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NOVEMBER , 1972
J
NOVEMBER,1972 VOL. 6 NO.6
THE OFFICiAl PUBLICATION OF THE ARKANSAS BAR ASSOCIA liON
t f
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Arkansas Lawyer SPECIAL FEAlURES
OFFICERS Henry Woods, President James E. West, Vice·President James M. Moody, Secretary·Treasurer
EXECUTIVE OIRECTOR
Past Presidents -
Southern Bar Distric t ....•.. . .•.... 272
1973 Mid -Year Meet ing .....................•..• . .... . 264 Award of Merit Sebastian County Bar Assoc iation ............ .. . . .. 279 Admissions Ceremony -
C. E. Ransick EXECUTIVE COUNCIL
Fall , 1972 ......... .. ........ 270
Multiple Trusts ....... . ........ . .... Burton W. Kanter 282 Some Tax Considerations Fo r Prac ti c ing Lawyer Part I - Ded ucti o ns ............... Bruce R. Hopkins 260 Aegis .... . ................... . . . ........ . . . .......... 281
Thomas F. Butt John A. Davis, III Julian B. Fogleman John P. Gill Herman Hamilton W. D. Murphy Dale Price Robert D. Ross Douglas O. Smith, Jr. David Solom on Otis H. Turner Rob ert Hays Williams
REGULAR FEAlURES Cover Story ...... . ... . ...... . Judge Ed F. McFadden 248 Presiden t' s Repo rt .... . ..•... .. ......... Henry Woods 247 Juris Dictum .......... . . . .. .. .............. C.R. Huie 258 Law School New s .......... . ...... Robert Brockmann 278 Oyez-Oyez ................... . ... . . . .... . B. Ghormley 245 In Memoriam ..................... .. ........ . ... . ..... 286 Exec utive Council Notes ............ James M. Moody 259
Ex·Officio Henry Woods James E. West James M. Moody Paul B. Young Richard F. Hatfield James B. Sharp
EDITORIAL COMMITTEE Robert D. Ross Ph ilip E. Dixon C. E. Ransick THE ARKANSAS LAWYER
Published bi-monthly by the Arkansas Bar Association , 406 Donaghey Bldg ., little Rock, Arkansas 72201. Second class postage paid at lillie Rock , Arkansas. SubSCription price to non-members 0 1 the Arkansas Bar Association $6.00 per year and to members 52 .00 per year included in annual dues. Any opinion expressed herein IS thai of the author, and not necessarily thaI of the Arkansas Bar AsSOCiation. The Arkansas Lawyer. or the Editorial Committee Contnbutlons to the Arkansas lawyer are welcome and should be sent in two copies to the Arkansas Bar Cente r, 408 Donaghey Bldg .. Utile Rock . Arkansas 72201 . All Inqui ries regarding ad .... ertising shou ld be sent 10 Ad .... ert lsin g Department. Ark an· sas lawyer , Post Office Box 4 117. North LlItie Rock , Arkansas 721 16.
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WIl arll indllbtlld to Wm. H. Arnold. Jr. for this list of lawYllrs during Tllxarkana's first tWllnty-fivll Yllars. 1873- 1898. Mr. Arnold is a ~plleial Mllmbllr of thll Arkansas Bar Assoeiation. having blllln born in 1893 and admittlld to praetiell in 1916.
WIl arll pillaslld to join in this salutll to our Immlldiatll Past Prllsidllnt Willis B. ~mith. ~r .. anothllr in thll linll of outstanding TIlxarkana lawYllrs . . .. .. .
THE TEXARKANA BAR ASSOCIATION
NOVEMBER . 1972
By B. G horm ley
James A. Gray Ted H. Sanders, formerly with the First National B ank Trust Department, is now practicing with Engeler & Johnson in Mountain Home. Jose ~ phine Linker, former law clerk for Jus~ tice Frank Holt , is now associated with Highsmith , Tatum & Highsmith of Batesville. Thomas M . Bramhall, Little Rock, has opened his law office in the Tower Building, Suite 801 . B . Richard Allen has become associated with a West Memph is law firm, Hale & Fogleman. Jeff Davis, Jr., John B . Plegge and Chester C. Lowe, Jr. have an~ nounced the ir new partnership and their association of Robert M . Cearley, Jr., Little Ro ck. Max Mehl~ burger, Little Rock , has opened his law office in the Tower Building, Suite 1060. Ralph Murray, former partner Sch iettler and Murray, has now begun practice on his own . Herby Branscum , partner of Little Rock law firm Brans~ cum, Schmidt and Mazzanti , has an~ nounced a full time office will be opened for the practice of law in Perryville. We have had a great re~ sponse from the 1972 law graduates in respect to membership with the tremendous help of Henry Woods. Listed below are just a few of these graduates and where they have located. Harvey Yates , West Helena, is in practice with Gene Schieffler. Joseph A. Strode, Pine Bluff. is with Bridges. Young , Matthews and Davis. Bobby McDaniel, Jonesboro, in practice with James McDaniel. Kelly W. Webb and Gary E. Johnson, Jonesboro , have formed a new partnership with Frank Lady: Lad y, Webb and Johnson . Robert Edwards, Searcy, is associated with Darrell Hickman. Robert Joe Johnson, Crossett, is associated with Richard E. Griffin. Sanford Beshear, Jr., Rison , formed a partnership with John Elrod ; Elrod and Beshear. Jerry Post , Batesville. joined Murphy, Arnold and Blair. William R. Riddell , Clarksville, is associated with J. Marvin Holman. Tommy Womack , JonesTHE ARKANSAS LAWYER
boro, joined Barrett , Wheatley, Smith & Deacon . Otto J. Boeckmann, Jr. and Gordon L. Humphrey, Jr., Wynne , have formed their own partnership. Evelyn I. Drake, Griffin J. Stokley, and William K. Isch, Little Rock , are with the Legal Aid Society. Howard L. Slinkard , Rogers, is in practice with David Clinger. James A. G ray , Benton , is serving as Chairman of the Abstracters and T itle Insurance Agents Section of the American Land Title Association and has made numerous reports throughout the United St ates concerning their works . Gene Raff, Prosecuting Attorney of Helena, was elected to the Board of Directors of the National P rosecuting Attorneys Association during the August meeting at San Juan , Puerto Rico . Robert Chowning, Little Rock , is a new vicepresident of Rector Phillips Morse , Inc. Robert J. Brown, former chief deputy prosecuting attorney, Little Rock, is now an executive vice-president of Block Mortgage Co., Inc. John R. Clayton, Dumas, has been appOinted county juvenile court referee . Mr. Clayton is also the new Secretary of the Southeast Arkansas Legal Institute and Thomas S. Streetman , Crosse tt , is President . Eric W. Bishop , Ashdown , will serve Fred E. Pickett , prosecuting attorney for the 9th Judicial District, as his deputy. William D. Newbern, Assistant Professor of the U of A Law School , has been named acting Dean of the Law School to replace Ralph C. Barnhart. Lee Ward, Piggott, has been included in the 1972-73
Rober t Brown "Who's Who in America" (Marquis ). The Arkansas Association of Criminal Defense Lawyers, Harold L. Hall, littl e Rock , President , held a meeting in North Little Rock during September. Prof. Ray Guzman, Fayetteville, was one of the participants. A crossword puzzle submitted by Justice George Rose Smith, Little Rock. has been selected to appear in the New York Times Magazine. Lonzo A. Ross, 77 years of age, has returned home to Conway after undergoing surgery at a S1. Louis. Mo. hospital. Neva Talley, Little Rock , has been reelected for a second term to the American Bar Association Hou se of Delegates . Robert L. Jones, Jr., Fort Smith, served as Moderator during the ABA Lawyer Referral Workshop held in Denver. Bill Clark, Little Rock , explained Arkansas' right -to-work law to Magnolia Rotarians. James Baker, Helena, spoke to members of the Phillips County Bar during a memorial ceremony for Douglas S. Heslep. Robert W . Henry, Conway, has been appOinted to the state Board of Law Examiners and Bill Penix , Jonesboro , has been reapPointed . Ark Monroe, Magnolia, was appointed state insurance commissioner.
Arkansas Sar Association 1972-73 Directory ADDENDUM 1. New Committee on Arkansas Transpo rtati on La w' W.H. Sutton . Chairman Gary Brewer James Blair Tho mas Harper. Jr. Do n T. Jack Bru ce T. Bu ll10n Lou is Tarlosk i Ro bert Shu Its John W. Barron . Jr. Michael Thompson Joe D. Woodward W.J . Williams Carl Bonner
Little Rock Little Rock Springdale Fort Smith Little Rock Little Rock Little Rock lillie Rock Little Rock lillie Rock Magnolia Little Rock Little Rock
2. Add Mr. Donald Frazier as member 0 1 the Committee on Prepaid Legal Services . 3. Add Mr. Joseph A. Strode to the Environmental Law Committee . 4. Add Mr. William A. Hough to the Co mputerized Legal Research Committee.
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Commun;r,; BuiliJing . L~Picting
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The City's name of MO TICELLO the City: s SE timber, agriculture , industry and higher educat,/on , reflect a fine balance bet ee gracious Southern living and energetic Southern lead rship. Fou~tain C. Austin in 1 48 deeded some 83 acres for a new county seat for Dre County he plat and deed ,for h town were first displayed on August 1, 1849. William D Ford for $174 built the tern orary courthouse and the October 1850 term of county court as the rrst held in Monticello. In his cover story, Justice Ed F. M c Faddin lists some of the early I wyers to practice in Drew County . The City of Monticello was in corporated December 20, 1852 - named after Thomas Jefferson 's home in Virginia. Literally, Monticello is "Little Mou QLain " in Italian - appropriate since the city is loc ated on one of the highest points in Drew COunty. Monticello is the home of the University of Arkansas at Montic ello . Long dependent on agriculture , Monticello w ith a population o f over 5000 now boasts of an economy well balanced with agriculture , industry, timber and general business - " The City of Progress! "
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Commercial
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MONTICELLO 246
ARKANSAS NOV EMBER , 1972
PIIS IIIIT~S
BIPORT By Henry Woods
Martin Gilbert, Chairman of the Legal Education Committee has asked Alston Jennings and me to serve as co-chairmen of the Midyear Meeting . Through cooperation with The Hastings College of Law (University o f California) , the committee will present an unusually fine program . Hastings has pioneered in many modern law teaching techniques, particularly in the field of video. On its faculty are some of the great names in American Jurisprudence - Dean Prosser, former Chief Justice Traynor, and others of similar stature. Hastings is arranging to send us two of its brilliant young professors, two of the finest trial lawyers in California, and Paul Rush , head of the Television School at the University of California. Even without the star-studded contingent from California, our other speakers would make an unusually outstanding Mid-Year program. Judge Alfred Murrah succeeded Justice Tom Clark as Director of the Federal Judicial Center. As a former Chief Justice of the Court of Appeals for the Tenth Circuit, he is one of the great judges of this century. Judge Donald Lay of the Eighth Circuit also was one of the most successful trial lawyers in the Midwest before his elevation to the Bench. Phil Corboy is President of the Chicago Bar Association . Earlier this year he was the subject of a feature article in the Wall Street Journal acclaiming him one of the premier trial lawyers in the United States. The program will be sophisticated and intensive. Those who register will put in three days of hard work, but the rewards will be rich in terms of increased competence in the area of trial practice . The Association is offering this program at the barga in rate of $75 .00 for Arkansas lawyers. ($50 for those in
THE ARKANSAS LAWYER
practice four years or less) Included will be a banquet and two lunches. We are also offering to registrants on an optional basis two excellent publications (currently selling for $35 .00) at a bargain price of $25 .00 . I have both of these publications in my library . One is a voluminous civil practice manual , and the other is a very useful correspondence form book for trial practice . I have put many of the form letters in this book on Mag Cards. A worthwhile program for the women is also being planned . In the past we have had to estimate our attendance at these meetings since many of our members did not register in advance . Because of the technical aspects involved in presenting this program, part of which will be on video , we must know approximately how many attorneys will be in attendance . In order to give an incentive for advance registration , we will have a drawing from the names of those who register in advance . The prize will be a special tour of one of four European Capitols - Rome , Madrid , Paris or London for the advance registrar and spouse . Our Jurisdiction and Law Reform Committee has done yeoman 's service in considering the various legislative proposals submitted to it. As a result of the September meetings of the Executive Council and House of Delegates, the legislative program is beginning to take form . The package will be co mplete after our October meeting . At a recent meeting of the Legislative Committee , it was decided to sponsor a series of meetings with legislators in the various Bar Distr ic ts for the purpose of acquainting them with our legislative program . We will need your help in making these co nferences a success .•
247
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Arkan sas Lawyer
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Bo 1 November 1972 To All Concerned: This is the third issue of The Arkansas Lawyer in our " Leg al Heritage" series . Two issues wi ll be devoted to the h ist ory o f law in South Ark ansas and to our living Past-Presidents in this Distri ct. Justice Ed McFaddin has stated our purpose well - "It is hoped that the local Bar Association of each County may be encouraged by this fragmentary artic le to make a complete list of the Lawyers and Jusges of each and every County of South Arkansas. The Bar owes this to posterity ." (see cover story) . The Arkansas Lawyer
Lamar Williamson
It is difficult to compile an adequate biographical sketch and characterization of Lamar Williamson. of Monticello. Arkansas . If he were able to assist in th e project, he wou ld probably decline to do so, and would oppose it being published. He is not being consulted in the premises. because he is now, and for several years has been , physically and mentally incapacitated; now in the " Leisure Lodge" nursing home in
248
Monticello , under the constant and solicitous care of his wife, Charlotte, and special nurses supplementing the services of his physician and the nursing home staff. Lamar may be said to have inheri ted his inclination to become a lawyer. He was the first born child of James Gas路 ton Williamson and Lulu Jackson Williamson, born in the home of his parents in Monticello, Arkansas, on the 8th day of January, 1887. His father was then a junior partner of W .T . Wells , constituting the firm of Wells & Williamson , Attys ., which had been established before the "Civil War " as Slemons & Wells. After the death o f Col W.F. Stemons, the firm became Wells & McCain . After W.S. McCain (who served six years in our National Congress) moved to Pine Bluff, and later to Little Rock , the firm became Wells & Williamson. The library of this firm (now Wi ll iamson , Ball & Bird) contains an unbroken set of the original publications of the Constitution . statutes and digests of the laws of Arkansas back to and in路 cluding the " Laws of Arkansas Ter路 ritory ," published in 1835. Lamar 's maternal grandfather, was James A .
Jackson , w ho prior to an d for a time after the Civil War lived and practiced Law in Monticello. His fath er's o nly brother who survive d the War Be. tween the States, Chalmers Meek Williamson, until his death had been a lawyer in Jackson , Missi ssi ppi. After spending two years as a stu路 dent at Arkansas College, at 8ates. ville, Arkansas , ci rc umstan ces in. volved in the health o f his you nger broth er Adri an required that he go with th at then quite young brother to Texas, where Lamar was a student at Daniel Baker College, in Brownwood, Texas and graduated as valedictorian of his class in 1905. Between Coll ege terms Lamar had spent mu ch time in his father 's law office, reading Black. stone and other legal texts standard at that time, reading curre n t court reports, and aSSisting his father in re. search and writing briefs. He then devoted one scholasti c year as a student at the University o f Michigan Law School , but conc luded that he was not learning anything th ere th at he did not already know, was impa. tient to get in to full partnership with his father (Ju dge Wells having retired) , spent a few more months studying and aSSisting his father in his practice, took the Arkansas Bar Ex am. ination before the Supreme Court
NOVEM8ER,1972
shortly before he was twenty-one years of age, and received his license issued by the Court on January 13, 1908 (five days after attaining legal Majority). As an active junior member of the firm of Williamson & Williamson, he then got into high gear in legal , civic, political , and relig ious activities in which he continued, with very few recreational activities in the form of quail hunting , anf fishing (locally and in the waters of Florida, Mexico and Canada) until the Biblical warning of what may be expected after " three score years and ten " of hyper-active living caught up with him . He ret ired from the active practice of law and ceased to participate in the firm 's activities and earnings at the end of the year 1960. Lamar married Lillian Philips, of Monticello, on June 20, 1911 . Four children were born unto them , namely: James Gaston Williamson , who became a Rhodes Scholar, now practicing law in Little Rock ; Martha Wil li amson, now Mrs. JOhn A, Riggs, Jr., residing in Little Rock ; William Phillips W illiamson now deceased , who became a distinguished neurosurgeon , head of the Department of Neuro-surgery of the Univeristy of Kansas Medical Center ; and Lamar W illiamson , Jr., now a distinguished Biblical scholar, who spent a year as a student of languages at the University of Montpellier, France, earned a Ph , D. degree at Yale , became a Presbyterian teaching missionary in the Congo , later taught as Professor of Biblical Studies at the Presbyterian School of Christian Education in Richmond , Virginia , and recently returned to a part of what was formerly the Congo to teach ancient and modern languages in a newly established stateowned African university. Lamar 's first wife. Lillian, having died , he married Charlotte Daniel. of Monticello, in the year 1932, who since that time has shared with him his activities and experiences. During the early years of his practice, Lamar 's self-assurance was not without set-backs . His younger brother remembers going with him to try one of his first cases in a Justice of the Peace Court. The tr;al was held on a hot summer day in the shade of a large oak tree in the front yard of the country home fa the J .P, At one point the Justice ruled that he would permit an OPPosing counsel's witness to introduce some clearly "hea r-say " evidence. Lamar, reaching for his notes, vigorously protested: " But your Honor, you can 't do that. " The Justice calmly replied , "Well , damn it , young man ; I have done it!" With the exception of serving as deTHE ARKANSAS LAWYER
fense counsel in a few murder cases, when homicides involving highly respected families were more frequent than now, Lamar soon limited himself to civil cases , some in courts of law, but most in Chancery, Perhaps a majority of his cases involved the title to real property , or the defense of personal injury suits, the handling of estates, co rporate procedure , or defending workmen 's co mpensation claims. He became particularly experienced and competent in the realm of accretion law , in cases arising in Arkansas , Mississippi and Tennessee; and perhaps helped to clarify that field of law , once thought to be rather nebulous, in the State of Arkansas . In his active practice as an attorney, he tried cases in the state courts of Southeast Arkansas , in the Arkansas Supreme Court, and Federal Courts up to and including the Supreme Court of the United States. In 1932 he served in one case as an Associate Justice of the Supreme Court of Arkansas , to fill a vacancy caused by the disqualification of one member of the court to participate in hearing and acting upon that particular c ase. He became quite interested in flood control , and served for several years as a member of the first Flood Control Commission of Arkansas , established by Act 212 of 1937, the seven mem bers of which served , by ,the terms of the Act " without compensation ." Throughout his professional career Lamar took an active interest in the Arkansas Bar Association , and in 1946 became its president. He was deeply interested in the unification of the Arkansas Bar (its membership to include every lawyer in the State) . In his President's Address , which revealed extensive research and much thought, he urged a reformation of the judicial system of our State, to conform generally with what had then become well known as the " Missouri Plan ," For many years he served as attorney and member of the Board of Directors of a bank in Monticello, and of one in Dumas , Arkansas ; and as attorney and member of the Board of the Ashley , Drew & Northern Ra ilroad Company, serving also as Secretary of that Board . His early activity and leadership in civic affairs led him, at the age of 21 years, to being elected Mayor of Monticello in 1908, in which capacity he served two terms. He later served as Secretary of the Monticello Chamber of Commerce. In 1923 he was one of the organizers and charter mem bers of the Monticello Rotary Club, of which he later became president , and is now one 01 its four " honorary members," Until his recent incapacitation
he has been , since his youth , an active member of the local Presbyterian Church , U,S,; served as a teacher in its Sunday School many years , as Superintendent of that organization for one or more terms , and as a member and Clerk of its Board of Elders (called the "Session") for 41 years. In the last mentioned capacity he did not hesitate to inject into the minutes of meetings of the Session bits of personal philosophy anent human natures and a sense of humor. A minister of the church incorporated such excerpts in a book called " And a Time to Laugh ," two editions of which have been " sold out. " Politics did not escape Lamar 's field of interest and activity , He was manager of Governor Harvey Parnell 's first and successful race for election as Governor of Arkansas ; was " keynote speaker " at the State Democratic Convention of 1928 , " permanent chairman " of that party 's State Convention in 1930, and as one of the Arkansas delegates to the Democratic National Convention he was designated to represent Arkansas in seconding the nomination of Franklin 0 , Roosevelt as the Democratic nominee for election as President of the United States. During his more active years he was a member of the Masonic Lodge in Monticello, and of the Scottish Rite Consistory in Little Rock , Shortly after the United States, In April 1918, became a participant in World War I, although his brother and junior law partner was already in the military service as a volunteer and his father and senior partner was no longer very active in the family law office , and although he was then thirty years old, with a wife and two quite young children, Lamar 's inner urge to directly participate in that conflict as a member of his country's armed forces was too great for him to resist. He applied for and received the status of a cadet at the newly established airplane pilot's training school of what was then the " Air Service" branch of the Army Signal Corps, at Taylor Field , near Montgomery, Alabama ; and in due time received his " wings " and commission as a 2nd Lieutenant in the " Army Air Service." Due, no doubt , to h is proficiency as a military airplane pilot, as well as to his age and family dependents, he was retained at Taylor Field as a flight instructor, and served in that capacity at that station until the end of the War , when he promptly obtained his release from the military and returned to h is family, his office and the practice of law.
Continued on page 250
249
N.J. Gantt, Jr.
Mr. N.J. Gantt , Jr. has been " Mr. Lawyer" in Southeast Arkansas for many years . He has practiced law in Pine Bluff since 1903. This followed a rather varied background which included being c ashier of the bank of Beebe. Arkansas , at the age of thirteen and graduation from Hendrix College and Vanderbilt Univer5ity. His contacts with Jefferson County have been quite extensive since he began the practice of law. He was the second President of the Pine Bluff Willis B . Smith , lawyer, and his contributions to the legal profession are best shown by a plaque that hangs on his office wall that was presented to him on June 16, 1972, by his law parlners in rec ognition of 45 years of faithful and dedicated serv i ce to our profess ion . It reads " Vanderb i lt University LLB 1926; Cily Attorney , Texarkana , Arkansas . 1928-1937 ; State Senator, Tenth Senatorial Distri c t, 1939-1945; Presidenl Pro-tem of the Arkansas Siale Senale, 1943; President , Arkansas Bar Association , 1959-1960; Chancellor of Sixlh Chancery Circuit. 1967-1968; President Texarkana Bar Asso c iation , 19701971 ". A plaque is incapable 01 describing h is deep feeling for people. He has always been a favorite with his fellow-man and goes by the nickname of " Jug", a nickname which only his contemporaries in Vanderbitt are aware of its origination . For his friends other than those he leaves the origin of the nickname to one 's imagination . H is devotion to his fam ily is well known , but his deep feeling for other people sometimes goes unnoticed except to those who know him best. A classic example of h is deep feeling
250
Chamber of Commerce and was among its founders , He served as President of the Arkansas Bar Association in 1940-1941 . His offices in both civic and bar association organizations are legion . Mr. Gantt is recognized as being the epitome of a " southern gentleman ". He has been consistently polite and courteous , and few people have ever seen him without his coat as a part of his regular dress. The story is told about the time Mr. Gantt was to address a group at Altheimer . Arkansas , in the days before air condition ing . The meeting was to be held al the Altheimer High School which did not even have electric fans . Dr. Woods , Mr. Gantt's host, had asked that Mr. Gantl come by his home prior to the meeting . At that time, Dr. Woods suggested to Mr. Gantt that most of the men in the audience would be farmers and that they would not be accustomed to wearing coats during hot weather. He suggested that h is audience would probably be more comfortable if Mr. Gantt would not wear his coat. Reluctanlly , Mr. Gantl agreed to Dr. Woods ' proposal. Because he was well known in the area and was known always to wear his coat , out of respect and admiration , practically everyone in the
Willis B. Smith
can be typified by Ihe friendships thai he formed while enjoying one of his favorite pastimes, duck hunting . He is a member of the Hempstead County Hunt ing Club which is referred to as Grassy Lake in southwest Arkansas . This lake is a forest of c ypress trees and swamps and a person traveling on the lake must have a gu ide. Willis
audience , although hot and perspiring , appeared in their coats. You can i magine Mr . Gantt ' s embarrassment when he stepped out on the stage, minus his coat. in his shirt sleeves! Mr. Gantt has a reputation of never saying anything bad about people . Generally, he follows the old adage of not saying anything "if you can 't say somehting good". An exam ple of his attitude occurred when a local citizen , whose bad reputation was well known throughout the community , was being discussed in a meeting attended by Mr. Gantt. The man had been an inmate in the penitentiary and had defrauded several people . After several condemnatory comments , it became apparen t Mr. Gantt had said nothing about the man. One of the members turned to Mr. Gantt and asked his opinion . In his typical way, Mr. Gantt replied , " Well , I find very liltie to recommend him." Mr. Gantt continued to keep a rigorous schedule, and only in recent years has come to recognize any holidays other than Christmas. His dedication to the profession of the law (which he refers to as the " the jealous mistress") has been a valuable example for all of those with whom he has been associated . became friends with all of the black guides that worked on the take , one being Joe Greathouse who was a friend of Willis for years and years . Joe died as a young man with leukemia and it is hard for Willis to even think of Joe without his emotion showing . He is the kind of person who very seldom becomes involved in domestic relations cases because of its impact on the family, but when he does, in a reluctant fashion, he lectures both parties over and over, and in many instances he has been responsible for marriages to continue and , in storybook fashion , they live happily ever aUer. Elderly people have always been lond of Willis, especially little old ladies whom he teases without mercy. One such lady came to see him on an average of once a month to change her will in some small way, codicils grew into about seven , when he suggested that she should rewrite it all into one will , she was indignant because he charged her $25 .00 for redraft ing the whole thing . She maintained she had paid him for years for nothing , so he made her extremely
Continued on page 252 NOVEMBER,1972
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Va nderbi lt University, LL.B. 1926 3egan . racti ce Of La w,TexarkBna,Ark.June 15.1926 City Attorney - Texarkana ,Ark. 1928-37 State Senator ,10th Senatorial ::>istrict 1939 - 45 resident Pro Tem or The Senate 1943 Acting Governor Of ArkBr.sas 1943 ?resident - Arkan sas Bar Association 1959-60 Cha cell or - Sixth Cha ncery Circuit 1967-68 Jresden t - lmr~~r~. ~ a.r. A.s,s.o,c,i~! i o n 19?0- 71 ~ ARTN E RSHI P AFF L1 ATlON SMITH 8 S ~IITH CARTER 8 SMI"'t{ SMI H 8 SANDERSON S) 1-:-:1, UDERSO. , S ROUD 8 MCCL:J r;! ' S~!II " . , STRO I 8 CONWAY . ....UD, . . .M . CCLERK ......... . :Jim This 16th Day or June, 1971.By His Law Partners n ecognition Of forty five Years Of ?ai thfu l And Dedi cated Service To The Profession
JOHN 'f. sTRouiJ:JIi.' . 'WILLIS 'B:SMiTH'.jli.
HAYES C lit CLERKIN CHARLES ).\.CONWAY
~~
THE ARKAN SAS LAWY ER
WINFORD L. DUNN. JR. WILLIAM H. HOWELL
'~-:BsJ ~'-'1
251
Continued from page 250
Alex Sanderson were practicing law together they had two secretaries, both of whom became pregnant within about two weeks of each other. As the secretaries grew larger and larger with child , he insisted that the secretaries put up a sign, which they did , which read " Management not responsible for existing circumstances " . Willis enjoys reminiscing with fond affection about his family and his favorite pastimes other than prac-
ticing law , such as farming , fishing, hunting , and traveling . Regardless of his love for these pastimes, it is hard to teach an old dog new tricks because he is at the office every morning at 8 : 15 looking for work to do , and one can rest assured that at the end of the day it will be completed or it will be put in an orderly fashion on his desk . He, unlike most lawyers, likes an orderly desk in front of him because he feels that no good comes of confusion . •
Arkansas Eminent Domain Digest Willis' Wife. Amy happy by charging her nothing at att. Young lawyers remember when Mr. Smith was President of the Arkansas Bar Association and they complained to Mr. Smith concerning the long waiting period between the bar examination and the results. - This was ultimately changed , and , as Willis states, had it not been for the same situation in his native state of Alabama he probably would not be practicing law in Arkansas . As long as he has lived in Arkansas he still has the same soft Alabama brogue - all consonants soft, and most one syllable words divided into two. On one occasion he hired a new secretary with high recommendations and a heavy, pure Brooklynese accent. Mr. Smith just couldn 't understand the Yankee and vice versa. He called in one of his other secretaries to discuss the problem and said " I just don 't believe that girl can understand English . She says 'thirty ' for ·thetty·... He is a great favorite with the secretaries that he has had work for him throughout the years. One secretary remembers when she made an ivy arrangement in a planter for a bookcase in his office and he complained continuously about not keeping it watered. Once, to remedy the situation, he got out the watering can , mumbling to himself about the sorry help, and watered the plant . Since he had some water left over he went into the reception room , which had just been newly and expensively carpeted , to water a big plant in that area of the office. He poured about a pint of water, st ill complaining about how dry all the plants were . He did no t realize that the reception room plant was artificial and that the pot was full of holes, and the carpet was drenched . At one time when he and Judge
252
Compiled by the University of ArkanAA~ for the Arkansas State Highway Commission.
207 Pages
$9.50
Arkansas statutes Annotated 22 Volumes with Current Supplement $175.00 in the State of Arkansas_
WORKBOOK FOR ARKANSAS ESTATE PLANNERS MITCHELL D. MOORE. WILL I AM H. BOWEN
A Complete Source for Planning Estates in Arkansas Planned exclusively for Arkansas lawyers, it is based on the statutes, cases, regulations. and tax situations of the state. This workbook se r ves as a guide to drafting n simple will, testamenta ry planning for benefit of minor or aged, forms of property ownership, purposes and techniques of making gifts, drafting partnership and business purchase agreements and many other important topics. The handy loose-leaf format makes this source a unique working tool - an invaluable reference for the Arkansas lawyer.
11 C h a p te r s
$35 .00
REID'S BRANSON INSTRUCTIONS TO JURIES 7 VOLUMES WITH CURRENT SUPPLEMENT
S125.00
JONES LEGAL FORMS THREE VOLUMES . 68 CHAPTERS
$60.00 Contact Your Bobbs-Merrill Arkansas Repr esenta t ive, Mr . Joshua E . M c Hughes t 408 Rowman RO<ld Little Roc k, Arkansas 72205
The Bobbs-Memll Company, Inc. 4300 W. 61nd St. / Indianapolis. Indiana 46168 A ny rcs('II.'r rs I ro'e 10 charfJ" w hal ev er p rrce 1\ w lsh e$ fo r o ur b oo ks.
NOVEMBER. 1972
ELEVENTH ANNUAL ARKANSAS FEDERAL TAX INSTITUTE Arlington Hotel Hot Springs, Ark. November 30-December 1 Thursday, November 30 "Current Developments in Limited Partnership - Uses in Private and Public Offerings" James O. Hewitt, Attorney at Law , San Diego , Calif. " Tax Aspects of Planning for the Transfer of a Partnership Interest" Michael Waris , Jr., Attorney at Law, Partner with Baker & McKenzie, Washington , D.C .
PRIVATE INVESTIGA liON MYERS & ASSOCIATES, INC. 910 Pyramid Life Bldg. Little Rock , Arkansas Phone 372-1809
Professional Investigation ServicesCivil, Criminal, Industrial for the Professions, Business, Industry and Individuals Technical ln vest;gations in
Thursday Evening : Informal coc ktail party and buffet Friday, December 1 " Combining Multiple Corporations" Henry B. Jordan , CPA , Partner, Lybrand , Ross Bros. & Montgomery, Los Angeles, Calif. " Proposed Regulations Pertaining to Minimum Tax on Preference Income and Maximum Tax on Earned Income" Robert J . Schwartz , CPA , Manager, Ta x Department , Ernst & Ernst , St . Louis , Mo . " What To Do With a Private Foundation Convert, Continue or Terminate " Th omas J . Brorby, Attorney at Law, Partner , Fulbright , Crooker & Jaworski , Housto n, Texas
Liability Cases
Licensed by the State Investigator Licens路 ing Board, State
Approved by the Arkansas
Police,
References
of Prominent
Attorneys furnished upon request. Ten Years Experience.
Fred Myers Ronnie Rand Mel Fry
" Distributions From Decedents' Estates" Herman l. Trautman , Professor of Law , Van derb ilt University Thursday Luncheon Speaker : Emmett E. Cook , Jr. , Direc tor of Internal Revenue , Little Rock
~roduc ts
Fidelity TITLE AND ABSTRACT COMPANY OFFERS-
Statewide Title Service REPRESENTING-
Louisville Title Insurance CO. OF LOUISVILLE . KENTUCKY
TITLE PLANT CONSTRUCTION BY TITLE DATA OF ARKANSAS , INC. P.O. Box 644 Benton , Arkansas 72015
JAMES E. VILLINES Vice Presi de nt LOLA L. GRAY Sec retary-Treasu rer
Friday Luncheon : Informal The fee will be $45 with panel discussions in the mornings and workshops in the afternoon .
THE ARKANSAS LAWYER
MEMBER OF : Arkansas Land Title Association Ameri c an Land Title Association
253
a
HIS CODE OF PROFESS
Wi"i~
B. ~mith
Prg~id,mt. Arkan~a~
1959- 1960 Bar A~~o~iation
(In his President's Address, Willis B. Smith thoroughly, and beautifully , discussed the main areas of professional responsibility affecting the legal profession. The fortunate are those who heard him . Unfortun ate ly, it is not feasible here to reprint his address. A few pertinent extracts are printed. However, his address is one worth reading and re-reading , and is published in 14 Arkansas Law Review, pages 234-240 .)
"W II takll pr idll
I RESPONSIBILITY OF LAWYERS TO CLIENTS _ "duties of fidelity, diligence , and integrity - duty of intelligent representation duty to exp lore new fields and master new techniques. "
in the fact that we belong to an ancient and honorable profession which has made more significant contributions to political and economic freedom and individual liberty than any other group or calling , and that throughout history lawyers have stood in the forefront of the necessary continuing battle against tyranny in all of its forms . We know that without law there could be no liberty; and we also know that no legal system can have vitality or meaning without men who are learned in the law and devoted to proper application to the concrete problems of human life .
II RESPONSIBILITIES OWED BY LAWYERS TO LAWYERS - " courtesy, consideration and fair play - to younger colleagues, advise, admonition , example and encouragement ."
" But the very position that we hold in our society imposes heavy obligations and responsibilities upon us. We can command public respect only as we recognize and live up to those responsibilities ; and we may as well confess that at times we have , both individually and collectively, failed to meet our responsibilities."
III RESPONSIBILITY OF LAWYERS TO THE BENCH"candor, cooperation and respect deep and abiding respect for the Judiciary and the judicial process."
254
NOVEMBER , 1972
IONAL RESPONSIBILITY IV RESPONSIB ILITY OF THE BENCH TO THE BAR " fairness , courage , consideration , industry and c ourtesy - respect - 'Judges ought to be more learned t ha n w itty ; mo re reverend than plaus ible ; and more advised than c onfident. Above all th ings, integrity is their portion and proper virtue. .. Pati ence and g rav ity o f hear ing is an essen tial part o f Justic e , and an over s peaking judge is no well-tune d cymbal. . .', from Si r Francis Bacon 's Essay on Judicature - a kin dly heart." V RESPONSIBILITY OF BOTH THE BENCH AND THE BAR TO THE PUBLIC - " The justification o f ou r existence is that we are here to serve the needs of the public, and that the courts belong to the people and not to the lawyers and judges . 'The place of justice is a hallowed place ; and therefore not only the Bench , but the foot pace and precincts and purpose thereof ought to be preserved without scandal and corruption .' (Sir Francis Bacon) - so to conduct the administration of the law in all its phases that the public will have respect for and confidence in our legal system in general and in our courts in particular."
WQ. in turn. takQ pridQ in Willi!:........... . SOUTHWEST ARKANSAS ELECTRIC COOPERATIVE CORPORATION Rural Elec tric Servic e for Rural America Texarkana. Arkansas
THE STATE FIRST NATIONAL BANK
TEXARKANA CONCRETE PRODUCTS COMPANY
of Texarkan a
Texarkana. Texas
Compliments of
THE TEX ARKANA NATIONAL BANK
JAMES T. MILLAWAY
Texarkana, Texas
Texarkana, Arkansas
T
SO UTHWEST TI TLE COMPANY representing CHICAGO TIT LE INSURANCE COMPANY
~
Texark ana
THE ARKANSAS LAWYER
Compliments of
GEORGE W . PECK
Arkansas
Com pliments of JO HN PAFFORD Pafford Distributi ng Company Texarkana. Texas
255
The principal characteristics of leadership are easy to identify. Specifically, a leader can be recognized because he : is goal directed and self motivated; exercises and inspires initiative ; possesses genuine self confidence; has the ability to concentrate; uses creativity and imagination ; and knows how to motivate others to action . - Paul J . Meyer
WILLIS B. SMITH TEXARKANA, ARKANSAS
256
NOVEMBER . 1972
ThU!l. it i!: !:o vl!ry I!a!:y to rl!cognizl! Willi!: B. a!: onl! of our City.
• • • • • • • • •
~tatl!.
~mith
Bl!nch and Bar. and Church Il!adl!r!:
City Attorney, Texarkana, Arkansas 1928-37 State Senator, Arkansas 1939-45 President Pro Tem of Arkansas Senate 1943 Chairman, Democratic State Committee 1957 President, Arkansas Bar Association 1959-60 Chancellor, Arkansas Sixth Circuit 1967-68 President , Texarkana Bar Association 1970-71 Director, Vanderbilt Alumni Association Chairma n, Boa rd of Deacons, First Presb yteri an C hurch of Texarkana
And. Wl! an! pll!agl!d to gO
rl!~ognizl!
()
COOPER TIRE & RUBBER COMPANY
T illE.
Texarkana, Arkansas
CoOper
Willig ...
Compliments of
THE RED BARN RESTAURANT
PEARSON WALSH
Highway 67 North Texarkana, Arkansas
Walsh-Lumpkin Drug Company Texarkana, Texas
Compliments of
DAVID MULLINS
BELK-JONES DEPARTMENT STORE
Glass Pharmacy
Texarkana , Arkansas
Texarkana. Arkansas
C & C AMU SEMENT COMPANY, INC. Texarkana. Arkansas
Compliments of
T. A. CLARK Buhrman-Pharr Hardware Texarkana, Arkansas
THE ARKANSAS LAWYER
$
COMMERCIAL INSURANCE AGENCY, INC. Texarkana, Arkansas
OFFEN HAUSER & COM PANY Sinc e 1882 Tex arkana. Texas
257
JURIS DICTUM by C . R. Hu ie Execut ive Secretary . Judicial D epartment
J ames T. White, Medical-Socia l Coordinator o f the Alcohol Safety Actio n Project o f Pulaski Co unty is our guest writer for this issue of the " Arkansas Lawyer." What is happening in one of our traffic courts sho uld be of great interes t to a/l Arkansa s judges and lawyers . His sp lendid treatment of a most serious problem fo llo ws. In the bi bli ca l story o f Noah , alcohol abuse emerges as a problem . And significantly, when the old patriarch became intoxicated in ce lebration of the successful grounding of his ark , no one seemed to know what to do about it. That the problem of alcohol abuse is one of mankind 's oldest problems cannot be denied . Furthermore, it is a problem which has been made more serious with the advent of modern technology. Noah might have been a problem , but with his ark safely parked , he was not likely to run over anybody. But in our society, the mixture of alcohol abuse and vehicle operation has been a particularly dev as t ating com bination causing more than 25 ,000 deaths and virtually incalculable misery and destruction each year . Unfortunately our "modern" means of dealing with this enormous problem seem to have been no more effective than those available to Noah 's sons. The usual methods of dealing with individuals hailed before the courts for driving under the influence of alcohol have largely failed to reduce the number of OWl offenses or the incidence of recidivism among those with prior convictions. The "revolving door" offender is a familiar figure to all magistrates and lawyers, but the usual pattern of arrest, fine, and possible in carceration has had little effect. All to o often persons who exhibit an alcohol abuse problem go through the judicial mill and then promptly commit the same offense again . In an attempt to find some new solutions to this age old problem , Judge Dean Morley, magistrate of the North Little Rock Municipal Traffic Court. is cooperating with the Alcohol Safety Action Project of Pulaski County in an innova tive use of the social workers discipline as a means for guiding OWl offenders into therapeutic programs which have the possib ility of changing these dangerously destructive drinking-driving habits. Miss Susan O. Mercer, a profes-
258
sional social wo rk er, has been assigned to assist Judge Morley in determining the most effec tive procedures to follow in individual cases of OWl offenders appearing before his court. " One of our problems in dealing with drunk driving has been that we have been dealing with the symptoms of a problem rather than the problem itself," Judge Morley observes. " The person who becomes intoxicated and then operates an automobile is a hazard , and must be dealt with . But the real cha llenge is to determine why this person becomes intoxicated in the first place. Unless we can find some means o f dealing with that prob lem, th en in all likelihood the drunken driving pattern will recur. " Miss Mercer's function in the North Little Roc k Cou rt is to conduct interviews with those clients referred to her by Judge Morley. The judge refers the clients he feels might benefit from the recommendations that the social worker can bring before the Court . Through examination and interview techniques Miss Mercer attempts to ascertain the type and degree of drinking problem that an individual has. She also endeavors to determine
the best avai lab le means for dealing with the person 's tendency to abuse alcohol. Judge Morley observes, " this is a h ighly individualized procedure, but persons brought before the court for OWl offenses are individuals with unique problems which may be contributing to their unacceptable driving behavior. We cannot expect that an automatic sentencing formula will do much to deal with these unique problem configurations. In fact , the depersonalized autom atic sentence might on ly serve to make the problem worse." Miss Merce r is even more speci fic in her comments about her role . " Th ere are many factors w hich can cont ribute to the drinking-driving behavior o f individualS who are brought before court," she said . " We see individuals who are problem drinkers or alcoholics and need to be helped to deal with their inability to handle alcohol. We also see persons who abuse alcohol even though they may not have a compulsive alcohol problem . However, it is almost always true that con tributing factors are uncovered through our questionnaire and interviews. Some clients are hav-
Social worker Susan O. Mercer conferring with Judge Dean Morley
NOVEMBER , 1972
By James M, Moody Secretary-Treasurer minor revisions in the probate code and corporation law . At its next meeting on October 27 , the Council will consider important but controversial enactments on no-fault insurance, bail reform and elimination of dower and curtesy.
The main item of business conducted at the meeting of the Executive Council on September 12, 1972 was to pass on proposed legislation for consideration by the House of Delegates. Bills approved by the Council and later by the House of Delegates included an amendment to Article 9 of the Uniform Commercial Code, a bill to give debtors the constitutional notice required by a recent United States Supreme Court decision in replevin actions and bills making
The Mid-Winter Meeting of the Bar Association will be a trial practice seminar conducted by members of faculty of Hastings College and other outstanding trial lawyers and judges. The meeting will be held in Hot Springs from January 18 , 1973 through January 20, 1973. The Council adopted a resolution
proposed by Marvin Thaxton of Newport oPPosing legIslat ion proposed by the Department of Housing and Urban Development to establish maximum settlement charges in connection wIth real estate transactions. The resolution was mailed to all members of the Arkansas Congressional Delegation . The savings and loan section of the Association will meet at the Arlington Hotel on October 26, 1972 In conjunction with the convention of the Arkansas Savings and Loan League. The Council appropriated $6,500 for use by the public relations committee for 1973 in response to a request by Robert T. Dawson of Ft. Smith, chairman of the committee. 100 app li cations for membership were approved by the Council to add to the 1,494 active and current members of the Associat ion . Everyone IS encouraged to assist Steele Hays In the membership drive . â&#x20AC;˘
ing marital difficulties. Some have vocational or employment problems. Some are lonely. Some are in the throes of divorce. Very often by referring the person to an appropriate agency where he can receive guidance and counseling, the problem which causes his drinking-driving misbehavior can be alleviated, " she said. Many of the clients appearing before Judge Murley's court are offered the option of taking disulfiram, a medication frequently referred to by its registered trade name of Antabuse . This substance causes a person to become extremely uncomfortable whenever alcohol is combined with the medication in his system . In addition to this chemical "fence" against alcohol abuse , clients can also be referred to various other community programs and agencies. Those persons who seem to be suffering from chronic or compulsive alcohol abuse may be referred to a chapter of Alcoholics Anonymous . Others may be referred to an alcoholism program administered by the Economic Opportunity Agency . Some will benefit from marital counseling or other forms of family counseling available from the Family Service Agency . Judge Morley observes that the social worker's skills make it possible for the court to be aware of and to utilize a much wider variety of community services
which can be expected to reduce the need of individuals to drink to excess and to operate an automobile while in a state of intoxication . The new program is predicated on the premise that alcohol is often not the only problem involved in OWl cases. However, in the past , the courts have had neither the time nor the trained personnel adequately to investigate the contributing factors involved in OWl cases. The placement of a professional social worker in the North Little Rock Traff ic Court makes it possible for Judge Morley to establish conditions of probation for those found guilty of driving under the influence of alcohol. If the client adheres to these conditions, they stand a chance of producing a helpfu I therapeutic effect within the life of the individual so treated. Miss Mercer hastens to point out that one of the greatest potential benefits of her recommendations to the court is in motivatIng the court's clients to take an active part in achieving the ir own rehabilitation . "When it co mes to alcohol related problems," she said , " it is essential that the clien t be involved In taking some responsibility toward helping himself. The court can't order everything . The person has to want to get better." Judge Morley feels that referring an individual to a community service
which may assist the client in sorting out some of the problems which cause drinking-driving behavior will be of great benefit. However, the judge points out that it is necessary to have an expert available to the court who can analyze the problem areas and recommend those comm unity services which will be of benefit to a client. " We are trying to treat OWl offenders as individuals," the judge said, " and in doing so we feel certain that we will help some of these persons to refrain from appearing before this court again." In utilizing the insights of a profesSIonal social worker to secure therapeutIc recommendations for OWl offenders, Judge Morley asserts that he is attemptmg to use the power of his court to motIvate problem dnnkerdrivers to seek the help that they need. In doing so, the North Little Rock magistrate reasons that the likelihood of tragic highway crashes caused by alcohol abuse WIll be reduced. The annual bItter hIghway harvest of blood and tears give poignant teStimony to the failure of the traditional methods of dealing with the problem drinker-driver. In his cooperation WIth the Alcohol Safety Action Project Judge Morley is endeavormg to bring new community resources to bear on the problem of death and destruction caused by drinking dnvers. _
THE ARKANSAS LAWYER
Henry Woods introduced Pat Hayes who was recently elected Chairman of the Law Student Division of the American Bar Association at the annual meeting in San Francisco. Pat is a student at the University of Arkansas School of Law in Fayetteville.
259
Some Tax Considerations For Practicing Lawyers Part I: Deductions
by Bruce R. Hopkins
(Mr. Hopkins was a featured speaker at the Arkansas Bar Association 's Fall Legal Institute, September 22-23, 1972. In view of the interest in his topic, his remarks will be published three Parts on "Deductions," "Depreciation" and " Billing Practices." Part I on "Deductions" will be presented in two issues. Mr. Hopkins is an associate of Williams , Myers and Quiggle of Washington, D.C . He is Co-author of the Chapter, "Federal Tax Considerations for Practicing Lawyers " in the ABA 's Lawyers Handbook, and author of several articles for The Tax Lawyer, The Practical Lawyer and the American Bar Association Journal.) The subject of this and the forthcoming two articles is tax considerations for practicing lawyers. The potential scope of this subject is, obviously , nearly unlimited and all tax considerations of interest and concern to lawyers cannot be covered in these articles. As an illustration , some of the tax areas which will not be surveyed in the articles include : (1) the topic of what constitutes " gross income " for lawyers, (2) professional corporations, (3) the minimum tax for tax preferences, (4) the maximum tax on earned income, (5) the liberalized income-averaging rules, (6) qualified retirement plans, and (7) partnership tax considerations. However, the American Bar Association is in the process of revising its publication , The Lawyer's Handbook. which contains a chapter by James W . Quiggle and this writer discussing these and other fields of taxation of particular applicability to lawyers. In this article. various deductions available to lawyers in their professional capacity are discussed. along with mention of other expense items incurred by lawyers which might appear to be incurred in a business context but are nondeductible. (In the subsequent articles, the availability of
260
the new class life system of depreciation for lawyers and tax considerations associated with billing practices - including the deductibility of legal fees - will be discussed.) Lawyers generate many expenses arising from or related to tt\eir practice. some of which are deductible in full in determining tax liability, while some expenditures must be capitalized with the cost recovered through a depreciation allowance , Certain other expenses are permanently nondeductible. A lawyer is a renderer of services and the expenses incurred in his practice are inevitably intertwined with those incurred in his personal life. Consequently. the law requires a careful scrutiny to see that the deduction is extended to only business rather than to personal expenses. Basically, this distinction is embodied in the Internal Revenue Code in sections 162 and 262 . Section 162 permits a deduction for all ordinary and necessary expenses paid or incurred during the taxable year in carry ing on any trade or business. Section 262 generally disallows a deduction for personal. living , or family expenses. Also very much relevant is section 274 . wh ich sets forth rather
tough rules for deducting entertainment, gift and travel expenses. As to each of the deductions to be surveyed , the name of the game is establishing a rationale that the expense is business-related and is not for personal ends. Section 212(1) allows a deduction for all ordinary and necessary expenses paid or incurred for the production or collection of income, section 212(2) allows a deduction for expenses for the management, conservation or maintenance of property held for the production of income, and section 212(3} allows a deduction for expenses in connection with the determination, collection or refund of any tax. The criteria for achieving the sections 162 and 212 deductions are basically the same, the lawyers' professional deductions are generally treated as business deductions under section 162. Section 212 will be discussed separately in the context of the deductibility of legal expenses. Deductible Items in General A lawyer may, in general , deduct all the " ordinary and necessary" expenses paid or incurred in the conduct of his practice.' Among the items included in business expenses incurred by a lawyer
NOVEMBER,1972
are compensation for services rendered, office supplies, incidental repairs, operating expenses of automobiles used in the practice, rental for the use of property, and insurance premiums against fire , storm, theft. accident. or similar losses.2 Also deductible are dues to professional societies and subscriptions to professional journals, and amounts currently paid for books, furniture, and equipment, the useful life of which is shorP Certain business expenses are deductible from gross income in computing "adjusted gross income,"4 while other business expenses are deductible only by taxpayers who itemize deductions in computing taxable income.5 The method of taking a deduction may depend upon whether the taxpayer is self-employed or is considered an employee. For the self-employed lawyer, the business deductions can be taken in computing adjusted gross income, as long as they are considered " attributable" to his practice. 6 This concept of " self-employment " applies, of course . to the lawyer who practices as a member of a law partnership J However, for the lawyer who practices as an employee, such as a corporate attorney , an attorney for a governmental agency or an association , or a salaried associate of a firm, most of the business deductions to be d iscussed are only allowable in comput ing taxable income. Nonetheless. certain expenses incurred in the performance of legal services are deductible in computing adjusted gross income by the lawyer who is an employee. These expenses are the following : (1) expenses paid or incurred under a reimbursement or other expense allowance arrangement with the employer,8 (2) expenses of travel , meals, and lodging while away from home,9 and (3) expenses of transportation. 10 Two further points on this concept of the lawyer as an employee: The Internal Revenue Service has ruled that a salaried associate of a law partnership is an employee, even though he may handle cases for which he receives the full fee .11 The Service has also ruled that an attorney, who , as part of his practice represents a corporation and is paid a retainer , is not to be considered an employee of the corporation .12
bursed at all by his employer. Nonetheless, certain reporting requirements are imposed in connection with the Federal income tax returns of such employees. An employee need not report on his tax return expenses incurred by him solely for the benefit of his employer for which he is required to account to his employer, in two instances. First. in the case of expenses which are charged directly or indirectly to his employer (e.g.. by means of credit cards) . Second , in the instances where the employee is paid through advances, reimbursements , or otherwise , provided that the total amount of such payments is equal to the expenses incurred .13 However, in both cases, the employee must state in his return that the total amounts charged to or received from the employer as advances or reimbursements did not exceed the ordinary and necessary business expenses incurred by the employee. Should the total of amounts charged to or received from the employer be in excess of the ordinary and necessary business expenses incurred by the employee, and the employee accounts to his employer for such expenses, the employee must include such excess as part of his gross income.14 Again , the employee must so state in his tax return .
Lawyer-employees' Reporting Requirements Where a lawyer is practicing law as an employee of a law firm or other em ployer, he will undoubtedly incur ordinary and necessary business expenses which are reimbursed , partially reimbursed , or perhaps not reim-
With respect to the foregoing requirements, to " account " to an employer means to submit an expense account or other required written statement to the employer, showing the business nature and the amount of all of the employee 's expenses , broken down into broad c ategories as
THE ARKANSAS LAWYER
If the employee' s ordinary and necessary business expenses exceed the total of the amounts charged to and received from the employer, and the employee accounts to his employer for such expenses, the employee may Simply so state in his tax return . But. to claim a de"1uction for the excess, the employee must submit a statement on Form 2106 as part of his tax return showing the following : (1) the total of any charges borne by the employer and of any other amounts received from the employer for payment of expenses, whether by means of advances, reimbursements , or otherwise, (2) the nature of his occupation . (3) the number of days away from home on business. and (4) the total amount of ordinary and necessary business expenses inc urred by him , broken down into broad c ategories such as transportation , meals and lodg ing while away from home overnight , entertainment expenses, and other business expenses.15
discussed .16 An employee is regarded to have made an accounting to his employer where he received a per diem allowance not exceeding $36.00 per day and a fixed mileage allowance not exceeding 15 cents per mile for ordinary and necessary transportation expenses not involving travel away from home.17 If an employee is not required to account to his employer for his ordinary and necessary business expenses, or, though required, fails to account for such expenses, he must submit a statement as part of his tax return showing the same information as the employee who does account to his employer.1S However, the difference in this situation is that the amounts of all advances or reimbursements must be reported by the employee as gross income and the expenses incurred by him should be shown as deductions on his tax return , with any excess of advances or reimbursements over expenses entered as income from " other sources." The net of all this is that a lawyeremployee who is reimbursed in the amount of his outlays for business purposes, where his expenditures do not exceed reimbursements, and who " accounts " to his employer, is relieved of reporting such expenses on his Federal tax return . The Service may require a taxpayer to substantiate such information concerning expense accounts as may appear to be pertinent in determining tax liability. The Service has the authority to require substantiation of expense account information of the following categories of taxpayers: (1) those who are not required to account to their employer or who do not account, (2) those whose business expenses exceed the total of amounts charged to or received from their employer, and who claim a deduction for the excess, (3) those who are considered "related" 19 to their employer, and (4) those whose employers are deemed to have inadequate accounting procedures for the reporting and substantiation of expenses by employees.2o Should a deduction taken by a lawyer be questioned by the Service, the burden of proof as to the amount actually expended and its relation to his practice would be on him . Therefore , every lawyer should maintain adequate records of items which are likely to be questioned . Entertainment Expenses In the rather intricate area of entertainment expenses, a double standard must be met: (1) such expenses, whether for business or for the production
Continued on page 266 261
"MR. LA WYER" .
• •
•
N.J. GANTT, JR. -IN ACTIVE PRACTICE SINCE 1903262
NOVEMBER , 1972
Continued from page 261 of income, must be ordinary and necessary.21 and (2) such expenses must be directly related to or associated with business or income production. 22 Also to be deductible, the otherwise e'ngible expenses must be adequately substantiated . The substantiation requirements are discussed below , and it is simply observed at this point that one must maintain detailed records showing where , how, and on
whom funds have been spent -
and
for what business purpose. Basically, to sustain an entertainment expense with respect to an activity, a taxpayer must establish one of two circumstances (in addition to meeting the requirement of " ordinary and necessary" ): (1) the item was " directly re lated " to the "active con du c t " of his trade or business, or (2) in the c ase of an item directly preceding or following a substantial and bona fide business discussion , the item was " associated with " the active conduct of the taxpayer 's trade or business.23 These two basic concepts will henceforth be referred to as the " directly related " test and the " associated with " test , respective ly. Where the entertainment expense is in c onnec tion with a facility , the tax-
payer must show : (1) that the facility was used " primarily for the further-
ness meeting , negotiation , discussiorl or other bona fide business transac-
ance of" the taxpayer's trade or busi-
tion, (2) at the time the expendit"re
ness, and (2) that the item was " dire c tly related " to the active conduct of such trade or business. 24 Moreover, an expenditure for entertainment is not allowable as a deduction to the extent it is considered " lavish or extravagant."2 5 The concept of " lavish or extravagant " is not spelled out in the regulations - so an Internal Revenue Service agent can basi ca lly apply the test with conside rable discretion on a case-by-case basis. The term "entertainment " is generally utilized in reference to activity which is considered amusement or recreation .26 Some examples would include : (1) entertaining at night clubs , cocktail lounges, theaters , country clubs, golf and athletic c lubs, and sporting events, and (2) entertaining on hunting, fishing , vacation , and similar trips. " EntertaiDment" may inc lude an activity which satisfies the personal, living or family needs of another, e.g ., provision of food , beverages, an automobile or a hotel suite. The "di rectly related " test is the tougher of the two tests to meet. To satisfy this test. the taxpayer must show: (1) during the entertainment period to which the expenditure related , he actively engaged in a busi-
was made, the taxpayer had more than a general expectation of deriving a business benefit at some indefinita future time , and (3) that the principal character or aspect of the combined business and entertainment to whic!""1 the expenditure related was the activE$ conduct o f the taxpayer's trade or business.27 With the "directly related " test, it is very difficult to show that business discussions were conducted at the
theater or during a ball game. Strictly "goodwill" entertaining is out under this test.28 The best guide for the "di rectly related " test is the so-called "clear business setting " rule.29 To satisfy this test , a taxpayer must show that the recipient of the entertainment would have reasonably known that the taxpayer had no significant motive in incurring the expenditure other than directly furth ering his trade or business. Generally. meetings at cocktail lounges, country clubs and vacation resorts will not qualify. For example, to meet this test , a taxpayer must show an absence of any " meaningful personal or social relationship " between himself and the reCipient of the entertainmenpo
rll' ,
IIIV•• S· .""•• r.
" Th e gove rnme n t o f the Un ited States is, a nd a lways h as been, a lawy ers' govern m ent." - C hau ncey M . D ep ew
"The law - it has ho no red us, may we hono r it." - Dan iel Webster
* * ****************************************************** ** ******************************* * * ***************** ****~*~
1
The President's Address N .J . Gantt, Jr. President 1940-41 Arkansas Bar Association
" In such a ti me, the leadership w h ich is required is not satisfied by the mere holding of office, or the gratification of personal ambition , or the attainment of selfish ends. It calls for self-sacrificing service, and a willingness to devote one's time and ta lents to the task of finding a safe course to pursue in order to preserve the Nation , even as the founding f athers devoted thei r time and talents to its establishment." • • • •
Between the two quotes by Depew and Webster, Mr. Gantt in his President's Address on May 2, 1941 stressed the role of the lawyer in America 's past and the cha llenge faCing the lawyer in the future . His message - timely in 1941 "when the citadels w h ich stood guard over the birthplace of Western democracy are being sullied by the shadow of the swastika" and , perhaps, even more timely today - may be found in the re ported Proceedings of the 44th Annual Meeting of the Bar Association of Arkansas, May 2 and 3, 1941. A few pertinent extracts are set forth he re.
" Every person ... ought to obtain justice freely and without purchase, completely, and without denial, promptly and without delay, con formably to the laws." - Arkansas State Constitution • • • • " A patriotic service can be rendered in protecting the integrity of the state as an essential part of the federal system of government. " • " We should make progress in gove, nment, in the making and in the administration of laws, as well as in science and commerce. Changing co nditions call for changes in the methods of dealing with the various phases of national life , but do not call for a departure from the ancient land-marks of honesty, Sincerity of purpose and the public welfare." • • • • " He does not surrender his opinions to clients or political parties or Bar Associations ; he thinks and speaks and acts and votes as he individually sees fit; and is generally a most useful and respected citizen , who has and deserves the confidence of his community as well as of his profession ." - Wm. L. Ransom' • • •
,------------------------, " Without question, the lawyer has a record of achievement of which he may well be proud; and yet it must be conceded that he does not now enjoy the confidence of the public to the same extent or exert the same influence in matters of public concern as in former years." • • • •
MISSING AND UNKNOWN HEIRS LOCATE D NO EXPENSE TO THE ESTATE
" The need for leadership today is as great as it was in the days of the founding fathers. We are, at this moment , in the midst of a most critical period in the history of our nation, as well as in the history of mankind. This is a time of transition, when all about us is undergoing change, when to some it appears that the very foundations of civilization are crumbling, and when all must wonder which, if any, of the ancient landmarks will endure ." • • •
" Closely connected with a more careful selection of those admitted to practice and a better preparation for the practice of law, and more important than either, is the matter of character." • • • • "Finally, may I suggest that the lawyer needs to develop a spirit of cooperation. It is a well known fact that, despite his relative strength in legislative bodies and executive positions, the lawyer has done little to improve condi tions affecting his own profession ." • • • "May it not be expected that the lawyer of today will hear the call of duty and respond as did the lawyer of another century?"
W(! W(!Il!om(! Thig Opportunity To Honor
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NOVEMBER,1972
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I
20th MID-YEAR MEETIN6 - JAN. 18-20, 1973
CIVil TRIAl PRACTICE SEMINAR CO-CHAIRMEN
Henry Woods President , Arkansas Bar Association . Past President, Arkansas Trial Lawyers Association .
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• • • • •
HOTEl ARlIN6TON, HOT SPRIN6S, ARK.
INTRODUCIN& THE SPEAKERS
FOREWORD The Midyear Association Meeting at Hot Springs, January 18-20, is a joint production of our Legal Education Committee and The Hastings College of Law (University of California) . The latter institution has pioneered in new teaching techniques particularly in the video area . To help present the most ambitious program on trial practice ever attempted in this area, Hastings is sending two of its most distinguished professors, the head of the University of California Television School , and two of the best trial lawyers in California . Also on th is outstanding program will be two distinguished jurists Judge Alfred P. Murrah , Director, Federal Judicial Center, formerly Chief Judge of the Te nth Circuit, and Judge Donald P. Lay of our own Eighth Circuit. Another featured speaker will be Phil Carboy, President of the Chicago Bar Association and recently acclaimed in a Wall Street Journal feature article as one of the premier trial lawyers in the United States. The three-day program on all phases of trial practice will be intensive and sophisticated . I only recommend it for those presently involved in trial practice to a substantial degree and to those who are interested in becoming trial lawyers. Do not register for this particular meeting with the thought that you will be entertained . Social functions will be at a minimum. You will however receive three days of superb instruction in the art and practicality of trying law suits . As one privileged to observe on two occasions the type of program planned, I can guarantee that the time you spend in Hot Springs will be the most richly rewarding three days of your professional career. If you are interested in improving your competence as a trial lawyer, the 1973 Midyear Meeting is one you will not miss. Henry Woods
Alston Jenn ings President , International Association of Insurance Counsel. Director, The Defense Research Institute, Inc . 264
f
NOVEM8ER , 1972
Judge Alf red P. Murrah Director, Federal Judicial Center. Former Chief Judge , U.S. Court of Appeals (10th Circuit).
Judge Donald P. La y Judge , U.S . Court of Appeals (8th Circuit) .
Philip H. Corboy " Plaint i ff ' s Lawyer ." Pr esi dent, Chicago Bar Association .
Guy O. Kornblum Assistant Dean , Professor o f Law , Hastings College of Law . Active Prac titioner.
E. Robert Wa llac h Professor of Law , Hastings College of Law . Active Practitioner.
Joseph W. Rogers, Jr. " Defense Atto rney" in civi l J ury cases.
THE ARKANSAS LAWYER
265
According to the regulations, even wh'l3re a t axpayer can show that an en tertainment expenditure is "connected wi th" his business, the " directlYre lated " test is deemed nol met if th e entertainment "occurred under c1rcu mstances where there was little or no possibility" of engaging in the active conduc t of business. In this regard , a heavy burden is placed on the taxpayer where he was not present o r where the distractions were substantial , such as at a night club.31 Consequently, it is tough to sustain an entertainment deduction under the "c lear business setting " rule or the parent " directly related " doctrine. Usually, it is relatively easier to establish an entertainment deduction under the " associated with " test. As noted , this requires that, although nothing of a business nature occurred during the entertainment , a subst antial and bona fide business discussion must have been held before or after the entertainment. And , as always, the expenditure must be associated with the active conduct of the business.32 The "active conduct " requirement is considered met if the taxpayer can establish a "clear business purpose " in making the expenditure. 33 Such a purpose would include obtaining a new client or en·
:lIfe
cou raging the continuation of the clie nt relat ionsh ip. What constitutes a " substantial and bona fide business discussion "? The regulations state that it depends upon the fac ts and circumst ances of each case. 34 It must be established , however, that (1) the business transaction was for the purpose of obtaining inco me or other business benefit and (2) that the business transac tion was " substantial " in relation to the entertainment. This does not mean , however, that more time be devoted to business than to entertainment. Any meeting officially scheduled with a program at a convention or at a meeting sponsored by a professional organization consti tutes a substantial business discussion , as long as (1) the sponsoring organization has a program of business activities (e.g., leclu res, panel discussions), (2) the program was the convention 's principal activity, and (3) the expenses necessary to the attendance of the taxpayer at the conven tion otherwise qualify.35 What co nstitutes " directly preceding or following? " Normally, to qualify under the " associated with " test, the entertainment will have to take place on the same day as the business discussion. 36 Otherwise, the facts and circumstances of each case are con-
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/"1
Commercia! Standard
sidered, including (1) the date, place and duration of the business discussion , (2) whether the taxpayer or the business associates are from out of town , and (3) the reasons the entertainment did not take place on the day of the business discussion. 37 These rules work this way : Suppose a prospective loca l cl ient comes to a lawyer's office for a lengthy business discussion. That evening, the lawyer treats him to dinner and the theater. The expenses are deductible. Or, suppose the prospective c lient came in the prior day from out of town. Th e lawyer can wine and dine him the night before the business discussions and again the next night. and deduct the expenses. Also a lawyer can entertain fellow lawyers, business associates and prospective clients in between and after business meetings at a convention, and deduct the cost. What about spouses? An entertainment expenditure for a lawyer 's spouse and the client's spouse, which is otherwise qualified and which meets one o f the two tests for entertainment deductions in particular, is also deductible. 38 Also, even if the deduction is otherwise established , a taxpayer is supposed to refrain from deducting that Continued on page 268
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THE ARKANSAS LAWYER
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watchmen .43 However, one cannot deduct. under these rules , (1) certain out-of-pocket expenditures incurred at the time of an entertainment activity (e.g., expenses for gasoline o r fishing bait consumed on a fishing trip), (2) non-entertainment expenses (e.g., expenses for an automobile when not used for entertainment), and (3) expenses or items allowable as a deduction without regard to their connection with a taxpayer 's business (e.g., taxes, interest and casualty lossesA 4 ) . How is the "primary use" test met? Once again , the agent can review all of the facts and circumstances in each instance. Generally , it is the actual use of the facility which establishes the availability of the deduction , rather than its availability for use or the taxpayer's principal purpose in acquiring the facility.A S Primary use is deemed established in certain instances where a taxpayer can show use in furtherance of his trade or business in excess of 50 per cent of total use. 46 For examp le, the rule is deemed met where the taxpayer can show that , in the case of an automobile, more than 50 per cent of the mileage was driven annually for business entertainment purposes or, in the case of an airplane, more than 50 per cent of hours were flown annually for entertainment purposes. 47
Con tinued from page 267 portion of the expense he would normally spend on himself, such as his part of the dinner tab.39 However, this rule seems not to be enforced except in cases of abuse.4o As noted at the outset, there are special rules governing entertainment expenses in connection with a facility. Basically, under these rules, a taxpayer must show (1) that the facility was used primarily for the furtherance of his business and (2) that the item was directly related to the active conduct of the business. What is a "facility"? An entertainment facility includes such properties as swim clubs , tennis clubs, yachts , hunting and fishing lodges, hotel su ites and the Iike. 4 1 Th e deduction is not allowable where the use of the facility for entertainment is only incidental and insubstantial. 42 Assuming there is an appropriate entertainment facility and that its use is more than incidental , what types of expenditures qualify for the deduction? Basically, one can deduct (1) the expenses of maintenance, preservation and protection of the facility (e.g., repairs. painting , insurance), (2) depreciation and operating costs (e. g .. repairs . painting . charges), and (3) salaries paid to caretakers or
if you can't find • your case •In pOint. •• try looking in C. J. S. ~
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CORPUS JURIS SECUNDUM is based on 100% of the law. If it isn't in C.J.S. ~' ou know it hasn't been ruled upon. Isn't that an assul"ing thought? If ~' our client knew, he'd think so too. WEST P[lBLISHING COMPANY Archie C. :JlcLarcn , Jr .. 749 \". Snowden Cr., l\lemphis, Tenn. 38104, Phone: 901 / 276-0 172
268
The rules on entertainment facilities govern as to the deductibility of club dues, which are discussed separately below. A lawyer can deduct the expenses of serving drinks or meals to clients and business associates at his home if he can clearly show that the expense was commercially rather than socially motivated .48 Basically, to sustain an at-home deduction , alleg iance must be paid to these points, as already discussed: (1) a business purpose must be shown, (2) the atmosphere must be conducive to a business discussion, and (3) there may not be any distracting influences. Here, " distracting influences " inc lude the presence of nonbusiness guests, which could also be used to show that the atmosphere was not sufficiently conducive to a business discussion. However, this problem can be avoided by invoking the "associ ated with" rule. If a substantial and bona fide business discussion occurs during the day and the clients are entertained at the lawyer's home in the evening , the expenses are deductible - although he must allocate the costs between business and nonbusiness guests. In this instance, the lawyer's spouse and the spouses of business guests will count as business guests for purposes of the allocation. However. despite confidence that all of the other criteria are met, the courts are not likely to be greatly impressed by a smattering of key business associates or clients at a lawyer's party. The Tax Court, for example. continues to invoke its " primary motive" test , which it developed for use prior to the enactment of Code section 274. Under this test , the home social gathering merits a business deduction only where the party was not given for personal reasons and where the business was benefited or was intended to be benefited. 49 It is very difficult to obtain a deduction for household expenses, even where a lawyer entertains extensively at home. To sustain a deduction for household expenses, the general facility tests must be met. This means that a lawyer would have to show that the business use of his home exceeds 50 per cent of total use and even then only the "di rectly related " portion of the business use wou ld be deductible. Obviously, it is the rare instance where one can show that one' s residence is used over half the time for business purposes. There are ce rtain expenditures as to which the entertainment deduction rules are inapplicable. So That is. expenditures which can be catego rized within these rules are considered deductible.
NOVEMBER, 1972
I
Of the expenditures exempt from the en tertainment deductions rules. the following are relevant to lawyers: ( 1) Any expenditure for food or beverages furnished under c irc umstances generally conducive to business discussion is deductible as a business expense. However, the surroundings must provide an atmosphere where there are no substantial distractions to discussion . Expenses incurred by a lawyer in meeting with a client for lunch during the normal business day will qualify under this rule, unless the purpose for the meeting was primarily social or personal. (2) Any expenditure for food or beverages furnished on the business premises primarily for employees is deductible. (3) Any expenditure for enterta inment where the recip ient of the entertainment is the taxpayer 's employee is deductible, to the extent that the taxpayer treats the expenditure on his inco me tax return as compensation paid to the emp loyee and as wages to the employee for withholding purposes. (4) Any expenditure for entertainmen t which is directly related to bona fide business meetings of the taxpayer 's employees or agents held principally for d iscussion of trade or business is deductible. For example , the expenses incurred by a law firm to furn ish refreshments to the firm 's associate lawyers at a bona fide meeting called for the principal purpose of ascertain ing the status of current work assignments and assigning new cases are deductible under this rule . (5) Any expend iture for a recreational , social. or similar activity pri marily for the benefit of the taxpayer's employees generally, is deductible unless the expenditure is made under circumstances wh ich discriminate in favor of those who own a ten per cent or greater interest in the business o r other highly compensated employee s. Thus, expenses incurred by a law firm in holding Christmas parties, summer outings, and the like for its employees generally are deductible under th is rule. Even if a lawyer rigorously adheres to the requirements for the entertainment deduction, the deduction will be disallowed if the proper records are not kept. 51 The Internal Revenue Code sets forth the basic items which the taxpayer must substantiate by adequate records or by sufficient evidence corroborating h is own statement. Clearly, it is to the taxpayer's advantage to maintain records on a current basis, as the agent will not accept corroborative evidence unless it has a " high degree of probative value to
THE ARKANSAS LAWYER
elevate such ... eviden c e to the level of credibility " reflected by a record timely made.52 To sustain the deduction . the taxpayer's records must show the following : ( t ) the amount of the expense, (2) the time and place of the entertainment or use of an entertainment fac ility, (3) the business purpose of the expense , and (4) the business relationship to the taxpayer of persons entertained or using the facility .53 According to the Department of the Treasury, these requirements supersede the Cohan doctrine.54 Under Cohan, a court , faced with a taxpayer who had incurred deductible expend itures but co uld not determine the exact amount, could make a close approximation and not disallow the en tire deduction .55 However , some courts, inc luding the Tax Court, are cont inu ing to use the Cohan rule . The regulations expand on these requ irements somewhat. As to amount, incidental items, such as taxi fares and telephone calls, may be aggregated on a daily basis.56 As for the business purpose requirement. the regulat ions require the taxpayer to record the business reason for the entertainment or the nature of business benefit derived or expected to be de-, rived as a result of the entertainment,S7 Also , if the " associated with " test is relied upon , the duration of the business d isc ussion must be re corded . What does the statute mean by " adequate records" ? The regulations require maintenance of a diary, expense statement or similar record , prepared so that each recording of an element of an expenditure is made at or near the time of the expenditure.59 Such rec ords must be accompanied by documentary evidence (e.g ., reLeipts , paid bills) supporting all expenditures of S25 or more, except for transporta tion charges where the evidence is not readily available.60 If a taxpayer does not c ompile " adequate records, " to sustain the deduction he must establish eac h element of the expenditure by his own written statement and by other corroborating eviden ce.51 The Second Circuit has invalidated this requirement of the regulations , on the ground that to require a written statement itemizing eac h expenditure is to compel a taxpayer to maintain an adequate record , which goes beyond the Code which sets forth alternate substantiation requirements .52 The Tax Court has indicated it will ignore th is invalidation in cases not appealable to the Second Circuit.63 The regulations also provide guidelines as to what constitutes a separate expenditure, how to allo c ate expend itures among rec ipients of entertain-
ment, how to maintain records to establish that a facility was used primarily for the furtherance of a trade or business . and how to sustain the dedu c ti o n although re cords have been lost o r destroyed . (to be continued)
FOOTNOTES 1. In terna l Aevenue Code (h e reinaft er " LR. C .. ) Sect ion 162. 2. Aeg Section 1162-1(a) 3. Aeg Section 1.162-6; Rev. Aul 54-565. 1954-2 C .B . 95 4 IA C Section 62 . 5 I.A.C . Secllon 63{al 6 . I.A.C. Section 62(1) 7. Aev . Au t. 69-184. 1969-1 C .B. 256. 8 LA C Secllon 62(2) (A) 9 . LA C Section 62(2) (B) 10 I R C Section 62(2) (C) 11. Rev Rul. 68-324. 1968-1 C .B . 433. 12 . Aev Aut. 68路323. 1968-1 C .B 432. 13. Reg Section 1.162-11(b) (1) 14. Reg . Sec tion 1 162-17(b) (2). 15 Reg . Section 1.1 62-17(b) (3). 16. Reg Secl ion 1.162-11(b) (4) . 11. Aev Rut. 71-412. 1971-2 C B 170 18. Reg Secl lon 1,162-17(c) 19. LA. C . Section 267(b) 20. Reg . Section 1.1 62-17(d) (1). 21. lAC Section 162. 212 22. LA. C. Section 274. 23. I.R.C . Section 274 (a) (1) (A) . 24. I. A.C. Secl lon 274 (a) ( I ) (8) . 25. Aeg Sect ion 1.274-1 26. Reg Section 1.274-2(b) (1) <I) 27 . Aeg Section 1 274-2(C) (3) 28. A rthur E. Ryman . Jr .. 51 T .C . 799 ( 1969) 29. Reg Sect ion 1.274-2(c) (4 ). 30. ld. 31. Reg . Sec t ion 1.274-2(c) (7). 32. Aeg Sec t ion 1274-2(d) (1). 33. Reg Sec t ion I 274-2(d) (2) 34 . Reg Section 1.274-2(d) (3) (I) (a) 35. Reg Section , 274-2(d) (3) (I) (b) 36. Aeg Section , 274-2(d) (3) (ii). 37.ld. 38. Reg . Secl lons 1.274-2(d ) (2), 1.274-2( d ) (4) 39. Ric hard A Su fler. 21 T .C. 170 ( 1953) . 40. Rev Rut 63_144. 1963-2 C B 129. 41. Reg Section 1.274-2(e) (2) (i ). 42. Reg Sect ion 1 274-2(e) (2) (ii): Robert W . Dun 路 can . 31 T.C. M . 130 (1972) 43. Reg Section 1 274路2(e) (3) (i) 44. Reg . Section 1.274-2(e) (3) (III). 45. Reg Section 1.274-2(e) (4) (i): Ro ber t Lee Henry. 36 T.C. 879 (1961) 46. Reg Sect ion 1 274.2(e) (4) (III) 47. Reg Section 1274-2(e) (4) (il) 48. Reg Section 1.274-2(c) (7) 49. M . Brecker. 31 T.GM 257 (1972) . SO. LA.C . Section 274(e): Reg 1 274-2{f) (1). 51. William A ndress, Jr .. 51 T.G . 863 (1969). alf'd 423 F.2d 679 (5th Glr. 1970) : Ric hard Stee l. 28 T.C M 1301 (1969). afl"d 437 F 2d 71 (2nd Clr 1970) ~ Regmald G Hearn . 36 T C 672 ( 1961 ). a l f'd 309 F.2d 431 (9th Clr. 1962). cert. den 373 U.S 909 (1962) 52 . Reg SectIon 1 274-5(c) (1) 53. I A C Secl lon 274(d) 54. Cohan v. Comm .. 39 F 2d 540 (2nd Gl r. 1930) 55. Reg Sec tion 1274路5(a) 56. Reg Section 1.274.5(b) (3) (i) . 57 Reg Secllon 1 274-5(b ) (3) (iv) 58. Reg Secllon 1 274-5(b) (4) (i) 59 . Reg SectIOn 1 274-5(c) (2) (II). 60. Reg . Sec l lon 1 274-5(c) (2) (ill) 61 . Reg Section 1 274-5(c) (3) 62 LaFo rg e v. Com m .. 53 T .C. 41 (1969) . aII'd 434 F.2d 370 (2nd Cif 1970) 63 Imero O. Florentino, 29 T .C .M 1665 (1970) .
269
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ADMI~~ION~
C£R£MONY ARKAN~A~
COURT
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11. 1972 A rkan sas Suprem e Co u rt
Gues ts - App licants
Swear i ng-Ill
270
Motio n Fo r Admission
Bar Brie fing
NOVEMBER , 1972
They are the depositaries of the law ; the living oracles who must decide in all cases of doubt, and who are bound by oath to decide according to the law of the land. - Blackstone, " Commentaries"
, ,
Tho !!hallongo is woll mot
by tho Justi!!o from ~outhwost
Arkansas
, Wo aro ploasod to toll him so .. Justice Lyle Brown Arkansas Supreme Court
Commercial National Bank of Little Rock THE ARKANSAS LAWYER
History Of Law In South Arkansas (Part I: from Statehood to 1874)
by Judge Ed F. McFaddin (Editor's note : This is Part I o f a tw o-part series, written by Judge M c Faddin , to cover this are a. The July 1972 and Sep tember 1972 issues of The Arkansas Lawyer were dedicated to the early legal history of NW Arkansas an d NE Arkansas, re spec tively.)
If a line be drawn running west along the Northern boundaries of the present Counties of Phillips. Desha, Jefferson . Grant , Hot Spring , Pike. Howard and Sevier, then all the area South of that line may well be con sidered " South A rkansas ", which is about l !3 rd of t h e State in a rea. This IS the "Sou th Arka n sas" about which this article is written . Chronologically, the history fa ll s into four periods: 1 From Statehood to 1861 2 Fro m 1861 to 1874 3 From 1874 to 1917 4 Fro m 1917 to the present. Th e present article will deal with the fir st two of these periods. It has been said that history 15 a series of biograph ies 0 1 leaders ; so thiS history will be a li st of some of the Lawyers and Judges from Statehood to 1874 . Th e re were Territorial Courts before Statehood In the four CircUIts ( .) and twenty路four Counties: and ten of these C ounties were In South Arkansas ; haVing been created as follows : Clark 1818 . Hempstead 1819 : Phltllps 1820: Chlcot 1823: Lafayette 1827 : Sevier 1827 : Union 1829: Jefferson 1829: Hot Spring 1829: and Pike 1833. ( . . ) Those ten South Arkansas Coun t ies are now twenty-five In number, the additIOnal ones being carved out of the original ten . When Arkansas became a State In 1836. the entire population was less than forty-eight thousand : and fewer than 12 .000 persons lived In South Arkansas : but. even so. there were greal Judges and Lawyers: and an examinatIOn of Vol. I of the Arkansas Reports shows many cases came from South Arkansas . Mos t of the lawyers " rode Circuit " to the various counties. A lbert Pike (a lawyer Since 1835) wrote ( . .. ): " I practised In Little Rock . In Chicot
272
County. at Helena (when Joh n B . Floyd. though a p lant er, also practised there) , at Courts In Conway . Johnson, Pope, and Crawford Counties : and a few years later In Saline, Ctark , Hempstead and LaFayette; and still later In Dallas. Ouachita and Union. riding circuit on horseback twice a year for some ten years. and then travelling in a buggy." Again . Pike wrote: "Judge William Trimble (of Washington , I think) was then an old member of the Bar. as was Colonel Horner of Helena ... I do not remember whether Major Thomas Hubbard and George Conway were practising at Washington as early as 1835. but I think so ... " From some of the present Circuit Clerks and from co-operating Lawyer and other Friends. a partial list of early Statehood Judges and Lawyers, of South Arkansas has been compiled . Since the Judges and Lawyers " rode Circuit " to the various Courts, some names appear several times: but here is the partia l list : In C lark County, the Court records disclose these names : George Bullet, J ames Cummins. Stephen Blanlon, Sam C . Roane , N . McLane, Robert C . Oden . IN . Bates. Thomas Fish . Jacob Barkman . William Trimble . Percy Wallis . Sam Davis, Thomas C . Eskridge. Isham B . Gordon . William H. Parrett. Thomas Hubbard, and William Conway B . In Hempstead County, there are among others, the names of Grandison D. Roys ton, William Trimble, T homas H ubbard, George Conway. John R. Eakin. Augustus H . Garland. Senator James K . Jones and Governor Dan Jones. Edward C ross was a territorial Judge and was president of the Iron Mountain Railroad from 1855
to 1862, and is buried in Hemps tead County. Of course, the name of Grandison D. Royston stands out in the early history. He moved to Hempstead County in 1832, was a delegate to the Constitu t ional Convention of 1836, served as a delegate to the Con路 federa te Congress and was Chairman o f t he Constitutional Conven t ion in 1874 whic h framed our pr esent Con. sti t ution . He died in Hempstead County in 1889. and is called "The o td Roman ". In Phillips County , there were Chartes W. Adams . Thomas J . Lacy. John B . Floyd , William K. Sebastian , Colonel Horner, Judge Theodore F. Sorrells, General Patrick Cleburne and Judge John T . Jones. In Chicot County . the Court Records from 1832 to 1839 are missing : but from subsequent records there are these names: Terrence Farrelly (who was a de legate to the Constitutional Convention of 1836). Isaac Baker. Wm . H. Sutton , Edward A. Meany, Robert W. Johnson. Isaac Barnett. Thomas Bye rs. William M . H arrison , Madison G. Craig, F.A. James, Henry Smi th, Joh n C. Murray, W .P. G race. S.G. Smith . James F. Robinson, Samuel F. Arnett. Charles H. Carlton, J . Chapman , J.S. Winter . and Euclid L. Johnson . In LaFayette County, there are these names: William Trimble, Theodore P. Eskridge. EW . Cross. S.D. Handy. W.M. Conway. John Field. George W . Conway. Christopher C. Scott, John Quillin. J . Gould. Shelton Watson . A. A . Stith, Len N. Green, and Ben. (.) F.N . by July 1839. there were 7 CirCUits . ( " ) Miller County was created In 1820 but abolished in 1836 and re-created In 1874. ("'J F.N . From pages 215 and 217 of Hallum 's History of t887 .
NOV EM BER . 1972
i
r
jamin Abbott. In 1840. Governor E.N. Conway, after serving as Governor. moved to his plantation in LaFayette County. and lived there until his death in 1855. Of course, there was Judge B .B . Battle. of the Supreme Court. In Sevier County, there are these names from the early Court Records: A .G . Stephenson , Samuel Moore, William Davis , George Conway , Thomas Hubbard. John W . Locke. Grandison D . Royston , and Leonard Moore. In Union County there are these names of early lawyers as found in Goodspeed 's Memoirs: Robert Hardy, William Lacy. John H. Askew. John H. Carlton , Shelton Watson and Hugh D. Marr. Annie Laurie Spencer wr ites that there were also Archibald Johnston , Jarvis Lankford and the firm of Black & Askew . In Jefferson County there are these names : Judge David Williamson Carrol . Judge Theodore F. Sorrells. and Wm . Harrison . In Hot Spring County, the records prior to 1843 cannot be located, but these names appear in subsequent records : John Clendenn, William H . Field. John W . Fullerton . Richard Lyon , Daniel H . Bingham, Christopher Scott, William Davis, Fleming Jordan , Thomas F.G . Adams. John C . Murray.
Sheldon Watson. William G. Willoughby, Samuel W . Williams , James G . Witherspoon , Littlepage O. Harvey, Abraham C . Jones . Foster J . Cameron , James Thomason, Joseph Anderson , Francis M . Henry, Robert C. Newton . Abel R. Burke. David W. Carrell , and Pleasant Jordon . In Pike County, Hen . A.B . Williams was one of the early lawyers. The Court records were destroyed when the Court House burned : and of the early lawyers, Goodspeed i n his 1890 Memoirs of South Arkansas . says " Its legal talent in early days was mostly supplied by the Hempstead County bar - though several names from the County became prominent in later years As previously mentioned . fifteen additional Counties were carved out of the ten that existed at Statehood . Seven of these fifteen were created too late to have sub stantial lists of lawyers prior to 1874. These, with year of creation , are : Little River 1867 Grant 1869 Lincoln 1871 Nevada 1871 Cleveland (formerly Dorsey) 1873 Howard 1873 Miller (recreated) 1874 In the eight remaining " new " Coun-
ties, the list of attorneys is extremely fragmentary . In Desha County (1838). many of the early court records were lost when taken to Texas during the war, but there are these names: Col. J .W . Dickinson , X.J . Pindall and Judge Murphy. In Bradley County (1840). these names appear: Isaac Baker, Josiah Gould . Charles Slaughter and J.R .S.
Burbaze. In Ouachita County (1842). the early records were destroyed in the Court House fire in 1857, but the following names are remembered : H .G . Bunn (Chief Justice of Arkansas Supreme Court) . Christopher C . Scott (Supreme Court Justice in 1848). G.A. Gallaher. Isaac Strain, J .H. Bullock. J .T . Bearden and W .A . Purdom . To these must be added the name of Colonel Henry William McMillan , who will be discussed in the second article. In Dallas Dounty (1845) . the records show these : Wi ll iam Sutton , F.W . Compton. S.G. Smith . C.P . Barbee. R.T. Fuller. B.T. Selman and R.B . No rment. In Drew County (1846), Hon . Adrian Williamson has a most interesting scrap-book ; and from it, these names
Continued on page 274
~tate
®f ~rkan%a% ({ount!' ®f 3J dfer%on • Member. Arkansas Bar since 1903 • Presiden t , Arkansas Bar Association . 1940-4 1 • Arkansas Bar Award. 1961
Foundation
Outstanding
Lawyer
• Pine Bluff City Attorney. 1929-32 • Membe r. Jefferson County Board of H ea lth since 1925 • Trustee , First Methodist Church of Pine Bluff since 1914 • Holder of 33 Degree of Scottish Rite Masonry • Charter Member of Red Cross of Constantine • Co-Founder o f Quapaw Lodge No. 730 • First Potentate of Sahara Shrine Temple
N .J. Gantt , Jr.
WitnQ!:!: Our RQ!:PQet And Adm iration For Our Mo!:t
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.
THE JEFFERSON C OUNTY BAR ASSO CI ATION THE ARKANSAS LAWYER
273
Continued from page 273
It is hoped that the local Bar Association of each County may be encouraged by this fragmentary article to make a complete list of the Lawyers and Judges ot each and every County of South Arkansas. The Bar owes this to posterity.
appear as some of the early lawyers: Co lone l Nathan B . Hooker, Colone l W.F. Slemons. J.D. Barry, James A. Jackson , T .M . Whittingto n, Robert B. B rice. From other sources, t here are these names, also: Solon R. Jones, J .S. Winter , J .M. Brad ley, Hen ry S . H udspeth , Robert Anderson and Benor)i S. Dubose. In As h ley County (1848), these names appear : John C. Mu r ray , J. F. Lowery, S.F. Arnett , D.W. Carro ll and W .F. Slemons. In Calhoun County (1850), these names appear: Joe McCullough , Alex A. Mason , and Met L. Jones. In Columbia County (1852), these names appear: General E.C. Turner, E.A. Warren, James Thompson , G.A . Gallagher, G.P . Smoote, B .F. Askew, L.B . Green, J.N. Hobson and John M. Kelso. This Jist is only partial. In some cou nties (as Pike and Ouachita) the early Court records were lost in Court House fires, and time has not permitted a complete search of the records in other counties.
1861 to 1874 T his is the Second Period in the history of South A r kansas Law; and of it, li ttl e wi ll be said . For the year 1861 , the Su p reme Court reports occupied an entire vo lume (No. 23). But one volume (No. 24) is sufficient for the Supreme Court proceedings from 1862 to 1867 inclusive. Most of the lawyers were gone to war or so busy supporting the war that litigation was postponed. From June 1862 to June 1863, there were thirty-three cases decided . The Confederate State Government was moved to Hempstead County and the Court was there all of .1864 and until mid summer of 1865 when the military constitution of 1864 created a court in Little Roc k . The cases that had been decided by the Court in Hempstead County were placed back on the docket as though
never decided . But in Vol. 24 of th e Arkansas Reports from pages 371 to 477 , there appear the opinions of the Arkansas Supreme Court while in Hempstead County. Then came the ca r petbag constitution of 1868 - and the least said of it, t he better. It was not unti l after the Supreme Court of the United States h ad decided Ex parte Garland that true South ern So ldiers were allowed to be lawyers. T hen came t he Constitution of 1874 an d th e real lawye rs of Sou t h Arkansas could f lower again . These will be considered in a subsequent arti cle .â&#x20AC;˘
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Patrick H. Hays
The Arkansas Bar has two important reasons for being very proud of Law Student Patrick H. Hays of North Little Rock, Arkansas . He was elected President of the Law Student Division of the American Bar Association at the recent annual convention in San Francisco . He was just appointed by ABA President Robert W. Meserve as one of the 22-member Commission on National Institute of Justice . Hays entered the University of Arkansas in 1965, majoring in political science . As an undergraduate, he was a member of the Sigma Chi Fraternity, the Razorback Debate Team, and the honorary military society " Scabbard and Blade ", and was designated a Distinguished Military Graduate upon graduation . He entered the University of Arkansas School of Law at Fayetteville in 1970, becoming a member of the Phi Alpha Delta Law Fraternity and the Student Bar's Executive Committee as Law Student Div ision Representative to the ABA . In such capacity , he was honored with the Law Student Division 's Silver Key Award for outstanding service . He is presently enrolled in the Little Rock Division of the Law School and employed by Senator John L. McClellan . As LSD President, he heads a division with some 20,000 members from all the states . As the largest law student organization , the Division's job is to see that these students have a strong voice in matters of interest. The new Comm ission on Natio nal Institute of Justice will draw plans for creation of the Institute , and is headed by President Charles S. Rhyne of the World Peace Through Law Center. The Institute would provide for the field of law and justice, the kind of centralized direction and funding now available in other fields . Hays , the Commission's youngest member, will be working with leaders of the Bench and Bar, business , labor and civic groups as well as leaders of other professions .
THE ARKANSAS LAWYER
275
1914 "Soml Needed Reforms"
Proceedings of the Seventeenth Annual Session of the Bar Association of Arkansas
held in Pine Bluff, Arkansas May 21 and 22 , 1914
A young lawyer - by name , Lamar Williamson of Monticello Af ternoo n Session o f May 21 , 1914 , as follows : -
began his address during the
" In order to justify its existence the Bar Association of Arkansas must be a very definite , vital and potent force in the molding of law and the adm inistration of justice for the people o f this State. The Bench and Bar of civilized countries have always been held responsible - and justly so - for the condition of the corpus juris of the country. Our Association is the most tangible and concrete evidence of the co mposite influence of the Bench and Bar of Arkansas. Therefore this Association must largely bear responsibility for the present co ndition of our remedial law . If there are serious defects in the ultimate product of ou r co urt procedure, or if the path of the litigant in pursuit of his rights is beset with the aggravating obstacles of uncertainty, expensive delay or archaic technicalities , then our society has not only fallen sho rt of its purpose and usefulness , but every member of our profession suffers from the sting of public criticism. Already the lawyer is the victim of many a sarcastic joke - shameful to us because of the element of truth provoking these thrusts from public opinion ."
With such a beginning , reade rs will want to review his entire address , which may be found in the reported Proceedings at page 100 of the Append ix. 276
NOVEMBER , 1972
,
194& II
A Challenge
II
President 's Address delivered by Lamar Williamson Belore t he Ba r Association of Arkansas at Hot Springs , Arkansas on May 3, 1946
Repeating the beginning words of his address some 32 years previous, Mr. Williamson urged consideration of unifying the Arkansas Court System, calling upon the Association to " first work out and fabricate the best possib le system for the administration of justice, and then vigorously and persistently work fo r its establishment as the living law of Arkansas." The reported Proceedings of the 48th Annual Meeting simply contains the word " CHEERS" following his address. One of his quotes is especially worth repe ating: ., / think that the underlying Ca&";9 of this defective administration of justice is that the Bar, and the people of the country generally, proceed upon a false assumption as to their true relation to judicial proceedings . Unconsciously, we all treat the business of administering justice as something to be done for PRIVA TE BENEFIT instead of treating it primarily as something to be done for the PUBLIC SERVICE. A clearer recognition of the old idea that the state itself has an interest in judicial procedure for the promotion of justice, and a more complete and unrestricted control by the court over its own procedure would tend greatly to make the administration of justice more prompt , inexpensive and effective." - Elihu Root
1972- WII Arll Pillaslld To Join In This Rllcognition Of Lamar Will iamson. ASHLEY, DREW , & NORTHERN RAILWAY COMPANY Crossett, Arkansas
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By Professor Robert Brockmann
The Committee to Aid in the Search for a new Dean of the Law School has made its report to President David W . Mullins of the University. In the meantime , William David Newbern , a member of the Fa yetteville faculty of the Law School , has been appoin ted ac· ting Dean in the place of Dean Ralph C . Barnhart who retired from the deanship effective September 1. 1972. Dave is quite familiar w ith the Fayette· ville sc ene, having called it home for the greater part of his life. He attended the public sc hools here and rec eived both his undergraduate and la w degrees from the University (he did spend one year of his law schoo l ca reer at Vanderbilt but we can forgive him for that!) While at the law sch ool as a student . he was Editor in Chief of the Law Review . After gradu-
ating from law 'school in 1961 Dave entered the U.S Army Judge Advocate General's Corps where he remained until 1970 when he was discharged with the rank of Major. During this period he received his LL.M . from George Washington University and A .M . from Fletcher School of Law and Diplomacy of Tufts University. His law tea ching experience includes stints at the U.S. Army War College, U.S. Military Academy, American University and Chung Ang University in Seoul. Korea . He came on the faculty here at the law school as an assistant professor in the fall 1970. Here his teaching areas inc lude Domestic Relations , Civi l Procedure. Remedies and Compara tive Law. Dave is married to the former Carlyn Lewis of Fayettevi lle and his grandfather was
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A.M . Harding , a former President of the University of Arkansas. Dave has the good wishes of all the faculty in his leadersh ip efforts during this period of transition at the law school. At the time of this writing classes have started with another capacity enrollment at both divisions of the Law School. Again , there were many more applications than spaces available, a continuation of the nationwide trend that started several years ago . Already applications are being received for the Fall 1973 semester. This year the LSAT is being administered on October 21 , December 16, February 10, 1973, April 14, 1973 and July 28 , 1973. There is no Arkansas testing site for the February testing and the July testing is too late for consideration for fali 1973 acceptance, so applicants are advised to take the December or April tests, with the earlier date preferred. Forms for appli cation to take the test can be obtained from Pre-law advisors or the Director of Admissions at the Law School. The placement service at the Law School has resumed activity after be ing dormant during the summer. The service will arrange for interviews with prospective associates, provide resumes or therewise aid in the hiring process. Inquiries should be directed to Russ Meeks, Student Direc tor , Uni· versity of Arkansas School of Law , Fayetteville, Arkansas 72701 . •
NOVEMBER , 1972
SEBASTIAN COUN TY BAR ASSOCIATION HONORED The American Bar Association has selected the Sebastian County Bar Association for the Award 01 Merit based upon the most outstanding and constructive work in its field during 1972 . T he main project was the Legal Seminar Series on " Law for Everyone" which was presented in conjunction with Westark Junior College . The Seminar was a memorial to Attorney Thomas G. Graves, who was killed in an automobile accident in 1971 . Chancellor Warren O . Kimbrough was the project director . The series is described in the March 1972 issue of The Arkansas Lawyer. Other projects included the Sebastian County Public Defender Office and Legal Aid Society.
L-R. A.B.A. President-Elect Chesterfield Smith; Sebastian County Bar Association member David T. Hubbard; Chairman Calvin H. Udall of ABA Section of Bar Activities .
L- R. Director Harold Hile of Community Services at West ark Junior College; Circuit Clerk Louise Patton in whose office the pla que will hang ; Past President Bob Dawson of the Sebastian County Bar Association ; Helen Jo Graves, widow of Thomas Graves; and the Association's President Don Calloway.
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SAFEGUARDING YOUR PROFESSIONAL FUTURE
Never Put Off ForTomorrow: It May Be Too Late! the problem
A sales representative put in a claim on his home owner's insurance policy for losses that he sustained when his garage and contents were destroyed by fire in February, 1970. The insurance carrier refused to indemnify him for the loss of the garage and part of the contents on the theory that he was using the garage for business purposes. He argued the point, but to no avail. T he insurance company then issued a draft for part of the contents without a Proof of Loss. Their argument that the business exclusion applied had some merit, but was not well doc umented. The sales representative then retained an attorney to pursue his claim further. The insured attorney had a few disc ussions with the insu rance company adjustor and then put his file on a long diary. Shortly after February 1, 1971 , he contacted the adjustor about the claim. He was told that the one year in which to file suit had lapsed and, therefore, his client had no claim. The insured attorney was unaware of the one year limitations period in the policy. The claimant then retained another attorney to initiate a professional liability claim against the insured attorney.
the result
Although there was questionable liability in the original claim, compromise was made with the sales representative because there was clear liability on the part of the insured attorney for failing to file the suit in a timely manner.
advice
When handling insurance claims check thoroughly as to the time allowed in which action must be brought. First party policies usually have a limitation provision.
THE ARKANSAS LAWYER
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THE MULTIPLE TRUST Use Of Multiple Trusts As Income Tax Planning Devices In Connection With Business Activit ie s O r Specific Forms Of Investment Activities (EDITOR'S NOTE : This article was authored by Mr. Burton
K . Kante,. a member of the Chicago law firm of Levenfeld , Kanter, Baskes & Lippitz, with the assistance of Elliot G. Steinberg. San Francisco, California; Charles A. Dukes, Hyallsvi ll e, Mary l and; Co l eman Silbert, Boston, Massachuse tts; and A .M . Vernava, Detroit, Michigan . It is the first in a series prepared for the Committee on Con路 tinuing Legal Education and Reserach of the Section of Taxation of the American Bar Association. Chairman Rober' Holmes of the Taxation, Trust & Estate Planning Section of the Arkansas Bar Association has cleared the article for publication in The Arkansas Lawyer. The material is presented in an interesting q uestio n-and-answer fo rmat.) 1. O. What are Multiple Trusts? A . It is not uncommon for one grantor to create numerous trusts each having different beneficiaries. However, the term " multiple trusts" as used in tax literature refers to a situation in which the same grantor creates more than one trust for what is substantially the same beneficiary.
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2. Q . What provisions the Internal Revenue Code refer to or define Multiple Trusts? A. There are no specific references in the Internal Revenue Code (" IRC " ) to multiple trusts; however, under IRC Section 641 (b) a trust is recognized as a separate taxable entity and is taxed in the same manner as is a married individual filing a separate return . Each separate trust pays tax each year on the income earned by that trust at the 14 per cent rate being the lowest tax bracket. Should the trustee, distribute the trust income to the beneficiary. that income is taxed to the beneficiary, rather than to the trust no matter whether the distribution is mandatory or discretionary. If , on the other hand , the trust accumulates Its Inc ome, then the trust pays tax each year on the income earned and acc umulated . Although the Code neither specially taxes multiple trusts nor provides that trusts created by a given grantor for essentially the same beneficiaries are to be differently taxed , the Commissioner has proposed new regulations , disc ussed below , governing multiple trusts . 3. Q . How is a beneficiary of Multiple Trusts taxed upon a distribution? A . A distribution to a beneficiary of a multiple trust c auses the beneficiary to receive income subject to the unlimited throwback rule for accumulations in the trust after December 31 , 1968. The income is taxed to the beneficiary as if he had received it in the year it was earned by the trust. For example, if a trust earns $5 ,000 in year one. and $5 ,000 in year two . and in year three d istributes $10,000 to the beneficiary , the beneficiary would have to recompute his income tax for year one making provision for the receipt of $5,000 and also recompute his tax for year two making provision for the receipt of the remain ing $5 ,000. 4. Q . If the beneficiary i. taxed as though he had recei ved the Income in the year It was earned by the trust , of
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what advantage is the use of Multiple Trusts to th e Beneficiary? A . The use at multiple trusts defers tax paid by the beneficiary during the years in which the trust accumulates income. Consequently, during the years of accumulation , the trust , collects a larger fund for reinvestment which in turn results in greater net earnings than would have otherw ise been possible. Even though the beneficiary , when finally re c eiving a distribution , pays tax on the earnings obtained by tax deferral , he nonetheless receives more mo ney than if he had continuously paid tax on the income.
5. O . Must the beneficiary avoid using the money during the years 0' accumulation in order to enjoy greater tax sav ings? A. If the beneficiary receives a direct distribution from the trust , it is taxable to him in the year it was earned by the trust. Accumulations by the trust, however, are not taxable to the beneficiary during the years of accumulation . If the trusts are partners in the beneficiary 's business. then even though the trusts are taxable on their distributable share of net income from the partnership, the partnership is not required to actually distribute its funds to the trust partners ; it may continue to use the funds in the partnership business. If the beneficiary is involved in a closely held c orporation , the trust may purc hase a portion of the corporat ion 's stock from it thereby increasing the capital of the corporation to be used in the corporate enterprise. A well drafted trust instrument might further contain provisions for secured loans under which the beneficiary, upon providing adequate security, could borrow from the trust without tax, if he repaid the loan within the terms of the loan agreement. The trust , as an investment vehicle , may also purc hase securities or real estate on behalf of the beneficiary. For example, if the trust has sufficient assets, it may purchase a piece 01 residential property which it could then sell to the beneficiary on a long term mortgage or first deed of trust or lease it to the beneficiary for a term of years . The flexibility of a trust as an investment vehicle provides numerous planning techniques which enable the beneficiary to use a trust without having to receive a taxable distribution . 6. Q . What situations or conditions suggest the use Multiple Trusts? A . There are several reasons that may prompt creation of more than one trust for a single primary beneficiary : the desire to have a var iation of investment programs, the desire to vary the terms of distribution or termination ; the desire to select different remaindermen or trustee 's d iscretion. These constitute what may be called non-tax reasons for the creation of multiple trusts. Of course , the use of multiple trusts will also minimize income taxes. Instead of distributing income to a bene ficiary who already finds himself in a high tax bracket , a trust may be utilized to collect income and yet be taxed as a separate individual. These tax savings are multiplied if a number of trusts acc umulate the income. For example, if $100 ,000 were accumulated in one trust, the Federal tax would be more than $55,000. If, however, the income were ac-
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NOVEMBER , 1972
cumulated in ten trust s of $10 ,000 each , the tax would be approximately $2,200 per trust , or about $22 ,000 , resulting in a tax savings of $33,000 at the trust level. 7. Q . What specific situations maximize the advantages Inherent in Multiple Trusts? A. Mu ltiple trusts may act as partners in a fami ly partnership, as the shareholders in a closely held corporate business, as holders of marketable securities, real estate , or other business or fami ly investments. 8. Q . What has Congress said about Multiple Trusts? A. Legislation to narrow the use of mu ltip le trusts has been proposed from time to time since 1937, but the problem of various co mpeting interests and the difficu lty of drafting adequate solutions have resulted in little Congressional action . The basic legislative conce rns have been the following: 1. The separate entity trust doctrine is a traditionally accepted and favored means of transferring and holding properly. 2. Only those who control or receive income should be taxed on it. 3. The amount of potential revenue must be weighed against the cost and complexities of administration , reporting , and recording . 4. Numerous importan t non-tax reasons are involved in both the creation and use of both single and multiple trusts. 5. The intrica cies of defining beneficiary patterns are in d ire need of simplification . 9. Q . What Legislation has aflected Mult iple Trusts? A. Over the years the Treasury has attempted to get legislation passed that would restrict the use of multiple trusts. Some of the advantages were reduced in 1954; however other proposals died in Committee. Congress managed to come up wi th speci fic legislation in the Tax Reform Act of 1969. The exceptions to the throwback rules that existed in the 1954 legislation were eliminated , and the five-year rule to provide for an unlimited throwback period on all accumulation distributions was modified. The ultimate effect of the Congressional approach to multiple trusts is to place the burden of taxation on the beneficiary after distribution , rather than at the trust level. Accumulation of income without distribution continues, therefore, to result in tax savings to the extent of the difference between the tax bracket of the trust and that of the beneficiary. If more than one trust is used , tax savings increase. 10. Q . Wh at has b een t he attitude of the cou rts t o w ard Mu ltiple T ru s t s? A . The most significant court decision was Estelle M orris Trusts. 51 T .C. 20 (1968), afi'd ., 70-2 U.S.T.C. Para. 9490 (CA-9, 1970), in which the Courl decided Ihat when multiple trusts are properly established and maintained. they are to be treated as separate tax paying entities even if created for the same beneficiary by a given grantor, and even if the exclusive motive for the creation W&S tax avoidance. In the Morris case each trust had maintained accurate and separate books and records, filed separate in co me tax returns and made different investments. The Court ruled that since the creation of one trust resu Its in the splitting of income between the trust and beneficiary, the creation of mult iple trusts represents only a quantitat ive extension of the advantages of a single trust; the differences in degree, not in kind .
t he 1969 Tax Reform Act and the decision In the Morris case? A . The Commissioner has proposed Regulations 1.665(a)-QA(e) which would consolidate multiple trusts and treat them as one trust if the multiple trusts have no substantially independent purpose or have substantially the same beneficiary and the same grantor and have as their principal purpose the avoidance of tax. The proposed regulations with respect to multiple trusts are a clear attempt by the Commissioner to add new Code provisions relating to multiple trusts not approved by Congress. The proposed regulations are similar to legis lation introduced in Congress during 1957-1960 which would have con solidated some multiple trusts in order to treat them as one trust. The proposed legislation failed to obtain Congressional approval. The Treasury is now proposing to insert its consolidation approach into the tax law by means of these new regulat ions.
Continued on page 284
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THE ARKANSAS LAWYER
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Continued from page 283 12. Q. What Are the Objections to the Consolidation Ap proach? A . The old legislative proposals and the new proposed Treasury Regulations aim to require certain trusts to consolidate their incomes and to pay a tax on the combined amount. In the past the consolidation approach has required legislation so broad as to created numerous uncertainties and to ultimately prove to be unworkable. Th-a proposed regulations leave numerous questions unanswered : 1. What wou ld be the re su lt if different grantors we re to create trusts for "substan tially the same" benefi ci aries? 2. What criteria are to be used to determine when grantors or beneficiaries are "subs tantially the same"? 3. If multiple tru stees exist, who will have the obligation to file a consolidated return? 4. What are the cri teria to be used to establish that the multiple trusts were c reated for essentially non-tax reasons? 5. Would the governmental costs of investigation, indexing and reco rd-keeping outweigh the potential revenue involved? 6 . If a deficiency were assessed after the termination of one of the trusts , who is then to bear the burden of that trust's pro rata share of the assessed tax liability? 7. What happens if " substantially the same " beneficiaries are changed during the year? 8 . How are gains and losses to be allocated among the various trusts? Th e most disturbing aspect of the conso lidation approach is that it attempts to tax accumulation trusts based upon a suspe c ted relationship among current
beneficiaries who may never actually receive a distribution from any of the trusts . In such a case it would penalize the ultimate beneficiaries. 13. Q . What considerations should be kept in mind when drafting Multiple Trusts? A. The following checklist should be consulted when preparing multiple trusts for the same beneficiary : 1. Create separate trust agreements for each trust ; 2. Appoin t different trustees for each trust ; 3. Create separate bank accounts for each trust ; 4. Use d ifferent investments by some trusts ; 5. Maintain separate books and records for each trust; 6. Specify different dates of distribution and termination for some trusts ; 7. Insure irrevocability in the terms of the trusts ; 8. Provide documentation of the non-tax reason s for the creation of the trusts. 14. Q . Can a Mu ltiple Trusts participate as a pa rtne r in a partnership? A. Under the partnersh ip rules, and specifically under IRC Section 704(e) relating to family partnerships, a trust can be a partner in a general or a limited partnersh ip. If, for examp le, a beneficiary were engaged in a retai l operation which needed additional capital for expansion, the trust, or group of trusts having sufficient funds might then make a capital contribution to the partnership in exchange for a participation of the profits. The earnings of the partnership are then taxed to the various individual and trust partners if proportion to their contribution and participation in the profits and losses of the partnership . 15. Q . Are t here any restriction s against the parti cipa ti on of a trust in a fam ily p artnership ? A. If a trust makes a con tribution to a family partnership in exchange for a partnership interest, the capital it con-
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tributes must be a material income producing factor in the partnership. If the contribution were to a strictly service partnership where significant capital is involved, it would be extremely difficult to demonstrate that the capita l was a material inco me-producing facto r in th e partnership. In such a situation , the Internal Revenue Service would argue that the individual partner was attamping to shift income from himself to the trust and would not recognize the trust as a partner taxable on its distributive share of partnership income. 16. Q . Can Multiple Trusts participate in a family cor路 poration? A . If the trust instrument so provides, the trustee may purchase shares in a c losely held co rporation on behalf of the trust. l lf the beneficiary of the trust contro ls the corporation, addi tional capital for purposes of expansion may be injected without his necessarily relinquishing control of the corporation . For example, preferred or nonvoting common shares could be sold to the trust without in any way affecting control of the corporation by the common shareholders. It should also be noted that dividends payable to a group of trust shareholders may be spread among the trusts, so that the tax on the dividends at the trust level is less than if they had been received by the beneficiary or by a single trust only. 17. Q . What Federal Gift Tax consequences result from the creation of Multiple Trusts? A . A gift made to a trust which accumulates income and which is not required to distribute income currently does not qualify for the annual gift tax exculsion of $3.000. Consequently, a gift tax return must be filed and gift tax paid to the extent to which the value of the gift exceeds the donor'5 lifetime exemption of $30,000. 18. Q . What are the Federal Estate Tax consequences with respect to Multiple Trusts? A . If the gift in trust is to an irrevocable trust and if the donor retains no controls or powers with respect to the trust , the value of the gift will not be included in the donor's estate. If the trust is to continue after the death of a primary beneficiary for the benefit of other beneficiaries, the value of the trust will not be inc luded in the estate of the deceased beneficiary. 19. Q . Can a beneficiary haye any powers oyer the ultimate d istribution of the trust fund ? A . Yes. The trust instrument may contain a limited power of appointment whereby the primary beneficiary has either an inter vivos or testamentary power to appoint the proceeds of a particular trust for the benefit of any person, or organization, other than himself, his creditors , or his estate. Thus, for example, if a father creates a trust for the benefit of his son and if the donor's grandchildren have not reached the age of majority, the trust instrument may permit the son to appoint the assets for the benefit of the grandchildren if one child should be in greater need than another or one more deserving than another. 20. Q . What estate planning considerations Justify the creation of more than one trust for the same beneficiary? A . We have listed above the general non-tax reasons for the use of multiple trusts. There are, however, numerous instances in which multiple trusts are necessary for effective estate planning . A case involving only one primary beneficiary will serve as an example. Assume that a father creates a trust for his son and wishes to provide for alternate disposition upon the death of his
1 Sec tion 1371 of the Internal Revenue Code provides that a corporation which has a trust as one of its stockholders is ineligible for Subchapter 5 status.
THE ARKANSAS LAWYER
son. In one trust, he may choose his son 's wife as the alternate beneficiary ; in another. the son 's children may be the alternate beneficiaries. A charity may be the alternate beneficiary in a third, and in a fourth , the trust may pass in accordance with a limited power of appointment exercised by the son. Grantors ollen hesitate to place large amoun ts of money within the discretion of a single trustee. Dividing the assets among a number of trusts with different trustees may provide for a varied investment program and at the same time allow for different approaches by the trustee with respect to his discretionary power to distribute income or corpus. A grantor may have reasons for terminating trusts at different times. Considerations relating to types of investments may indi cate the use of multiple trusts ; one trust migh t invest in securities, another in real estate. Bibliography Baiter. Major Tax Saving fo r Family in Use of Family Part 路 nership Plus Multiple Tru st s, 5 J . of Taxation 212 (1956) . Bush. Multiple Trusts : Still A Valid and Valuable Estate Planning Tool, 28 NYU Inst. on Fed . Tax 923 (1970) . Childs, Multiple Trusts : A Word of Warn ing, 107 Trusts & Estates, March 1968. 183. Colson , The Taxation of Undistributed Income, 22 NYU Inst. on Fed . Tax 1087 (1964). Comment, Taxation of Multiple Trusts, 24 U. of Chi. L. Rev. 156 (1956). Ervin . Multiple Accumulative Trusts and Related Problems Under the Income Tax , 29 So. Cal. L. Rev. 402 (1956) .
Continued on page 286
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285
1fn ;§Memoriam O . D. Long streth 19 17 - 1972 Oscar Douglas Longstreth , Jr. died in Little Rock on Aug . 28th , after a long illness. He was born in Little Rock , where he lived his entire life except for time spen t in the military. In World War II he served as Captain in the Third Division in North Africa. Sicily, Ita ly, France , Germany and Austria ; and later became a Colonel in the National Guard . He was a member of the Arkansas Bar Association and the American Judicature Society. He was a Methodist and taught a Sunday School Class for many years. He is survived by his wife , two daughters, and four grand children . W . P. Brickell 1897 - 1972 William P. Brickell died in Marvell on Oc t. 8. 1972, after having served as Municipal Judge of that City for more than twentyfive years. Judge Brickell was a veteran o f W .W . II , a Mason and a Method ist. He is survi ved by his wife, a so n. a daughter. and a brother. M . A. Hathcoat 1880 - 1972 Marvin A. Hathcoat died in H arrison on Sept. 12. after a long and distinguished career. He was a native Arkansan . and his father was a Confederate Veteran .
Judge Hathcoat graduated from the Un iversity of Arkansas in 1908, and years later served on the Board of Trustees of the University, and was made Member Emeritus. He was also Chairman of the State Public Utilities Commission . He was a charter member o f the Harrison Rotary Club, a Methodist , and a long time Sun day School Teacher. He is survived by four daughters and five grand children.
C. M. Erwin 1906 - 1972 Claude Mayo Erwin died in Newport on Aug . 26th . He attended Hendrix College and the University of Arkansas and graduated at the Arkansas Law School. In the course of his legal career, he served as prosecuting attorney, County Judge of Jackson County. and City Attorney of Newport; and was a member of the Arkansas Bar Association , the American Bar Association, and the American Trial Lawyers Assoc iation . Mr. Erwin was a Mason and a Methodist and taught a Sunday School Class for many years. He is survived by his wife and two sons. D. L. Ford 1885 - 1972 Judge David L. Ford died in Fort Smith on May 25th after a
long and distinguished career. He was graduated from the University of Arkansas in 1909, and served overseas in World War I. Among o ther offices he ld by h i m were : County Judge of Fra n k lin County, Mayor of Fo rt Sm ith, State Commissioner of Reve nues, and Chairman of the State Claims Commission , which later office he he ld for eig ~teen years. Judge Ford was a Mason and a Methodist. He is survived by his wife, two step-sons, a sister, a brother, eleven grand children, "nd one great grand chi ld.
U. A. Lovell 1899 - 1972 U lys A . Love ll died in Spri ngda le on August 10th. He was born in Arkansas, and graduated at the University o f Arkansas. He st udied Law at Harvard Universi ty and was a law professor at the University of Arkansas for many years, while still engaging in the active practice in Springdale . Mr. Lovell was very active in the American Legion , having been Department Commander and for many years a nationa l committeeman . He was also a charter member of the Springdale Rotary C lub. He was a Unitarian and a Mason ; and is surv ived by his wife , one sister and one brother.
Continued from page 285
Soter, Feder al Taxation Aspects of Multiple Accumulation
Friedman
Steinberg , Multiple Trusts , Vol. 6, No.4, Taxat io n for Ac-
and Wheeler. Advantages and Problems of
Trust s, 31 U. Cinn . L. Rev. 35 1 (1962)
Multiple Trusts , 20 NYU Inst. on Fed. Tax . 181 (1962)
countants, 216 (1971)
Friedman and Wheeler . Effective lise of M u lt iple Trusts , 16
Stevens, Charges Foreseen in Taxes in Powers , At · tribu t ion of Income, Multiple Trusts , 13 J. Taxation 88
NYU Inst. on Fed . Tax 967 (1958) Gordon . Multiple Trusts : The Consolidated Approa c h , 4 Wayne L. Rev. 25 (1957). Kirby, C ~ rrent Development s in Use of T rus t s in Income and Estate planning , 11th So. Cal. Inst. in Major Tax
(1960)
Problems 627 . 644 (1959)
Chartered Life Underwriters 145 (1953)
Note, Multiple Trusts and t he M inimizatio n of Federal Taxes, 40 Col. L. Paul . The Background of the Re venue Ac t o f 1927, 5 U . 01 Chi. L. Rev . 41 . 71 (1937) Recent Cases, 22 Vand . L. Rev . 344 (1969)
Recent Cases , 54 Iowa L. Rev. 867 (1969) Recent Development s. 14 ViiI. L. Rev. 344 (19691
286
Taylor. Use o f Trusts to Divide Income, 15 NYU Inst. on
Fed . Tax 853. 867-870 (1957) (853-872) Todd , Mu ltiple Accumulative Trusts, 7 J . of Amer . Soc. of Tomlinson , Criti c al Analys is of Proposed Law on Mult ip le
Trusts Taxati on, 96 Trusts and Estates 1180 (1957) Tremper, Sing le v. Multiple Trusts· $ome Observa ti ons , 17
Taxes 463 (1939) . Zissman. A Di lettante Views a Fe w Unsettled Are as in t he Taxati on o f Est at es and Tr usts , 47 Taxes 855, 862-866
(1969) • NOVEMBER,1972
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