New personal injury lawyer here. tax question. I am dabbling with a few PI cases & wonder about whether to 1099 dr.s . Plz share

Asked almost 2 years ago - Los Angeles, CA

I have just taken on a couple of soft tissue cases and wonder what most attorneys are doing regarding 1099-ing doctors and chiros. Is it necessary? I am a small, new sole-prop.

Also, another issue related. I have a settlement coming in probably end of this month or beginning of December. I may not get final liens and medi-cal liens until the beginning of next year. Am I going to have to pay taxes on the money since I can't disburse it in the same year in which I'll probably get 1099'd for receiving it? Please advise.

Attorney answers (8)

  1. Christian K. Lassen II

    Pro

    Contributor Level 20

    23

    Lawyers agree

    Answered . 1099 any medical professionals. Don't mess with Uncle Sam.

    Only 29% Contingency Fee! Phone: 215-510-6755 www.InjuryLawyerPhiladelphia.com
  2. Scott J. Corwin

    Pro

    Contributor Level 18

    20

    Lawyers agree

    Answered . I encourage communication and dialogue between personal injury attorneys. That being said, this is not the forum for you to be asking these questions. There are lawyer forums for lawyers to share their solutions for these issues. Regarding the taxes, Mr. Daymude's answer is spot on.

  3. Michael Raymond Daymude

    Pro

    Contributor Level 20

    18

    Lawyers agree

    Answered . I have added the Practice Area: Income Tax. You only have to pay income tax on money you receive as income when it is received.

    You cannot, however, delay receipt by refusing to transfer it from your trust account to your general account once your right to the income has become fixed.

    Whether your right has become fixed would depend on your retainer agreement, any disbursal agreement, and whether you must wait to pay yourself before the other liens are satisfied.

    I am licensed in California only and my answers on Avvo assume California law. Answers provided by me are for... more
  4. David J. McCormick

    Contributor Level 20

    18

    Lawyers agree

    Answered . We 1099 any payments made to medical professionals. Not a tax whiz so can't answer your second question.

    DISCLAIMER: David J. McCormick is licensed to practice law in the State of Wisconsin and this answer is being... more
  5. Lowell Hale Steiger

    Contributor Level 12

    16

    Lawyers agree

    Answered . Webster's defined "Dabbling" as "to work or involve oneself superficially or intermittently especially in a secondary activity or interest."

    My practice focuses almost exclusively on personal injury matters. I would not "dabble" in other areas of the law because I know that my clients would not be getting the best representation possible. I'm afraid that some lawyers feel that personal injury is a no-brainer, something that can be effectively executed in their spare time. Nothing could be farther from the truth. As with any area of the law, a complex body of law exists with countless nuances, statutes, decisions and other dynamics that affect the strategy and outcome of every individual case.

    A client is entitled to representation not by someone who is dabbling in a particular area of the law but by someone whose level of experience will provide the client with competent, skilled and zealous representation.

    I apologize if this sounds like a rant but I, for one, take the representation of injured clients very seriously and am offended by those who presume to dabble in this very complex area of the law and assume that a law license is all they need to effectively prosecute an injury matter.

  6. Andrew Daniel Myers

    Contributor Level 20

    17

    Lawyers agree

    Answered . One of the best things I've ever done in my practice is to join associations of attorneys in my practice areas. For example, the Massachusetts Academy of Trial Lawyers, The American Association of Justice, the National Association of Consumer Bankruptcy Attorneys, I also belong to a county bar association. Groups like this provide invaluable networking, occassional referrals, and more important a contact or two to call with questions.

    I know you have regional and local groups over there on the "left coast".

    Law Offices of Andrew D. Myers, North Andover, MA & Derry, NH provide answers for informational purposes only.... more
  7. Jonathan Kane

    Contributor Level 4

    16

    Lawyers agree

    Answered . I am not an accountant, but my taxman makes me send out the 1099 to medical providers.

    With regards to the settlement. Again, not an accountant, but my understanding is that it is not income to your practice until you disburse.

  8. Howard Robert Roitman

    Contributor Level 17

    13

    Lawyers agree

    Answered . Advanced Client Costs
    Attorneys commonly pay litigation expenses on behalf of their clients. The costs are then
    recovered by the attorney out of the settlement or award. This practice is most often used
    by attorneys who take cases on a contingency fee basis. These attorneys generally use a
    cash basis of accounting and may deduct those expenses when paid, and the recovered
    costs are included in income when received. This causes a distortion of income since it
    can take years to resolve these cases.
    Courts have determined that costs paid on behalf of a client are to be treated as in the
    nature of loans for tax purposes. They are not deductible by the attorney as a current cost
    of conducting business. The costs are those of the client and not the attorney since there
    is an expectation of reimbursement. A bad debt deduction may be taken in the year that
    any costs are determined to be uncollectible. Cases supporting this position appear in
    Exhibit 3-1.
    The typical expenses included in this category are listed in Canelo v. Commissioner, 53
    T.C. 217, 219 (1969), aff’d 447 F.2d 484 (9th Cir. 1971):
    The types of costs advanced by petitioners' law firm include travel
    expenses, costs of medical records, reports, interpreters' fees, witness fees,
    deposition costs, filing fees, investigation costs, photographs, laboratory
    tests, and sheriff's fees for service …. Petitioners ordered the services of
    process servers, shorthand reporters, investigators, doctors, and expert
    witnesses to whom litigation costs were paid.
    The Tax Court explains in Herrick v. Commissioner, 63 T.C. 562, 569 (1975) (discussing
    Burnett v. Commissioner, 356 F.2d 755 (5th Cir. 1966)) that:
    In our view the clear inference of the Fifth Circuit’s opinion in the Burnett
    case is that if the amounts deducted were advances by the attorney to his
    clients whether for living expenses or other expenses normally paid by the
    clients and there was an agreement or understanding that the attorney
    would be repaid, the advances are in the nature of loans and were not
    deductible business expenses.
    Therefore, attorneys on the cash method of accounting may not take a current deduction
    for client expense advancements for which an attorney expects to be reimbursed.
    However, attorneys on the cash method of accounting are generally allowed a current
    deduction for client reimbursed costs which are allocated to normal operating expenses,
    (for example, secretarial costs or copying costs). These are general office type expenses
    which would reasonably be incurred even if not charged to a particular client. Of course,
    if a current deduction is taken, any subsequent reimbursement from the client would be
    treated as income in the year of reimbursement under the tax benefit rule of IRC §111.
    Page 35 of 52
    There is typically a prearranged agreement with the client regarding the payment of caserelated
    costs. Attorneys who advance client costs keep careful records of these expenses
    to ensure that they are recovered out of the settlement. Generally, a ledger card or other
    accounting record is maintained for each client detailing the expenses paid. When the
    recovery is included on the cash receipts journal, it is usually shown separately from the
    fee income associated with the case.
    Attorneys taking cases on a contingency fee basis generally use two main contractual
    arrangements. These two contractual arrangements are the gross fee contract and the net
    fee contract.
    The net fee contract specifically provides that advanced litigation costs are repaid to the
    attorney before calculating the contingency fee percentage paid from the settlement or
    judgment proceeds.
    In contrast, the gross fee contract provides that the contingency fee percentage paid from
    the settlement or judgment proceeds is calculated without regard to advanced litigation
    costs. The attorney is only entitled to a percentage of the settlement or judgment and is
    not separately reimbursed for litigation costs advanced. These costs reduce the attor

    The materials available at this web site are for informational purposes only and not for the purpose of providing... more

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