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Thousands of New York lawyers have received tax notices from New Jersey demanding that they pay taxes on money made from court appearances in the Garden State. The New York lawyers were among 11,000 attorneys nationwide who were warned that they might owe taxes because of time spent lawyering in New Jersey. New Jersey’s effort to systematically tax lawyers for income generated from pro hac vice appearances is the first in the nation, said Harry Fox, deputy director of the New Jersey Division of Taxation. The notices, sent out as a part of a tax amnesty program, warned the lawyers that if they did not pay taxes stemming from appearances in New Jersey by today, they will be subject to a 5 percent penalty and collection fees. The notices were sent to all lawyers, including New York lawyers, whose applications to proceed pro hac vice have been granted, allowing them to appear on a case even though they are not admitted in New Jersey, Fox explained. Under New Jersey procedures, a lawyer admitted pro hac vice is required to register with New Jersey’s Lawyers Fund for Client Protection and must pay the $170 that regularly admitted New Jersey lawyers pay. Kenneth Bossong, who directs the fund, says the names of pro hac vice lawyers in federal court are on the lists, too. New Jersey State Tax Amnesty Director Stephen Sylvester said that New Jersey could always have demanded that the out-of-state lawyers and their firms pay taxes on income generated by appearances in the Garden State, but no one dreamed of doing so until the state’s Division of Taxation realized that lists of out-of-staters who had appeared in New Jersey were maintained by the client protection fund. When the Division of Taxation asked for the lists, the fund provided them, going back at least 10 years. Under the amnesty program, however, interest and penalties can only be waived going back to 1996. Under New Jersey law, any attorney or firm with worldwide taxable income in excess of $20,000 is required to pay income taxes on sums earned in New Jersey. Attorneys who appear on the pro hac vice list would be liable as well for taxes from income for any other non-court work, such as appearances at depositions. Fox, the New Jersey tax official, said that firms are responsible for sums that should have been withheld from their employees’ pay as well as for taxes on profits allocated to work performed in New Jersey. The liability of some firms could range from $10,000 to $50,000, he said. The notices advised lawyers that their names “appear on a list of out-of-state attorneys who have appeared in New Jersey Courts, pro hac vice,” and that the “performance of this service is considered doing business in New Jersey, creating a nexus and a filing obligation for either Corporation Business tax or Gross Income tax (non resident).” The letter says lawyers are required to compute their state tax liability and send in the money before June 10. If it later turns out they paid too little, a 5 percent surcharge plus interest and penalties would be assessed. Interest averages to about 12 percent a year, Fox said. Although the notices advising lawyers that they could apply for amnesty were dated May 24, one New York lawyer said that he did not receive the notice until June 5, only two working days before today’s deadline. In addition, the lawyer pointed out, the notice explicitly states that “no payment made under Amnesty shall be eligible for refund or credit.” Alan Rothstein, counsel at the Association of the Bar of the City of New York, reported hearing grumbling from the lawyers about the notices, but said the association has taken no formal position on the letters. Sylvester, the amnesty administrator, said that the initiative — suggested by a New Jersey lawyer the authorities will not identify — mirrors a crackdown in recent years to make out-of-state athletes and entertainers, particularly boxers and rock stars, pay tax on earnings within New Jersey. MASSIVE PAPERWORK? Donald Robinson of Newark, N.J.’s Robinson & Livelli said the program will create massive paperwork for out-of-state lawyers, and if their home state tax authorities do not give them credit for New Jersey payments, they will be victims of double taxation. Charles Costenbader, a tax lawyer who is special counsel at McCarter & English in Newark, said New Jersey appears to be acting within its rights, and that he has told out-of-state lawyers who contacted him to call Fox if they had questions. He says pro hac vice lawyers whose firms have offices in New Jersey should not owe additional taxes because the local offices have presumably been paying them. Costenbader added that he does not think the tax authorities are making a systematic effort to raise money from every pro hac vice lawyer. The purpose of the notices, he suggests, is to “muddy the waters and see how much money comes in.” Fox said that once the amnesty period is over, his office is likely to seek back taxes from firms that have not responded to the notice and who appear to have had substantial earnings. For now, Fox is not tipping his hand about whom the state may pursue, though he concedes his work force is not big enough to go after everyone, which means many lawyers who did not respond to the notice are likely to be in the clear.

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