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is in a consortium of more than a dozen law firms to manage and
litigate that case. Petitioner finances his cases by investing
an amount personally and then supplementing the remainder with
loans from a bank with which he has had a 15-plus-year working
relationship.
Overall, it often takes longer to settle class action cases,
because of their complexity and the large number of class
members. Predicting when a given case might settle, therefore,
is an imprecise art.
The issue in this case comes from the manner in which
petitioner financially operated his law practice. Each year
petitioner would sit down with his accountant, determine his
salary after expenses, and reinvest most of his after-tax salary
into the law firm.4 In the 1980s, petitioner’s salary began to
substantially increase, and finally, in 1991, he made his first
$1 million salary. Petitioner testified that this prompted him
to reassess his tax posture to determine whether he might
appropriately minimize his tax burden. His accountant
recommended the leasing arrangement at issue.
Petitioner’s accountant said that if petitioner owned the
corporate equipment individually and leased it to the law firm,
he could lower his Medicare tax. Petitioner paid 3 percent in
4Petitioner reinvests his salary in the form of a loan, and
the law firm pays him interest at 6 percent.
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