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18 Prac. Tax Law. 3 (2003-2004)

handle is hein.ali/practax0018 and id is 1 raw text is: THE PRACTICAL

FALL 2003

Published by The American Law Institute-American Bar Association Committee on Continuing
Professional Education with the cooperation of the Section of Taxation, American Bar Association

Are Attorney Contingency Fees Included
in a Client's Gross Taxable Income?
Robert S. Schwartz                              7
Whether the attorney contingency fee portion of a
recovery fund ought to be included or excluded from
a client's Federal gross income is still a developing
area of the law, although many cases go against tax-
payers. This article suggests tax-friendly terms for con-
tingency fee agreements and discusses how a client's
tax reporting of gross income exclusion, if any, should
be done in light of the no fault substantial under-
payment tax penalty that applies once an individual
client's unreported taxes exceed the greater of $5,000
or 10 percent of the correct amount of taxes.
Tax Aspects of Crummey
Withdrawal Rights
Sebastian V Grassi, Jr.                        21
The need for Crummey withdrawal right trusts has not
been diminished by the Economic Growth and Tax
Relief Reconciliation Act of 2001. In fact, the un-
certainty surrounding the permanency of the repeal of
federal estate taxes and generation-skipping transfer
(GST) taxes underscores the need for clients with
estates greater than $1 million to consider the use of
irrevocable gift trusts as a means of transferring appre-
ciating property or life insurance to the grantor's de-
scendants and removing it from inclusion in the
grantor's gross estate. The Crummey trust with its cor-
responding right of withdrawal granted to the benefi-
ciaries will serve as a useful tool when the grantor
wants to preserve his or her $1 million gift tax appli-
cable exclusion amount. This article discusses various
common tax issues that an attorney may encounter or
want to consider when drafting a Crummey trust.

Advising a Client on the Best Form
in Which To Conduct a Business
Paul E. Treusch                                35
Very different treatment, both in tax and in nontax
respects, may flow simply from the choice of form in
which a business venture is conducted. First of all, a
venture choosing to operate in corporate form, or from
a particular type of corporate form, must generally
expect quite different treatment for both tax and non-
tax purposes from deciding to operate in noncorporate
form, whether as a general or limited partnership, or
as an LLP or LLC. The different treatment is even more
pronounced when comparing the corporate form to
the trust or sole proprietorship model. Here are the
pros and cons you must consider before advising a
client to select one form over another.
Ethics Rules for Estate Planners
Frank S. Berall                                55
Ethics rules to be observed in practice before the IRS
are governed by Circular 230. Circular 230 also gov-
erns the work of those estate planning attorneys who
advise on complex gray area tax plans or are involved
in the administration of estates and trusts. Conse-
quently, it is crucial that estate planners (as well as tax
lawyers generally) understand Circular 230. For exam-
ple, among other things, Circular 230 requires due dili-
gence on the part of the attorney in preparation of the
return. But what happens when the attorney discovers
unreported items after the return is filed?

Taxing Decisions
ALI-ABA and ABA Section
of Taxation CLE Calendars

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