Sales representatives who market services and products from every industry often make use of incentives and gifts to boost the chances of making a sale. In the field of law this usually takes shape of court reporting company giving a bonus to staff members to schedule a deposition through the firm. The incentives may take various forms, including:
- Gift cards
- Trips
- Movie tickets
- Season tickets
- Cash
- Champagne expensive
- Meals
What's the issue with this method? There are some. First of all attorneys and partners might not realize that they are committing a crime in their practices. If you are an attorney do you wish your staff members to make choices about the quality of their services by determining which company offers the most benefits? The more concerning aspect is the tax implications. This is because the IRS treats these rewards as income tax deductible.
A recent memorandum issued by the firm of lawyers Hanson Bridgett to the Deposition Reporters Association of California and the California Court Reporters Association analyzes the tax implications for accepting gift cards. While "gifts" generally aren't tax-deductible but the IRS uses an entirely different definition for "gifts" than the recipients and salespeople could have. For instance, when you offer an incentive to schedule depositions, gifts aren't offered "solely from affection or respect or similar motivations." Therefore, these gifts aren't really gifts according to the IRS. They're taxable income.
Okay that's it. Your receptionist at the front desk has received a few hundred or maybe several thousand dollar worth of "incentives" from the court reporting company. Who pays for the tax? The recipient usually pays for the tax however the employer could be legally required to withhold taxes due the similarities between tips and incentives. This Hanson Bridgett memo explores all of this more in depth.
Alongside tax issues The practice of giving incentives can raise ethical issues. Numerous regulatory organizations and court reporting associations have imposed limits on incentives due to concerns that incentive programs could compromise the journalist's impartiality. For instance The National Court Reporters Association (NCRA) declares that in their Professional Code of Conduct the following:
"Refrain of giving either directly or indirectly any present or incentive, reward, or other item worth anything to clients, attorneys witnesses, insurers, or any other entity or person involved in the litigation or to agents or representatives of any of these not excluding (1) things that are not more than $100 per year per recipient or (2) the pro bono or pro bono-related services according to the NCRA Guidelines for Professional Practice, or as required by the applicable laws of local and state, regulations and rules."
What does this mean for you? It's time to determine whether incentives are being given out without your consent. It's also the time to review or develop your business's "incentives" policies. Even with a written policy but it's not being followed, Hanson Bridgett warns that tax-related issues could be a problem. You might also want to review your relationship with firms that provide court reporting services that offer excessive gift programs. If the company gives more than $100 to each recipient each year the company could be breaking an important ethical code of conduct that is applicable to its field.
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