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Many thanks to Attorney Marilyn Barret for reprint permission
By: Marilyn Barrett, a Law corporation
APR 18, 2016
Roundup of 2015 Federal Tax Law Changes
Congress enacted a number of federal tax law changes at the end of 2015 which affect individual and taxpayers. I will summarize the tax changes I think will be of greatest interest to you. This summary is not an exhaustive review of all 2015 legislation that affected taxes and you should consult your own tax advisors regarding changes that may affect you.
Congress historically has passed an assortment of individual and business tax deductions and credits for only one or two years at a time and then re-enacted them for additional short terms- generally just one or two years. These tax benefits became referred to as the “extenders” due to the year-by-year extensions. Congress adopted this procedure so that it could publicly posit the fiscal illusion that the extenders had little impact on the budget.
The business community lobbied Congress for years to enact the extenders on a more permanent basis since one-year extensions caused a lot of uncertainty and hampered their ability to plan business strategies and investments. In some years, the extenders were not even enacted until the end of the calendar year and made retroactive to the beginning of the year. For example, for 2015 Congress did not renew the extenders for tax year 2015 until it passed Protecting Americans from Tax Hikes Act of 2015 (“PATH”) on December 16, 2015, and taxpayers had no assurance at the beginning of 2015 that they would be allowed the deduction or credit provided in the extenders for 2015. PATH makes many of the extenders permanent and others effective for 2 or 5 years. Generally, these changes are retroactive to January 1, 2015. The extenders include the following:
Extenders Made Permanent
State and Local Sales Tax Deduction.
The election to claim an itemized deduction for state and local sales taxes, in lieu of state income taxes, expired on December 31, 2014. PATH makes the election permanent retroactive to January 1, 2015.
Teachers’ Classroom Expense Deduction.
As frequently reported, school budgets allocable to actual classrooms have been cut to bone so much that teachers frequently paid for books and supplies out of their own pocket since 2002. Beginning in 2002, the Internal Revenue Code was amended to permit teachers to take these deductions “above the line”. This benefit was scheduled to expire at the end of 2014. PATH permanently extends the “above-the-line” deductions for classroom expenses paid by teachers in elementary and secondary schools. It also indexes the maximum amount of above-the-line deduction of $250 by inflation beginning in 2016 and expands the definition of allowable deductions to include “professional development expenses.” Now teachers will be permanently entitled to the same tax benefits that professionals are permitted for a single networking dinner.
Transit Benefits Parity
The IRC has over the years provided non-taxable benefits to employees from employer provided transit passes, vanpool benefits and parking permits. Generally, the amount excludible by employees were greater for parking permits than for mass transit passes and vanpool benefits. In 2009, Congress enacted parity among these benefits, i.e., the allowance for transit passes and vanpool benefits had to equal that allowed for parking permits. However, in 2015, the lower limits for transit passes and vanpooling again went into effect. PATH permanently extends parity among transit benefits and, for 2015, employers can make up the differential payments for transit passes and vanpooling with non-taxable cash payments to employees. Bicyclers were left out and are entitled to nontaxable reimbursement of only $20 per month. IRC 132(f)
Charitable Distributions from IRAs
PATH permanently extends the provision that allows individuals age 70 ½ and older to make tax-free distributions of up to $100,000 from IRAs without incurring income tax to qualified charities. Amounts in excess of $100,000 are included in income but deductible as an itemized charitable contribution under the typical rules for charitable contributions. IRC 408(d)(8)
Qualified Conservation Contributions
A special rule allows charitable contributions deductions of real estate dedicated to conservation uses of up to 50% of the taxpayer’s adjusted gross income and can carry over contributions that exceed the 50% limit for up to 15 years. Typically, contributions of capital assets are deductible only up to 30% of the taxpayer’s adjusted gross income. PATH makes this provision permanent. IRC 170(b)
Section 179 Expensing: Section 179 allows businesses to deduct the cost of “qualifying property” in lieu of capitalizing the cost and depreciating the cost over the applicable depreciation period. “Qualifying property” generally means depreciable tangible personal property that is purchased for use in the active conduct of a trade or business. The maximum 179 deduction limitation is reduced dollar for dollar by the cost of qualifying property that exceeds a specified limit. Before PATH, a taxpayer could deduct up to $25,000 of the cost of qualifying property and this deduction was not subject to the dollar for dollar reduction until the cost of qualifying property placed in service by the taxpayer during the year exceeded $200,000. IRC §179.
PATH makes Section 179 permanent and increases the deduction limit to $500,000 and the overall investment limitation to $2 million before the dollar-for dollar reduction kicks in. PATH also includes expands the types of property that qualify for this deduction and includes some real estate, off-the-shelf computer software and heating and air conditioning units.
Research Tax Credit: A taxpayer may claim a research credit (referred to as the “R&D credit”) equal to 20% of the amount by which the taxpayer’s qualified research expenses exceed its base amount for the taxable year, making the research credit generally available for incremental increases in qualified research. Under PATH, beginning in 2016 eligible small businesses ($50 million or less in gross receipts) can claim the credit against both regular tax and alternative minimum tax and certain small businesses (gross receipts of less than $5 million and satisfaction of other requirements) can claim the credit against their payroll tax liability. IRC §41.
Exclusion of Gain on Qualified Small Business Stock: A non-corporate taxpayer may exclude 50 % (or 60 % for certain empowerment zone businesses) of gain from the sale of original issue small business stock acquired and held for at least 5 years. The amount of gain eligible for the exclusion is the greater of (1) 10 times the taxpayer’s basis in the stock or (2) $10 million (reduced by the amount of gain eligible for exclusion in prior years). To qualify as a small business, the aggregate gross assets of the issuing corporation may not exceed $50 million and the corporation must meet certain active trade or business requirements. IRC §1202.
PATH makes this exclusion permanent and eliminates the gain from alternative minimum tax in addition to regular tax.
Reduction of Recognition Period for S Corporation Built-In Gains Tax:
Corporate taxpayers typically pay tax at the corporate level unless the corporation elects to be treated as a Subchapter S corporation, in which case its income and losses flow through to the shareholders. If a corporation operates as a C corporation and subsequently elects to be taxed as a Subchapter S corporation, the “built-in gain” (i.e., the unrealized gain in corporate assets at the time Subchapter S status is elected) must be recognized by the corporation if the corporate assets are sold before 10 years have lapsed from the effective date of the S election. For taxable years 2009 to 2014, this 10-year period was reduced and varied between 5 or 7 years. PATH permanently reduces the “built in gain” recognition period to 5 years. IRC §1374
15-Year Straight-Line Depreciation.
Generally, improvements made on leased property must be depreciated over 39 years. Under prior law, exceptions applied for certain qualified leasehold improvements, qualified restaurant property, and qualified retail improvement property which allowed these expenditures to be depreciated over 15 years. The 15-year depreciation period for such property is made permanent by PATH. IRC § 168
Extenders Effective for 5 Years:
Bonus Depreciation: Additional first-year depreciation deduction (“bonus depreciation”) equal to 50 % of the adjusted basis was allowed for certain qualified property acquired and placed in service before January 1, 2015 (January 1, 2016 for certain property with a longer life) and applied to both the regular tax and the alternative minimum tax. PATH expands the assets eligible for bonus depreciation and extends bonus depreciation for 5 years subject to the following schedule:
50% for 2015-17
40% for 2018
30% for 2019
Bonus depreciation under for passenger automobiles is increased by $8,000 for certain passenger automobiles. This amount is phased down by $1,600 per calendar year beginning in 2018 so bonus depreciation is increased by $6,400 in 2018 and $4,800 in 2019. IRC 168(k)
Work Opportunity Tax Credit: The work opportunity tax credit is available on an elective basis for employers hiring individuals from one or more of nine targeted groups (for example, certain residents in empowerment zone, enterprise community, renewal community or a rural renewal community, qualified veterans or ex-felons, and recipients of temporary assistance under the Needy Families Program). The amount of credit available to an employer is determined by the amount of qualified wages paid by the employer to employees from the targeted groups. Generally, qualified wages consist of wages attributable to services rendered by a member of a targeted group during the one-year period beginning with the day the individual begins work for the employer (two years in the case of an individual in the long-term family assistance recipient category).
PATH extends this provision for 5 years (through taxable years beginning on or before December 31, 2019) and expands the work opportunity tax credit to employers who hire individuals who are qualified long-term unemployment recipients (persons who have been certified by the designated local agency as being in a period of unemployment of 27 weeks or more and has received unemployment compensation under State or Federal law). With respect to wages paid to such persons, the credit is 40% on the first $6,000 of wages paid to such individual, for a maximum credit of $2,400 per eligible employee.
This change generally is effective for individuals who begin work for the employer after December 31, 2014. The credit for the provision relating to wages paid to qualified long-term unemployment recipients is effective after December 31, 2015. IRC § 51 and 52
New Markets Tax Credit: PATH introduced a new markets tax credit for qualified equity investments made to acquire stock in a corporation, or a capital interest in a partnership, that is a qualified community development entity (“CDE”). The credit is (1) 5% for the first year and for each of the following 2 years, and (2) 6% for each of the following 4 years. The credit is determined by applying the applicable percentage (5% or 6%) to the amount paid to the CDE for stock or a partnership capital interest. A qualified CDE is a US corporation or partnership: (1) whose primary mission is serving or providing investment capital for low-income communities or low-income persons; (2) that maintains accountability to residents of low-income communities including residents on any governing board or advisory board to the CDE; and (3) that is certified as a qualified CDE. The maximum annual amount of qualified equity investments was $3.5 billion for calendar years 2010 through 2014 and the credit expired on December 31, 2014. No carryover of unused allocation limitation was allowed after 2019.
PATH extends the new markets tax credit for 5 years, through 2019, permitting up to $3.5 billion in qualified equity investments for each year from 2015 through 2019. It also extends for five years (through 2024) the carryover period for unused new markets tax credits. IRC §45D
Extenders Effective for 2 years:
Mortgage Debt Exclusion
Generally, taxpayers are taxable on debt they owe that is forgiven or otherwise cancelled at ordinary income tax rates. After the 2008 economic recession, Congress enacted a rule that provides that homeowners who lose their homes are not taxable on debt cancelled on mortgages up to $2 million ($1 million for a married taxpayer filing a separate return). PATH extends this provision through 2016 and, if a binding written agreement is entered into in 2016, for debt discharged in 2017. IRC 108
Expensing Film and Television Production Costs:
Production companies can elect to deduct the cost of any qualifying film and television production in the year the costs are incurred in lieu of capitalizing the cost and recovering it through depreciation, generally limited to $15 million of the aggregate cost of the film or television production. This threshold is increased to $20 million if a significant amount of the production expenditures is incurred in areas eligible for designation as a low income community or eligible for designation by the Delta Regional Authority as a distressed county or isolated area of distress. To qualify, at least 75 % of the total compensation (not including participations or residuals) expended on the production must be for services performed in the US by actors, directors, producers, and other relevant production personnel. Pornographic films do not qualify. IRC § 181
PATH extends the special treatment for film and television productions for 2 years to qualified film and television productions commencing prior to January 1, 2017. In addition, for the first time certain qualified live theatrical productions qualify for this deduction commencing after December 31, 2015. A qualified live theatrical production includes (i) a live staged production of a play derived from a written book or script and presented in venues with an audience capacity of not more than 3,000and (ii) live staged productions presented no more than 10 weeks annually in any venue which has an audience capacity of not more than 6,500.
Empowerment Zone Incentives:
Prior tax acts authorized the designation of empowerment zones to provide tax incentives for businesses to locate within certain targeted areas. Tax incentives available within the designated empowerment zones include a Federal income tax credit for employers who hire qualifying employees, increased expensing of qualifying depreciable property, tax-exempt bond financing, deferral of capital gains tax on the sale of qualified assets sold and replaced, and partial exclusion of capital gains tax on certain sales of qualified small business stock. The provision extends the empowerment zone tax incentives for 2 years, through December 31, 2016. IRC 1391 and 1394
Credit for Installing Clean Fuel Vehicle Refueling Property:
Taxpayers may claim a 30 % credit for the cost of installing qualified clean-fuel vehicle refueling property for the taxpayer’s business or at the taxpayer’s principal residence. The credit is limited to $30,000 per year per location, in the case of a business, and $1,000 per year per location, in the case of a principal residence. Qualified refueling property means property (not including a building or its structural components) to store or dispense of clean-burning fuel or electricity into the fuel tank or battery of a motor vehicle. The original use of such property must begin with the taxpayer. PATH extends for two years the 30% credit for alternative fuel refueling property, through December 31, 2016. IRC 30C
Renewable Resources Facilities:
A tax credit is allowed for producing electricity from qualified energy resources at qualified facilities (the “renewable electricity production credit”). Qualified energy resources include wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy. “Qualified facilities” refers to facilities that generate electricity using qualified energy resources. To be eligible for the credit, electricity produced from qualified energy resources at qualified facilities must be sold by the taxpayer to unrelated persons. The credit is based on kilowatt hours produced and the credit amount varies between the different types of energy resources produced. Except for wind facilities, the provision extends for two years the renewable electricity production credit and the election to claim the energy credit in lieu of the electricity production credit through December 31, 2016. IRC § 45 and 48
Energy-Efficient Commercial Buildings Deduction:
Taxpayers may elect to immediately deduct energy-efficient commercial building property expenditures made by the taxpayer. Energy-efficient commercial building property includes property (1) installed on or in any building located in the US which is within the scope of Standard 90.1-2001 of the American Society of Heating, Refrigerating, and Air Conditioning Engineers and the Illuminating Engineering Society of North America (“ASHRAE/IESNA”), (2) which is installed as part of (i) the interior lighting systems, (ii) the heating, cooling, ventilation, and hot water systems, or (iii) the building envelope, and (3) which is certified as being installed as part of a plan designed to reduce the total annual energy and power costs with respect to the interior lighting systems, heating, cooling, ventilation, and hot water systems of the building by 50 % or more in comparison to a reference building which meets the minimum requirements of Standard 90.1-2001 (as in effect on April 2, 2003). The deduction is limited to an amount equal to $1.80 per square foot of the property for which such expenditures are made. The deduction is allowed in the year in which the property is placed in service. Certain certification requirements must be met in order to qualify for the deduction. A partial deduction is allowed with respect to each separate building system that comprises energy efficient property but does not meet the 50% test. IRC § 179D
PATH extends the deduction for two years, through December 31, 2016 for property placed in service after December 31, 2014.
Exempt Organizations: PATH requires social welfare organizations claiming tax exempt status under IRC 501(c)(4) (the form of entity now used by PACS for political contributions) to notify the IRS of its formation and proposed operation within 60 days of the organization of the entity. The Consolidated Appropriations Act, 2015 (Omnibus Bill) prohibits the IRS from issuing, revising or finalizing any regulations on determining whether an organization is operated exclusively for the promotion of social welfare for purposes of Section 501(c)(4). The IRS is still permitted to make this determination on a case-by-case basis.
PATH directs the IRS to create procedures for organizations applying for exemption (under any provision of IRC 501(c)) which face an adverse ruling, to seek administrative appeals with Appeals Office of the IRS.
Partnership Audit Rule Changes Under the Bipartisan Budget Act of 2015
The Bipartisan Budget Act of 2015 enacted significant changes to the IRS audit procedures affecting partnerships (and other entities taxable as partnerships), codified in IRC § 6226 and effective for tax years beginning after 2017.
The new partnership audit rules apply to all partnerships and entities taxed as partnerships (e.g., limited liability companies) unless the partnership elects out of these rules. To elect out for a given year, a partnership must have 100 or fewer partners, all of which are individuals, C corporations (or foreign entities that would be taxed as C corporations if they were domestic), S corporations, or estates of deceased partners. The new audit rules allow the IRS to deal with a single partnership representative (who does not need to be a partner) in initiating and resolving the audit and any related judicial proceedings. All other partners will be bound to the results of the partnership audit or judicial proceeding as agreed to by the designated representative and the IRS will have no obligation to send notices to anyone other than the partnership representative. If additional taxes are found to be due, the entity can elect to pay an entity-level tax at the top individual rate on the increased income or, alternatively, provide adjusted Schedule K-1s to its partners reporting their allocable share of the adjustments. If adjusted Schedule K-1s are provided to the partners, they will be required to pay any additional tax due with their regular tax return for the year in which the adjusted Schedule K-1 is issued. The change in the partnership audit rules result from the extraordinary increase in the number of partnerships (and entities taxable as partnerships), the difficulty encountered by the IRS in auditing multi-level partnership entities, and the complex rules regarding the IRS’s duty to issue notices to all of the partners. For partnerships (and entities taxable as partnerships) which do not elect out of these rules, selection of the partnership representative with authority to deal with the IRS will be critically important since he or she will have the legal authority to bind the partnership and all of the partners.
Changes to the Affordable Care Act
Medical Device Tax:
The Affordable Care Act includes provision for a tax equal to 2.3% of the sale price on the sale of any taxable medical device by the manufacturer, producer, or importer of such device. PATH suspends the medical device excise tax for a period of 2 years for sales on or after January 1, 2016 and before January 1, 2018.
The Omnibus Bill provides for a 2-year delay to 2020 of the excise tax on high-cost employer-sponsored health coverage (referred to as “Cadillac” plans).
The Omnibus Bill provides a moratorium on imposition of the health insurance provider fee for 2017. The IRS has issued a notice that this moratorium doesnot affect the filing requirement and payment of these fees for 2016.
Codification of the Taxpayer Bill of Rights
The Internal Revenue Service developed a “Taxpayer Bill of Rights” some years ago that provided that taxpayers had the following rights: (1) right to be informed; (2) right to quality service, (3) right to pay no more than the correct amount of tax, (4) right to challenge the position of the IRS and be heard, (5) right to appeal a decision of the IRS in an independent forum, (6) right to finality, (7) right to privacy, (8) right to confidentiality, (9) right to retain representation, and (10) the right to a fair and just tax system. PATH codifies these rights in IRC § 7803. It is not clear what benefits, if any, will accrue to taxpayers from the codification of these rights.
Changes to Filing Deadlines
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (“Surface Transportation Act”) sets new due dates for partnership returns, C corporation returns, FBAR returns, and several other IRS information returns. Don’t worry; these new tax return due dates apply to tax returns for tax years beginning after Dec. 31, 2015 so they do not apply to tax returns for 2015 for entities that report on a calendar year basis.
For a partnership return (Form 1065), the due date is moved up one month and the new due date will be March 15 for calendar-year partnerships and the 15th day of the third month following the close of the fiscal year for fiscal-year partnerships. For C corporations (Form 1120), the due date is deferred for one month and the new due date for calendar year corporations will be April 15 and, for fiscal-year corporations, the 15th day of the fourth month following the close of the corporation’s year. The due date for the FBAR (reporting interests in foreign bank accounts to the Treasury Department), is changed from June 30 to April 15. For the first time, a six-month extension for filing the FBAR is provided. The Surface Transportation Act also provides for waiver of penalties for taxpayers that are required to file an FBAR return for the first time if they file it late by mistake.
The due date for Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts, is April 15 for calendar-year filers, with a maximum six-month extension. The new law also makes changes to other miscellaneous tax return due dates and extension periods.
Six-Year Statute Applicable to Basis Overstatement Cases: Overruling Home Concrete
The Surface Transportation Act overrules the United States Supreme Court holding in Home Concrete & Supply, LLC, 200 U.S. 321 (2012). This case considered whether the six-year statute of limitations, which applies when a taxpayer omits more than 25% of its gross income on a tax return, applies when a taxpayer overstates its basis in property that it sells, thereby reducing taxable gain. The US Supreme Court held in Home Concrete that an “overstatement of basis” did not constitute an “omission of income” for purposes of extending the statute of limitations to six years. The Surface Transportation Act overrules Home Concrete so that an overstatement of basis which reduces the taxpayer’s taxable income by more than 25% will be subject to the six-year statute of limitations.
Penalty for failure to file correct information returns
The Trade Preferences Act also increases the penalty for failure to file correct Form 1099s. The current penalty of $100 per return is increased to $250, and the maximum annual penalty is increased from $1.5 million to $3 million. The penalty for intentional disregard is increased to $500 per return (from $250), and the maximum annual penalty is increased to $3 million (from $1.5 million). Other adjustments are made to penalties for taxpayers who file corrected information returns. These changes are effective for information returns and payee statements required to be filed after Dec. 31, 2015.
Revocation or Denial of Passports
The Fixing America’s Surface Transportation Act for the first time permits the State Department to revoke or deny a passport for taxpayers who have a “seriously delinquent tax debt” that exceeds $50,000 (adjusted for inflation for calendar years after 2016). A “seriously delinquent tax debt” is one for which (1) a notice of lien or notice of levy have been filed; (2) there is no agreement in place to pay the tax, and (3) collection activities are not suspended because of a pending collection due process hearing or a pending request for innocent spouse relief.
This is an excellent ABA article about the benefits of using virtual paralegals: Originally published in GPSolo Vol. 31 No. 3 (May/June 2014 ):
Pamela J. Starr, CBA, J.S.M., is the owner and lead virtual paralegal of StarrParalegals, LLC, specializing in bankruptcy, creditors’ rights, and all things ECF (e-filing), and blogs at pamelatheparalegal.com.
Although it’s not quite holograms and holodecks (yet), the ever-adaptive legal industry continues to acclimate to working remotely. Attorneys can run effective practices without the restrictions and expenses of conventional office space or full-time, in-house support staff. When one considers the evolution of the practice of law, working virtually is, simply, logical. It is a world in which “bring your own device” (BYOD) is the norm and the paralegal down the hall may very well be on the other side of the continent.
And who is this paralegal? Whether in-office or virtual, he/she is often a fusion of Uhura and Scotty, with a dash of Kirk: a poised, professional, ethical, multi-tasking miracle-worker striving against seemingly impossible odds.
Where Few Paralegals Had Gone Before
Many of today’s virtual paralegals began their careers in Big Law or corporate America, never imagining they would become self-employed entrepreneurs, the owners of their own virtual paralegal companies. These 21st-century freelancers work remotely, linking to their clients via electronic media instead of coming into the office to collect projects. They are trained, certificated (and often certified), experienced paralegals who have taken their substantial skills out of bricks-and-mortar law offices, via the profusion of available technology, to deliver a cost-saving alternative for solos and small firms. These innovative individuals provide something their in-house counterparts don’t: They are (virtually) available 24/7.
What is the difference between certificated and certified paralegals?
- Certified: Credentials issued by a certifying organization indicating a paralegal has successfully completed certain established requirements and passed a certification exam. The ABA does not certify paralegals.
- Certificated: A degree or certificate of completion verifying that a student has successfully completed a paralegal educational program.)
The legal profession continues to embrace and realize the value of working with and in the cloud. This technology makes it possible for Small Law to flourish and has created the perfect niche for enterprising paralegals to hang their virtual shingles and offer cost-effective support to the solos and small firms who understand and appreciate their value.
A Piece of the Action
Attorneys want to maintain an image of professionalism, decrease their overhead, and increase the value of their billable dollars. Solos and small firms need support to manage the practical side of their law practices—especially if their budgets cannot sustain full-time assistance. Their clients (rightfully) expect the same level of expertise and service as their Big Law counterparts, but without Big Law fees. In today’s competitive marketplace, Small Law needs paralegal support to provide these services. Outsourcing allows solos and small firms to work directly with paralegals, on a transactional basis, without the burden of salaries and overhead or the limitations of regular business hours. Virtual paralegals offer attorneys a seamless, remote staffing alternative while maximizing the value of each billable hour. Realistically, attorneys just want to get back to the business of practicing law. Anyone in the industry will agree there are some tasks better handled by a paralegal and billed at a lower rate so attorneys can make better use of their time.
Not only are attorneys who outsource more productive, but they also realize higher revenues because they pay only for the work being done. Let’s compare the cost of a full-time employee to a virtual paralegal. A full-time, salaried paralegal averages $62,700 annually, which breaks down to about $30 per hour. The employer, however, is on the hook for an additional 35 percent in taxes and benefits (paid lunches, overtime, personal leave, overhead, professional dues, and non-productive time) for a total budget expense of about $84,600 per year. On the other hand, a savvy solo or small firm may need only ten hours of paralegal support over the course of each week. Assuming a flat rate of $55 per hour for 52 weeks (520 hours total) for virtual paralegal assistance—without the extra expenses associated with payroll taxes, insurance, benefits, overhead, and other hidden costs—the annual cost to the firm would be just $28,600. This yields a relative savings of about $56,000—almost the cost of the base salary of the full-time employee.
It’s all about the bottom line. Technology merely provides new avenues by which paralegals may continue to provide exceptional, professional, and cost-effective services to attorneys in need. To maintain a competitive edge, attorneys must utilize all the tools in their technology tool kits, remembering that sometimes technology is embodied in an individual who can deploy it expertly on the attorney’s behalf.
Selecting Your Away Team
You must be clear about what you need and want for your practice. Are you looking for a virtual paralegal to fill in a gap, or are you really looking for someone to provide dedicated assistance to your practice? If you are considering a home-based paralegal to work solely for the benefit of your practice, then you may have a telecommuting employee on your payroll instead of an independent contractor.
That being said, always treat hiring a virtual paralegal the same way you would treat hiring someone to work in your physical space. This person will be acting on your behalf and under your supervision, so it’s best to hire somebody with experience and established credentials. Keep in mind, there are many qualified paralegals just entering virtual practice who may not have established themselves as independent contractors but still bring experience and knowledge to the table. Certain legal specialties require unique skills and proficiency; however, there are some situations in which it makes just as much sense to hire a virtual paralegal with verifiable training that you can mold to your own specifications. In any case, the appropriate person is a qualified, experienced, well-trained, career paralegal who is the right match for you and your practice.
Ask questions, request references, do your due diligence. An established virtual paralegal will have a visible web presence. Consider all the details: education, background, and experience, affiliations with professional associations. Confirm—and this is important—that the individual is indeed a credentialed paralegal (or legal assistant).
Reputable virtual paralegals will discuss, in detail, their fees, billing practices, availability/hours of operation, and respective expectations, and will provide you with a service agreement or contract that formalizes the terms of your business arrangement. The contract protects all parties. (You are an attorney, you already know that.) They will also have all the equipment necessary to do the job: phone, computer, printer, scanner/copier, external hard drive, secure Internet connection, licensed software (document processing, e-mail, financial tracking, specialty software related to their service offering, etc.), up-to-date antivirus software, and offsite back-up. Many have the ability to integrate with their clients’ technology and securely transfer files and information. The luxury of working virtually is that virtual paralegals have remote access to their “offices” and/or can work anytime and anywhere.
Most paralegals, virtual or in-office, are college-educated professionals who may or may not have also completed a course of formal paralegal training; many have been certified by one or more of the nationally recognized paralegal associations; and a growing number are seeking secondary degrees. Generally speaking, there are no mandatory CLE requirements for paralegals, although truly dedicated paralegals do undertake such continuing education in order to be more valuable to attorneys. Like their in-office counterparts, virtual paralegals can provide their services to attorneys in every type of law practice, although many focus their services in the areas of Social Security, immigration, intellectual property, and bankruptcy simply because the federal system is the most conducive to the utilization of their skills. It might be true that a “chimpanzee and two trainees” can file documents electronically, but e-filing requires a special skill set and a certain level of patience in order to properly process, assemble, and submit the required documents in their proper sequence and under the correct event codes.
Violations of the Prime Directive
Paralegals have certain limitations. The most important is that paralegals must not engage in the unauthorized practice of law. Although the definitions and comments regarding the unauthorized practice of law by non-lawyer assistants vary from state to state, the standard has been set by the ABA Model Guidelines for the Utilization of Paralegal Services (tinyurl.com/pv72p4u) and refers to Rule 5.5 of the ABA Model Rules of Professional Conduct (tinyurl.com/cxgb56u). In general, paralegals may not accept cases, set fees, give legal advice, plan strategy, make legal decisions, take depositions, or appear in court. Obviously, with respect to running their own businesses, virtual paralegals may set the fees they charge their attorney clients; they are, however, prohibited from setting fees for the attorney’s clients.
One of the lesser-known benefits of working virtually, especially in terms of bankruptcy and other federal practices, is that a paralegal does not have the same jurisdictional restrictions as those imposed on attorneys. As long as a paralegal is working under the direct supervision of an attorney who is duly admitted to practice before the bar in the jurisdiction in which he or she is practicing, it does not matter where that paralegal is physically located. It is important for both the attorney and the virtual paralegal to know of, and adhere to, the rules of each jurisdiction. These issues and concerns continue to be addressed by the ABA Commission on Ethics 20/20 (tinyurl.com/3op6tx3) and are sure to be modified as technology changes the ways in which legal professionals work.
If nothing else, the controversy over snooping by the National Security Agency has reminded us that privacy, confidentiality, and security are always an issue. The vulnerabilities exposed by these recent disclosures make me long for our former “zinc-plated, vacuum-tubed culture.”
We know that technology makes it possible to work virtually, but it also makes it easier to inadvertently cross ethical lines. Virtual legal professionals have the same legal and ethical constraints as their bricks-and-mortar counterparts. In terms of all things Internet, web-based, or cloud, the reputable virtual paralegal will utilize firewalls, secure Internet connections, and encryption; institute security protocols for the storage and retention of paper and digital files; and implement backup and retrieval systems for file recovery.
Unless you can figure out how to get back to the time of stone knives and bear skins, we have to accept that communications are no longer inviolable. Consider the nature of the information being transmitted from client to attorney and attorney to paralegal, and so on. For instance, in bankruptcy matters, paralegals are often given access to a debtor’s credit report, Social Security Number, and other forms of personal identifying information. For that reason, it is of paramount importance, not only for the paralegal’s protection but also to protect client information, that the paralegal and attorney establish and enforce security policies and protocols.
In light of current revelations, the opinion of the ABA Standing Committee on Ethics and Professional Responsibility regarding the “Duty to Protect the Confidentiality of E-mail Communications with One’s Client” (tinyurl.com/mzhzrqs) has taken on a new dimension. Among other things, the opinion addresses concerns as to the risk of any third-party access to any online communication. Obviously, the legal and ethical obligation to protect client data applies to virtual paralegals as well as the attorneys to which the opinion was originally directed.
As with any form of legal practice, there are always concerns regarding conflicts of interest and jurisdiction. This becomes a more pronounced issue when working virtually with multiple clients in various jurisdictions. Most attorneys and law firms, as standard practice, have a process by which they evaluate new clients and matters for potential conflicts. The responsible virtual paralegal will have instituted similar processes. The ABA Commission on Ethics 20/20 has noted that when outsourcing, it is important to have systems “employ[ing] conflicts checking procedures . . . maintaining extensive databases for existing and former clients and screening the work history of new recruits and existing employees against both the information contained in the databases and information supplied by the client.”
Your Ongoing Mission
As we look toward the second quarter of the new millennium, we recognize that technology will continue to influence how law is practiced. We operate in the midst of a technological universe of infinite diversity, with innumerable options to stock your technology tool box. Sometimes, however, the best tech in your arsenal is the person who knows how to implement technology on your behalf, helping you to boldly go where you have never gone before.