenity, friendship, contentment,
restfulness, moderate fitness, and reasonable
good health? Do people seek your company?
Have you been invited to lunch lately?
Ten Rules of Happiness:
• Life is a marathon and not a 100-yard dash.
Burnout is real. Stop rushing. Take a vacation;
• Control is an illusion. No matter how hard you
try, a great deal of life is unexpected;
• Life is short. No one dies gladly at the office.
Make time to enjoy family and friends;
• Great achievements create great expectations.
Underachievers may be more happy than
you;
• The law of diminishing returns applies to life.
At some point no matter what you have, you
simply can’t live better;
• Your blood pressure should not be higher
32 | The Practical Lawyer A ugust 2011
than your IQ. Your conduct creates your problems;
• Good health does not come from overwork.
But from work being over;
• He who dies with the most toys doesn’t win,
he just didn’t understand the game. Your beneficiaries
will live better than you did on your
money;
• Worry without action is a waste of time. Stress
kills;
• Finding balance is the best accomplishment.
It’s the ultimate goal worth achieving.
Can We lawyers Learn To Be Happy?
At some Ivy League schools, courses called
“Positive Psychology” attempt to teach undergraduates
the science of happiness. These courses are
sold out every semester. Harvard and the University
of Pennsylvania seem to believe happiness can be
taught. Professor Martin Seligman is the Happiness
Guru at Penn and one of the foremost authorities
on Positive Psychology. He says in his recent book,
Flourish — A Visionary Understanding of Happiness and
Well Being, that it is not happiness we really seek but
“well-being,” a construct like the weather, which itself
is not a real thing apart from its components like
temperature, humidity, and wind speed. Well-being,
the good Professor asserts (and he’s got tons of statistics
both medical and psychological to prove it),
consists of the elements of positive emotions, relationships,
meaning, and accomplishments. He rates
positive emotion, such as being an optimist, high
on the well-being scale; and pessimism as the culprit
behind depression, unhappiness, and physical
illnesses like the common cold and, in the extreme,
cancer and death itself. His studies show pessimists
in fact live on average seven years less than optimists.
Great news isn’t it? We are trained as lawyers
to be pessimists and it’s killing us.
In 1997, eons ago in computer time, Dr. Robert
Gerzon published Finding Serenity in the Age of Anxiety.
He correctly forecasted the anxious period, filled
with the fear that we are all living through now. His
book offers some simple suggestions to finding peace
of mind no matter what your profession. Gerzon
focuses on “Toxic Anxiety” as “the dreaded and destructive
overreaction that results in fear, worry, selfsabotage
and panic” and contends that all forms of
anxiety can be transformed into self-awareness and
growth. His book, too, is a must-read for lawyers in
a happiness tailspin.
Many of the happiness courses teach that more
is often not better. The unhappiest zip codes are often
the wealthiest. In fact, close relationships and
friendships are better predictors of happiness than
affluence. Americans earning more than $10 million
usually are only slightly happier than average
Americans. In theory, if we lawyers can learn the
Rule against Perpetuities, we can learn to be happy.
Today’s world is filled with happiness traps:
• Consumerism — creating an unending stream
of artificial desires;
• Credit accessibility — allowing people to satisfy
those desires by getting hopelessly into debt;
• Physical unhealthiness — computer screens
instead of outdoor exercise;
• Overmedication — a bad way to deal with
what are simply bad lifestyle choices;
• Archaic institutions that capitalize on worry
and guilt for motivation — Hell for nonconformists;
• Politicians who use fear for control — it is
much easier to control people who are scared;
• Employers, like law firms, who seek to create
an imbalance favoring work over play — creating
a culture in which overachieving is rewarded;
• The American work ethic that makes leisure
evil — lawyers that brag they have no time for
a vacation;
• Media that emphasize obtaining more
through almost irresistible advertising — own
the ultimate driving machine, even if it sits in
the parking lot most of the time;
Happiness as a Lawyer | 33
• Media that peddles fear to hold viewer attention
through the next commercial — even a
weather forecast of a thunderstorm has “severe
and dangerous” lightning. Isn’t all lightning severe
and dangerous?
Is It Fear That Makes Lawyers Unhappy?
“All we have to fear, is fear itself ” said Franklin
Roosevelt. But Roosevelt was talking about the
Great Depression in his 1933 first inaugural speech,
not practicing law. Today’s Great Recession is
sometimes too reminiscent of those fearful times.
Roosevelt dug into the “money changers” and the
greedy, but concluded his speech with how important
it was to have joy once more in work. No coincidence.
Listen for your self at americanrhetoric.
com/speeches/fdrfirstinaugral.html.
Fear is related to worry as it is an anxious use of
time. How can you remove the fear and worry from
practicing law? One way is to keep a journal of
your fears and catalog what you intend to do about
each such worry or fear. Approach each fear from
the worst-case scenario. Then, remember it rarely
o ccu rMs. y first legal job as an IRS trial attorney in
the U.S. Tax Court had me assigned to a supervisor
who worried about everything. He made sure I
saw the potential danger in every single document
I filed and every presentation that I was to make.
In no time I was a wreck. Frustration, anger, and
sleeplessness soon followed. Had I remained under
his pupilage I am certain I would have found some
other profession. Fortunately for me, reassignment
to a more realistic mentor made the job one I hated
to leave. As a matter of fact, my ALI-ABA book,
Dealing with the IRS, is dedicated to him, Ned Hance.
Soon after going into private practice as an associate
in a law firm, I began keeping a journal. Eventually,
it told me I was unhappy, and that it was time
to start my own practice. It’s been a 31-year-long,
happy experience. Franklin Roosevelt would have
been proud.
Sometimes the way we practice law must
change if it is happiness we seek. Frankly, you can
either change what you do or change your attitude
about what you do. For me, I sought balance between
the active practice of law and the ivory tower
of the university. My income dropped, but my happiness
ratio soared. The constant barrage of client
demands and expectations was a sharp contrast to
the peacefulness of the university classroom. In the
one setting, I was seldom right, as I was often reminded
by IRS adversaries, and in the other, I was
seldom wrong. I was once approached by a law firm
to establish a tax department. “We’ll double your
income,” they said. I had no doubt that they would
— and with it, double my misery.
Speed Kills
In 1845, Henry Thoreau questioned the need
for the telegraph and the speed with which society
was careening into the industrial revolution. He
queried whether a conscious decision had been
made whether we would live as men or as baboons.
Fortunately for him, he did not get to live to the
computer age.
Lawyers now deal with legal issues at the speed
of light. We are stuck in the “on” position. I can
recall the days when client contact was in person or
by telephone, and that response was given by correspondence
in ordinary mail. The pace was professionally
leisurely. There was time to pause and
perhaps to think. Being on vacation meant not being
easily accessible. Enter the fax machine, email,
cell phone, Blackberry, and iPhone.
Clients now expect instant response and unlimited
availability. If you have ever seen someone
walking a large dog on a cold winter morning you
know for sure, it is the dog taking the owner for a
walk. Many lawyers allow their clients to run their
lives. The plane barely touches down as cell phones
flip open and contact is reestablished. We are train34
| The Practical Lawyer A ugust 2011
ing our clients to make us unhappy. They are, on
the other hand, finding immense joy in transferring
their problems instantly to us. How many activities
can you think of that you have really enjoyed more
by doing them faster?
The fight or flight response in humans is how
modern man got to survive this far on the planet.
But these days, that response is not needed all that
often. Certainly cavemen fleeing from a sharpfanged
predator needed to have it. But today we are
applying it to many ordinary things: driving the car,
getting to the office on time, preparing for a presentation,
reviewing a file, speaking on the phone.
Literally, 50 per cent of the telephone messages I
receive are incomprehensible due to the speed at
which the caller leaves his message (the rapid-fire
delivery makes the telephone number equally useless).
In this regard, it is not only lawyers at fault.
We live in a society whose pants seem to be on fire.
We must stop rushing to be happy both in the shortand
long term.
The Ideal vs. Reality
In law school, you may have dreamed of the day
a client would call and actually ask your opinion.
Never mind that they would be willing to pay for it.
Many of those dreams probably included learned
discussions of the interplay of case and statutory
law with just a touch of drama a la Perry Mason or
Boston Legal for good measure. Plenty of interesting
research projects in a dream world inhabited
by gentlemen and ladies. Jobs were plentiful, and
you were appreciated, whether a lowly associate or
a senior partner. You would spend your time devoting
yourself to the higher laws of society: Righting
wrongs, protecting the weak and infirm, convinced
that your job was to secure truth, justice, and the
American way. And then you got involved in the
practice of law.
Lawyering is a business. Unfortunately, law
schools prepare few lawyers to partake in the mysterious
notion of running a business. It is possible to
acquire a law degree without much, if any, exposure
to fundamental business principles, like accounting
and taxation. Those once-dreamt ideals run smack
up against a strong wall of reality. Time is money,
and you seem always to be short of both. Running
a business includes administrative duties most lawyers
are ill prepared to perform: time management,
marketing, sales, employee issues, financial recordkeeping,
filing business tax returns, maintaining
good client relations, none of which were included
in the dream of practicing law. All these things any
successful businessperson eventually comes to understand,
but becoming a lawyer does not necessarily
make you a businessperson. That is the harsh reality.
The deeper you get into the practice, the more
you realize the business of the law is not for you. If
you stay, it may make you miserable. But you may
be able to change to meet the challenge.
So What Can Lawyers Do About It?
We all must face a fact of life: No matter what
you accomplish in life, someone at your funeral will
mention that you were a lawyer. It’s a club you just
can’t quit. You can write the great American novel,
but you will be remembered as a lawyer. So how can
we make this trip a happy one?
We must find balance. Some Freudians say that
we are all in two parts: ego and inner spirit. It is that
rotten ego that wants more. It’s competitive, never
satisfied, always ready to rumble. For the ego, our
wallet is never sufficiently full. It is our inner spirit
that wants peace and quiet. This is our dilemma, as
lawyers and as people, to be torn between the two.
So we must learn balance, taming the ego in favor
of the inner desire for happiness. This balanced life
must be ethical and rewarding. No pile of money is
worth losing a good night’s sleep over, at least not
regularly.
We must find where our joy lies. The dramatist
and social reformer, George Bernard Shaw, author
of Pygmalion, and who lived happily working until
age 94, had this to say: “This is the true joy of life:
Happiness as a Lawyer | 35
Being used for a purpose recognized by yourself as
a mighty one. Being a force of nature instead of a
feverish, selfish little clod of ailments and grievances
complaining that the world will not devote itself
to making you happy. I am of the opinion that my
life belongs to the whole community and as long as
I live. It is my privilege to do for it whatever I can.”
Leo Tolstoy said, “Joy can be real only if people
look upon their life as a service, and have a definite
object in life outside themselves and their personal
happiness.” The Buddha reiterated the same idea:
“Happiness comes when your work and words are
of benefit to yourself and others.” Homer Simpson,
obliquely made the same point: “Bart, with $10,000
we’d be millionaires. We could buy all kinds of useful
things… like love.”
We must learn to control our minds. Science
has begun mapping the brain and sophisticated
machines can show the area of the cortex where
happiness fires up. Some scientific studies suggest
that there is a happiness gene. That gene, it is said,
is preset to determine our happiness level. But even
this science community recognizes that genes may
account for no more than 50 percent of the happiness
we experience. So it becomes an issue of nature
vs. nurture. What we are vs. what we think we are.
Lincoln may have been right after all — that our
minds control at least the other 50 percent of our
happiness. Or as Yogi Berra once said, “Remember,
that whatever you do in life, 90 percent of it is half
mental.” We may not be able to control, at least not
yet, our the makeup of our genes; but we can work
on our minds, and that may be half of the battle.
What we feed our minds will determine how good
or bad we feel. Negative thoughts produce a negative
life and a negative life is unhappy, Even worse,
the more you see the world as unhappy, the more
it and you become unhappy. Lawyers may need to
change their horn-rimmed glasses and their attitudes
more to rose-colored. None of this is easy. We
are entrenched in our negative world. Admitting we
may be unhappy can be a large first step. Committing
to actually doing something about it is much
more difficult.
We must learn the basic principles of running
a business. Many of us are from liberal arts backgrounds
and have no clue what it takes to run a
business and be happy at it. Going to law school at
the head of the class doesn’t qualify anyone to run a
business.
We must learn to ask for help. Self-help books
can be of value and getting professional help for addictions,
whatever they may be, makes sense. If the
administrative hassle of being involved in the business
of lawyering is too much to bear, be fearless
and accept the need for change. If the large firm
atmosphere is trouncing your enthusiasm, stifling
your creativity and burning you out, you may need
to move on.
We should listen to Groucho Marx: “I have just
one day, today, and I’m going to be happy in it.”
CONCLUSION • Lawyers can learn to be happy.
Being an optimist is an art and a learned behavior
that’s worth the effort. Some specific suggestions
are:
• Learn to create balance between work and
play — err on the side of play;
• Take control of time — don’t give all of it away
to clients or the law;
• Mix up your workload — varying tasks can diminish
the drudgery;
• Aim for moderation — avoid seeking perfection;
• Stay human — develop interests and friends,
not just business contacts;
• Exercise — this is always a good thing, especially
outdoors in contact with nature;
• Recognize that lawyering is a business — devote
some time to learning how a successful
business operates;
• Take vacations — often, even for just a few
days;

• Develop an optimistic viewpoint — easier said
than done;
• Protect yourself from burnout — recognize
that overachievers often burn out;
• Conquer fear and worry — keep an action
journal;
• Slow down and smell the cappuccino — stop
rushing, occasionally shut off the phone and
computer;
• Try moderation as a lifestyle — stress does kill;
• Control your wants and desires — improve
your golden ratio;
• Discover your joy — reconnect with your family,
get involved in your community;
• Tame the ego — listen to your inner spirit;
• Read self-help books and get counseling if
needed — you are not alone in this;
• Know your champion — find a mentor or role
model;
• Be realistic — recognize that you can either
change what you do, or your attitude about
what you do;
• Migrate — when all else fails, consider other
law-related work: government, university, business;
• Accept the fact that you are entitled to be
HAPPY.

November Bar Bulletin

1) A Fair Tax System?

2) S Corps and Low Wages

3) Borrowers Bonanza

1). Okay, I'll confess I did watch some of the debates, but honestly, who in their right mind could possibly sit through such a silly exchange. There was the President trying to act very much presidential and the contender often times whining and stuttering like the new kid on the block at a local basketball pickup game when no one seems to want to let him play. Perhaps the best choice in this election would be to elect any one of the Moderators. But it looks pretty clear to me who the winners and losers were. The President has created all the problems, and Romney has all the answers. Such is politics. But both candidates have been treading very carefully about future tax increases. Believe me even if the federal government was disbanded under a Romney administration and every irresponsible Social Security recipient were to be denied another dime, taxes would still have to be increased. The only question which remains is whether or not it is time to actually make the tax system fair. Individual taxpayers who are wage earners have no play in the current system. Their taxes are simply yanked from their paychecks by withholding.  Business owners, large corporations and self-employeds hold all the cards and can choose when concocting their income tax returns what tax they will pay with the odds of audit being about 1% for some of them. Romney learned early how to make the tax system work for him and it is no accident that part of his education was the value of off shore accounts in saving tax dollars. All legal of course.  So, let's face a fact. Neither candidate will create a tax system that is fair. The working folks that plug away at their jobs are simply too busy to spend any time studying the tax code to learn the advantages that are being used by a class the President so often refers to as the “rich”. So there will be plenty of lip service paid to tax reform no matter who gets to sit in the Oval Office. Itemized deductions will likely be reduced, tax rates and the tax base will be played with and bones will be tossed to the middle class. But when all is said and done the rich will still get richer and the poor will have children and four years from now we will have to again listen to the tax reform nonsense from whoever is looking to hang his or her hat in the White House as to how they will make the tax system fair.

2). If you have ever wondered why the guy who delivers your paper to your house in the morning has created an S. Corp. let me explain. Without a doubt, the abuse in the S. Corp. has become widespread. In casual conversation, taxpayers may comment that they have not paid social security tax in years. Can this be true? How does the S. Corp. become a tax evading legal entity? It's really rather simple. If you are receiving a wage from your employer and you don’t own the company, your objective in working is simple. Get your employer to increase your wages. But you must of course realize when that is done you will pay both income tax, as well as Social Security and Medicare tax on the increase. That is not to say that you should stop trying to get your wages increased. But you should understand the S. corporation rules as not everyone is facing the same issue. If instead of being an employee of a company you don’t own you instead started an S corp, it may be possible for you to receive a dividend from the profit from your own little business rather than wages. Now both profit from  S corp companies and wages are income taxable. But that is where the similarity ends. A distribution of the profit from an S. corporation is not subject to the Social Security and Medicare tax. This can result in a savings of 15% annually on your earnings. Now add to the mix that the IRS audit rate of these corporations is ridiculously low you can understand that there is a virtual free for all when it comes time for the filing of an S. corporation tax return and the individual tax returns of their owners. The game is played by those who know the rules by having wages as low as possible. It is the savings in the Social Security tax and Medicare tax, which is the plum for this type of tax dodge. For a particularly bad example of this kind of planning gone bad, see Watson, vs. US, 108AFTR2d 2012-1059. In that case, the shareholder owner claimed a $24,000 salary and a $67,000 dividend payment from his S. corporation. As to the owner both amounts were taxable, but once IRS got done with the corporation it assessed $48,519 in additional employment taxes, penalties and interest. The Supreme Court recently denied Cert in this case.

3). Oh, the magic of borrowing. The Internal Revenue Code is kind to debtors. What I mean to say is when you borrow money the cash you receive is not considered gross income for purposes of the tax system. The law does provide that gross income includes income from whatever source derived. This includes, by the way, both legal and illegal sources. Everyone knows the story of gangster Al Capone and his trip to Alcatraz for tax evasion. But the profit from borrowing is excluded from gross income by a specific code section. The reason this is the case, perhaps, can be found in accounting logic. That is to say, while borrowing results in an increase in wealth and therefore income under the tax law, there is an immediate offsetting increase in liability as the borrower has promised to repay the funds. Now for ordinary working people who borrow from a bank or their credit cards the promise to repay is real and the interest they pay goes to banks and other lenders.  Now consider the business owner. By applying this same accounting logic to them, business owners are able to remove vast sums of profit without paying any tax at all. This can be done by simply signing a promissory note agreeing to pay the loan back to their own companies. With current interest rates being held artificially low as part of the country's economic stimulus, business owners are having a field day as they need promise to repay their own companies at extremely low interest rates. Any interest they do pay goes right back into their own pockets. In truly egregious situations owners take no wages at all and float their lives through borrowing from their own companies. Many never repay the principle or pay any interest at all. Nice deal. The IRS takes a very dim view of these situations and has no problem recharacterizing the loan as income which is taxable.