Recent Developments

Partnership Agreement:

A law firm changed its partnership agreement by majority vote from accrual to
cash basis. While state law provided that a unanimous vote is required to
change any agreement between the partners, the provision of the partnership
agreement trump the statute.  The
partnership agreement provided in general that majority vote governs, although
several provisions provided for unanimous approval. The provision involved in
the case did not provide for the higher standard. Bailey v. Fisch &
Neave, 8 N.Y.3d 523 (5/8/07).
Too often it’s only with hindsight that the implications of a provision are
really understood. This case is a great caution to those rushing through
governing documents and not giving them the care and thought needed.

Real Estate Brokerage
Commissions:

As the residential real estate market continues to soften, it
may become more common for brokers to rebate or reduce brokerage commissions to
benefit buyers to encourage sales. A recent ruling addresses the tax
consequences of such rebates. A buyer’s agent paid the buying customer a
portion of the commission after closing. The IRS held that the buyer does not
have to recognize this payment as income. Instead the payment should be treated
as a downward adjustment of the purchase price. Also, the broker does not have
to issue a Form 1099 reporting the payment to the buyer to the IRS. The
rationale is that since the amount is not income it did not have to be
reported. PLR 200721013.

Art
Valuation:

An estate was
entitled to discount the value of its ½ undivided interest in artwork for the
cost it would likely incur in a partition action to sell the art. This discount
was based on an estimate of the cost to sell the paintings at auction. The
court also indicated that a further discount to factor into the valuation the
volatility of the art market and its impact on the timing of a sale. R. Stone
DC Cal. 2001-1 USTC Para. 60,540.