Author: TSA Press

* An Irish court has held that bread used in Subway sandwiches is too sugary to meet the legal definition of bread as a “staple” food for tax break purposes. Maybe they should put more “dough” into their bread… [New York Post]

* The Kentucky Attorney General will need to release materials related to grand jury proceedings over the death of Breonna Taylor by tomorrow. [CNN]

* An attorney for the alleged Kenosha shooter Kyle Rittenhouse announced plans to sue Joe Biden’s campaign over ads which purportedly depict Rittenhouse as a white supremacist. [Fox News]

* The Nevada Attorney General has warned that he will prosecute the type of poll watching allegedly suggested by President Trump at Tuesday’s presidential debate. [Hill]

* A lawyer was suspended from practice for failing to pay bar dues or filing a registration statement for years and practicing law while administratively suspended. Pay your bar dues everyone! [Bloomberg Law]

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

Ed. Note: Welcome to our daily feature Trivia Question of the Day!

Which Biglaw firm was ranked #1 in Vault’s 2021 practice area rankings in intellectual property?

Hint: The Boston-based firm has been a legal player for a long time — it was founded in 1878.

See the answer on the next page.

Today’s episode of “Holy Sh*t, None of This Is Normal!” stars Wilbur Ross, a bespectacled octogenarian whose madcap hijinks to bootstrap his way up the Forbes 400 List and into the superrich were only discovered when he (mostly) divested his holdings to become Commerce Secretary, revealing assets substantially less than advertised.

Whodathunk such an upstanding fella could wind up crosswise with a federal judge?

And yet Secretary Ross’s announcement via Twitter that he intends to violate a court order extending the census count until the end of October seems to have struck a nerve with U.S. District Judge Lucy Koh.

The issue is whether the counting is completed in time for the final census tabulation to be submitted by December 31, ensuring that the Trump administration can certify the count without including immigrants (both documented and otherwise) for the purpose of congressional apportionment. Even if Trump loses, this crucial decision on the decennial headcount will reverberate for decades.

Last year the Supreme Court refused to allow the Trump administration to add a citizenship question to the census, finding the Commerce Department’s protestations to be pretextual. Memorably, Ross himself testified to congress falsely that the Justice Department first suggested adding the question to enforce the Voting Rights Act.

Excluding non-citizens from the congressional apportionment would result in reduced funding for jurisdictions which are home to lots of immigrants. But more crucially to the GOP, it gets them one step closer to their longterm goal of drawing congressional districts based on adult, voting-age population, which would further gerrymander the country in Republicans’ favor by disproportionately excluding younger, browner groups which tend to vote Democratic.

Trump has attempted via executive order to restrict congressional apportionment to citizens only, an issue which is currently on the Supreme Court’s doorstep.

But Wilbur Ross didn’t get where he is by ignoring opportunities. And COVID-19 represented a big opportunity for Ross’s project of ratf*cking the census.

At first, the Census Bureau requested that congress extend the reporting deadlines to April 30, in light of the statewide lockdowns which prevented the counters from completing their work. All parties agreed that this would ensure that hard-to-count populations, lots of whom are poor people of color, would be enumerated in accordance with the Constitution.

Well, all parties but Mitch McConnell, who refused to take up the bill. It’s a head scratcher. (It’s not a head scratcher.)

But then the Census Bureau reversed its position and announced that actually it could finish up everything by September 30, no problemo! Internal memos showed staff screaming in panic that there was no way to get an accurate count in time to close up shop before October, but Ross plowed ahead with his plan anyway.

Inevitably, Ross was sued, and on September 24, Judge Koh granted the plaintiffs’ motion for stay and a preliminary injunction, enjoining the Census Bureau from implementing the September 30 and December 31 deadlines. Which left the government’s lawyers to explain how the announcement that the count would be done on October 5 jibed with her order.

“Contingency planning for the reimposition of the December 31 date — which is a very real possibility and is something the Commerce Department has to think about — is not a violation of the order,” Justice Department lawyer August Flentje argued.

Which seems slightly … ridiculous.

But Judge Koh was not amused, saying, “I’m not invested in what you call it, but I think it’s inconsistent with what I ordered last Thursday,” and suggesting that she might move immediately to hold the government in contempt.

“If a violation of the order has been committed, there should be consequences,” she said, before backing off and suggesting it was up to the plaintiffs to request sanctions.

“You don’t have to call it contempt, you can call it something else,” she instructed the plaintiffs’ attorney Melissa Sherry.

So, now we wait and see whether the plaintiffs ask for Secretary Ross to be held in contempt. But whatever you call it, it couldn’t happen to a nicer guy!

Judge Suggests Ross Violated Her Order Extending Time To Finish Census Counting [TPM]
Census Judge Sets Contempt Hearing for Wilbur Ross, Commerce [Bloomberg]

Elizabeth Dye lives in Baltimore where she writes about law and politics.

Law firms typically take a few different approaches to how they treat paralegals. Some shops view paralegals as temporary, somewhat transitional employees, who will likely depart the firm after a certain period of time. Indeed, some prospective law students often take paralegals jobs to get legal experience before heading to law school, and others may wish to work as a paralegal for a year or two to see if they want to become attorneys. Moreover, there is an extremely inaccurate and unfair perception among some in the legal community that many paralegals are simply individuals who did not have the skill, time, or patience to become lawyers (which I always thought was weird, since many attorneys regret their own career choices!). However, some firms view paralegals as integral, long-term members of their team and invest time and resources to develop their paralegal staff. For a variety of reasons, professional paralegals can be extremely valuable to law firms, and more shops should respect and invest in professional paralegals.

Legal Knowledge

As many attorneys know from first-hand experience, professional paralegals often learn valuable information about the practice of law. This can be important to shops, especially if there is a high rate of attorney turnover at a firm. For instance, after leaving Biglaw, I landed at a “street law” shop at which I had to appear in court several times a week and understand the hands-on mechanics of litigation. As an associate in Biglaw, I basically just wrote memos and conducted legal research, and I did not learn any practical know-how about litigating cases.

Within my first week of working at this “street law” firm, I was given the simple task of drafting and filing a stipulation extending the time for us to oppose a summary judgment motion. I had absolutely no idea how to write such a document or how to file the stipulation with the court. However, the paralegal (and secretary) assigned to my team helped me draft the stipulation and told me what provisions needed to be included in this document. They then provided me with detailed instructions on when I needed to submit the document to the court, which courtroom I had to submit the document to (Room 130, of course, as my New York City colleagues would know!), and what I had to say to the clerk when I submitted the document. I relied on my paralegal (and secretary — I might have to do another article on how valuable legal secretaries can be!) heavily during my first few months at that “street law” firm before I learned the ropes of litigation, and that shop benefited greatly from the professional paralegals who were working there. Moreover, when I moved to a different firm that focused on a few mass torts matters, the paralegals provided invaluable advice on how procedures worked in those cases. Mass torts cases often develop their own rules and procedures, and professional paralegals can help attorneys stay on top of how issues are handled in those matters.

Client Relationships

Professional paralegals are also important because they can forge long-term and strong connections to in-house counterparts. If a paralegal leaves a firm after a year or two, it might be difficult for in-house professionals to forge connections with paralegals, which can influence a client’s decision to stay with a given firm. However, if paralegals stay at a firm for years, these connections are easier to make.

For instance, I once worked at a mass torts shop that handled a few large mass torts matters for several big clients. Even though the other associates and I rarely had contact with individuals who worked for our clients, the paralegals were in communication with in-house people all the time. Our paralegals would consistently send reports, notes, and other materials to in-house people and answer all kinds of questions. In addition, the paralegals were very familiar with the procedures that in-house professionals wanted us to use for billing and other administrative tasks. Since mass torts matters can take many years to be resolved, the paralegals at my firm were well-acquainted with some of the folks who worked for our clients. I am sure that this connection helped our firm retain these clients over the years because clients appreciate the relationships they had with professionals at our firm which would disappear if the clients went elsewhere.

Knowledge About A Firm

Professional paralegals are also valuable because they can develop a deep understanding about a firm and the people who work there. It might be difficult for new associates at a shop to ask other attorneys how they should approach specific situations or deal with certain people at a firm. However, paralegals that have a familiarity with practices and people at a firm can suggest to attorneys how they can handle a variety of situations. In addition, every law firm has different practices when it comes to billing, document management, organizing work product, and other matters. It can be a lot easier for newer attorneys to inquire about such practices of paralegals than other attorneys at a given shop, since associates often rely on other lawyers for work and may not want to bother senior attorneys about certain matters. The institutional memory of professional paralegals, and the fact that they are not part of the attorney “chain of command,” can help a law firm operate more efficiently.

All told, professional paralegals can be an invaluable resource for many law firms, but many shops do not invest too many resources in paralegals. Indeed, numerous firms do not pay paralegals bonuses, professional development expenses for paralegals, and other costs needed to train paralegals and ensure that they are long-time fixtures at a law firm. However, professional paralegals can not only help law firms provide the best possible legal services to clients but also assist attorneys in navigating administrative challenges.

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

Last Sunday, the New York Times published a detailed report about President Donald Trump’s taxes going back decades using tax information and documents obtained from anonymous and public sources. They found that he paid only $750 in federal income taxes in 2016 and in 2017 after he was inaugurated. More articles will be published in the coming weeks. As the presidential election draws closer, these articles were likely designed to influence the presidential election.

The tax records tells a story about Trump suffering huge losses from failing business activities in the 1990s, some of which resulted in bankruptcy. These losses were used to offset future income and avoid income taxes in future years, particularly when he was on the hit show The Apprentice. However, he took out loans to purchase more real estate projects, some of which were failing too. Trump stands to owe more than $400 million personally within the next four years. This large debt might incentivize him to win the 2020 election by any means necessary.

As a tax attorney, my clients, colleagues, and friends asked me many questions about the article. Most I cannot answer without seeing the actual documents. And even if I did have them, I don’t know enough about Trump’s financial structure to make even an educated guess. But I’ll try to answer a few questions below.

People have asked how Trump was able to pay so little in taxes if he supposedly made so much money. The reason was due to large business losses he incurred many years ago. Assuming all of those losses were legitimate (including a major loss which is under audit with the IRS where a $72 million refund is at stake), it appears that he properly carried them forward or backward to offset income. Also, the article notes that he also took advantage of obscure business tax credits to reduce his taxes. These tactics are available to everyone. However, only a few people can fully take advantage of them since not many people own investment real estate and fewer own multiple businesses where a loss from one business can offset the income from another.

A number of people asked whether these records can show that Trump has committed tax crimes such as tax evasion or filing of false tax returns. My answer is probably not. The New York Times article does not seem to accuse him of doing anything criminal with his tax records. For example, I did not find key words such as abuse, evasion, false, fraud, shelter, and deceive in the article. The authors did not suggest that any of the businesses that Trump owned could have been abusive tax shelters with no economic substance. They state that Trump claimed deductions which may not be correct but it is unclear whether Trump intentionally did so to avoid taxes. There may be a future New York Times article that could cover this, but for now I don’t see anything that could result in criminal proceedings.

I was also asked how the article’s authors were able to obtain so much detailed information from Trump’s tax returns. The article states that they received Trump’s “tax records” and his “tax information.” This is pretty broad. To prepare personal tax returns, you will need tax documents such as W-2 and 1099 forms. To verify certain deductions like mortgage interest and student loan interest paid, you will need Form 1098s. And for other deductions, you will need receipts or other documentation. To prepare business tax returns, you will need to provide financial statements such as a profit and loss statement and balance sheet. The Trump organization has hundreds of businesses so each of them would have to produce financial statements to complete its tax return. There could be other documents like past tax returns, emails, receipts, and others.

Generally, a personal tax return does not show how wealthy someone is. This is because the individual tax return does not require people to list their total assets and liabilities at the end of the year.

I was asked how the authors’ sources got the information. The article stated that they had legal access to the information. However, what was not clear was whether their sources were allowed to give the information to them. Under federal law, tax returns are confidential and cannot be disclosed except for very narrow situations. It is a felony for IRS employees to willfully disclose tax information to others. Third parties, such as professional tax preparers and banks are expected to keep clients’ tax records secret as they contain important information like social security numbers. Employees of these companies likely signed contracts where they agreed not to disclose confidential client information.

Since the authors declined to disclose their records to Trump’s lawyer upon request, I suspect their sources probably broke secrecy agreements by providing records to them.

Who would do it? Well … probably a lot of people. Maybe a lender he stiffed when he filed one of his numerous bankruptcies. Maybe a government employee. Or it could have been someone inside the Trump organization.

I suspect many wealthy people after reading the New York Times article will be calling their banks and accountants to get assurances that their information will not be leaked.

I was asked about the legality of the numerous suspicious deductions that Trump claimed in the article. This included the payment to a criminal defense lawyer supposedly for political purposes, a $70,000 payment to Trump’s hair stylist, and questionable payments to consultants, including a $747,622 payment to his daughter Ivanka. Unfortunately, I cannot address all of these as it would make this article extremely long. Also, the New York Times article does not provide enough information for me to make an educated guess.

However, I will highlight two questionable deductions which I think can be explained.

The article points out that Trump paid more in foreign taxes than U.S. taxes, including $15,598 paid to Panama, $145,400 paid to India, and $156,824 to the Philippines. Because he has real estate businesses in these countries, he took advantage of the foreign tax credit. To understand the foreign tax credit, know that citizens of the United States (with some exceptions) must pay income tax on income earned worldwide. The problem is that many foreign countries have their own income tax system, some with higher tax rates than the U.S. This would mean that a U.S. citizen would have to pay two income taxes which would heavily discourage overseas business.

To rectify this, U.S. tax law allows a credit for any foreign income taxes paid, with some limitations. So the $15,598 paid to India would reduce Trump’s tax bill by $15,598. This credit does not apply to foreign municipal or province taxes or other government fees.

The article suggests that in 2014, Donald Trump improperly deducted $2.2 million in property taxes as a business expense on the Seven Springs property. This was because Eric Trump has stated that he and his brother went there to go fishing. Eric even lived in one of the carriage houses. Today, the property is listed as a family retreat.

What I suspect happened was that Trump claimed the $2.2 million in property taxes as an itemized expense on his Schedule A and not as a business expense. At the time, there was no limit to the amount of state taxes that could be deducted as an itemized expense although (as the article correctly noted) in 2018 the deduction was limited to $10,000 per year. However, this deduction is disallowed for calculating the alternative minimum tax.

The AMT brings me to the last question: how much did Trump really pay in taxes? Buried in the middle of the article, the authors concede that Trump paid $24.3 million in income taxes through the AMT, a parallel income tax system designed to ensure that the wealthy pay some tax despite taking large tax write-offs. A note about the AMT though. The original AMT legislation did not adjust for inflation so more middle class people had to pay the AMT. While Congress has occasionally patched the AMT law to ensure only the wealthy paid it, there has never been a permanent fix. This is why the AMT will one day be colloquially known as the Alternative Middle-Class Tax.

Ultimately, the New York Times article argues that Trump has been more successful playing a business mogul than being one in real life. And they used his tax records to prove their case. Whether that’s true depends on who you ask, and I am not sure if any voters will be swayed.

But as far as the President’s taxes are concerned, there is no indication that Trump did anything criminal, based on what the New York Times has published to date. And while some will think someone of Trump’s wealth paying only $750 in taxes is unfair, offensive, and unpatriotic, it appears that there is a legal basis for doing so. Most of the legal tax-avoidance strategies that Trump used are available to everyone although most will not be able to use them. Those who own multiple businesses will understand what he did. So will those who own investment real estate, even a small, inexpensive piece of land.

Trump tries to portray himself as being larger than life. His tax records might show he is anything but.

Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

I call on the George Mason University Board of Visitors to rename the Law School the Scalia-Ginsburg School of Law. It honors the bequest but adds the balance in jurisprudence the current name lacks. A statue of Justice Ruth Bader Ginsburg should be erected facing the existing Justice Scalia statue signifying that there are competing views of the law and no one view will dominate George Mason University’s academic studies. As a public university Mason has a singular obligation to promote intellectual diversity in thought and actions.

— Virginia Rep. Gerry Connolly (D, 11-Fairfax, Prince William), in a statement urging George Mason to consider changing the law school’s name to honor the late Justice Ruth Bader Ginsburg alongside her dear friend, the late Justice Antonin Scalia, for whom the school is already named. The school has already had to do a rebrand on its new name after inadvertently becoming known as ASS Law for a brief period of time.

Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.