A Stanford law school graduate suspected of paying off her costly student loans by running a high-priced escort service has now been hit with federal tax evasion charges.
In court papers filed Tuesday in San Jose federal court, prosecutors allege that Cristina Warthen failed to pay taxes on more than $133,000 she earned as a prostitute in 2003, jetting off as a call girl for clients in Washington, D.C., Chicago, New York and other cities. The government has charged her with felony tax evasion for failing to pay about $25,000 in federal income taxes.
Warthen’s business as a reputed high-priced hooker was first revealed several years ago, when the federal government searched her then-home in Oakland and seized more than $61,000 in cash suspected to be linked to her escort business. Court papers allege that starting in 2001, Warthen, then Cristina Schultz, used the name “Brazil” and advertised her escort services on a Web site, TouchofBrazil.net.
We have to at least entertain the possibility that the tanking economy could fundamentally change the Biglaw lifestyle that we have come to know and bilk. We could see flat salaries, tepid bonuses, and decreased job security over the next few years. Maybe this is the perfect opportunity to break out of the “top school-top firm-top shrink” pipeline?
Enter Don Korb, Chief Counsel of the IRS. As Tax Prof Blog mentioned earlier this week, Korb has been trying to recruit law students to the IRS.
And why not (if you’re into that sort of thing)? Nobody is planning on downsizing the IRS anytime soon. And you will likely get the kind of experience that law firms will respect once they get around to having paying clients again. Korb lays out what the IRS has done for his life in his recruitment brochure:
I have been both an associate and a partner in a law firm, a partner in a Big Six accounting firm, and an Assistant to the Commissioner of Internal Revenue. Now I’m back leading the Office where I began my legal career. What has stayed with me throughout this journey has been the wonderful foundation in the tax law that I gained during my first stint in the Office of Chief Counsel, an experience that I believe cannot be found anywhere else.
In fact the IRS just reported a 72% job satisfaction rate. Granted, that number is out of all their employees. But go find four random people walking through your office today and ask yourself if three of them are happy.
The pay isn’t great. But it beats the bag out of what you’d get at the unemployment office.
Did you watch Republican vice-presidential nominee Sarah Palin’s speech last night? Of course you did; it was a must-see. And regardless of your politics, you can’t deny that she delivered it superbly, with polish and poise. In short, at least as a stylistic matter, it was the Best Speech Ever.
But how was the Palin speech as a matter of substance? The AP fact-checked it and identified some issues:
PALIN: “The Democratic nominee for president supports plans to raise income taxes, raise payroll taxes, raise investment income taxes, raise the death tax, raise business taxes, and increase the tax burden on the American people by hundreds of billions of dollars.”
THE FACTS: The Tax Policy Center, a think tank run jointly by the Brookings Institution and the Urban Institute, concluded that Obama’s plan would increase after-tax income for middle-income taxpayers by about 5 percent by 2012, or nearly $2,200 annually. McCain’s plan, which cuts taxes across all income levels, would raise after tax-income for middle-income taxpayers by 3 percent, the center concluded.
Who cares about Kansas — what about Biglaw associates (and partners)? How would they be affected by Obama’s tax plan? With their six- and seven-figure salaries, some are doing a lot better than “middle income.”
Check out some surprising numbers, after the jump.
[Ed. note: Ted Frank's posts analyzing presidential candidate Barack Obama's tax plan, available here and here, were some of the most popular in ATL history. They generated over 900 comments and thousands of pageviews. Because there have been some developments on this front since February, when Ted Frank first issued his analysis, we requested an update; he kindly obliged.]
Above the Law’s Fearless Leader David Lat asked me to update my earlier posts on Obama’s tax plan. As you recall, Obama made a series of promises of “fixing” the tax code, mostly on the backs of investors and the upper middle-class — like Biglaw associates.
I ran a spreadsheet that showed that, with reasonable assumptions, those tax increases would have the same effect on associate after-tax income as a New York law firm cutting salaries by $34,000, but permitted one to change the assumptions if you disagreed with the assumptions I made. I made no endorsements, noting that, Thomas “no relation” Frank notwithstanding, taxes and economic issues were not the only reason to vote for a presidential candidate. (Still, commenters’ reactions can best be described by Tyler Cowen’s description of “Obama insecurity“: “For some people no comment on Obama, other than the purely laudatory, is anything other than a hackish right-wing attempt to forge an alliance of lies with Karl Rove and his ilk.”)
Since then, Obama’s two top economic advisors have posted a Wall Street Journal editorial and a website giving somewhat more detail to the Obama tax plan. David asked me to update my post.
1. The most notable change is Obama’s social security tax plan. Recall that his original promise was to simply lift the cap, changing the system from a pay-in to income-redistribution — something that would have cost law firm associates thousands or tens of thousands and raised marginal tax rates to nearly 60%. When Hillary Clinton started hitting him hard about it, he backed off his original plan to make social security taxes uniform and said he might (but might not) add a “doughnut-hole” between $97,000 and $150,000 or $200,000 or $250,000.
Now that Obama has clinched the nomination and is pretending to be a centrist for the general election, after the Wall Street Journal hit him hard about it, Obama pushed everything he promised in the primaries overboard. First, he said he would raise taxes not the full 12.4%, but just “2 to 4%” — so much for making Warren Buffett pay the same rate as his secretary. The latest is that Obama will avoid any tax changes in social security until 2019, i.e., punting the problem into President Jindal’s lap. So zero out the social security tax increases, unless Obama changes his mind for a fourth time. (People at my high school backed off of plans for trillion-dollar tax increases when faced with outrage from Above the Law commenters all the time. It was no big deal.)
Read more, after the jump.
* Why does Wall Street get all the juicy scandals? We’re jealous of our DealBreaker colleagues. [Dealbreaker]
* Larry Ribstein’s take: “it’s hard not to think that it’s really all about dispute a few weeks ago between [the NYT's Andrew Ross] Sorkin and Dealbreaker’s John Carney.” [Ideoblog]
* Are you in the top one percent of U.S. taxpayers ranked by adjusted gross income? And which states are home to the richest of rich taxpayers? [TaxProf Blog]
* “Would you trust a law professor to be President?” [Althouse]
* Speaking of law profs, they may boycott the annual AALS meeting, due to the hotel owner’s opposition to same-sex marriage. [National Law Journal via TaxProf Blog]
* An interesting interview of Fried Frank partner Jonathan Mechanic, a superstar of the real estate bar. [New York Observer]
* Russian judge: “If we had no sexual harassment we would have no children.” [Telegraph (U.K.)]
Debevoise & Plimpton has long been among New York’s most prestigious law firms. It’s also widely viewed as an excellent place to work.
In the past, Debevoise’s prestige has arguably outpaced its profits. It’s often ranked more highly on the Vault 100 than on the Am Law 100 (when ranked by profits per partner). In the most recent rankings, Debevoise was #13 on the Vault 100 and #20 on the Am Law 100 by PPP.
Perhaps that’s about to change. From Legal Week (via Law.com):
Debevoise & Plimpton has unveiled stellar financial results for 2007, with the New York law firm seeing both partner profits and fees climb by more than 20 percent over the last 12 months.
Profits per equity partner (PEP) at Debevoise rose by 26.5 percent from $1.81 million last year to a new high of $2.29 million. Global revenue, meanwhile, was up by 23.4 percent from $575 million in 2006 to $709.54 million.
A source who passed along this news added: “Although not mentioned in the article, several large investigations are the driving force behind these numbers.”
Of course, that’s not surprising. Thanks in large part to former U.S. Attorney Mary Jo White, internal investigations have long been a mainstay of Debevoise’s practice. They’re long-running and lucrative, since no company in deep doo-doo wants to look like it’s skimping on self-scrutiny. See, e.g., Siemens (aka Debevoise cash cow).
But how much cash will they get to keep? Discussion of a new tax proposal that will disproportionately affect partners at large law firms, after the jump.
* Linda Greenhouse to $300K! [New York Observer via ABA Journal]
* Duties of a law school dean: attend parties, appear at conferences, talk to alums. And don’t forget the herding of cats — aka law professors. [TJ's Double Play]
* Even law review editors screw up sometimes. “Constructive acceptance”? [Concurring Opinions]
* Who’d have thunk it? Sometimes blogging can help people. And stuff. [Legal Blog Watch]
* Ethan Leib dresses up as a giant chicken to teach Contracts, thereby guaranteeing ABA accreditation. [PrawfsBlawg]
* Orin Kerr points out online interviews “with eight of the nine current Supreme Court Justices (all but Souter) about legal writing, advocacy, and the process of deciding cases and writing opinions.” [Volokh Conspiracy]
* Ann Althouse on John McCain and being a “natural-born citizen.” [Althouse]
* Hillary to Russert: You can’t handle the truth! About my tax returns. [TaxProf Blog]
[Ed. note: Yesterday's guest post about how Barack Obama's tax plan might affect Biglaw associates, authored by Ted Frank, generated a record number of comments on ATL: 564 (and counting). It also generated lots of reaction throughout the blogosphere (links collected below). So we thought we'd invite Ted to do a follow-up.]
Here it is. Ted wrote it in response to the following reader email, which makes many of the arguments that surfaced in the 564+ comments. From an Obama defender:
I’m sorry, but you are losing your credibility by posting this false propaganda on Obama. Look at Obama’s website. It clearly states, “Asked About Raising the Cap, Obama said, ‘You Might Have the Equivalent of a Doughnut Hole’–NOT That He Would Completely Remove the Cap.” Obama “has stated in various venues that ‘his inclination… has been for a ‘donut’ where the uncapping would take place above some threshold income level — probably around $200,000 or $250,000′ his economic adviser Austan Goolsbee said in an email. A donut would protect a certain portion of income (e.g., between $100,000 and $200,000) from the payroll tax and could be phased in over decades.”
In addition, that “$34,000 paycut” in the post title is misleading. Even if all your assumptions were correct (which they weren’t), the after tax pay cut under Obama is < $20,000. I love your site, but please correct this ridiculous false article before you lose all credibility.
And now, without further ado, Ted Frank.
* * * * * * * * * *
First, as I show in the spreadsheet, a $20,000 tax increase is the equivalent of a $34,000 before-tax paycut for a New York City resident, which would have the same after-tax effect. The $34,000 figure is accurate: that’s just math. The Obama tax plan would have the same effect on a NYC fifth-year associate being paid market as a $34,000 paycut.
Obama has never said he will have a doughnut-hole, only that his SS tax could include a doughnut-hole. When Hillary Clinton attacked Obama at the November 15 Nevada debate for wanting to eliminate the cap, Obama didn’t say that the attack was incorrect; he defended the policy because eliminating the cap would only affect what he called the “upper class.” The press has accurately reported that Obama has also proposed eliminating the cap; even Obama’s own website links to a thinktank’s analysis of the benefits of a cap elimination.
It would be really easy for Obama to promise to include a “doughnut-hole” or to not eliminate the SS-tax cap. He certainly hasn’t been afraid to promise drastically expensive programs of new spending or even tax giveaways to large swaths of the population who aren’t paying much tax now.
But when it comes to Social Security, Obama is suddenly vague; when he does discuss details, it is to cite examples (e.g., Warren Buffett) that could not be accomplished without eliminating the cap entirely. And the only reason a politician acts that way is because he supports the more drastic, politically unpopular plan, but doesn’t want to get tagged with it before the election, and will say after the election “I only said I would ‘consider’ a doughnut-hole.” How Barack Obama’s Tax Plan Will Affect You [Microsoft Excel file]
Additional discussion and links, after the jump.
[Ed. note: Today we bring you some "news you can use": a practical look at how political choices might affect your personal finances. This post is by Ted Frank, who blogs at Overlawyered.com and PointofLaw.com, and who has guest edited ATL in the past. Take it away, Ted.]
BigLaw lawyers love Obama. If one searches by law firm various databases on-line for campaign contributions, one sees an overwhelming sea of blue, and most of it to Obama.
But how will Obama affect BigLaw wallets? On Above the Law, we regularly see commenters threaten to abandon law firms for falling $5,000/year short of market. I therefore thought it worthwhile to examine the effects of Obama’s tax and spending plans on take-home pay.
We all know that Obama wants to end the Bush tax cuts. That is a 3% bump across the board to the bad old days when associates faced a marginal federal tax rate of 36%.
But the real hidden tax is that Obama plans to end the social-security tax cap. Right now, you may notice, sometime during the summer or early fall, your take-home pay suddenly goes up because they stop deducting FICA. Current law caps social security taxes: in 2008, the cap is at $102,000. Obama proposes to abolish this. That mid-summer bump will be no more: add about several thousand dollars to your annual tax bill.
But social-security taxes are not only on employees. The government also charges 6.2% to employers that you never see on your W-2s. But rest assured the partners see this, and will notice that the expense of keeping an associate has risen several thousand dollars a year when FICA taxes double and triple. Will they swallow that additional expense, or take it out of your bonus?
Find out, after the jump (or click here).
* The NYT’s official statement on L’AffaireBerenson. [Starkman & Associates]
* A slew of law school hypotheticals about sex with and between minors, triggered by Carl Stanley McGee, our Lawyer of the Day. [PrawfsBlawg]
* Second runner-up for Lawyer of the Day? And a punitive damages award of $33 million. Ouch. [How Appealing]
* Man saves dog; law student saves man. Congratulations to GW’s Jason Coates, our Law Student of the Day! [GW Hatchet]
* “Derek Jeter has romanced Mariah Carey, squired Jessica Biel, sweet-talked Scarlett Johansson — and now he’s made it to first base with the state taxman.” [TaxProf Blog]
* Wow, this is wild. Has Gary Crossen, a former federal prosecutor and partner at Foley Hoag, read too many John Grisham novels? [WSJ Law Blog]
* Speaking of white-collar criminal defense lawyers, more business may be headed their way, courtesy of Andrew Cuomo. [DealBreaker]
* You’ve got… male? [Reuters]
* Are you a Disgruntled Republican? Join the club — or buy a mug. [Zazzle]
Ed. note: The Asia Chronicles column is authored by Kinney Recruiting. Kinney has made more placements of U.S. associates, counsels and partners in Asia than any other recruiting firm in each of the past seven years. You can reach them by email: email@example.com.
Things have changed recently in Korea – a few of our US and UK client firms are looking, very selectively, for a lateral US associate hire. Until just recently, there was not much hiring like this going on in Korea, since US and UK firms started opening offices there. We have already placed two US associates in Korea in the past month at top firms. Most of the hiring partners we work with in Korea do not actively work with other recruiters.
If you are a Korean fluent US associate in London, New York or another major US market, 2nd to 6th year, at a top 20 firm, with cap markets or M&A focus (or mix), or project finance background, and you are interested in lateraling to Korea to a top US or UK firm, please feel free to reach out to us at firstname.lastname@example.org or email@example.com. Our head of Asia, Evan Jowers, was just in Korea recently, and Evan and Robert Kinney will be in Korea in a few weeks. We are in the process of helping several firms open new offices in Korea (a number of which are interviewing our partner level candidates) and also helping existing offices there fill openings.
Professor Joel P. Trachtman has developed a unique, practical guide to help lawyers analyze, argue, and write effectively.
The Tools of Argument: How the Best Lawyers Think, Argue, and Win is a highly readable 200-page book, available for about $10 in paperback or e-book. Chapters focus on foundational principles in legal argument: procedure, interpretation of contracts and statutes, use of evidence, and more. The material covered is taught only implicitly in law school. Yet, when up-and-coming attorneys master these straightforward tools, they will think and argue like the best lawyers.
For most attorneys, time spent managing the books is a necessary evil at best. Yet it is undeniably a crucial aspect of running a successful practice. With that in mind, we invite you to view or download a free webinar by Above the Law and our friends at Clio to learn how to better manage your finances.
Take this opportunity to learn what it takes to streamline your accounting and get the most out of your time. The webinar agenda:
● The basics of accounting for lawyers.
● How legal accounting differs from regular accounting.
● Report and reconciliation issues surrounding trust accounts.
● How to pick and integrate the best accounting tools for your practice.
● Steps to prepare your tax return for your firm’s income.
Do not miss this crucial chance to optimize your accounting practices. Save time and get back to billing!