The answer is “yes,” at least when it comes to a lawyer’s duty to supervise his brother, who acted as bookkeeper for the law firm.

Recently, the Appellate Division, Second Department, unanimously supported a decision suspending an attorney from the practice of law for two years, for, among other things, failing to properly supervise his bookkeeper brother who was convicted of embezzling more than $4 million in client funds.

In his defense, the lawyer pointed to his cooperation in connection with the criminal prosecution of his bookkeeper/brother, his legal efforts to reclaim the misappropriated funds, his testimony concerning the negative impact of his brother’s conduct on his personal and professional life and 37 letters of good character submitted on his behalf.

Nevertheless, in sustaining a Special Referee’s report, the Court found that the attorney “failed to maintain appropriate vigilance over his firm’s bank accounts, resulting in actual and substantial harm to clients.”  Repeatedly, the Court stated that the lawyer, at the very least, should have known what was going on.

Has the Court established a new legal duty to supervise your siblings, lest you be charged vicariously with their ill-doings?  The good news is that the answer is “no.”  A reading of the decision leads to the conclusion that the result would have been the same whether or not the bookkeeper was also a brother.  A lawyer’s ethical duty to safeguard clients’ funds is sacrosanct, and the legal system is ready to make an example of those who fail to adequately discharge that duty.

For more information, contact Robert Tolz.

With the ever-growing global market, and with the development of more condominiums than cooperatives in New York City, more and more foreign investors are finding opportunities to purchase real property in New York City. Treasury Decision 9082 (effective November 4, 2003) requires all transferees and foreign transferors of U.S. real property interests to provide their Taxpayer Identification Numbers (TINs), names and addresses on tax documents executed in connection with real property transfers. It is therefore important to remind clients that prior to closing, if not at the time that a contract of sale is executed, all foreign parties to a real estate transaction must obtain a TIN to be provided at closing.

For more information, please contact Perry Cohen or Marianne Kiss.

One long-continuing battle between the IRS and taxpayers has been over the classification of workers as employees or independent contractors.  Now comes an IRS program offering a tantalizing offer for businesses to right previous mis-classifications at a bargain price.  Should taxpayers jump at the offer?  The answer is a definite maybe.

The stakes in the battle over contractor/employee classifications can be pretty high.  If a business properly treats someone as an independent contractor, then the business does not withhold taxes.  On the other hand, if that characterization was incorrect and the person performing services was more properly described as an employee, then taxes should have been withheld and paid over to federal and local taxing authorities.  The failure to withhold and pay over taxes can subject businesses to substantial penalties.  Making matters worse, the individuals running the business who are responsible for withholding and paying over these amounts may be subject to crushing personal liabilities.

In general, the determination of contractor/employee classification rests on facts relating to the level of control asserted by the business over the worker.  A discussion of the factors and arguments involved in this kind of battle is beyond the scope of this blog entry.

In Announcement 2011-64, issued September 21, 2011, the IRS commenced its Voluntary Classification Settlement Program (the “VCSP”), providing partial relief from Federal employment taxes for eligible taxpayers that agree to prospectively treat workers as employees.

What’s the proposed deal in this amnesty?  A taxpayer who participates in the VCSP will agree to prospectively treat the class of workers as employees for future tax periods. In exchange, the taxpayer will pay only 10 percent of the employment tax liability that may have been due on compensation paid to the workers for the most recent tax year; will not be liable for any interest and penalties on the liability; and will not be subject to an employment tax audit with respect to the worker classification of the workers for prior years.

For a business faced with a real worker classification problem with potentially massive tax underpayments and penalties, this offer can sound like a no-brainer.  Unfortunately, it is absolutely necessary to apply one’s grey matter before coming to a conclusion that, all things considered, participating in the VCSP is the right choice to make.

Federal income tax withholding is not the only issue raised by the classification of service providers as employees or independent contractors.  Think of the following items that affect W-2 deductions:  social security taxes, Federal unemployment taxes, state unemployment taxes, and workers’ compensation insurance.

Furthermore, there are a host of other considerations that have nothing to do with the amount deducted from a worker’s paycheck:  labor laws, workers compensation obligations, statutes regarding discrimination, ratings for unemployment experience, reimbursement of business expenses, availability of medical, pension and other employee benefits, indemnification of a worker for liabilities incurred while performing services, the scope of liabilities and responsibilities to third parties, and so on.

For instance, suppose a worker who is reclassified as an employee under the VCSP had not been covered by the employer’s medical benefit plan during the period he was previously classified as an independent contractor.  Imagine further that, during that period of time, he was uninsured and diagnosed with a tragic health condition requiring the payment of massive amounts of money for treatment to ensure his survival.  After the business voluntarily participates in the VCSP, the worker takes the position that he should have been covered under the employer’s medical plan and makes a claim for $500,000.

Or suppose another worker, while driving under the influence in the midst of performing a task for the business during a period he was classified as an independent contractor, killed a pedestrian.  The business now voluntarily classifies the worker as an employee under the VCSP.  The heirs of the decedent now slam the business with a wrongful death suit by reason of the actions of its employee, a position that would have been so much harder to support if the business had not admitted that the drunkard is an employee.

You get the picture.  Jumping into the VCSP is not a no-brainer decision.  Is the IRS amnesty program attractive?  Sure.  But failing to survey the lay of the land is approximately as smart as diving head first into a dark lake without knowing whether your head will smash into something lurking beneath the surface.

For more information, contact Robert Tolz

A recent decision by the New York County Surrogate’s Court on a novel question of law, in which we represented the prevailing parties, illustrates the importance of how arguments are presented to courts in litigated matters. The case involved interpretation of a provision in a will in which the facts were not in dispute.

A granddaughter of a decedent, who was born a year after the decedent executed his will, sought a ruling from the Court that she be included with the decedent’s other named grandchildren, among whom were her siblings, in a gift of a remainder interest in a trust. The granddaughter argued that she should not be excluded from sharing in the gift solely because she was not living when the will was executed and that, if she had been living at the time the will was executed, she would have been included. She argued further that it was not her grandfather’s intention that she be excluded.

At TNSJ’s urging, the Court made short shrift of the granddaughter’s primary argument that a statute, which would have required her inclusion had she and the other grandchildren been children of the decedent rather than grandchildren, be extended to apply to her. The Court said that the statute was clear on its face that it applied only to children and that the granddaughter offered no authority that it had ever been extended to grandchildren.

The Court noted, on the issue of intention, that the decedent died 15 years after the will was executed and 14 years after the granddaughter’s birth, giving him more than ample time to include her if that was his intention. The Court also observed that, as the granddaughter’s father (one of the decedent’s sons) was also expressly disinherited in the will, there was no general intention to benefit all family members.

Finally, the Court adopted TNSJ’s argument that another provision of the will, which left a different trust remainder to his grandchildren living at the time of his daughter’s death (if she survived him) and which included the granddaughter, showed that the decedent understood the difference between a gift to named grandchildren and a gift to grandchildren as a class of persons.

While we believe that the Court reached the correct result, a reading of the decision indicates that, had the granddaughter attempted to distinguish the circumstances of the two different trust remainders as her primary argument, and they were distinguishable despite our arguments to the contrary, instead of relying on a reading of a statute which was clearly contrary to law, the Court might have been more sympathetic to the granddaughter’s inclusion.

For more info, contact Paul Karan.