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Confidential Law Firm Tax Planning Memo! Leaked! Part 1 of 2

Julian Assange has nothing on us. We’ve been provided a copy of a super secret** tax planning memorandum from a prominent law firm.   This elegantly simple yet brilliant insight just might influence your own billing practices for 2011.

(**And entirely fake)

EXTREMELY CONFIDENTIAL

TO: ALL PROFESSIONALS
FROM: Maj. Bill Fail, Tax Chairman
DATE: January 10, 2011
SUBJECT: Tax Planning Tips

Team,

As we say goodbye to 2010, I wanted to take the opportunity to remind you that tax planning is a critically important part of our Firm’s operations.   Each year we strive for a single planning tactic that dramatically drives down our tax liability. Last year’s idea (charging our clients for services at a rate slightly below our own actual cost to provide those services, but doing so in extremely high volumes) successfully resulted in an historic drop in our taxable income.   This year’s discovery is equally exciting.

After countless of hours of advanced calculation and analysis, we’re pleased to report what may be the best tax minimization plan we’ve uncovered in our Firm’s history. The successful implementation of this plan will not only result in significant tax savings, but it will require little or no change in current workflow for many of you.

Premised on the bedrock principle that the less revenue we bring in the less tax we pay, we surface the corollary: The more time we write off, the more bills we write down, the more tax we avoid.  It’s that simple.

You may reasonably ask: “How do we accomplish this? Our Firm’s professionals are among the hardest working, highest billing in the nation. We’re incredibly busy helping our clients solve problems, resolve complex disputes, negotiate contracts, and we’re billing more quality time than ever. Writing off time is virtually unthinkable – if anything we should be billing more!”

True, true. A sticky wicket indeed – we’ve found the loophole.   We’ve solved the riddle of how we can still work hard, provide great service, yet ensure that our clients continue to discount our bills.

We looked at a sample of several successful write-downs and discounts – i.e., situations where we were able to forego payment for good work that we legitimately completed.  Several clear patterns emerged, and we strongly encourage you to adopt (or for many of you, simply continue) these simple billing tactics that will most certainly keep the write-downs coming.

1.   IT’S JUST A BILL – THERE’S NO RUSH TO SEND IT

Our statisticians noticed a very strong correlation between the size of the write-off and the delay in sending the bill out. The most successful example, by far, was a solid “hide-it-under-the-desk-and-hope-it-just-goes-away-by-itself” effort by one of our litigation partners.

Waiting 6 months to send a client a high five-figure bill relating to depositions on a case that the client eventually lost on a summary judgment motion resulted in nearly a 50% write-off, saving us a considerable amount in taxes!

So, next time you’re ready to send out that bill, wait. Take a deep breath. Let it age like a fine wine. Resist the temptation to get trigger happy and send the bill out when the client can vividly remember all the specific work you put into the matter.

An added plus of delay – “old” bills; that is, bills that stand out as unusual often require multiple or extra levels of internal review before they can be paid.

For instance, an in-house counsel who retains our Firm as litigation counsel may be able to immediately and routinely pay a bill that’s within budget and contemporaneous with activity, but may need to chase down a GC, CFO or another party up the chain to get a stale bill paid – and you know they’re going to have questions.

Getting our bills outside of the “pay in the ordinary course” pile can indeed promote valuable write-downs, and can also help stall our collections so we’re not faced with the pesky problem of collecting a whole bunch of cash at once. Being overwhelmed with timely, full client payments? No, thank you.

Editor’s note:  This is merely 1% of the leaked data we present to you today.  Tomorrow we resume with more of this letter.  And it’s just the tip of the iceberg!