Deferred Tax Obligation and Borrowing Enters the Modern Era

Most lawyers who earn contingent fees know that they can defer their fee and defer
their tax obligation. What most lawyers dont know is that the deferred fee can be invested in
market-driven investments and then borrowed back through a traditional loan, almost
immediately through a line of credit. Thats right, almost immediately.
Historically, there have been two problems with fee deferral. The only investment
options offered have been traditional annuities which: (1) produce below-market returns and 2)
result in lengthy lock-up periods and illiquidity.
Thanks to an innovative solution facilitated by Risk Management and Asset
Conservation, Inc. (RMAC, Inc.), it is now possible to solve both of the issues with a simple and
highly tax-efficient strategy. The lawyer defers the fee and borrows close to the full amount
back, thus having access to as much as 97% of the fee pre-tax. The transaction can be
structured so that the tax-free earnings on the deferred fee and the tax benefit associated with
the loan interest pays the cost of the borrowing and the tax on the deferred fee. This is a
powerful strategy!
A lawyer earns a $1,000,000 contingent fee. The after tax net would be roughly
$550,000, if the lawyer chooses to take the fee in cash, assuming a 45% combined federal and
state tax rate.
Now, contrast that with a deferral example. The attorney decides to defer the fee for 10
years and then receives 10 annual payments of roughly $202,000 pre-tax. Assuming the same
combined 45% tax rate and an annual rate of return of 7.5% (remember deferred attorney fees
can grow with the market) the deferred fee nets the lawyer about $336,500 more-
approximately 33.6% of the original fee amount.
Now, consider an option where you use the Loan Program, in conjunction with the
Financial Deferred Fee Program to borrow funds of up to 97% of your pre-tax fee.
This is not an ordinary loan. It gives you access to approximately 42% more cash flow
than you would otherwise obtain if you did not defer. It can effectively pay your tax bill over the
term of your loan. The Loan Program puts you in the drivers seat to define your financial
futureBecome your own bank!



Lets talk in a little more detail. What are your options with the Loan Program? It depends:
If there is sufficient cash flow to pay monthly interest expense, then borrow up
to 97% of your fee. It has the largest economic benefit and potentially covers more of your tax
bill.
If consistent new cash flow is an issue, then interest and fees are prefunded via
deferral, meaning there should be no out of pocket expenses over the life of the loan.
If Annual Cash Flow is not an issue, but you want to make money off your tax bill,
then borrow only the amount equal to your after-tax proceeds. You get the same amount
upfront that you would have received had you not deferred, but you use the governments tax
money to your advantage.

Ultimately, when you employ one of these strategies, you have:
-Deferred paying tax on the fee
-Allowed the fee to earn a market-based return
-Made the interest paid on the loan tax deductible

Why does this work?
A lawyer can defer receipt of (and federal income tax on) contingent fees until those
fees are received and have those deferred fees invested, earning pre-tax dollars. These
structures have been around for years, approved the U.S. Tax Court in Childs v. Commissioner
(2103 T.C. 634, 94 TNT 223-15 (1994), and affirmed by the 11
th
Circuit U.S. Federal Appeals
Court in Childs v. Commissioner, (affd without opinion) 89 F.3d 856, Doc 96-19540, 96 TNT
133-7 (11
th
Cir. 1996).
Borrowing does not trigger constructive receipt as long as the deferred fee is not
pledged as repayment for the loan. However, the deferred fee payments may be considered as
a source of repayment. The loan process is simple and involves typical loan paperwork and
underwriting.


Conclusion
This powerful new strategy facilitated by RMAC, Inc. allows attorneys to change the way
they think about borrowing and earning fees. Now attorneys dont have to be at the mercy of
their bank when it comes to funding future litigation or covering overhead expenses. Attorneys
can become their own bank. You work hard to earn your contingent fees. You owe it to yourself
to explore this unique option.

For more information, please feel free to contact:
Les J. Marsh
219 2
nd
Avenue S.
Suite 3A
Great Falls, MT 59403
les@rmac-inc.com