Scooter Libby Pays His Debt to Society:
A $250,000 fine plus $400 of special assessments, to be specific; the check is here. Meanwhile, over at Slate, Michelle Tsai considers how or whether Libby (or his defense fund) could get back the money if Libby is eventually pardoned.
Is it legal for Libby's fine to have been paid by his legal defense fund?
At the very least, should any such payment by a legal defense fund be considered income, and subject to the taxation?
Finally, are Libby's legal fees tax deductible? From what I've read, they shouldn't be -- and Libby should be liable for a taxes on his Five Million Dollar defense.
Why not? Paying his fine is a legal expense.
As for the taxes... I've never heard of any other legal defense fund being treated as income, so I don't see why this one would be.
But if the monies in and from the defense fund aren't income, Libby certainly (?) can't claim disbursements from them to be deductible.
What would be interesting is if the fund is structured as a not-for-profit, because then the people who contribute to it could claim a charitable deduction.
Set up as a trust. Trustee pays attorneys directly, not schooled enough in this to know whether it would count as gross income.
As for contributions, the page says they are not tax deductible.
well, I would suggest that the $250,000 is not a "legal expense" but part of Libby's punishment, and just as no one else could serve his prison term for him, others should not be allowed to pay his fine.
Between the President's eliminating jail time and his GOP enablers, led by Fred Thompson, raising millions to cover any financial hardship, Scooter skates.
Plus, I'm sure he can count on a pardon before Bush finally leaves office.
Finally, I'm sure he'll be able to raise extra money on the lecture and lobbying circuit in the future, too.
Ah, justice.
Whether the payment of legal fees is income to the client is a more interesting question (at least theoretically. Again, there may be a statute, reg. or case that addresses the question directly). If the lawyers worked pro bono, would the value of their services be taxable? I'd think they should be, but can't imagine that they actually are. And how, if at all, should the result be different if a third party pays the lawyers to work without charging the client?
Somebody here must know the actual answers to these.
It sounds like a gift to me. Gifts are exempt from income.
It sounds like a gift to me. Gifts are exempt from income.
Good point, though I assume that should mean that each donor is limited to whatever this year's annual gift limit is before biting into the lifetime gift tax exemption.
The idea has some appeal, but it seems there are a host of problems with that approach. If we're assessing wealth to determine how much someone should pay, then I think we also need to factor in some kinds of expenses. Example: take identical crimes committed by 1) a young, single, childless middle-class person who hasn't been in the workforce long enough to accumulate much wealth and 2) a middle-aged, married, relatively upper-class small-business owner with significant wealth. Based on wealth, Person 2 should be fined more than Person 1, but say large portions of his wealth go towards investing in the growth of his business. Say he has a very sick spouse or child who requires very expensive medical treatment. Say he's supporting an aged, infirm parent. While he may be "wealthier", we might (or might not) decide that some of these factors should count against his ability to pay a larger fine. How do we decide this, and how do we quantify these factors in a way that makes the system more, rather than less, fair?
Not to mention that if Paris Hilton and I both drive drunk, she's not endangering the public any more than I am because she happens to be rich while doing it.
Your logic could also be applied to prison sentences but it seems to cut in the opposite direction; take identical crimes committed by 1) a homeless, disabled drug addict with no friends or family and virtually no opportunity to participate in any fulfilling activities and 2) a wealthy, productive, liked-and-respected-by-all family man. Person 2 may actually lose as much utility while spending 30 days in jail as the other would lose while serving a life sentence. Should the better-off guy thus get a lighter sentence?
But one point that does seem to be clear, at least after looking at Libby's defense fund web site, is that they are asserting, up front, that any contributions to the fund are not tax deductible.
But that doesn't address the question as to whether or not Libby or his contributors might have a taxable event. If so, the "gift" may be taxable to the donor, not Libby, if it exceeds $12,000 (presumably doubled for a married couple) (note that I don't practice this type of law, and my information is coming from an IRS general information bulletin). Libby's defense fund doesn't address this, but presumably anyone giving more than the $12,000 to the fund has a tax adviser who would make sure that the appropriate IRS form is filed, along with any gift tax incurred.
Is there any difference from a tax point of view from a defense fund paying legal fees and paying a fine? I would suggest not from Libby's point of view. In either case, it would presumably be a gift, potentially taxable to the donors (if above the current $12k, plus lifetime exemption, etc.), but not to Libby.
Only if by "paid the fine himself," you mean that he was the one who took the physical actions of sending in the check. The remitter line on a cashier's check only indicates who walked into the bank and bought it. It is not probative of where that person got the money to but the instrument.
You bring up some valid points. However if we properly define “utility” then it will cure some of the problems. For example if a person has an on-going series of necessary expenses not offset by his income then we could subtract the present value of the future cash flows from his total net worth.
As to Paris Hilton example, I think we levy fines on DUI cases to deter future behavior on the part of the person being fined—in her case drunk driving. Obviously the fine that deters the average person is not sufficient to deter her.
Finally I don’t think we can apply the principle of equal utility to prison sentences because as you point out, it’s too hard to define “utility” here. It’s hard in economics too, but something like decreasing absolute risk aversion seems to capture the way humans behave. For example if we use the log function for utility, then the fines should increase exponentially with the person’s net worth. We might want to use liquid net worth so someone is not forced to liquidate a business to pay a fine.
However if we properly define “utility” then it will cure some of the problems.
I think I can concede this but I maintain that properly defining "utility" is so difficult that any implementation of this is likely to have serious flaws rendering unfit for use in legal proceedings.
For instance, when I go on a business trip, I pay the airfare and hotels out of my own pocket and then file forms to get re-imbursed. I suppose in a narrow technical sense one could argue that I pay my own way, but but it would be misleading - the company pays, not me.
So, will the Libby defense fund (or some other well-wisher) find a way to reimburse Scooter for his expenses? Will it be obvious that they've done so? The answers: yes, and probably not.
So, I don't know where you're going with the "but Scooter paid the fine himself out of his own pocket" meme. It's not very convincing.
(appologies for posting this in two different threads - it belongs in this one, not the other one, but there's no way to delete the other post)
I read within the last couple of years about an executive type in Scandinavia who had to pay a speeding ticket of $250,000 or so because the fine was based on the wealth of the perpetrator. Sure, he could afford it, but it just seems silly to me to fine a man that much for such a minor infraction.
Since having some form of wealth makes a person more vested in the system, it makes a man with some assets much less likely to commit common crimes. Therefore, I believe attacking someone's wealth is counterproductive.
Then you should oppose the fines, court costs, and restitution that many indigent defendants are saddled with. They get out of prison so in debt that they will never be able to pay it off. So why try to lead a productive life?
The Scooter's and Martha's of the world will always be able to get back on their feet. But fines, fees, restitution, court costs and the like make it vary hard for low and middle income people to get back on their feet.
What we need is a form of criminal bankruptcy--something that lets ex-cons start afresh as long as they lead law-abiding lives.
I read within the last couple of years about an executive type in Scandinavia who had to pay a speeding ticket of $250,000 or so because the fine was based on the wealth of the perpetrator. Sure, he could afford it, but it just seems silly to me to fine a man that much for such a minor infraction.
Then is it equally unreasonable to fine a foodservice worker two-week's pay for a similar offense? And that two-week's pay is likely money they were deciding whether to spend on rent, food or heat. $250K for a wealthy businessman is a lot less than $400 for many of the working poor.
As did Bill Clinton. He DID have an important national security job, and people WILL pay to hear what he has to say.
If the average man lives to age 80, then we could impose sentences as a percentage of his expected remaining life. A twenty-year-old might get a 50% sentence which would equate to 30 years. A sixty-year-old who committed the same crime under the same circumstances would get the same 50% sentence which would equate to 10 years.
Actuaries could be employed to determine the expected remaining life of the average twenty-year-old vs the averege sixty-year-old, so the sentences would not be exactly the same, but the percentages would be the same.
If a fine should capture a fixed percentage of each convicted person's wealth, then the sentence would also capture a fixed percentage of each convicted person's remaining life.
Just because we can’t craft a perfect system does not mean we can’t improve the current one. Much of the public believes that our current criminal justice system favors the rich, and it does. Everyone knows these fines, which are burdensome for even the middle class, are a trifling for the very rich. It’s very important that people believe that the system is fair, and using equal utility fines is a good step in that direction.
I don’t why such a system is so flawed it couldn’t be used in criminal proceedings. The current fines seem arbitrary and they are.
The giftor, not the giftee incurs gift tax liability for annual gifts to any one person above an escalating annual threshold I believe to be $12,000 in 2007. So in no event would a client be liable for the gift of legal representation or payment for same.
As a public defender, you get a salary, not a gift, because there is a presumed public benefit to providing free legal services to the indigent. I assume your salary is paid by some combination of government and/or public charity, neither of which would be susceptible to gift tax even if your compensation wasn’t salary.
Gifts by individuals to any charities that did subsidize your work could be deductible, and to the extent not deductible should incur no gift tax, because the benefit of your work is deemed public, not private. Which is why the gift tax question is at least worth asking in the case of a private, non-indigent beneficiary like Libby.
Although I don’t know if there’s some structural exemption from gift tax liability for helping to pay someone’s legal fees (e.g., by contributing through some entity authorized for that purpose), I’d be very surprised if the exemption would apply to contributions toward paying the fine. Legal fees may be deductible (when paid) by the client, but fines can’t be deducted. I assume relaxing gift tax or any other liability for contributions toward paying the fine would be viewed with similar disfavor.
The figure I saw (can't vouch for it) was roughly $1.7 million.
http://sfgate.com/cgi-bin/article.cgi?
f=/n/a/2006/09/26/national/w145008D39.DTL
(Concatenate the two address strings. This system doesn't allow strings this long.)