Recent Developments

◙ Taxation of
Payments Received by Former Employee.

Apropos to the checklist article is a recent ruling on tax consequences
of structuring a settlement with a terminated employee. A former employee
entered into a settlement with her employer relating to mental anguish and
emotional distress from a claimed hostile work environment. The IRS held that
the economic benefit and constrictive receipt doctrines would not apply to
cause the employee to report income prior to her actual receipt of cash. PLR
200836019. The Settlement Agreement and Release which the employer and employee
entered into required a payment of a lump sum initially, and periodic payments
for other claims. The agreements preclude the employee for accelerating,
deferring or otherwise changing the payment sequence.  The employee cannot elect to receive the commuted value of
the periodic payments. The employer could enter into a non-qualified assignment
with a company that will make the payments. No assets were set aside to secure
these payments. The employee is not deemed to have received any property when
the employer pays the assignment company funds. Because of the restrictions on
the employee she cannot be deemed to constructively receive the funds, there is
no current taxation.

◙ Malpractice
Coverage.

All professionals
need it (except for those streakers who think going bare is smart).  An attorney was recently sued for
malpractice. Then the nightmare of all professionals took place. The insurer
denied coverage. The insurer claimed that the attorney had an awareness of the
claim in 2003, so that coverage under a 2004 policy was not required. The
attorney should have notified the insurer in 2003 when he first became aware of
the issue. Ackerman v Westport Insurance Corp., Dist. Ct. (Linares, USDJ), 9/8/08.
Deteriorating economic conditions, deals falling apart, and more, are all
likely to trigger more claims. All professionals should be wary of the lessons
of this case and report any possible issues at the first appearance of a potential
claim.