Email Scandals, Partner Issues, Partner Profits, Screw-Ups, Tax Law

Here’s One Way To Reveal Your Firm’s Non-Equity Partners

It’s one of the few things still shrouded in secrecy at most firms: which partners have equity in the firm and which don’t. Actual partners, of course, get a share in the firm’s profits, and are part of the PPP calculations reported by Am Law. Non-equity partners get the partner honorific, but in actuality they’re often just glorified senior associates, at least when it comes to matters like salary and major firm decisions. (Of course, this varies from firm to firm.)

Being a non-equity partner can be nice. You generally don’t have to toil on management committees or get caught up in partnership politics, and you may be less personally exposed to financial fallout should the firm’s fortunes sour (assuming the equity partners made personal guarantees on loans). But being a non-equity partner is also like being a stepparent that the children don’t respect. You don’t have any real power and don’t get to reap the full rewards from your investment and care.

Women and minority groups have tried to put pressure on firms to reveal partners’ equity or non-equity status when it comes to diversity reporting. But firms have resisted, saying that they don’t want to stigmatize non-equity partners. Angela Onwuachi-Willig sums it up on Concurring Opinions:

Over the past two years, the National Association for Law Placement (NALP) has tried to obtain information regarding the breakdown of equity and non-equity partners by gender and race at law firms. The majority of NALP’s law firm members refused to hand over the information, and NALP eventually gave in on February 12.

The Executive Director of NALP, [James] Leipold, indicated that most firms cited privacy concerns for not divulging the details of their equity and non-equity partnership breakdowns. According to Leipold, small firms especially worried that providing such information would allow non-equity partners to be easily identified and stigmatized.

Well, Delaware firm Young Conaway Stargatt & Taylor has revealed who its non-equity partners are, though it did so by accident. The firm’s controller needs a little lesson on the use of “bcc”…

The firm controller accidentally divulged the firm’s non-equity partners in a routine email about tax forms. From our tipster:

[Young Conaway] screwed up the W-2s which isn’t exactly a big deal. However, when you look at the “To” line, that’s where the issue is. The “To:” line is to all the associates AND the non-equity partners. At Young Conaway, who was an equity partner vs. non-equity partner was the closest guarded secret at the firm. Well, secret no more.

Partners don’t get W-2s. They aren’t employees; they are owners of the business.

E-mail below. Viva la demystification of partnership status!


From: Lofink, Joe
Sent: Thursday, March 25, 2010 9:26 AM
To: Bartley, Ryan; Bowman, Donald; Burton, Emily; Caesar, Erika; Castellano, Jeffrey; Cheek, Teresa; Coats, Douglas; Crowther, Curtis; Dugan, Mary; Enos, Kenneth; Fay, Kerrianne; Gamgort, William; Gojmerac, Felicia; Greecher, Sean; Grese, Frank; Grow, Nathan; Haney, Megan; Hansen, A. David; Hansen, Stephanie; Higgins, James; Houseal, Timothy; Hudecki, Lauren; Hurst, David; Jackson, Patrick; Jakabcin, Kathryn; Johnson, Hutch; Kee, Pat; Keller, Karen; Kohut, Sara Beth; Kosmowski, Edward J.; Kostoulas, Evangelos; Kraman, Pilar; Kuffel, John; Lengkeek, Timothy; Lundgren, Andrew; Lunn, Matthew; Luton, Jaime; Martinelli, Adria B.; McCormick, Katie; Mercer, Tammy; Minella, Maribeth; Nagowski, Chris; Neiburg, Michael; Noel, Jennifer; Pascale, Karen; Paschetto, John; Popper, Richard; Poppiti, Robert; Ralston, Thomas; DePalma, Kristen Salvatore; Santaniello, Cheryl; Shaffer, Brent; Budicak, Michele Sherretta; Snitkovsky, Polina; Stafford, Michael; Steinberg, Barry; Thaler, Alexander; Thomas, Richard; Thomas, Robert; Walsh, Neilli; Webb, Paul; Wolf, Cliff; Zidek, Kara; Zieg, Sharon
Cc: YCST Management Cmte; Grossman, Jerry; Snyder, Timothy

After review of YCST’s 2009 partnership tax return by the firm’s outside accounting firm, we have been advised that certain expenses incurred by YCST last year must be treated as taxable compensation by employees — specifically, the stipend of up to $500 provided to each employee who attended the retreat in Puerto Rico in January 2009. While we had originally hoped to treat these reimbursements as non-taxable when we issued employee W-2 forms for 2009, in light of the advice from our accountants we are required to issue a corrected W-2 to you for 2009. As an example, if you and a guest fully expended your $500 stipend, your compensation will increase by approximately $1,027 — $1,000 for the two stipends plus an additional amount to allow for social security/medicare tax and City of Wilmington wage tax. If you did not use the entire stipend, your adjustment will depend on the amount you actually spent.

We know that the timing of this announcement is unfortunate and may require some of you to file an amended federal and/or state income tax return. We are currently processing the changes through ADP and expect corrected W-2s to be sent within the next two weeks. They may be available online (via iPay) sooner. With April 15 fast approaching, we can provide you with a revised 2009 Statement of Earnings while the corrected W-2 is in transit; please contact Amanda Carney or me by email and we’ll forward this revised Statement of Earnings which contains updated taxable wage amounts.

Please contact me regarding any questions you have about this correction or the filing of amended tax returns. My extreme apologies for this inconvenience.

Joseph A. Lofink, Jr.
Young Conaway Stargatt & Taylor, LLP
The Brandywine Building
1000 West Street, 17th Floor
P.O. Box 391
Wilmington, DE 19899-0391

Equity or Non-Equity, That Is The Question [Concurring Opinions]

Earlier: NALP Won’t Distinguish Between Equity and Non-Equity Partners: Women, Minorities, and Lovers of Truth Get Angry

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