San Francisco tax attorney Robert W. Wood has penned an interesting article in the February/March 2008 edition Journal of Tax Practice and Procedure entitled "Electing 468B Trust Treatment for Lawyer Trust Accounts After Receiving Settlement Proceeds". Wood suggests that it is possible to "save the day" using what is known as the "relation back election" after money has changed hands from defendant to the plaintiffs attorney's trust account (presumably in exchange for a general release which includes a stated sum and "the receipt and sufficiency of which is hereby acknowledged"). He seems to suggest that the "relation back election" overrides constructive receipt.
Isn't Wood's title and the use of terms such as "retroactive fix" and "putting spilled milk back in bottle" goading the IRS to come get you?
Should plaintiff lawyers be concerned about the "qualified settlement fund jockey" (QSF jockeys) among my industry's brethren using the Wood article as a lever to convince plaintiff attorneys that its OK to use this on a wholesale basis. Don't be so sure that it is. Wood himself indicates that it is better to have a qualified settlement fund set up beforehand. Wood himself adds the disclaimer that " this discussion is not intended as legal advice and cannot be relied upon for any purpose without the services of a qualified professional". Is a "qualified professional" a settlement planner who probably doesn't have enough Errors and Commissions coverage in the aggregate to cover the potential exposure of your case and the umpteen other cases the settlement planner has recommend this strategy to?
Wood admits that obtaining the defendant's signature on the required documents for a "relation back election" can be difficult. He suggests that many defendants can be won over to sign (claiming such documents can be "innocuous"- whatever that is meant to imply) when made aware of the plaintiff's tax planning opportunities.
The old adage of one didn't plan to fail- one failed to plan come into play. By retaining a settlement planner as early on in the case as possible, many planning issues can be be discussed, problems addressed in advance and solutions explored.