Gifts and incentives raise potentially serious tax consequences for law firms and their employees

Tax Memo


Dear DRA or CCRA Member:

Both of California's court reporting trade associations representing deposition reporters want to make you aware of some important tax and legal information for you and your clients.

As you may know, many court reporting firms have been promising valuable incentives to law firm secretaries and assistants in exchange for those secretaries and assistants booking depositions with the firm. DRA and CCRA retained the law firm of Hanson Bridgett to review the tax implications of these incentives.

According to the Hanson Bridgett analysis, your clients should be aware that offers of such incentives raise potentially serious tax consequences for law firms and their employees. As Hanson Bridgett writes:

Given that the incentives provided by Reporting Firms in exchange for business are payments for services rather than gifts, the [Internal Revenue Code] requires the recipients of those payments to treat the value of the incentives as gross income. This means that recipients must report the value of the incentives they receive as income on their tax returns. Failure to do so could result in the assessment of additional taxes, interest and penalties by the Internal Revenue Service.

A law firm having a general policy in place may not be enough to avoid tax questions, according to the memo:

Where law firms have policies in place prohibiting employees from accepting incentives, serious tax issues may still arise to the extent these policies are not enforced.

Moreover, the memo details that there are serious tax and IRS issues as well for the court reporting firms offering these incentives. The memo can be found at

The Hanson Bridgett memo explaining the tax implications of such incentives offered in exchange for business comes on the heels of the California Court Reporters Board citing and fining U.S. Legal for violating the Board's regulations on so-called gift giving.

Our organizations have long believed that for the market to promote high quality transcripts at reasonable prices, quality and price - not goodies - must be the main reason to select deposition services. Certainly, it is difficult to imagine selecting other licensed professionals (lawyers, doctors) on the basis of such incentives, and for good reason: incentives distort the market away from rewarding quality reporting and, by doing so, hurt the interests of justice.

You are free to provide the Hanson Bridgett memo to your clients if, in your judgment, you feel your clients would be interested in or benefit from them.


Lisa Michaels Debby Steinman


powered by MemberClicks