On June 30, 2010, Eugene Sherayzen, Esq., was re-appointed for the second time to the Minnesota State Bar Association Publications Committee. The Committee is responsible for overseeing the budget and publication of the most important Minnesota legal journal, “Bench & Bar”.
In this article, I will discuss five most important issues that you need to know before you sign a fee agreement with business lawyers in Minneapolis.
1. How is the lawyer’s fee paid? There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of business lawyer compensation and it is fairly simple – the business attorney is paid only based on the time he spends on the case. If you’re paying your business lawyer by the hour, the agreement should set out the hourly rates of the business attorney and anyone else in this attorney’s office who might work on the case. The contingency fee, where the business attorney takes a percentage of the amount the client wins at the end of the case, is rarely used by business attorneys in Minneapolis. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the business lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your business lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee). Finally, in a flat fee arrangement, you pay an agreed-upon amount of money for a project. For example, you pay $5,000 to your business attorney to organize your corporation with all of the corresponding corporate documents. While a flat fee arrangement is possible in a small project, it is generally disliked by business lawyers in Minneapolis because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the business attorney’s fees is maintained.
Remember, usually, you will have to pay out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) in addition to your business lawyer’s fees.
2. Does the agreement include the amount of the retainer? Most business lawyers in Minneapolis require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee the lawyer’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money a business attorney asks his client to pay in advance. In this scenario, the lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).
3. How often will you be billed? Most business attorneys in Minneapolis bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.
4. What is the scope of the business attorney’s representation? Most business lawyers in Minneapolis will insist on defining their obligations in the fee agreement. The most important issue here is to state what the business attorney is hired for without defining it either too narrowly or too broadly. Usually, a fee agreement should specify that a new contract should be signed if you decide to hire this business lawyer to handle other legal matters.
If you are hiring a large or a mid-size law firm, beware that the partners in a law firm often delegate some or all of their obligations to their associates or even their staff. While the partners retain full responsibility for the case, there is a danger that important parts of it may be delegated to far less experienced associates. Besides the potential quality issues, there is also a concern that you would be paying a large hourly fee for a first-year associate’s work. It is important to insist that the fee agreement specifies what, if any, type of work is being delegated to the associates, the corresponding billing rate of each associate involved, and who carries the responsibility for the whole case.
5. Who controls what decisions? Whether this information should be included in the fee agreement really depends on a case and on an attorney. Generally, business attorneys in Minneapolis let their clients make the important decisions that affect the outcome of the case (such as: acceptance or rejection of a settlement offer, commencement of a lawsuit, financial and personal contractual issues, et cetera). All of the decisions with respect to the legal issues (such as: where to file a lawsuit, what motions should be filed, what should be in the contract, negotiation tactics, etc.) are usually taken by the business lawyers. If there are any changes to this arrangement (for example, you want your lawyer to make certain decisions with the respect to the outcome of the case), you should insist that these modifications be reflected in the fee agreement.
Generally, before you sign the fee agreement, business lawyers in Minneapolis will discuss with you many more topics than what is covered in this article. The five issues explained here, however, are crucial to your understanding of how the business relationship with your business attorney will work. Before you sign the fee agreement with your business lawyer, you should ask at least these five questions and make sure that the answers are complete and to your satisfaction.
Under the Bank Secrecy Act, each United States person must file a Report of Foreign Bank and Financial Accounts (the “FBAR”) with the U.S. Department of Treasury if two conditions apply.
The first condition is that the U.S. person must have either a financial interest in or signature authority (or other comparable authority) over one or more financial accounts in a foreign country. Several clarifications are necessary in order to understand the applicability of this first condition. First, for the purposes of the FBAR, the definition of a “U.S. person” includes U.S. citizens, U.S. residents, and persons in, and doing business in, the United States. “Person” is defined to include not only individuals, but also all forms of business entities, trusts, and estates.
Second, the term “financial account” itself is defined fairly broadly and includes: bank accounts (saving and checking), mutual funds, brokerage accounts, securities derivatives accounts, accounts where the assets are held in a commingled fund and the account owner holds an equity interest in the fund, and other similar types of financial accounts. A financial account is considered to be foreign if it is located outside of the United States and its territories (Northern Mariana Islands, American Samoa, Guam, Puerto Rico, U.S. Virgin Islands, and Trust Territories of the Pacific Islands).
Third, the term “financial interest” is defined as account for which the U.S. person is the owner of record or has legal title, whether the account is maintained for his own benefit or for the benefit of others, including non U.S. persons. Even where the owner of record or holder of legal title is a person acting as an agent, nominee, or in some other capacity on behalf of a U.S. person, the financial interest in the account exists and the agent may need to file the FBAR as well. Note, however, that the agent may need not file the FBAR if he is not a U.S. person. Furthermore, the definition of a financial interest in an account encompasses a corporation in which a U.S. person directly or indirectly owns more than 50 percent of the total value of the shares of stock.
It is important to understand that a U.S. person who has no financial interest in a foreign account, but retains a signature authority (or other comparable authority) may still be required to file the FBAR. A U.S. person has account signature authority if that person can control the disposition of money or other property in the account by delivery of a document containing his signature to the bank or other person with whom the account is maintained.
The second condition for filing the FBAR is that the aggregate value of all of these foreign financial accounts exceeds $10,000 at any time during the calendar year. Notice the word “aggregate” – this means that if, for example, a person has one foreign bank account of $6,000 and another of $5,000, then he still needs to file the FBAR with the U.S. Department of Treasury, because the aggregate amount of both accounts exceeds the required minimum of $10,000.
If a person is required to file the FBAR and fails to do so, it is still generally recommended that he files a delinquent FBAR, because, if the Internal Revenue Service (IRS) discovers this failure earlier, severe civil and criminal penalties may be imposed. Sherayzen Law Office can help you deal with this difficult situation and make sure that you fully comply with the U.S. tax laws.
Under I.R.C. §911, if certain conditions are met, a qualified individual can exclude as much $91,400 (for tax year 2009) of foreign earned income from taxable gross income. Two questions arise: what is earned income, and when is such income considered to be foreign earned income?
Earned income usually means wages, salaries, or professional fees, and other amounts received as compensation for personal services actually rendered, but does not include that part of the compensation derived by the taxpayer for personal services rendered by him to a corporation which represents a distribution of earnings or profits rather than a reasonable allowance as compensation for the personal services actually rendered.
The issue of earned income becomes complicated in a situation where a taxpayer engaged in a trade or business in which both personal services and capital are material income producing factors. Capital is a material income-producing factor if the operation of the business requires substantial inventories or substantial investments in plant, machinery, or other equipment. In this case, a reasonable allowance as compensation for the personal services rendered by the taxpayer, not in excess of 30 percent of his share of the net profits of such trade or business, shall be considered as earned income (I.R.C. §911(d)(2)(B)). This rule, however, would not apply where the capital is merely incidental to the production of income (see Rousku v. Commissioner (Tax. Ct.1971)).
In a situation where the services rendered abroad culminate in a product that is either sold or licensed, it is difficult to determine whether the proceeds are earned income. Usually, such issues are resolved on a case-by-case basis.
Foreign Earned Income
Earned income is usually considered as “foreign earned income” if it is attributable to services actually rendered by the taxpayer while oversees. The place at which the taxpayer receives the income is not relevant. For example, an employee working abroad for a U.S. employer does not lose the exclusions by having her compensation paid into a bank account in the United States. Note, however, that services rendered in anticipation of, or after the conclusion of an oversees assignment are not covered by the exclusion. I.R.C. §911(b)(1)(A) and §911(d)(2)
Under I.R.C. §911, a U.S. citizen or resident can elect to exclude as much as $91,400 (for tax year 2009) of foreign earned income and some or all foreign housing costs from taxable gross income if two conditions are met. First, the individual must satisfy either a foreign presence or bona fide residence test. Second, the individual’s tax home must be in a foreign country. The first requirement (foreign presence/bona fide residence test) is satisfied when: (i) the individual is a U.S. citizen or resident who is physically present in a foreign country for at least 330 full days during any 12 consecutive months, or (ii) the individual is a U.S. citizen who is a bona fide resident of a foreign country for an uninterrupted period that includes an entire tax year. The second requirement is satisfied if the individual’s tax home – i.e. main place of business, employment, or post of duty – is in a foreign country. Tax home generally means the place where the individual is permanently or indefinitely engaged to work as an employee or self-employed individual.