Q: We have been approached by a lawyer who has indicated she can help us avoid legal issues with what she calls “preventative law.” Is this on the level? Seems like anyone can sue anyone for anything nowadays.
T. B., El Toro
Ron Sokol
A: From a practical standpoint, preventative law can include a variety of steps. One example is preparing a will and/or a trust so when you die, it is clear who gets what; you can also set forth a “no challenge” provision to deflect someone arguing to the contrary. In addition, preventative law can include having adequate liability insurance, such as for an automobile accident, so claims against you are covered (thus, you seek to avoid having to pay out of pocket if you are at fault).
Bottom line, preventative law is a branch of legal practice that seeks to minimize your risks, the potential for litigation and your personal exposure, and to establish greater certainty as to legal rights and duties. But sadly, your remark that “anyone can sue for anything nowadays” is not a complete exaggeration. The objective of preventative law is to assist you, your family, your business, group or entity by seeking to limit and/or diminish your chance of having legal problems.
An audit can be part of the preventative process. This will include reviewing documentation, such as contracts, and, for an entity or business, evaluating records and procedures — which can lead to prudent changes. Further, how property is held, and the condition of property, should be assessed. With taxes, as another illustration, how solid is your back up and how are items being characterized?
The above is not exhaustive, but suggests that seeking to prevent risks is advisable. An analogy is that we may not be able to keep a burglar from trying to get into our house, but we certainly can seek to make it far more challenging, and difficult to keep an intruder away.
Q: What are the kinds of records suggested for tax purposes, just in case there’s an issue, or if we get audited?
S.G., Playa Vista
A: Here it is wisest to defer to a tax specialist. What I can share here is what the IRS tells us:
“The length of time you should keep a document depends on the action, expense, or event which the document records. Generally, you must keep your records that support an item of income, deduction or credit shown on your tax return until the period of limitations for that tax return runs out.”
More detail can be found at irs.gov/taxtopics/tc305.
The IRS also states we should hold onto our tax returns and supporting documentation for at least three years. A word of caution, however: If you underreport income, and the unreported amount is more than 25% of the gross income on the return, the IRS encourages keeping those records for six years. As to claiming a loss on worthless securities or bad debt deduction, the IRS indicates seven years.
This, too, is not exhaustive. Good, common sense can play a role. Find a safe, secure place to store tax records, including back up. Cross your T’s, dot your I’s and before you recycle anything, consider at least consulting a knowledgeable tax professional if it is prudent to do so.
Ron Sokol has been a practicing attorney for over 40 years, and has also served many times as a judge pro tem, mediator, and arbitrator. It is important to keep in mind that this column presents a summary of the law, and is not to be treated or considered legal advice, let alone a substitute for actual consultation with a qualified professional.
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