Could your court reporter's gifts put you at higher risk for an IRS audit?

From Save Our Court Records:

The Law Firm of Hanson Bridgett Offers Legal Opinion Regarding Tax Implications!

Many court reporting firms have been promising valuable incentives to law firm staff in exchange for booking depositions. DRA and CCRA, two prominent court reporting associations, have retained the law firm of Hanson Bridgett to review the tax implications of these incentives and have shared the results for wide distribution.

According to the Hanson Bridgett analysis, law firms, attorneys, and staff should be aware that offers of such incentives raise potentially serious tax consequences for law firms and their employees.   As Hanson Bridgett writes: 

Given that the incentives provided by Reporting Firms in exchange for business are payments for services rather than gifts, the [Internal Revenue Code] requires the recipients of those payments to treat the value of the incentives as gross income.  This means that recipients must report the value of the incentives they receive as income on their tax returns.  Failure to do so could result in the assessment of additional taxes, interest and penalties by the Internal Revenue Service.

A law firm having a general policy in place that disallows acceptance of gifts may not be enough to avoid tax questions, according to the memo:

Where law firms have policies in place prohibiting employees from accepting incentives, serious tax issues may still arise to the extent these policies are not enforced.

Moreover, the memo details that there are serious tax and IRS issues as well for the court reporting firms offering these incentives, not to mention that these practices raise questions about fair and impartial treatment and impropriety in our legal proceedings.  Reporting firms would be wise to adhere to their Professional Code of Ethics for their own sake, and their clients', although the ethical guidelines for court reporters (currently $100 a year) may not be restrictive enough to be congruent with attorneys' ethical obligations to the litigants they represent.   

For a more indepth review, the  memo can be found by visiting http://www.caldra.org/MediaFiles/HansonBridgett_Tax_Memo.pdf