Celebrating 10 years! 2007-2017

Pro Bono vs. Uncompensated work

I have files of work that I have done but have been uncompen feic01/11/17
What is the benefit of labelling it probono work? triplesix01/11/17
The only benefit I see would be to get credit for any state- qdllc01/12/17
There does come a point at which you realize no money will b feic01/12/17
Hospitals routinely set up charitable foundations that solic onehell01/13/17
Interesting? Hmmmmm! Can you use that in collection efforts? feic01/13/17
Well, the IRS appears to opine that they only require 1099 f onehell01/13/17
A bar complaint? For sending a 1099 for forgiven debt? Debt feic01/13/17
feic (Jan 11, 2017 - 2:29 pm)

I have files of work that I have done but have been uncompensated for. These are small contingency cases where the client has recovered money but refuses/cant pay and for all intents and purposes I cannot sue them. Think a contingency agreement to recover an iffy DB pension. Client has recovers a DB pension of $250 a month for life. PDV of something like this might be 20k even though client does not recover 20k on day 1.

There is no money to really collect if the client refuses to pay and the pension is judgment proof for garnishment purposes. You cannot write this off on your taxes b/c value of services provided cannot be deducted under IRS code. Can an argument be made that this turned put to be pro bono work?

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triplesix (Jan 11, 2017 - 2:48 pm)

What is the benefit of labelling it probono work?

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qdllc (Jan 12, 2017 - 8:10 am)

The only benefit I see would be to get credit for any state-mandated pro bono requirement.

Still, ethics rules might require that pro bono work be declared as such up-front. Making a unpaid file pro bono after it's over might not be accepted (although making it pro bono DURING the case might be okay if no money has yet been paid or any monies paid are fully refunded).

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feic (Jan 12, 2017 - 7:54 pm)

There does come a point at which you realize no money will be collected even though the client never says he will not pay you. Client stops answering mail and all calls go to voice mail. After 3 weeks of this you realize you wont get paid even though I guess you can keep on doing this minuet for another 2 months then call it an unpayable.

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onehell (Jan 13, 2017 - 3:02 pm)

Hospitals routinely set up charitable foundations that solicit donations that go to offset uncompensated care. In other words, the uncompensated care is treated as "charity care" despite the fact that the bill is only being written off after the fact.

I think that if you have evidence that the client is poor and actually unable to pay the bill as opposed to just unwilling, you ought to be able to make the same case for calling it pro bono, if you really do call the debt permanently forgiven. This doesn't carry any tax benefit, of course, but for the purpose of telling the bar how many pro bono hours you did there's at least an arguable case for it.

Note also, might have to 1099 the client for the forgiven debt. They'll love that one.

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feic (Jan 13, 2017 - 4:45 pm)

Interesting? Hmmmmm! Can you use that in collection efforts? "A 1099, for forgiven debt, will be sent to you if this invoice is not paid in 30 days"?

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onehell (Jan 13, 2017 - 6:04 pm)

Well, the IRS appears to opine that they only require 1099 from organizations where "a significant trade or business of [the organization] is the lending of money" and they also discourage tax professionals from using the technique as a collection device, though they stop short of prohibiting it entirely and revert back to a subjective "facts and circumstances" test:

https://www.irs.gov/pub/irs-utl/qa_-_-_form_1099_-_c_checked_2.pdf

The above is not squarely on-point of course, since we're not talking about a tax practice here. But it is otherwise a very similar situation, involving an accountant using 1099s to ding deadbeat clients. In that situation, they strongly discouraged it but do not prohibit it entirely. And moreover, when it comes to lawyers, some may actually be lenders if your state has adopted the ABA model ethics rules. See ER 1.8, comment 10, which contemplates the lawyer "LENDING expenses and court costs," but prohibits advancing costs of living, to clients.

Sounds to me like there's an argument to be made that lawyers with contingency fee practices may actually be in the business of lending money, which would potentially justify the regular use of 1099-Cs, though it's far from clear IMHO, and could end up provoking a bar complaint or something.

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feic (Jan 13, 2017 - 7:21 pm)

A bar complaint? For sending a 1099 for forgiven debt? Debt not paid is FORGIVEN debt. I dont think anyone has a right to have debt gratuitously forgiven and then not declare that as income as required by the tax code.

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