Audits loom for lawyers who scaled bar dues

More than 20,000 active California lawyers who scaled their dues this year will receive a letter from the State Bar asking them to be certain they were eligible to reduce their fees and, if not, to pay the difference. The inquiry is a result of confusion about the change in the statutory criteria for scaling based on income level.

California is believed to be the only state that allows members to claim financial hardship and scale bar dues according to income levels, an option that was legislatively mandated in 1999. Depending on income, bar members are eligible for a hardship reduction of their fee by either 25 or 50 percent.

An audit last year of 100 lawyers who scaled found that some who paid a reduced fee in fact posted substantial earnings as arbitrators and mediators.

As a result, the statutory criteria for scaling changed this year to specify that a 25 percent reduction in the membership fee is permitted if a lawyer’s “annual individual earned income derived from the provision of arbitration, mediation, referee or other dispute resolution services, and generally from the practice of law, was less than $40,000.”

In addition, the new criteria permit attorneys to reduce their dues by 50 percent  if their “total annual individual earned income was less than $30,000.” Because the standard last year was net income of less than $25,000 derived from the practice of law, some lawyers have crossed out the criteria printed on the 2004 dues statement and altered the declaration.

“We think that some members are just confused or not aware of the change in the statute effective this year,” said Elyse Cotant, head of member billing services. “In fact, more than 100 people made hand-written modifications to this year’s scaling declaration so that it fits last year’s critera. We want to give members who made a mistake a chance to correct their error and pay the amount they actually owe.”

The number of lawyers who cut their 2004 bar dues in half is 15,433, and another 6,507 took the 25 percent reduction.

Depending on the response from the initial mailing, a statistically valid group will be audited to make sure they are qualified to take the hardship deduction. Those who are audited and found ineligible for scaling likely will have to pay a 25 percent late fee penalty as well as the full amount of the dues owed.

Cotant said the State Bar will begin the initial mailing this month. Members who erred in claiming the hardship deduction will have time to amend their declarations and pay up. The State Bar will then decide whether to conduct an audit in August.

For further tax information please contact your tax consultant or visit the IRS web site at: http://www.irs.gov/individuals

For further information about membership billing please contact the State Bar at 1-866-879-4532 or scaling@calbar.ca.gov