$160k legal contract - undue influence?

What is the name of your state? TN/CA/GA

In 1999 I incurred a very large federal tax bill. After the market crash I was unable to pay this off, which grew to some $1.7m after penalties factored in. In Oct 2002 I sought the help of a tax lawyer to help resolve this situation before the IRS took real action against me, and I ended up choosing a lawyer in CA (I lived in GA at the time and moved to TN in Dec 2002).

After an initial review, the lawyer advised me that I was ok since the IRS had not yet assigned a human to my case, so at this time just need to prepare. As part of the prep he said that it would be "smart" to pay into his trust account an amount to cover my expected upcoming legal costs. He explained that by doing so it would be possible to refund later at the end of my case any unused portion. This sounded like a smart plan to me, so I asked him what is the maximum amount I could provide for any future work, and he replied with an amount $160k. I asked some more questions and he replied that: "Depositing a large amount of retainer does not guarantee the IRS will seek to collect it, BUT I DOUBT IT WOULD DO SO."

Based on that, I sign a contract & fund the $160k, expecting to get most of this back at the end of my case. Fast forward to Oct 2003. The IRS still has not assigned someone to me, but he suggests we do a reanalysis of my affairs. In this review he now says: (1) The prepaid fees are "problematic", that there's an "80% chance" IRS will demand I include this money in a settlement with them, that they may do a "jeopardy levy", the IRS will be severely pissed off at me, and that this will hurt the chances of me completing an offer with them. (2) I am left with only two strategies, one where I leave things as is and suffer all the things mentioned above and almost certainly lose the money, or I can sign an addendum with him where he immediately earns all the money nonrefundably. His words: "The bottom line here is that whether you go with strategy one or two, your $125k is already spent. Either the IRS gets it in an accepted offer, or less likely, by a jeopardy levy, or I get it in the form of legal fees where you get my continued expert representation at a locked in price."

At that point I am very pissed, but left with only what he is telling me. I feel forced to sign the addendum, and do so. To wrap up, my case is resolved with a successful offer in summer 2004 in a very easy fashion. I don't feel he did anything near earning this much money. Any chance of breaking this contract, and getting back some of this money? Really what I'm looking for answer-wise is whether this is worth pursuing with a high-paid local lawyer in Nashville, and if so what you think the odds are of overturning this contract.

You need a business law attorney to look at the contract to see whether it is breakable or not. Does this contract include a stipulation/agreement as to what his fees/hourly rate is and what he will be charging if he continues to represent you? Has the IRS not even told you what your tax liability is? Any indication of why it is taking so long for them to meet with you? Any proof/documentation/letters that this attorney has even contacted the IRS on your behalf to get things going?

I somehow don't feel that this attorney is being completely honest with you. It's hard for me to understand why the IRS would be "pissed off with you", as he says, if they know beforehand that you are going to be paying them $160,000 in full or partial settlement of a debt.

You should be consulting with an enrolled agent (a professional person or attorney who has previously worked with the IRS and has the advantage of knowing the ins/outs of their rules and regulations) who specializes in tax settlements to get a PROFESSIONAL opinion about how to proceed now.

You need to work the numbers to find out now if it would be to your advantage to continue using the first attorney or finding a newer one who is more knowledgeable.

DANDY DON IN OKLAHOMA ([email protected])

Didn't you say this was a California atty ?

File a complaint with the Ca state bar. They can order restitution, if appropriate.

I also find it hard to believe that the IRS would be "pissed off" at you if you gave them money. I always find that they like receiving money! I cannot understand why you hired a California attorney when you lived in Georgia or Tennessee. However, that is over and done with. What makes no sense now is to hire a Tennessee attorney to sue the California attorney. It only makes sense if the Tennessee attorney will sue in federal court in Tennessee (presumably for some type of fraud), so make sure you get an attorney who is accustomed to practicing routinely in federal court. Otherwise, you should hire a California attorney to sue him in California, and that will definitely cost you a lot. It would be cheaper to make a California bar complaint, and see if they will resolve it. That will cost you nothing, and it certainly seems to me that you have a good complaint. In particular, the attorney should have given you some accounting of his time, which explained what he did to earn the money, rather than just a statement that he earned it. That is not sufficient for attorney's fees.