New Jersey On Line Gambling

       I have traveled some in my day, but I still love New Jersey. In what other state do people slap bumper stickers on their cars referring to the exit where they may either live or play on the Garden State Parkway? And is it any accident that Tony Soprano made his home in New Jersey? So my chest understandably swells with pride as New Jersey began allowing Internet gambling just a few weeks ago. Now insomniacs can waste away every paycheck with but a few clicks. People who once stood idle in supermarket checkout lines can now try their hand at a bit of blackjack or roulette. Even you, poor reader, may choose to read a few words of this meager blog while at the same time rolling virtual dice at your favorite casino. The New York Times reported that gambling analysts say that turning to the Internet was the most significant development since casinos opened in Atlantic City and that New Jersey's action has set off a furious competition for a share of the take. The “Take”? This certainly sounds like a script Al Capone would have published from Chicago. Let's make no mistake about this either we are not just talking about “harmless” poker. Oh No. New Jersey now offers a full range of casino games. Gov. Christie said that he hoped that $1 billion would be generated for the state's casinos this year and the state’s "take"would amount to $150 million in tax revenue. Naturally, the naysayers believe that Christie's comment was a sucker's bet and that in reality the state will be lucky if $300 million and revenue of perhaps $45 million appear annually. Gamblers do not seem to see the money that they are throwing away as a tax. Those who gamble frequently are always losers. The gaming industry has made sure that the suckers out number the winners by a drastic proportion. It remains to be seen whether New Jersey's laws restricting gambling to people over 21 can be enforced and whether casual gambling by young people will become as prevalent as sending text messages while driving. But there is a winner, a sure winner, in all of this and it is not New Jersey's educational institutions. It is of course, the Internal Revenue Service. Federal tax law taxes income from whatever source derived. By the way, that means legal or illegal. So should there be any winners among the state’s “Click and Play” citizens, they will be taxed on the income generated from their activity. They will be able to deduct their gambling losses only to the amount of their gain. Put another way, the real suckers will be left out in the cold by the tax code but IRS will be standing there collecting its" take" on any winnings. I would write more about this subject, and how gambling is a ruinous activity but I would bet 6 to 5 that you get the point.

Bitcoin Revolution?

 Your brother-in-law told you to buy Apple when it was selling at $40 a share. You didn't listen, and he reminds you of the fact at every family gathering. Well, if you've been reading this blog diligently you learned some time ago of the “bitcoin” revolution. The bitcoin is a money alternative. You may have initially heard about this from your computer savvy child or in some cases, grandchild. The bitcoin is a virtual currency, of which I know little. But I do know this. Its value is doing much better than Apple. So if you would like to remove the stigma of failing to heed your brother-in-law's advice, listen up. For example, since 2012 when its value was nearly worthless the price of a bitcoin on an exchange that converts the currency to dollars rose to $780 on Monday, November 18, 2013. When first introduced, federal regulators were worried that the bitcoin would undermine the entire financial system in America. Now the tune has changed. In recent hearings before the Senate, a number of federal officials said the bitcoin may offer real benefits to the financial system even as they acknowledge, according to the New York Times, that the new form of digital money had provided avenues for money laundering and illegal activity. It appears that the government is not willing to stand in the way of the bitcoin development. This suggests that the bitcoin could become a lasting and significant part of the American financial landscape.  By the way, you can tell your brother-in-law to keep his Apple stock and that you are now into the bitcoin revolution or you can just wait for the next big thing to come down the pike. By next year who knows the bitcoin may be alongside the hoolahoop, a collector's item but no more. Already a number of new money alternatives are showing up and more will surely follow.

Undisclosed Foreign Bank Accounts

The Undisclosed Foreign Bank Account and the IRS          

The first version of the Broadway show “Evita” made its way to Broadway in 1979. The revival of the show in 2012 was a hit as was the movie starring Madonna. From that show, portending perhaps future IRS action, was the song called “And the Money Kept Rolling In”, lyrics by Tim Rice. For those who may have missed the production, the story of Eva Peron is classic. She was the second wife of Juan Peron, dictator of Argentina. She became famously loved by her Argentinean constituents for the Peron Foundation which extracted money contributions which were then given by Eva to the poor and destitute. Only an application to show need and her approval was required. One verse of that song is particularly appropriate for the current melee surrounding foreign bank accounts and the failure to properly report their existence and any tax required to be paid to the IRS.

If the Money keeps rolling in, what's a girl to do?

Cream a little off the top for expenses, wouldn't you?

But where on earth can people hide their little piece of heaven?

Thank God for Switzerland!

Where a girl and a guy with a little petty cash between them

Can be sure when they deposit no one's seen them

Oh, what bliss to sign your checks as 30127

Never been an account in the name of Eva Peron!!

                                                                                                                                                           

And so it was for many years, whether Americans were using these foreign bank

accounts for their convenience when working overseas or as their little piece of heaven

individual clients and their lawyers and accountants will have to determine. But the

secrecy surrounding the Swiss bank account has been broken. The IRS through an

informant laid rest the magic numbered bank account. The now famous case involves the Swiss bank called UBS. Threatening IRS criminal action against the bank UBS turned over the names of more than 4000 US taxpayers who had maintained Swiss bank accounts. More banks have been leaned on by the Internal Revenue Service and the government of Switzerland has vowed its cooperation with the Internal Revenue Service. Other countries have followed suit and more are likely to agree to cooperate with IRS under threat of IRS action against them.

IRS soon realized it had hit the tax mother lode. But instead of attempting to assign numerous agents to ferret out these undisclosed bank accounts the agency decided instead to create a voluntary disclosure program called the “Offshore Voluntary Disclosure Initiative”. It has been wildly successful and has brought in over $5 billion in taxes, penalties and interest from approximately 35,000 cooperating and scared taxpayers. The teeth in the IRS program is the potential for criminal exposure. Having a foreign bank account may be one thing, but spending time in a federal penitentiary as a consequence is an entirely different matter. As news of the breach in the wall of silence in Switzerland began to spread and the resulting cooperation of banks and securities firms overseas, clients began showing up on we lawyer’s door steps.The pace of investigation will not soon abate as IRS and Government generally get more computer savvy and taxpayers realize that it may be better to come clean about these accounts than be exposed to huge tax penalties and possible criminal sanctions. Eva would have been caught in a New York minute. 

The Business of Lawyering Part 3- The Mission Statement and Business Objective

The Mission Statement

One can argue that a written business plan for lawyers is unnecessary. Don't we know what we are about and what we plan to do? The answer is a surprising no. When first I started my own practice one of my first cases was a simple bankruptcy. Although my background was entirely in the IRS tax procedure area nonetheless I spent countless hours dealing with a single client and bankruptcy issues beyond my grasp. A simple mission statement would have caused me to analyze what it is I plan to do and who do I plan to do it for. In fact, it wasn't for many years, until I realized the potential  I had with all my prior IRS experience.

The purpose of the mission statement is to explain succinctly, what is the purpose of this business. What type of clients will you seek? How do you plan to operate this business? This statement can be as short as a paragraph or two. For example:

“The purpose of this practice will be to represent individual taxpayers and small businesses before all branches of the Internal Revenue Service, including representation in the United States Tax Court. The practice will be conducted as a sole proprietorship in Bergen County New Jersey.”

With this as my mission statement I would never have taken the bankruptcy case. Instead, I would have referred that matter to a bankruptcy attorney and perhaps given myself the opportunity to explain to him the limited nature of my tax dispute practice. In the long run, this would have better served to build my practice as he could have become a referrer of business in my chosen field.

Once the mission statement has been written, it should define many of the other aspects of the business plan. Needless to say with changing times, a mission statement may have to be rewritten. Without the simple mission statement a lawyer thrown into the private practice of law has no idea whether he or she is fish or fowl. Even the general practitioner must know and put some limits as to the type of client problems he will attempt to resolve, if for no reason other than to try to keep their own sanity.

As a suggestion ,it may be useful to include in this mission statement, what credentials or experience you believe you have which will likely bring success to the business. For example, adding this to my mission statement:

“As a former IRS agent and IRS District Council attorney in New York, New York and having numerous current IRS contacts, the purpose of this practice will be…..”

The mission statement is not only drafted for your own use. It may be useful for future

employees and clients to know exactly what your business of lawyering  is about. Perhaps one day it will appear as part of your marketing strategy brochure about your firm or in a private website.

Business Objective:

The business objective is the plan to obtain the mission. How will the mission be accomplished? These objectives are more specific than the mission statement. For example:

To create a law practice initially as a sole proprietorship with potential for future associates to be hired. To retain and train associates with a view toward eventually growing into a law firm, which will have at least two partners. The firm will take an active role in the County and State Bar Association and will obtain a reputation as the state's premier firm in its field. The practice will be able to support retiring partners by the addition of new associates and partners while maintaining a continuous high level practice standard.

While the mission statement is involved with branding, the business objective makes clear how the brand will be obtained.

Naturally the business objectives should change as circumstances in the legal world change. For example: a downturn in the real estate market and resulting claims for real estate appeals may suggest moving into that field. No one should hold onto an objective that doesn't work, nor change the one that does.

Perhaps objectives should be broken down into:

Immediate Objective: This can be something as simple as paying the bills and earning a living

Higher Objective: growth, reputation, even fame.

Highest Objective: a contributor to the legal field, mentor, teacher.

Many lawyers attempt only to meet their immediate needs, but the long-term satisfaction in the practice comes from objectives that may be greater than oneself.

No businessperson expects obtaining the objectives without some difficulty. Lawyers should anticipate being bored and stressed at times, but that is not reason enough to toss out the business objectives.

The personal and professional growth embodied in the business objective should be set out early in the business plan.

Same Sex Marriage and the IRS

Before I begin a discussion of what now may amount to old news, I wish to disclaim as follows. For some same sex marriage is a very emotional issue. And I am well aware that they are following it closely and therefore may know a great deal more than I.  Now that said, let’s get down to it. The Supreme Court has decided the Windsor case and has struck down section 3 of the Defense of Marriage Act which required same-sex spouses to be treated as unmarried for purposes of federal law. There, that seems simple enough. Now the sloppy part. A number of issues will have to be sorted out and IRS will have to get into the business of making important decisions in the very near future.  One example is whether the scope of the decision covers only same-sex couples married in a state that allows same-sex marriages and residing in that state. Will IRS look to the domicile of the same-sex couple to determine their rights? But the benefits to individuals who are properly covered by the decision are numerous. These persons will be entitled to file jointly. Unfortunately, they will also discover the pain of the marriage penalty depending upon the extent of their individual earnings. As was held in Windsor, married same-sex couples will be entitled to use the unlimited estate tax marital deduction and elect portability for any unused estate and gift tax exemption. For gift tax, they will qualify for gift splitting and transfers between them will be exempt. They will qualify for tax-free employer health coverage and may receive reimbursement under health flexible spending accounts. In the retirement area, married same-sex spouses will qualify for survivor death benefits under pension plans and favorable withdrawal rules will apply to those who inherit plans or IRAs. There is some question how IRS, reeling from scandal, losing its Commissioner, knee deep in health care reform rules and facing a reduced budget with forced closings and furloughs under sequester  will handle all of this. My guess will be poorly. Clients are perhaps best advised to file protective claims in anticipation of future IRS rulings. By this I mean, a claim for refund, deduction or credit must be timely filed pursuant to the revenue code. A protective refund claim hedges the client’s bet that any change will be favorable to their prior filed and paid tax returns. IRS has been receiving numerous such claims. Practitioners should note that a letter to IRS is most likely not sufficient to create a protective refund claim and that proper claims must be filed.

The Business of Lawyering- Part 2-Critical Essentials

 Often Lawyers will "know" what is needed for a client to succeed in business but will not apply that same advice to their own business of lawyering. Part 2 is about two critical essentials: Finding a mentor and the all important Business Plan

Find a Mentor:

“Luke, use the force”. If somehow you may have missed the Star Wars trilogy, and that phrase means nothing to you, it's time to take a look at the relationship between the characters in those movies. Luke Skywalker in possession of a powerful unearthly force is unaware of its utility. It is only through the gentle coaxing and guidance provided by his mentor Obi wan that he realizes his true potential. Naturally he goes on to defeat Darth Vader, the personification of evil. There you have it. There would have been no star wars trilogy without the mentoring.

Finding a mentor, before embarking on the practice of law may unleash your personal attributes and guide you to a successful practice.

Those are fortunate who perhaps have had lawyer family members, who will honestly assist them in understanding what the practice of law is all about. However, for the rest of us we, like Luke, must find our own way.

Many local bar associations have created buddy systems to assist new lawyers in discovering the use of the force. Lawyers you may know or former professors may be willing to take on the role of Obi wan. The importance of finding a mentor cannot be overstated. The ideal mentor is someone who has lived the life that you are seeking. Be wary of those giving free off the cuff advice as to what you ought to be doing if they have not ever done it themselves. Needless to say your mentor should exhibit the same personal attributes necessary for anyone to practice law. Keep in mind that many have gone before you, and there is no need to reinvent the wheel. For those lawyers currently employed in a legal position, be careful, also, of the undue influence of superiors, who may appear to you to be quite successful. The best mentor is not necessarily the person with the most income, assets or reputation. Next to your attitude, finding a solid mentor could be your biggest asset. That mentor can also help you devise a workable business plan.

Create a written business plan

I have a friend who teaches with me in the law and business programs at FDU. When students complain about having to drag heavy textbooks, computers, codes and regulations, Frank uses the analogy of a plumber going off to work. The plumber has a plan and knows the tools he needs in order to perform his services. A written business plan is a tool for success.

No bank allows a customer to borrow $.10 toward a new business without a written business plan. Lawyers who advise clients with new businesses hopefully make the same suggestion. But when it comes time to starting their own practice, few if any lawyers take the time to create a written business plan. We professionals should not be above taking our own advice.

The benefits of creating a written business plan are many:

1. It helps to organize your thinking goals and objectives.

2. It helps you to realize whether or not, success is in the cards.

3. It can be as simple or as detailed as you choose.

4. Should you have the need to borrow money, it can be presented to banks and others.

5. It helps keep you on track and can be amended as the practice grows.

6. Perhaps your employees or associates can better understand your practice.

7. The written business plan is free and can be a private document.

8. The business plan can include your best financial estimates as to income and expenses.

9. The plan can simulate the operation of your business and can cause you to rethink aspects of it without making costly errors.

10. There are many Internet sources that can assist you in creating your business plan depending upon your objectives.

Basic elements of the written business plan:

Ø      Mission Statement

Ø      Business Objective

Ø      Marketing Strategy

Ø      Analysis of Competition

Ø      Funding needs

Ø      Projections of Income and Expense

Ø      Summary/Conclusions

Each of these will be discussed in later posts.

The IRS Scandal Casablanca Style

       It's 1941 in Casablanca. The place to wait out exodus to Europe or America is Rick's Café. Humphrey Bogart as Rick, an ex-pat with a questionable background, dashing in a white dinner jacket is upset. Police Captain Louis Renault played by Claude Rains upon orders of evil Nazi Major Strasser blasts his Police Inspector whistle in the middle of the Café and orders it immediately closed. Bogart demands to know what is going on. Captain Renault responds tongue in cheek:  “I am shocked, shocked to learn that gambling is going on in this café”. Just at that moment the roulette croupier approaches Renault with his gambling winnings in hand, and Renault ,as suave as ever, pockets the francs and responds “Merci Beaucoup”. It is a beautiful scene and a touching comment about corruption in government. Now as a former IRS agent and IRS tax trial attorney, I too am “shocked, shocked to learn that the IRS could be used for some political purpose such as scrutinizing tax exempt organizations with Tea Party origins” Who would ever dream that such a thing was possible? The president is clearly playing the role of Captain Renault. He is shocked, outraged, discombobulated. He has defended and received the head of the Commissioner of Internal Revenue on a platter. Poor Commissioner Miller. In his ascent within the Internal Revenue Service it is a shame that perhaps Miller may have missed studying the classic film “Casablanca”. He would have fared better if he would have modeled himself after Rick, who “refused to stick his neck out for anyone”. On an ABC news program, one white house aide declared “the activity was outrageous and inexcusable and it was stopped and it needs to be fixed so we ensure it never happens again”. Well, you're not fooling me. Casablanca is one of my absolute favorite films.