We've Grown Together ...

New Home in 1915

Union Bank & Trust Co.

"Serving Since 1887"

Monticello, Arkansas

Arkansas Manual Of Domestic Relations Practice and Procedure

(I'llblislll'd Jllly I, 1969)

An Absolute MUST in Fam ily Law Practice

'11. 00 ( iI/eludes puS/age)

Arkansas Form Book For Law Graduates

(reJ/ised A IIg llst, 196 9)

142 Pleadings and Fo rms in 10 Fields of Law Practice

'11.00 ( iI/eludes pustage)

THE ARKANSAS LAWYER

Introducing .... The Four Best Buys In Arkansas

Legal Reference Materials

Arkansas Desk Book With 1971 Revision

The R EADY REFERENCE to 11-Fields of Law Practice

'13.50 ( iI/dudes pustage)

1971 Revision to The D esk Book

Update Your DESK BOOK with !1. Re-edited Sections

'5.50 (iI/eludes poS/age)

Send your order to : Arkansas Bar Association 408 Donaghey Bldg. Lit lie Rock . Arka nsas 7220 I

241

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For Information on the new '73 models and dates of demonstrations In your area, juSt fill out thiS coupon and mall to ARKLA BELLANCA SALES, P. O . Box 4068, North Little Rock, Arkansas 72116.

I Name STUDENT 0 PRIVATE 0 COMMERCIAL 0 ATR 0 I Are you Instrument rated' Yes 0 No 0 I Address Type of AlrClaft owned _-:=:-___ -:=:-__ =-___ _ I City Reason for flYing : Business 0 Pleasure 0 Both 0

1 ______ -----------------------------------------------___ I

242 NOVEMBER , 1972

\

J

t

f

NOVEMBER,1972 VOL. 6 NO.6

THE OFFICiAl PUBLICATION OF THE

ARKANSAS BAR ASSOCIA liON

OFFICERS

Henry Woods, President James E. West, Vice·President James M. Moody, Secretary·Treasurer

EXECUTIVE OIRECTOR

C. E. Ransick

EXECUTIVE COUNCIL

Thomas F. Butt John A. Davis, III Julian B. Fogleman John P. Gill Herman Hamilton W. D. Murphy Dale Price Robert D. Ross Douglas O. Smith, Jr. David Solomon Otis H. Turner Robert Hays Williams

Ex·Officio

Henry Woods James E. West James M. Moody Paul B. Young Richard F. Hatfield James B. Sharp

EDITORIAL COMMITTEE

Robert D. Ross Ph ilip E. Dixon C. E. Ransick

THE ARKANSAS LAWYER

We

Arkansas Lawyer SPECIAL FEA lURES

Past Presidents - Southern Bar Distric t ....•.. . .•.... 272

1973 Mid-Year Meet ing .....................•..• . .... . 264

Award of Merit -Sebastian County Bar Assoc iation ............ .. . . .. 279

Admissions Ceremony - Fall , 1972 ......... .. ........ 270

Multiple Trusts ....... . ........ . .... Burton W. Kanter 282

Some Tax Considerations Fo r Prac ti c ing Lawyer Part I - Deductions ............... Bruce R. Hopkins 260

Aegis .... . ................... . . . ........ . . . .......... 281

REGULAR FEA lURES Cover Story ...... . ... . ...... . Judge Ed F. McFadden 248 Presiden t's Report .... . ..•... .. ......... Henry Woods 247 Juris Dictum .......... . . . .. .. .............. C.R. Huie 258 Law School News .......... . ...... Robert Brockmann 278 Oyez-Oyez ................... . ... . . . .... . B. Ghormley 245 In Memoriam ..................... .. ........ . ... . ..... 286 Exec utive Council Notes ............ James M. Moody 259

Published bi-monthly by the Arkansas Bar Association , 406 Donaghey Bldg ., little Rock, Arkansas 72201. Second class postage paid at lillie Rock , Arkansas. Sub­SCription price to non-members 0 1 the Arkansas Bar Association $6.00 per year and to members 52 .00 per year included in annual dues. Any opinion expressed herein IS thai of the author, and not necessarily thaI of the Arkansas Bar AsSOCiation. The Arkansas Lawyer. or the Editorial Com­mittee Contnbutlons to the Arkansas lawyer are welcome and should be sent in two copies to the Arkansas Bar Center, 408 Donaghey Bldg .. Utile Rock . Arkansas 72201 .

All Inqui ries regarding ad .... ertising should be sent 10 Ad .... ert lsing Department. Ark an· sas lawyer , Post Office Box 4117. North LlI­tie Rock , Arkansas 721 16.

243

WIl arll indllbtlld to Wm. H. Arnold. Jr. for this list

of lawYllrs during Tllxarkana's first tWllnty-fivll

WIl arll pillaslld to

join in this salutll to our

Immlldiatll Past Prllsidllnt Willis

Yllars. 1873- 1898. Mr. Arnold is a ~plleial Mllmbllr of thll Arkansas Bar Assoeiation.

having blllln born in 1893 and admittlld

to praetiell in 1916.

B. ~mith. ~r .. anothllr in thll linll of outstanding T Ilxarkana lawYllrs . . .. .. .

THE TEXARKANA BAR ASSOCIATION NOVEMBER. 1972

James A. Gray

Ted H. Sanders, formerly with the First National Bank Trust Department, is now practicing with Engeler & Johnson in Mountain Home. Jose~

phine Linker, former law clerk for Jus~ tice Frank Holt , is now associated with Highsmith , Tatum & Highsmith of Batesville. Thomas M . Bramhall, Little Rock, has opened his law office in the Tower Building, Suite 801 . B. Richard Allen has become associated with a West Memph is law firm, Hale & Fogle­man. Jeff Davis, Jr., John B. Plegge and Chester C. Lowe, Jr. have an~

nounced the ir new partnership and their association of Robert M . Cearley, Jr., Little Rock. Max Mehl~ burger, Little Rock, has opened his law office in the Tower Building, Suite 1060. Ralph Murray, former partner Sch iettler and Murray, has now begun practice on his own . Herby Branscum, partner of Little Rock law firm Brans~ cum, Schmidt and Mazzanti , has an~ nounced a full time office will be opened for the practice of law in Perryville. We have had a great re~

sponse from the 1972 law graduates in respect to membership with the tre­mendous help of Henry Woods. Listed below are just a few of these grad­uates and where they have located. Harvey Yates, West Helena, is in practice with Gene Schieffler. Joseph A. Strode, Pine Bluff. is with Bridges. Young, Matthews and Davis. Bobby McDaniel, Jonesboro, in practice with James McDaniel. Kelly W. Webb and Gary E. Johnson, Jonesboro , have formed a new partnership with Frank Lady: Lad y, Webb and Johnson. Robert Edwards, Searcy, is associa­ted with Darrell Hickman. Robert Joe Johnson, Crossett, is associated with Richard E. Griffin. Sanford Beshear, Jr., Rison , formed a partnership with John Elrod ; Elrod and Beshear. Jerry Post , Batesville. joined Murphy, Ar­nold and Blair. William R. Riddell , Clarksville, is associated with J. Mar­vin Holman. Tommy Womack, Jones-

THE ARKANSAS LAWYER

By B. G horm ley

boro, joined Barrett , Wheatley, Smith & Deacon . Otto J. Boeckmann, Jr. and Gordon L. Humphrey, Jr., Wynne, have formed their own partnership. Evelyn I. Drake, Griffin J. Stokley, and William K. Isch, Little Rock , are with the Legal Aid Society. Howard L. Slinkard , Rogers, is in practice with David Clinger. James A. G ray, Ben­ton , is serving as Chairman of the Ab­stracters and T itle Insurance Agents Section of the American Land Title Association and has made numerous reports throughout the United States concerning their works. Gene Raff, Prosecuting Attorney of Helena, was elected to the Board of Directors of the National Prosecuting Attorneys Association during the August meet­ing at San Juan, Puerto Rico . Robert Chowning, Little Rock, is a new vice­president of Rector Phillips Morse , Inc. Robert J. Brown, former chief deputy prosecuting attorney, Little Rock, is now an executive vice-presi­dent of Block Mortgage Co., Inc. John R. Clayton, Dumas, has been ap­pOinted county juvenile court referee . Mr. Clayton is also the new Secretary of the Southeast Arkansas Legal Insti­tute and Thomas S. Streetman , Crossett , is President . Eric W. Bishop , Ashdown, will serve Fred E. Pickett , prosecuting attorney for the 9th Judi­cial District, as his deputy. William D. Newbern, Assistant Professor of the U of A Law School , has been named act­ing Dean of the Law School to replace Ralph C. Barnhart. Lee Ward, Piggott, has been included in the 1972-73

Rober t Brown

"Who's Who in America" (Marquis). The Arkansas Association of Criminal Defense Lawyers, Harold L. Hall, lit­tle Rock , President , held a meeting in North Little Rock during September. Prof. Ray Guzman, Fayetteville, was one of the participants. A crossword puzzle submitted by Justice George Rose Smith, Little Rock. has been selected to appear in the New York Times Magazine. Lonzo A. Ross, 77 years of age, has returned home to Conway after undergoing surgery at a S1. Louis. Mo. hospital. Neva Talley, Little Rock , has been reelected for a second term to the American Bar Association House of Delegates . Robert L. Jones, Jr., Fort Smith, ser­ved as Moderator during the ABA Lawyer Referral Workshop held in Denver. Bill Clark, Little Rock, ex­plained Arkansas' right -to-work law to Magnolia Rotarians. James Baker, Helena, spoke to members of the Phil­lips County Bar during a memorial ceremony for Douglas S. Heslep. Robert W. Henry, Conway, has been appOinted to the state Board of Law Examiners and Bill Penix , Jonesboro , has been reapPointed . Ark Monroe, Magnolia, was appointed state insur­ance commissioner.

Arkansas Sar Association 1972-73 Directory

ADDENDUM

1. New Committee on Arkansas Transportati on Law' W.H. Sutton . Chairman Gary Brewer James Blair Thomas Harper. Jr. Don T. Jack Bruce T. Bu ll10n Lou is Tarlosk i Robert Shu Its John W. Barron . Jr. Michael Thompson Joe D. Woodward W.J. Williams Carl Bonner

Little Rock Little Rock Springdale Fort Smith Little Rock Little Rock Little Rock lillie Rock Little Rock lillie Rock

Magnolia Little Rock Little Rock

2. Add Mr. Donald Frazier as member 01 the Committee on Prepaid Legal Services. 3. Add Mr. Joseph A. Strode to the Environmental Law Committee. 4. Add Mr. William A. Hough to the Computerized Legal Research Committee.

245

• • • Commun;r,; BuiliJing . The City's name of MO TICELLO L the City: s SE L~Picting timber, agriculture, in­

dustry and higher educat,/on , reflect a fine balance bet ee gracious Southern living and energetic Southern lead rship. Fou~tain C. Austin in 1 48 deeded some 83 acres for a new county seat for Dre County he plat and deed,for h town were first displayed on August 1, 1849. William D Ford for $174 built the tern orary courthouse and the October 1850 term of county court as the rrst held in Monticello. In his cover story, Justice Ed F. M c Faddin lists some of the early I wyers to practice in Drew County . The City of Mon­ticello was incorporated December 20, 1852 - named after Thomas Jefferson 's home in Virginia. Literally, Monticello is "Little Mou QLain " in Italian - appropriate since the city is loc ated on one of the highest points in Drew COunty. Monticello is the home of the Univer­sity of Arkansas at Monticello . Long dependent on agriculture , Monticello with a population of over 5000 now boasts of an economy well balanced with agriculture, in­dustry, timber and general business - " The City of Progress! "

IICo,n,;,unity Bu'ilder" y Commercial

Bank &

Trust Co.

MEMBER F.D.I .C.

• • •

•

•

MONTICELLO ARKANSAS

•

246 NOV EMBER, 1972

PIISIIIIT~S BIPORT By Henry Woods

Martin Gilbert, Chairman of the Legal Education Committee has asked Alston Jennings and me to serve as co-chairmen of the Midyear Meeting . Through cooperation with The Hastings College of Law (University o f California) , the committee will pre­sent an unusually fine program. Hastings has pio­neered in many modern law teaching techniques, particularly in the field of video. On its faculty are some of the great names in American Jurisprudence - Dean Prosser, former Chief Justice Traynor, and others of similar stature. Hastings is arranging to send us two of its brilliant young professors, two of the finest trial lawyers in California, and Paul Rush , head of the Television School at the University of California.

Even without the star-studded contingent from Cali­fornia, our other speakers would make an unusually outstanding Mid-Year program. Judge Alfred Murrah succeeded Justice Tom Clark as Director of the Fed­eral Judicial Center. As a former Chief Justice of the Court of Appeals for the Tenth Circuit, he is one of the great judges of this century. Judge Donald Lay of the Eighth Circuit also was one of the most success­ful trial lawyers in the Midwest before his elevation to the Bench. Phil Corboy is President of the Chicago Bar Association . Earlier this year he was the subject of a feature article in the Wall Street Journal acclaim­ing him one of the premier trial lawyers in the United States.

The program will be sophisticated and intensive. Those who register will put in three days of hard work, but the rewards will be rich in terms of in­creased competence in the area of trial practice. The Association is offering this program at the barga in rate of $75.00 for Arkansas lawyers. ($50 for those in

THE ARKANSAS LAWYER

practice four years or less) Included will be a banquet and two lunches. We are also offering to registrants on an optional basis two excellent publications (currently selling for $35.00) at a bargain price of $25.00. I have both of these publications in my library. One is a voluminous civil practice manual , and the other is a very useful correspondence form book for trial practice. I have put many of the form letters in this book on Mag Cards. A worthwhile program for the women is also being planned .

In the past we have had to estimate our attendance at these meetings since many of our members did not register in advance. Because of the technical aspects involved in presenting this program, part of which will be on video , we must know approximately how many attorneys will be in attendance. In order to give an in­centive for advance registration , we will have a drawing from the names of those who register in ad­vance. The prize will be a special tour of one of four European Capitols - Rome, Madrid, Paris or London for the advance registrar and spouse .

Our Jurisdiction and Law Reform Committee has done yeoman 's service in considering the various legislative proposals submitted to it. As a result of the September meetings of the Executive Council and House of Delegates, the legislative program is begin­ning to take form . The package will be complete after our October meeting .

At a recent meeting of the Legislative Committee, it was decided to sponsor a series of meetings with legislators in the various Bar Distr ic ts for the purpose of acquainting them with our legislative program. We will need your help in making these conferences a success .•

247

~ ..

Bo

To All Concerned:

we Arkansas Lawyer

1 November 1972

This is the third issue of The Arkansas Lawyer in our " Legal Heritage"series . Two issues wi l l be devoted to the history o f law in South Ark ansas and to our living Past-Presidents in this Distri ct.

Justice Ed McFaddin has stated our purpose well - "It is hoped that the local Bar Association of each County may be encouraged by this fragmentary artic le to make a complete list of the Lawyers and Jusges of each and every County of South Arkansas. The Bar owes this to posterity ." (see cover story) .

The Arkansas Lawyer

Lamar Williamson Jackson, w ho prior to and for a time after the Civil War lived and practiced Law in Monticello. His father's only brother who survived the War Be. tween the States, Chalmers Meek Williamson, until his death had been a lawyer in Jackson, Missi ssi ppi.

It is difficult to compile an adequate biographical sketch and character­ization of Lamar Williamson. of Monti­cello. Arkansas. If he were able to assist in the project, he wou ld prob­ably decline to do so, and would op­pose it being published. He is not being consulted in the premises. because he is now, and for several years has been , physically and men­tally incapacitated; now in the " Leisure Lodge" nursing home in

248

Monticello , under the constant and solicitous care of his wife, Charlotte, and special nurses supplementing the services of his physician and the nur­sing home staff.

Lamar may be said to have inheri ted his inclination to become a lawyer. He was the first born child of James Gas· ton Williamson and Lulu Jackson Williamson, born in the home of his parents in Monticello, Arkansas, on the 8th day of January, 1887. His father was then a junior partner of W .T. Wells, constituting the firm of Wells & Williamson , Attys ., which had been established before the "Civil War" as Slemons & Wells. After the death o f Col W.F. Stemons, the firm became Wells & McCain . After W.S. McCain (who served six years in our National Congress) moved to Pine Bluff, and later to Little Rock, the firm became Wells & Williamson. The library of this firm (now Wi ll iamson , Ball & Bird) contains an unbroken set of the original publications of the Constitution . statutes and digests of the laws of Arkansas back to and in· cluding the " Laws of Arkansas Ter· ritory," published in 1835. Lamar 's maternal grandfather, was James A .

After spending two years as a stu· dent at Arkansas College, at 8ates. ville, Arkansas, ci rcumstances in. volved in the health of his younger brother Adrian required that he go with th at then quite young brother to Texas, where Lamar was a student at Daniel Baker College, in Brownwood, Texas and graduated as valedictorian of his class in 1905. Between College terms Lamar had spent mu ch t ime in his father 's law office, reading Black. stone and other legal texts standard at that time, reading curren t court reports, and aSSisting his father in re. search and writing briefs. He then devoted one scholastic year as a student at the University o f Michigan Law School , but conc luded that he was not learning anything there that he did not already know, was impa. tient to get in to full partnership with his father (Ju dge Wells having retired) , spent a few more months studying and aSSisting his father in his practice, took the Arkansas Bar Exam. ination before the Supreme Court

NOVEM8ER,1972

shortly before he was twenty-one years of age, and received his license issued by the Court on January 13, 1908 (five days after attaining legal Majority). As an active junior member of the f irm of Williamson & William­son, he then got into high gear in legal , civic, political , and relig ious ac­tivities in which he continued, with very few recreational activities in the form of quail hunting , anf fishing (locally and in the waters of Florida, Mexico and Canada) until the Biblical warning of what may be expected af­ter " three score years and ten " of hyper-active living caught up with him. He ret ired from the active prac­tice of law and ceased to participate in the firm 's activities and earnings at the end of the year 1960.

Lamar married Lillian Philips, of Monticello, on June 20, 1911 . Four children were born unto them , name­ly: James Gaston Williamson , who became a Rhodes Scholar, now prac­ticing law in Little Rock ; Martha Wil li amson, now Mrs. JOhn A, Riggs, Jr., residing in Little Rock ; William Phillips W illiamson now deceased , who became a distinguished neuro­surgeon , head of the Department of Neuro-surgery of the Univeristy of Kansas Medical Center ; and Lamar W illiamson, Jr., now a distinguished Biblical scholar, who spent a year as a student of languages at the University of Montpellier, France, earned a Ph , D. degree at Yale, became a Presbyterian teaching missionary in the Congo , later taught as Professor of Biblical Studies at the Presbyterian School of Christian Education in Richmond , Virginia, and recently returned to a part of what was formerly the Congo to teach ancient and modern lang­uages in a newly established state­owned African university.

Lamar 's first wife. Lillian, having died , he married Charlotte Daniel. of Monticello, in the year 1932, who since that time has shared with him his activities and experiences.

During the early years of his prac­tice, Lamar 's self-assurance was not without set-backs . His younger brother remembers going with him to try one of his first cases in a Justice of the Peace Court. The tr;al was held on a hot summer day in the shade of a large oak tree in the front yard of the country home fa the J .P, At one point the Justice ruled that he would permit an OPPosing counsel's witness to in­troduce some clearly "hear-say " evidence. Lamar, reaching for his notes, vigorously protested: " But your Honor, you can 't do that. " The Justice calmly replied , "Well , damn it , young man ; I have done it!"

With the exception of serving as de-

THE ARKANSAS LAWYER

fense counsel in a few murder cases, when homicides involving highly re­spected families were more frequent than now, Lamar soon limited himself to civil cases, some in courts of law, but most in Chancery, Perhaps a majority of his cases involved the title to real property , or the defense of per­sonal injury suits, the handling of estates, co rporate procedure , or defending workmen 's compensation claims. He became particularly ex­perienced and competent in the realm of accretion law, in cases arising in Arkansas, Mississippi and Tennessee; and perhaps helped to clarify that field of law, once thought to be rather nebulous, in the State of Arkansas.

In his active practice as an attorney, he tried cases in the state courts of Southeast Arkansas, in the Arkansas Supreme Court, and Federal Courts up to and including the Supreme Court of the United States. In 1932 he served in one case as an Associate Justice of the Supreme Court of Arkansas, to fill a vacancy caused by the disqualification of one member of the court to participate in hearing and act ing upon that particular c ase. He became quite interested in flood con­trol , and served for several years as a member of the first Flood Control Commission of Arkansas, established by Act 212 of 1937, the seven mem­bers of which served , by ,the terms of the Act " without compensation ."

Throughout his professional career Lamar took an active interest in the Arkansas Bar Association , and in 1946 became its president. He was deeply interested in the unification of the Arkansas Bar (its membership to in­clude every lawyer in the State) . In his President's Address , which revealed extensive research and much thought, he urged a reformation of the judicial system of our State, to conform generally with what had then become well known as the " Missouri Plan ,"

For many years he served as at­torney and member of the Board of Directors of a bank in Monticello, and of one in Dumas , Arkansas; and as at­torney and member of the Board of the Ashley, Drew & Northern Railroad Company, serving also as Secretary of that Board .

His early activity and leadership in civic affairs led him, at the age of 21 years, to being elected Mayor of Monticello in 1908, in which capacity he served two terms. He later served as Secretary of the Monticello Cham­ber of Commerce. In 1923 he was one of the organizers and charter mem­bers of the Monticello Rotary Club, of which he later became president , and is now one 01 its four " honorary mem­bers," Until his recent incapacitation

he has been , since his youth , an ac­tive member of the local Presbyterian Church , U,S,; served as a teacher in its Sunday School many years, as Superintendent of that organization for one or more terms, and as a mem­ber and Clerk of its Board of Elders (called the "Session") for 41 years. In the last mentioned capacity he did not hesitate to inject into the minutes of meetings of the Session bits of per­sonal philosophy anent human natures and a sense of humor. A minister of the church incorporated such excerpts in a book called " And a Time to Laugh," two editions of which have been " sold out. "

Polit ics did not escape Lamar 's field of interest and activity , He was manager of Governor Harvey Parnell 's first and successful race for election as Governor of Arkansas; was " key­note speaker" at the State Democratic Convention of 1928 , " permanent chairman " of that party 's State Con­vention in 1930, and as one of the Arkansas delegates to the Democratic National Convention he was desig­nated to represent Arkansas in sec­onding the nomination of Franklin 0 , Roosevelt as the Democratic nominee for election as President of the United States. During his more active years he was a member of the Masonic Lodge in Monticello, and of the Scot­tish Rite Consistory in Little Rock ,

Shortly after the United States, In April 1918, became a participant in World War I, although his brother and junior law partner was already in the military service as a volunteer and his father and senior partner was no longer very active in the family law of­fice, and although he was then thirty years old, with a wife and two quite young children, Lamar 's inner urge to directly participate in that conflict as a member of his country's armed forces was too great for him to resist. He ap­plied for and received the status of a cadet at the newly established air­plane pilot's training school of what was then the " Air Service" branch of the Army Signal Corps, at Taylor Field , near Montgomery, Alabama ; and in due time received his " wings" and commission as a 2nd Lieutenant in the " Army Air Service." Due, no doubt , to h is prof iciency as a military airplane pilot, as well as to his age and family dependents, he was retained at Taylor Field as a flight in­structor, and served in that capacity at that station until the end of the War, when he promptly obtained his release from the military and returned to h is family, his office and the prac­tice of law.

Continued on page 250

249

Mr. N.J. Gantt , Jr. has been " Mr. Lawyer" in Southeast Arkansas for many years. He has practiced law in Pine Bluff since 1903. This followed a rather varied background which in­cluded being c ashier of the bank of Beebe. Arkansas, at the age of thir­teen and graduation from Hendrix College and Vanderbilt Univer5ity. His contacts with Jefferson County have been quite extensive since he began the practice of law. He was the second President of the Pine Bluff

Willis B. Smith , lawyer, and his con­tributions to the legal profession are best shown by a plaque that hangs on his office wall that was presented to him on June 16, 1972, by his law parl­ners in recognit ion of 45 years of faithful and dedicated serv ice to our profess ion . It reads " Vanderb i lt University LLB 1926; Cily Attorney, Texarkana , Arkansas . 1928-1937 ; State Senator, Tenth Senatorial Dis­tri c t , 1939-1945; Presidenl Pro-tem of the Arkansas Siale Senale, 1943; President , Arkansas Bar Association , 1959-1960; Chancellor of Sixlh Chan­cery Circuit. 1967-1968; President Texarkana Bar Assoc iation , 1970-1971 ". A plaque is incapable 01 describing h is deep feeling for people. He has always been a favorite with his fellow-man and goes by the nickname of " Jug", a nickname which only his contemporaries in Vanderbitt are aware of its origination . For his friends other than those he leaves the origin of the nickname to one 's imagi­nation .

His devotion to his fam ily is well known, but his deep feeling for other people sometimes goes unnoticed ex­cept to those who know him best. A classic example of h is deep feeling

250

N.J. Gantt, Jr. Chamber of Commerce and was among its founders , He served as President of the Arkansas Bar Association in 1940-1941 . His offices in both civic and bar association organizations are legion .

Mr. Gantt is recognized as being the epitome of a " southern gentleman ". He has been consistently polite and courteous, and few people have ever seen him without his coat as a part of his regular dress.

The story is told about the time Mr. Gantt was to address a group at Altheimer. Arkansas, in the days before air condition ing . The meeting was to be held al the Altheimer High School which did not even have elec­tric fans. Dr. Woods, Mr. Gantt 's host, had asked that Mr. Gantl come by his home prior to the meeting . At that time, Dr. Woods suggested to Mr. Gantt that most of the men in the audience would be farmers and that they would not be accustomed to wearing coats during hot weather. He suggested that h is audience would probably be more comfortable if Mr. Gantt would not wear his coat. Reluc­tanlly, Mr. Gantl agreed to Dr. Woods ' proposal. Because he was well known in the area and was known always to wear his coat, out of respect and ad­miration , practically everyone in the

Willis B. Smith

can be typified by Ihe friendships thai he formed while enjoying one of his favorite pastimes, duck hunting . He is a member of the Hempstead County Hunt ing Club which is referred to as Grassy Lake in southwest Arkansas . This lake is a forest of cypress trees and swamps and a person traveling on the lake must have a gu ide. Willis

audience , although hot and per­spiring , appeared in their coats. You can i magine Mr . Gantt 's em­barrassment when he stepped out on the stage, minus his coat. in his shirt sleeves!

Mr. Gantt has a reputation of never saying anything bad about people . Generally, he follows the old adage of not saying anything "if you can 't say somehting good". An example of his attitude occurred when a local citizen , whose bad reputation was well known throughout the community, was being discussed in a meeting attended by Mr. Gantt. The man had been an in­mate in the penitentiary and had defrauded several people . After several condemnatory comments , it became apparen t Mr. Gantt had said nothing about the man. One of the members turned to Mr. Gantt and asked his opinion . In his typical way, Mr. Gantt replied , " Well , I find very lil­tie to recommend him."

Mr. Gantt continued to keep a rigorous schedule, and only in recent years has come to recognize any holidays other than Christmas.

His dedication to the profession of the law (which he refers to as the " the jealous mistress") has been a valuable example for all of those with whom he has been associated .

became friends with all of the black guides that worked on the take, one being Joe Greathouse who was a friend of Willis for years and years. Joe died as a young man with leuke­mia and it is hard for Willis to even think of Joe without his emotion showing . He is the kind of person who very seldom becomes involved in domestic relations cases because of its impact on the family, but when he does, in a reluctant fashion, he lec­tures both parties over and over, and in many instances he has been responsible for marriages to continue and , in storybook fashion , they live happily ever aUer.

Elderly people have always been lond of Willis, especially little old ladies whom he teases without mercy. One such lady came to see him on an average of once a month to change her will in some small way, codicils grew into about seven , when he sug­gested that she should rewrite it all into one will , she was indignant because he charged her $25 .00 for redraft ing the whole thing . She main­tained she had paid him for years for nothing , so he made her extremely

Continued on page 252

NOVEMBER,1972

THE ARKAN SAS LAWY ER

. , ~ ' " ., '" (' """~ ~ ~". ~~, ... ; ... .. "tIU S B. SMI H - AVJYER

• f • • • • • • •• • •••••••••

Va nderbi lt University, LL.B. 1926 3egan . racti ce Of La w,TexarkBna,Ark.June 15.1926

City Attorney - Texarkana ,Ark. 1928-37 State Senator ,10th Senatorial ::> istrict 1939 -45

resident Pro Tem or The Senate 1943 Acting Governor Of ArkBr.sas 1943

?resident - Arkansas Bar Association 1959-60 Cha cellor - Sixth Cha ncery Circuit 1967 -68

Jresden t - lmr~~r~. ~ a.r. A.s,s.o,c,i~! i o n 19?0-71 ~ ARTNERSHI P AFF L1ATlON

SMITH 8 S~IITH CARTER 8 SMI"'t{

SMI H 8 SANDERSON S) 1-:-:1 , UDERSO. , S ROUD 8 MCCL:J r;! ' S~!II" , STRO UD, MC CLERK I 8 CONWAY . . . . . . . . . . . ........ .

:Jim This 16th Day or June,1971.By His Law Partners n ecogni tion Of forty five Years Of

?ai thfu l And Dedi cated Service To The Profession JOHN 'f. sTRouiJ: JIi.' . 'WILLIS 'B: SMiTH'. jli.

HAYES C lit CLERKIN WINFORD L. DUNN. JR. CHARLES ).\.CONWAY WILLIAM H. HOWELL

~~ '~-:BsJ ~'-'1

251

Continued from page 250

Willis' Wife. Amy

happy by charging her nothing at att. Young lawyers remember when Mr. Smith was President of the Arkansas Bar Association and they complained to Mr. Smith concerning the long waiting period between the bar exami­nation and the results. - This was ultimately changed, and , as Willis states, had it not been for the same situation in his native state of Ala­bama he probably would not be prac­ticing law in Arkansas. As long as he has lived in Arkansas he still has the same soft Alabama brogue - all con­sonants soft, and most one syl­lable words divided into two. On one occasion he hired a new secretary with high recommendations and a heavy, pure Brooklynese accent. Mr. Smith just couldn 't understand the Yankee and vice versa. He called in one of his other secretaries to discuss the problem and said " I just don 't be­lieve that girl can understand English . She says 'thirty ' for ·thetty· ...

He is a great favorite with the secre­taries that he has had work for him throughout the years. One secretary remembers when she made an ivy arrangement in a planter for a book­case in his office and he complained continuously about not keeping it watered. Once, to remedy the situa­tion, he got out the watering can , mumbling to himself about the sorry help, and watered the plant . Since he had some water left over he went into the reception room , which had just been newly and expensively carpeted , to water a big plant in that area of the office. He poured about a pint of water, st ill complaining about how dry all the plants were. He did not realize that the reception room plant was ar­tificial and that the pot was full of holes, and the carpet was drenched.

At one time when he and Judge

252

Alex Sanderson were practicing law together they had two secretaries, both of whom became pregnant within about two weeks of each other. As the secretaries grew larger and larger with child , he insisted that the secre­taries put up a sign, which they did , which read " Management not responsible for existing cir­cumstances" .

Willis enjoys reminiscing with fond affection about his family and his favorite pastimes other than prac-

ticing law, such as farming , fishing, hunting , and traveling . Regardless of his love for these pastimes, it is hard to teach an old dog new tricks because he is at the office every morning at 8 : 15 looking for work to do , and one can rest assured that at the end of the day it will be completed or it will be put in an orderly fashion on his desk . He, unlike most lawyers, likes an orderly desk in front of him because he feels that no good comes of confusion . •

Arkansas Eminent Domain Digest 207 Pages

Compiled by the University of ArkanAA~ for the Arkansas State Highway Commission.

$9.50

Arkansas statutes Annotated 22 Volumes with Current Supplement $175.00 in the State of Arkansas_

WORKBOOK FOR ARKANSAS ESTATE PLANNERS

MITCHELL D. MOORE. WILLIAM H. BOWEN

A Complete Source for Planning Estates in Arkansas Planned exclusively for Arkansas lawyers, it is based on the statutes, cases, regulations. and tax situations of the state. This workbook se r ves as a guide to drafting n simple will, testamenta ry planning for benefit of minor or aged, forms of property ownership, purposes and techniques of making gifts, drafting partnership and business purchase agreements and many other important topics. The handy loose-leaf format makes this source a unique working tool - an invaluable reference for the Arkansas lawyer.

11 Ch a p ters

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A ny rcs('II .'r rs I ro'e 10 charfJ" w hal ever p rrce 1\ w lshe$ fo r o ur boo ks.

NOVEMBER. 1972

ELEVENTH ANNUAL ARKANSAS FEDERAL

TAX INSTITUTE

Arlington Hotel Hot Springs, Ark.

November 30-December 1 Thursday, November 30

"Current Developments in Limited Partnership - Uses in Private and Public Offerings" James O. Hewitt, Attorney at Law, San Diego , Calif.

" Tax Aspects of Planning for the Transfer of a Partnership Interest" Michael Waris , Jr., Attorney at Law, Partner with Baker & McKenzie, Washington , D.C.

" Distributions From Decedents' Estates" Herman l. Trautman , Professor of Law, Van­derb ilt University

Thursday Luncheon Speaker : Emmett E. Cook, Jr. , Director of Internal Revenue, Little Rock

Thursday Evening : Informal cocktail party and buffet

Friday, December 1 " Combining Multiple Corporations" Henry B. Jordan, CPA, Partner, Lybrand , Ross Bros. & Montgomery, Los Angeles, Calif.

" Proposed Regulations Pertaining to Mini­mum Tax on Preference Income and Maxi­mum Tax on Earned Income" Robert J . Schwartz , CPA, Manager, Tax Department , Ernst & Ernst , St . Louis , Mo.

" What To Do With a Private Foundation -Convert, Continue or Terminate " Thomas J . Brorby, Attorney at Law, Partner , Fulbright , Crooker & Jaworski , Houston, Texas

Friday Luncheon: Informal

The fee will be $45 with panel discussions in the mornings and workshops in the after­noon.

THE ARKANSAS LAWYER

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910 Pyramid Life Bldg. Little Rock , Arkansas

Phone 372-1809

Professional Investigation Services­Civil, Criminal, Industrial for the

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MEMBER OF:

JAMES E. VILLINES Vice President

LOLA L. GRAY Sec retary-Treasu rer

Arkansas Land Title Association Ameri can Land Title Association

253

a

HIS CODE OF PROFESS

Wi"i~ B. ~mith

Prg~id,mt. 1959-1 960 Arkan~a~ Bar A~~o~iation

(In his President's Address, Willis B. Smith thoroughly, and beautifully , discussed the main areas of professional responsibility affecting the legal profession. The fortunate are those who heard him . Un­fortun ate ly, it is not feasible here to reprint his address. A few pertinent extracts are printed. However, his address is one worth reading and re-reading , and is published in 14 Arkansas Law Review, pages 234-240.)

"W II takll pr idll in the fact that we belong to an ancient and honorable profession which has made more significant contributions to political and economic freedom and individual liberty than any other group or calling , and that throughout history lawyers have stood in the forefront of the necessary continuing bat­tle against tyranny in all of its forms . We know that without law there could be no liberty; and we also know that no legal system can have vitality or meaning without men who are learned in the law and devoted to proper application to the concrete problems of human life .

" But the very position that we hold in our society imposes heavy obligations and responsibilities upon us. We can command public respect only as we recognize and live up to those responsibilities ; and we may as well confess that at times we have, both in­dividually and collectively, failed to meet our respon­sibilities."

254

I RESPONSIBILITY OF LAWYERS TO CLIENTS _ "duties of fidelity, diligence, and integrity - duty of intelligent representation - duty to exp lore new fields and master new techniques. "

II RESPONSIBILITIES OWED BY LAWYERS TO LAW­YERS - " courtesy, consideration and fair play - to younger colleagues, advise, admonition , example and encouragement ."

III RESPONSIBILITY OF LAWYERS TO THE BENCH­"candor, cooperation and respect - deep and abiding respect for the Judiciary and the judicial process."

NOVEMBER, 1972

IONAL RESPONSIBILITY IV

RESPONSIBILITY OF THE BENCH TO THE BAR -" fairness , courage , consideration , industry and cour­tesy - respect - 'Judges ought to be more learned than witty ; more reverend than plaus ible ; and more advised than c onfident. Above all th ings, integrity is their portion and proper virtue. .. Pati ence and g rav ity o f hear ing is an essen tial part o f Justice , and an over speaking judge is no well-tuned cymbal. . .', from Si r Francis Bacon 's Essay on Judicature - a kindly heart."

V RESPONSIBILITY OF BOTH THE BENCH AND THE BAR TO THE PUBLIC - " The justification of our existence is that we are here to serve the needs of the public, and that the courts belong to the people and not to the lawyers and judges. 'The place of justice is a hallowed place ; and therefore not only the Bench , but the foot pace and precincts and purpose thereof ought to be preserved without scandal and corrup­tion .' (Sir Francis Bacon) - so to conduct the ad­ministration of the law in all its phases that the public will have respect for and confidence in our legal system in general and in our courts in particular."

WQ. in turn. takQ pridQ in Willi!: ........... .

SOUTHWEST ARKANSAS ELECTRIC COOPERATIVE CORPORATION

Rural Elec tric Service for Rural America Texarkana. Arkansas

TEXARKANA CONCRETE PRODUCTS COMPANY

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Compliments of JAMES T. MILLAWAY

Texarkana, Arkansas

T SO UTHWEST TITLE COMPANY ~ representing

CHICAGO TITLE INSURANCE COMPANY Texarkana Arkansas

THE ARKANSAS LAWYER

Compliments of GEORGE W. PECK

THE STATE FIRST NATIONAL BANK

of Texarkan a

THE TEXARKANA NATIONAL BANK Texarkana, Texas

Compliments of JOHN PAFFORD

Pafford Distributi ng Company Texarkana. Texas

255

256

The principal characteristics of leadership are easy to identify. Specifically, a leader can be recognized because he: is goal directed and self motivated; exercises and in­spires initiative; possesses genuine self confidence; has the ability to concentrate; uses creativity and imagination ; and knows how to motivate others to action.

WILLIS B. SMITH TEXARKANA, ARKANSAS

- Paul J . Meyer

NOVEMBER. 1972

ThU!l. it i!: !:o vl!ry I!a!:y to rl!cognizl! Willi!: B. ~mith

a!: onl! of our City. ~tatl!. Bl!nch and Bar. and Church Il!adl!r!:

• City Attorney, Texarkana, Arkansas 1928-37 • State Senator, Arkansas 1939-45 • President Pro Tem of Arkansas Senate 1943 • Chairman, Democratic State Committee 1957 • President, Arkansas Bar Association 1959-60 • Chancellor, Arkansas Sixth Circuit 1967-68 • President , Texarkana Bar Association 1970-71 • Director, Vanderbilt Alumni Association • Chairman, Board of Deacons, First Presbyterian

Church of Texarkana

And. Wl! an! pll!agl!d to gO rl!~ognizl! Willig ...

() COOPER TIRE CoOper & RUBBER COMPANY

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THE RED BARN RESTAURANT Compliments of

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Compliments of OFFEN HAUSER & COM PANY T. A. CLARK

Buhrman-Pharr Hardware Sinc e 1882

Texarkana, Arkansas Tex arkana. Texas

THE ARKANSAS LAWYER 257

In the bi blica l story o f Noah , alcohol abuse emerges as a problem. And significantly, when the old patriarch became intoxicated in celebration of the successful grounding of his ark , no one seemed to know what to do about it.

That the problem of alcohol abuse is one of mankind 's oldest problems cannot be denied . Furthermore, it is a problem which has been made more serious with the advent of modern technology. Noah might have been a problem, but with his ark safely parked , he was not likely to run over anybody. But in our society, the mix­ture of alcohol abuse and vehicle operation has been a particularly devastat ing combination causing more than 25 ,000 deaths and virtually incalculable misery and destruction each year . Unfortunately our "modern" means of dealing with this enormous problem seem to have been no more effective than those available to Noah 's sons.

The usual methods of dealing with individuals hailed before the courts for driving under the influence of alcohol have largely failed to reduce the number of OWl offenses or the incidence of recidivism among those with prior convictions. The "revolving door" offender is a familiar figure to all magistrates and lawyers, but the usual pattern of arrest, f ine, and possi­ble incarceration has had little effect. All too often persons who exhibit an alcohol abuse problem go through the judicial mill and then promptly commit the same offense again .

In an attempt to find some new solu­tions to this age old problem, Judge Dean Morley, magistrate of the North Little Rock Municipal Traffic Court. is cooperat ing with the Alcohol Safety Action Project of Pulaski County in an innovat ive use of the social workers discipline as a means for guiding OWl offenders into therapeutic programs which have the possib il ity of changing these dangerously destructive drinking-driving habits.

Miss Susan O. Mercer, a profes-

258

JURIS DICTUM by C.R. Hu ie

Execut ive Secretary. Judicial Department

James T. White, Medical-Socia l Coordinator o f the Alcohol Safety Action Pro­ject o f Pulaski County is our guest writer for this issue of the " Arkansas Lawyer." What is happening in one of our traffic courts should be of great interes t to a/l Arkansas judges and lawyers . His sp lendid treatment of a most serious problem fo llows.

sional social worker, has been as­signed to assist Judge Morley in determining the most effect ive proce­dures to follow in individual cases of OWl offenders appearing before his court. " One of our problems in deal­ing with drunk driving has been that we have been dealing with the symp­toms of a problem rather than the problem itself," Judge Morley ob­serves. " The person who becomes in­toxicated and then operates an automobile is a hazard , and must be dealt with . But the real challenge is to determine why this person becomes intoxicated in the first place. Unless we can find some means of dealing with that prob lem, then in all likeli­hood the drunken driving pattern will recur. "

Miss Mercer's function in the North Little Roc k Cou rt is to conduct inter­views with those clients referred to her by Judge Morley. The judge refers the clients he feels might benefit from the recommendations that the social worker can bring before the Court . Through examination and interview techniques Miss Mercer attempts to ascertain the type and degree of drinking problem that an individual has. She also endeavors to determine

the best avai lab le means for dealing with the person 's tendency to abuse alcohol.

Judge Morley observes, " this is a h ighly individualized procedure, but persons brought before the court for OWl offenses are individuals with unique problems which may be contri­buting to their unacceptable driving behavior. We cannot expect that an automatic sentencing formula will do much to deal with these unique prob­lem configurations. In fact , the deper­sonalized automatic sentence might on ly serve to make the problem worse."

Miss Mercer is even more speci f ic in her comments about her role. " There are many factors which can cont r ibute to the drinking-driving behavior o f individualS who are brought before court," she said . " We see individuals who are problem drinkers or alcoholics and need to be helped to deal with their inability to handle alcohol. We also see persons who abuse alcohol even though they may not have a compulsive alcohol problem. However, it is almost always true that con tributing factors are un­covered through our questionnaire and interviews. Some clients are hav-

Social worker Susan O. Mercer conferring with Judge Dean Morley

NOVEMBER , 1972

The main item of business con­ducted at the meeting of the Executive Council on September 12, 1972 was to pass on proposed legislation for con­sideration by the House of Delegates. Bills approved by the Council and later by the House of Delegates in­cluded an amendment to Article 9 of the Uniform Commercial Code, a bill to give debtors the constitutional notice required by a recent United States Supreme Court decision in replevin actions and bills making

ing marital difficulties. Some have vocational or employment problems. Some are lonely. Some are in the throes of divorce. Very often by refer­ring the person to an appropriate agency where he can receive gui­dance and counseling, the problem which causes his drinking-driving misbehavior can be alleviated," she said.

Many of the clients appearing be­fore Judge Murley's court are offered the option of taking disulfiram, a medication frequently referred to by its registered trade name of Antabuse . This substance causes a person to be­come extremely uncomfortable when­ever alcohol is combined with the medication in his system.

In addition to this chemical "fence" against alcohol abuse , clients can also be referred to various other com­munity programs and agencies. Those persons who seem to be suffering from chronic or compulsive alcohol abuse may be referred to a chapter of Alcoholics Anonymous. Others may be referred to an alcoholism program administered by the Economic Oppor­tunity Agency. Some will benefit from marital counseling or other forms of family counseling available from the Family Service Agency. Judge Morley observes that the social worker's skills make it possible for the court to be aware of and to utilize a much wider variety of community services

THE ARKANSAS LAWYER

By James M, Moody Secretary-Treasurer

minor revisions in the probate code and corporation law. At its next meeting on October 27 , the Council will consider important but contro­versial enactments on no-fault in­surance, bail reform and elimination of dower and curtesy.

Henry Woods introduced Pat Hayes who was recently elected Chairman of the Law Student Division of the Ameri­can Bar Association at the annual meeting in San Francisco. Pat is a student at the University of Arkansas School of Law in Fayetteville.

The Mid-Winter Meeting of the Bar Association will be a trial practice seminar conducted by members of faculty of Hastings College and other outstanding trial lawyers and judges. The meeting will be held in Hot Springs from January 18 , 1973 through January 20, 1973.

The Council adopted a resolution

which can be expected to reduce the need of individuals to drink to excess and to operate an automobile while in a state of intoxication .

The new program is predicated on the premise that alcohol is often not the only problem involved in OWl cases. However, in the past , the courts have had neither the time nor the trained personnel adequately to inves­tigate the contributing factors in­volved in OWl cases. The placement of a professional social worker in the North Little Rock Traff ic Court makes it possible for Judge Morley to estab­lish conditions of probation for those found guilty of driving under the in­fluence of alcohol. If the client ad­heres to these conditions, they stand a chance of producing a helpfu I therapeutic effect within the life of the individual so treated.

Miss Mercer hastens to point out that one of the greatest potential benefits of her recommendations to the court is in motivatIng the court's clients to take an active part in achieving their own rehabilitation . "When it comes to alcohol related problems," she said , " it is essential that the clien t be involved In taking some responsibility toward helping himself. The court can't order every­thing . The person has to want to get better."

Judge Morley feels that referring an individual to a community service

proposed by Marvin Thaxton of New­port oPPosing legIslat ion proposed by the Department of Housing and Urban Development to establish maximum settlement charges in connection wIth real estate transactions. The resolu­tion was mailed to all members of the Arkansas Congressional Delegation .

The savings and loan section of the Association will meet at the Arlington Hotel on October 26, 1972 In conjunc­tion with the convention of the Arkan­sas Savings and Loan League.

The Council appropriated $6,500 for use by the public relations committee for 1973 in response to a request by Robert T. Dawson of Ft. Smith, chair­man of the committee.

100 app li cations for membership were approved by the Council to add to the 1,494 active and current mem­bers of the Associat ion . Everyone IS encouraged to assist Steele Hays In

the membership drive . •

which may assist the client in sorting out some of the problems which cause drinking-driving behavior will be of great benefit. However, the judge points out that it is necessary to have an expert available to the court who can analyze the problem areas and recommend those community ser­vices which will be of benefit to a client. " We are trying to treat OWl of­fenders as individuals," the judge said, " and in doing so we feel certain that we will help some of these per­sons to refrain from appearing before this court again."

In utilizing the insights of a profes­SIonal social worker to secure therapeutIc recommendations for OWl offenders, Judge Morley asserts that he is attemptmg to use the power of his court to motIvate problem dnnker­drivers to seek the help that they need. In doing so, the North Little Rock magistrate reasons that the likelihood of tragic highway crashes caused by alcohol abuse WIll be re­duced.

The annual bItter hIghway harvest of blood and tears give poignant teSti­mony to the failure of the traditional methods of dealing with the problem drinker-driver. In his cooperation WIth the Alcohol Safety Action Project Judge Morley is endeavormg to bring new community resources to bear on the problem of death and destruction caused by drinking dnvers. _

259

Some Tax Considerations

For Practicing Lawyers Part I: Deductions

by Bruce R. Hopkins

(Mr. Hopkins was a featured speaker at the Arkansas Bar Association 's Fall Legal Institute, September 22-23, 1972. In view of the interest in his topic, his remarks will be published three Parts on "Deductions," "Depreciation" and " Billing Practices." Part I on "Deductions" will be presented in two issues. Mr. Hopkins is an associate of Williams, Myers and Quiggle of Washington, D.C . He is Co-author of the Chapter, "Federal Tax Considerations for Practicing Lawyers" in the ABA 's Lawyers Handbook, and author of several articles for The Tax Lawyer, The Prac­tical Lawyer and the American Bar Association Journal.)

The subject of this and the forth­coming two articles is tax considera­tions for practicing lawyers. The potential scope of this subject is, ob­viously, nearly unlimited and all tax considerations of interest and con­cern to lawyers cannot be covered in these articles. As an illustration , some of the tax areas which will not be sur­veyed in the articles include: (1) the topic of what constitutes " gross in­come" for lawyers, (2) professional corporations, (3) the minimum tax for tax preferences, (4) the maximum tax on earned income, (5) the liberalized income-averaging rules, (6) qualified retirement plans, and (7) partnership tax considerations. However, the American Bar Association is in the process of revising its publication , The Lawyer's Handbook. which con­tains a chapter by James W. Quiggle and this writer discussing these and other fields of taxation of particular applicability to lawyers.

In this article. various deductions available to lawyers in their profes­sional capacity are discussed. along with mention of other expense items incurred by lawyers which might ap­pear to be incurred in a business con­text but are nondeductible. (In the subsequent articles, the availability of

260

the new class life system of deprecia­tion for lawyers and tax considera­tions associated with billing practices - including the deductibility of legal fees - will be discussed.)

Lawyers generate many expenses arising from or related to tt\eir prac­tice. some of which are deductible in full in determining tax liability, while some expenditures must be capi­talized with the cost recovered through a depreciation allowance , Certain other expenses are per­manently nondeductible.

A lawyer is a renderer of services and the expenses incurred in his prac­tice are inevitably intertwined with those incurred in his personal life. Consequently. the law requires a careful scrutiny to see that the deduc­tion is extended to only business ra­ther than to personal expenses.

Basically, this distinction is em­bodied in the Internal Revenue Code in sections 162 and 262 . Section 162 permits a deduction for all ordinary and necessary expenses paid or in­curred during the taxable year in carry ing on any trade or business. Section 262 generally disallows a deduction for personal. living , or fam­ily expenses. Also very much relevant is section 274 . wh ich sets forth rather

tough rules for deducting entertain­ment, gift and travel expenses. As to each of the deductions to be sur­veyed , the name of the game is es­tablishing a rationale that the expense is business-related and is not for per­sonal ends. Section 212(1) allows a deduction for all ordinary and neces­sary expenses paid or incurred for the production or collection of income, section 212(2) allows a deduction for expenses for the management, con­servation or maintenance of property held for the production of income, and section 212(3} allows a deduction for expenses in connection with the determination, collection or refund of any tax. The criteria for achieving the sections 162 and 212 deductions are basically the same, the lawyers' pro­fessional deductions are generally treated as business deductions under section 162. Section 212 will be dis­cussed separately in the context of the deductibility of legal expenses.

Deductible Items in General A lawyer may, in general , deduct all

the " ordinary and necessary" ex­penses paid or incurred in the con­duct of his practice.'

Among the items included in busi­ness expenses incurred by a lawyer

NOVEMBER,1972

are compensation for services ren­dered, office supplies, incidental re­pairs, operating expenses of automo­biles used in the practice, rental for the use of property, and insurance premiums against fire , storm, theft . accident. or similar losses.2 Also deductible are dues to professional societies and subscriptions to profes­sional journals, and amounts currently paid for books, furniture, and equip­ment, the useful life of which is shorP

Certain business expenses are deductible from gross income in com­puting "adjusted gross income,"4 while other business expenses are deductible only by taxpayers who itemize deductions in computing taxable income.5 The method of tak­ing a deduction may depend upon whether the taxpayer is self-employed or is considered an employee.

For the self-employed lawyer, the business deductions can be taken in computing adjusted gross income, as long as they are considered " at­tributable" to his practice.6 This con­cept of " self-employment " applies, of course. to the lawyer who practices as a member of a law partnershipJ How­ever, for the lawyer who practices as an employee, such as a corporate at­torney, an attorney for a governmental agency or an association , or a sala­ried associate of a firm, most of the business deductions to be d iscussed are only allowable in comput ing taxa­ble income. Nonetheless. certain ex­penses incurred in the performance of legal services are deductible in com­puting adjusted gross income by the lawyer who is an employee. These ex­penses are the following : (1) expenses paid or incurred under a reimburse­ment or other expense allowance ar­rangement with the employer,8 (2) ex­penses of travel , meals, and lodging while away from home,9 and (3) ex­penses of transportation. 10

Two further points on this concept of the lawyer as an employee: The In­ternal Revenue Service has ruled that a salaried associate of a law partner­ship is an employee, even though he may handle cases for which he re­ceives the full fee.11 The Service has also ruled that an attorney, who, as part of his practice represents a cor­poration and is paid a retainer , is not to be considered an employee of the corporation .12

Lawyer-employees' Reporting Requirements

Where a lawyer is practicing law as an employee of a law firm or other em­ployer, he will undoubtedly incur or­dinary and necessary business ex­penses which are reimbursed, par­tially reimbursed , or perhaps not reim-

THE ARKANSAS LAWYER

bursed at all by his employer. None­theless, certain reporting require­ments are imposed in connection with the Federal income tax returns of such employees.

An employee need not report on his tax return expenses incurred by him solely for the benefit of his employer for which he is required to account to his employer, in two instances. First. in the case of expenses which are charged directly or indirectly to his employer (e.g.. by means of credit cards) . Second , in the instances where the employee is paid through advances, reimbursements, or other­wise , provided that the total amount of such payments is equal to the ex­penses incurred .13 However, in both cases, the employee must state in his return that the total amounts charged to or received from the employer as advances or reimbursements did not exceed the ordinary and necessary business expenses incurred by the employee.

Should the total of amounts charged to or received from the em­ployer be in excess of the ordinary and necessary business expenses in­curred by the employee, and the em­ployee accounts to his employer for such expenses, the employee must in­clude such excess as part of his gross income.14 Again , the employee must so state in his tax return .

If the employee's ordinary and necessary business expenses exceed the total of the amounts charged to and received from the employer, and the employee accounts to his em­ployer for such expenses, the em­ployee may Simply so state in his tax return. But. to claim a de"1uction for the excess, the employee must submit a statement on Form 2106 as part of his tax return showing the following : (1) the total of any charges borne by the employer and of any other amounts received from the employer for payment of expenses, whether by means of advances, reimbursements, or otherwise, (2) the nature of his oc­cupation . (3) the number of days away from home on business. and (4) the total amount of ordinary and neces­sary business expenses inc urred by him, broken down into broad c ategor­ies such as transportation , meals and lodg ing while away from home over­night , entertainment expenses, and other business expenses.15

With respect to the foregoing re­quirements, to " account " to an em­ployer means to submit an expense account or other required written statement to the employer, showing the business nature and the amount of all of the employee 's expenses , broken down into broad c ategories as

discussed.16 An employee is regarded to have made an accounting to his employer where he received a per diem allowance not exceeding $36.00 per day and a fixed mileage allowance not exceeding 15 cents per mile for ordinary and necessary transportation expenses not involving travel away from home.17

If an employee is not required to ac­count to his employer for his ordinary and necessary business expenses, or, though required, fails to account for such expenses, he must submit a statement as part of his tax return showing the same information as the employee who does account to his employer.1S However, the difference in this situation is that the amounts of all advances or reimbursements must be reported by the employee as gross income and the expenses incurred by him should be shown as deductions on his tax return , with any excess of advances or reimbursements over ex­penses entered as income from " other sources."

The net of all this is that a lawyer­employee who is reimbursed in the amount of his outlays for business purposes, where his expenditures do not exceed reimbursements, and who " accounts" to his employer, is re­lieved of reporting such expenses on his Federal tax return .

The Service may require a taxpayer to substantiate such information con­cerning expense accounts as may ap­pear to be pertinent in determining tax liability. The Service has the authority to require substantiation of expense account information of the following categories of taxpayers: (1) those who are not required to account to their employer or who do not account, (2) those whose business expenses ex­ceed the total of amounts charged to or received from their employer, and who claim a deduction for the excess, (3) those who are considered "re­lated" 19 to their employer, and (4) those whose employers are deemed to have inadequate accounting proce­dures for the reporting and substan­tiation of expenses by employees.2o

Should a deduction taken by a law­yer be questioned by the Service, the burden of proof as to the amount ac­tually expended and its relation to his practice would be on him. Therefore , every lawyer should maintain ade­quate records of items which are likely to be questioned .

Entertainment Expenses In the rather intricate area of enter­

tainment expenses, a double standard must be met: (1) such expenses, whe­ther for business or for the production

Continued on page 266

261

"MR. LA WYER" . • • •

N.J. GANTT, JR. -IN ACTIVE PRACTICE SINCE 1903-

262 NOVEMBER, 1972

Continued from page 261

of income, must be ordinary and necessary.21 and (2) such expenses must be directly related to or associa­ted with business or income produc­tion.22

Also to be deductible, the other­wise e'ngible expenses must be ade­quately substantiated . The substantia­tion requirements are discussed be­low, and it is simply observed at this point that one must maintain detailed records showing where, how, and on whom funds have been spent - and for what business purpose.

Basically, to sustain an entertain­ment expense with respect to an activ­ity, a taxpayer must establish one of two circumstances (in addition to meeting the requirement of " ordinary and necessary" ): (1) the item was " directly re lated " to the "active con­du ct" of his trade or business, or (2) in the case of an item directly preceding or following a substantial and bona fide business discussion , the item was " associated with" the active conduct of the taxpayer 's trade or business.23

These two basic concepts will hence­forth be referred to as the " directly related " test and the " associated with " test , respective ly.

Where the entertainment expense is in c onnec tion with a facility , the tax-

266

payer must show: (1) that the facility was used " primarily for the further­ance of" the taxpayer 's trade or busi­ness, and (2) that the item was " direc t­ly related " to the active conduct of such trade or business.24

Moreover, an expenditure for enter­tainment is not allowable as a deduc­tion to the extent it is considered " lav­ish or extravagant."2 5 The concept of " lavish or extravagant" is not spelled out in the regulations - so an Internal Revenue Service agent can basically apply the test with considerable dis­cretion on a case-by-case basis.

The term "entertainment " is gen­erally utilized in reference to activity which is considered amusement or recreation .26 Some examples would include: (1) entertaining at night clubs, cocktail lounges, theaters, country clubs, golf and athletic c lubs, and sporting events, and (2) entertain­ing on hunting, fishing , vacation , and similar trips. " EntertaiDment" may in­c lude an activity which satisfies the personal, living or family needs of an­other, e.g ., provision of food , bever­ages, an automobile or a hotel suite.

The "di rectly related " test is the tougher of the two tests to meet. To satisfy this test . the taxpayer must show: (1) during the entertainment period to which the expenditure related, he actively engaged in a busi-

ness meeting , negotiation , discussiorl or other bona fide business transac­tion, (2) at the time the expendit"re was made, the taxpayer had more than a general expectation of deriving a business benefit at some indefinita future time, and (3) that the principal character or aspect of the combined business and entertainment to whic!""1 the expenditure related was the activE$ conduct o f the taxpayer's trade or business.27

With the "directly related " test, it is very difficult to show that business discussions were conducted at the theater or during a ball game. Strictly "goodwill" entertaining is out under this test.28

The best guide for the "di rectly re­lated " test is the so-called "clear busi­ness setting " rule.29 To satisfy this test , a taxpayer must show that the recipient of the entertainment would have reasonably known that the tax­payer had no significant motive in in­curring the expenditure other than directly furthering his trade or busi­ness. Generally. meetings at cocktail lounges, country clubs and vacation resorts will not qualify. For example, to meet this test , a taxpayer must show an absence of any " meaningful personal or social relationship" be­tween himself and the reCipient of the entertainmenpo

,------------------------,

MISSING

AND UNKNOWN HEIRS LOCATED

NO EXPENSE TO THE ESTATE

WORLD-WIDE SERVICE FOR

CO U RTS - LAWYERS - TRUST OFFI CERS ADMINISTRATORS - EXECUTORS

American Arckillej Ajjociation INTE RNATIONAL PROBATE RESEARCH

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WASHINGTON. D. C.

NOVEMBER,1972

1

rll' , IIIV •• S· ."" •• r. frv " Th e gove rnment of the Un ited States

is, and always has been, a lawyers' government." - Chauncey M . Dep ew

"The law - it has honored us, may we honor it." - Daniel Webster

* * ****************************************************** ** ******************************* * * ***************** ****~*~

The President's Address

N.J . Gantt, Jr.

President 1940-41

Arkansas Bar Association

Between the two quotes by Depew and Web­ster, Mr. Gantt in his President's Address on May 2, 1941 stressed the role of the lawyer in America's past and the cha llenge faCing the lawyer in the future . His message - timely in 1941 "when the citadels which stood guard over the birthplace of Western democracy are being sullied by the shadow of the swastika" and, perhaps, even more timely today - may be found in the re ported Proceedings of the 44th Annual Meeting of the Bar Association of Arkansas, May 2 and 3, 1941. A few pertinent extracts are set forth here.

" Without question, the lawyer has a record of achievement of which he may well be proud; and yet it must be con­ceded that he does not now enjoy the confidence of the public to the same extent or exert the same influence in matters of public concern as in former years." ••• •

" The need for leadership today is as great as it was in the days of the founding fathers. We are, at this moment , in the midst of a most critical period in the history of our nation, as well as in the history of mankind. This is a time of transition, when all about us is undergoing change, when to some it appears that the very foundations of civilization are crumbling, and when all must wonder which, if any, of the ancient landmarks will endure." •••

" In such a ti me, the leadership which is required is not satisfied by the mere holding of office, or the gratification of personal ambition, or the attainment of selfish ends. It calls for self-sacrificing service, and a willingness to devote one's time and ta lents to the task of finding a safe course to pursue in order to preserve the Nation, even as the founding fathers devoted thei r time and talents to its establishment." ••••

" Every person ... ought to obtain justice freely and without purchase, completely, and without denial, promptly and without delay, con formably to the laws." - Arkansas State Constitution ••••

" A patriotic service can be rendered in protecting the integrity of the state as an essential part of the federal system of government. " •

" We should make progress in gove, nment, in the making and in the administration of laws, as well as in science and commerce. Changing conditions call for changes in the methods of dealing with the various phases of national life , but do not call for a departure from the ancient land-marks of honesty, Sincerity of purpose and the public welfare." ••••

" He does not surrender his opinions to clients or political parties or Bar Associations ; he thinks and speaks and acts and votes as he individually sees fit; and is generally a most useful and respected citizen , who has and de­serves the confidence of his community as well as of his profession ." - Wm. L. Ransom' •••

" Closely connected with a more careful selection of those admitted to practice and a better preparation for the practice of law, and more important than either, is the matter of character." ••••

"Finally, may I suggest that the lawyer needs to develop a spirit of cooperation. It is a well known fact that, despite his relative strength in legislative bodies and executive positions, the lawyer has done little to improve con­di t ions affecting his own profession ." •••

"May it not be expected that the lawyer of today will hear the call of duty and respond as did the lawyer of another century?"

W(! W(!Il!om(! Thig Opportunity To Honor "I' IVIr. Lawy(!r" Gantt • • • •

A "" ~ Ji1I. NI r.\', ~ ~

O&KIFL~~ lI~GC@) pAJ:f'if Pine Bluff, Arkansas

HATCHER CONSTRUCTION COMPANY Pine Bluff, Arkansas

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THE ARKANSAS LAWYER

Compliments of EDWARD P. MAHAFFY & SONS

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Insurance

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PinE BLUff SAnD & GRAVEL COmPAny Pine Bluff, Arkansas

263

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BEN PEARSON MANUFACTURING COMPANY, INC.

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SIMMONS FIRST NATIONAL BANK Pine Bluff, Arkansas

264

I

f 20th MID-YEAR MEETIN6 - JAN. 18-20, 1973 ---- HOTEl ARlIN6TON, HOT SPRIN6S, ARK.

CIVil TRIAl PRACTICE SEMINAR • • • • • INTRODUCIN& THE SPEAKERS CO-CHAIRMEN

Henry Woods President , Arkansas Bar

Association . Past President, Arkansas Trial

Lawyers Association .

Alston Jennings President , International

Association of Insurance Counsel. Director, The Defense Research

Institute, Inc .

FOREWORD

The Midyear Association Meeting at Hot Springs, January 18-20, is a joint production of our Legal Education Committee and The Hastings College of Law (University of California) . The latter institution has pioneered in new teaching techniques particularly in the video area. To help present the most ambitious program on trial practice ever attempted in this area, Hastings is sending two of its most distinguished professors, the head of the University of California Television School , and two of the best trial lawyers in California . Also on th is outstanding program will be two distinguished jurists -Judge Alfred P. Murrah, Director, Federal Judicial Center, formerly Chief Judge of the Tenth Circuit, and Judge Donald P. Lay of our own Eighth Circuit. Another featured speaker will be Phil Carboy, President of the Chicago Bar Association and recently acclaimed in a Wall Street Journal feature article as one of the premier trial lawyers in the United States.

The three-day program on all phases of trial practice will be intensive and sophisticated. I only recommend it for those presently involved in trial practice to a sub­stantial degree and to those who are interested in becoming trial lawyers. Do not register for this particular meeting with the thought that you will be entertained. Social functions will be at a minimum. You will however receive three days of superb instruction in the art and practicality of trying law suits . As one privileged to ob­serve on two occasions the type of program planned, I can guarantee that the time you spend in Hot Springs will be the most richly rewarding three days of your professional career. If you are interested in improving your competence as a trial lawyer, the 1973 Midyear Meeting is one you will not miss.

Henry Woods

Judge Alf red P. Murrah

Director, Federal Judicial Center. For­mer Chief Judge, U.S. Court of Ap­peals (10th Circuit).

Guy O. Kornblum Assistant Dean, Professor of Law, Hastings College of Law. Active Prac ­titioner.

Judge Donald P. Lay

Judge, U.S. Court of Appeals (8th Cir­cuit) .

E. Robert Wa llac h Professor of Law, Hastings College of Law. Active Practitioner.

Philip H. Corboy " Plaint i ff ' s Lawyer ." Presi dent, Chicago Bar Association .

Joseph W. Rogers, Jr. " Defense Atto rney" in civi l J ury cases.

NOVEM8ER , 1972 THE ARKANSAS LAWYER 265

According to the regulations, even wh'l3re a taxpayer can show that an entertainment expenditure is "con­nected wi th" his business, the " direc­tlY re lated " test is deemed nol met if the entertainment "occurred under c1rcu mstances where there was little or no possibility" of engaging in the active conduct of business. In this re­gard , a heavy burden is placed on the taxpayer where he was not present o r where the distractions were substan­tial , such as at a night club.31

Consequently, it is tough to sustain an entertainment deduction under the "c lear business setting " rule or the parent " directly related " doctrine.

Usually, it is relatively easier to establish an entertainment deduction under the " associated with " test. As noted , this requires that, although nothing of a business nature occurred during the entertainment , a sub­stantial and bona fide business discussion must have been held before or after the entertainment. And , as always, the expenditure must be associated with the active conduct of the business.32 The "active conduct" requirement is considered met if the taxpayer can establish a "clear business purpose" in making the ex­penditure. 33 Such a purpose would include obtaining a new client or en·

cou raging the continuation of the client relat ionsh ip.

What constitutes a " substantial and bona fide business discussion"? The regulations state that it depends upon the facts and circumstances of each case.34 It must be established , how­ever, that (1) the business transaction was for the purpose of obtaining in­come or other business benefit and (2) that the business transaction was " substantial " in relation to the en­tertainment. This does not mean , how­ever, that more time be devoted to business than to entertainment.

Any meeting officially scheduled with a program at a convention or at a meeting sponsored by a professional organization consti tutes a substantial business discussion , as long as (1) the sponsoring organization has a program of business activities (e.g., leclu res, panel discussions), (2) the program was the convention 's princi­pal activity, and (3) the expenses necessary to the attendance of the taxpayer at the conven tion otherwise qualify.35

What co nstitutes " directly preced­ing or following? " Normally, to qualify under the " associated with " test, the entertainment will have to take place on the same day as the business dis­cussion.36 Otherwise, the facts and circumstances of each case are con-

sidered, including (1) the date, place and duration of the business discus­sion , (2) whether the taxpayer or the business associates are from out of town , and (3) the reasons the enter­tainment did not take place on the day of the business discussion.37

These rules work this way : Suppose a prospective local cl ient comes to a lawyer's office for a lengthy business discussion. That evening, the lawyer treats him to dinner and the theater. The expenses are deductible. Or, sup­pose the prospective c lient came in the prior day from out of town. The lawyer can wine and dine him the night before the business discussions and again the next night. and deduct the expenses. Also a lawyer can enter­tain fellow lawyers, business asso­ciates and prospective clients in be­tween and after business meetings at a convention, and deduct the cost.

What about spouses? An entertain­ment expenditure for a lawyer 's spouse and the client's spouse, which is otherwise qualified and which meets one o f the two tests for enter­tainment deductions in particular, is also deductible.38

Also, even if the deduction is other­wise established , a taxpayer is sup­posed to refrain from deducting that

Continued on page 268

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267

Con tinued from page 267 portion of the expense he would nor­mally spend on himself, such as his part of the dinner tab.39 However, this rule seems not to be enforced except in cases of abuse.4o

As noted at the outset, there are special rules governing entertainment expenses in connection with a facility. Basically, under these rules, a tax­payer must show (1) that the facility was used primarily for the furtherance of his business and (2) that the item was directly related to the active con­duct of the business.

What is a "facility"? An entertain­ment facility includes such properties as swim clubs, tennis clubs, yachts, hunting and fishing lodges, hotel su ites and the Iike.4 1

Th e deduction is not allowable where the use of the facility for enter­tainment is only incidental and insub­stantial.42

Assuming there is an appropriate entertainment facility and that its use is more than incidental , what types of expenditures qualify for the deduc­tion? Basically, one can deduct (1) the expenses of maintenance, preserva­tion and protection of the facility (e.g., repairs. painting , insurance), (2) depreciation and operating costs (e. g .. repairs. painting . charges), and (3) salaries paid to caretakers or

watchmen .43 However, one cannot de­duct. under these rules, (1) certain out-of-pocket expenditures incurred at the time of an entertainment activity (e.g., expenses for gasoline o r fishing bait consumed on a fishing trip), (2) non-entertainment expenses (e.g., ex­penses for an automobile when not used for entertainment), and (3) ex­penses or items allowable as a deduc­tion without regard to their connec­tion with a taxpayer 's business (e.g., taxes, interest and casualty lossesA 4 ) .

How is the "primary use" test met? Once again , the agent can review all of the facts and circumstances in each instance. Generally , it is the ac­tual use of the facility which estab­lishes the availability of the deduction , rather than its availability for use or the taxpayer's principal purpose in acquiring the facility.A S

Primary use is deemed established in certain instances where a taxpayer can show use in furtherance of his trade or business in excess of 50 per cent of total use.46 For examp le, the rule is deemed met where the tax­payer can show that , in the case of an automobile, more than 50 per cent of the mileage was driven annually for business entertainment purposes or, in the case of an airplane, more than 50 per cent of hours were flown an­nually for entertainment purposes.47

if you can't find

268

• • your case In pOint. try looking in C. J. S.

'4: ; ,

~ UI(,'\ '> It 111'0 '>/-1 I :-'1)\ 'I

I

I

• •

CORPUS JURIS SECUNDUM is based on 100% of the law. If it isn't in C.J.S. ~'ou know it hasn't been ruled upon. Isn't that an assul"ing thought? If ~'our client knew, he'd think so too.

WEST P[lBLISHING COMPANY

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The rules on entertainment facilities govern as to the deductibility of club dues, which are discussed separately below.

A lawyer can deduct the expenses of serving drinks or meals to clients and business associates at his home if he can clearly show that the expense was commercially rather than socially motivated .48 Basically, to sustain an at-home deduction , alleg iance must be paid to these points, as already dis­cussed: (1) a business purpose must be shown, (2) the atmosphere must be conducive to a business discussion, and (3) there may not be any distract­ing influences. Here, " distracting in­fluences" inc lude the presence of nonbusiness guests, which could also be used to show that the atmosphere was not sufficiently conducive to a business discussion.

However, this problem can be avoided by invoking the "associ ated with" rule. If a substantial and bona fide business discussion occurs dur­ing the day and the clients are enter­tained at the lawyer 's home in the evening , the expenses are deductible - although he must allocate the costs between business and nonbusiness guests. In this instance, the lawyer's spouse and the spouses of business guests will count as business guests for purposes of the allocation.

However. despite confidence that all of the other criteria are met, the courts are not likely to be greatly im­pressed by a smattering of key busi­ness associates or clients at a law­yer's party. The Tax Court, for exam­ple. continues to invoke its " primary motive" test , which it developed for use prior to the enactment of Code section 274. Under this test , the home social gathering merits a business deduction only where the party was not given for personal reasons and where the business was benefited or was intended to be benefited.49

It is very difficult to obtain a deduc­tion for household expenses, even where a lawyer entertains extensively at home. To sustain a deduction for household expenses, the general facility tests must be met. This means that a lawyer would have to show that the business use of his home exceeds 50 per cent of total use and even then only the "di rectly related" portion of the business use wou ld be deductible. Obviously, it is the rare instance where one can show that one's resi­dence is used over half the time for business purposes.

There are ce rtain expenditures as to which the entertainment deduction rules are inapplicable.So That is. ex­penditures which can be categorized within these rules are considered deductible.

NOVEMBER, 1972

I

Of the expenditures exempt from the en tertainment deductions rules. the following are relevant to lawyers:

(1) Any expenditure for food or beverages furnished under c ircum­stances generally conducive to busi­ness discussion is deductible as a business expense. However, the sur­roundings must provide an atmos­phere where there are no substantial distractions to discussion . Expenses incurred by a lawyer in meeting with a client for lunch during the normal business day will qualify under this rule, unless the purpose for the meet­ing was primarily social or personal.

(2) Any expenditure for food or beverages furnished on the business premises primarily for employees is deductible.

(3) Any expenditure for enterta in­ment where the recip ient of the enter­tainment is the taxpayer 's employee is deductible, to the extent that the tax­payer treats the expenditure on his in­co me tax return as compensation paid to the emp loyee and as wages to the employee for withholding purposes.

(4) Any expenditure for entertain­men t which is directly related to bona f ide business meetings of the tax­payer 's employees or agents held principally for d iscussion of trade or business is deductible. For example , the expenses incurred by a law firm to furn ish refreshments to the firm 's associate lawyers at a bona fide meet­ing called for the principal purpose of ascertain ing the status of current work assignments and assigning new cases are deductible under this rule.

(5) Any expend iture for a recrea­tional , social. or similar activity pri ­marily for the benefit of the taxpayer's employees generally, is deductible un­less the expenditure is made under circumstances wh ich discriminate in favor of those who own a ten per cent or greater interest in the business or other highly compensated employees. Thus, expenses incurred by a law firm in holding Christmas part ies, summer outings, and the like for its employees generally are deductible under th is rule.

Even if a lawyer rigorously adheres to the requirements for the entertain­ment deduction, the deduction will be disallowed if the proper records are not kept.51

The Internal Revenue Code sets forth the basic items which the tax­payer must substantiate by adequate records or by sufficient evidence corroborating h is own statement. Clearly, it is to the taxpayer's advan­tage to maintain records on a current basis, as the agent will not accept cor­roborative evidence unless it has a " high degree of probative value to

THE ARKANSAS LAWYER

elevate such ... evidence to the level of credibility" reflected by a record timely made. 52 To sustain the deduc­tion . the taxpayer's records must show the following : ( t ) the amount of the expense, (2) the time and place of the entertainment or use of an entertain­ment fac ility, (3) the business purpose of the expense , and (4) the business relationship to the taxpayer of persons entertained or using the facility .53

According to the Department of the Treasury, these requirements super­sede the Cohan doctrine.54 Under Cohan, a court , faced with a taxpayer who had incurred deductible expend i­tures but co uld not determine the exact amount, could make a close ap­proximation and not disallow the en­tire deduction .55 However , some courts, inc luding the Tax Court, are cont inu ing to use the Cohan rule.

The regulations expand on these re­qu irements somewhat. As to amount, incidental items, such as taxi fares and telephone calls, may be aggre­gated on a daily basis.56 As for the business purpose requirement. the regulat ions require the taxpayer to re­cord the business reason for the en­tertainment or the nature of business benefit derived or expected to be de-, rived as a result of the entertain­ment,S7 Also , if the " associated with " test is relied upon, the duration of the business d iscussion must be re ­corded .

What does the statute mean by " adequate records" ? The regulations require maintenance of a diary, ex­pense statement or similar record , prepared so that each recording of an element of an expenditure is made at or near the time of the expenditure.59

Such records must be accompanied by documentary evidence (e.g., reLeipts , paid bills) supporting all expenditures of S25 or more, except for transporta­tion charges where the evidence is not readily available.60 If a taxpayer does not compile " adequate records, " to sustain the deduction he must es­tablish each element of the expendi­ture by his own written statement and by other corroborating evidence.51

The Second Circuit has invalidated this requirement of the regulations , on the ground that to require a written statement itemizing each expenditure is to compel a taxpayer to maintain an adequate record , which goes beyond the Code which sets forth alternate substantiation requirements.52 The Tax Court has indicated it will ignore th is invalidation in cases not appeal­able to the Second Circuit.63

The regulations also provide guide­lines as to what constitutes a separate expenditure, how to allocate expend i­tures among rec ipients of entertain-

ment, how to maintain records to es­tablish that a facility was used pri­marily for the furtherance of a trade or business . and how to sustain the deduc ti on although records have been lost or destroyed . (to be con­tinued)

FOOTNOTES 1. In terna l Aevenue Code (hereinafter " LR. C .. )

Sect ion 162. 2. Aeg Section 1162-1(a) 3. Aeg Section 1.162-6; Rev. Aul 54-565. 1954-2

C.B. 95 4 IA C Section 62 . 5 I.A.C . Secllon 63{al 6. I.A.C. Section 62(1) 7. Aev . Au t. 69-184. 1969-1 C .B. 256. 8 LA C Secllon 62(2) (A) 9. LA C Section 62(2) (B)

10 I R C Section 62(2) (C) 11. Rev Rul. 68-324. 1968-1 C .B. 433. 12. Aev Aut. 68·323. 1968-1 C .B 432. 13. Reg Section 1.162-11(b) (1) 14. Reg . Sec tion 1 162-17(b) (2). 15 Reg . Section 1.1 62-17(b) (3). 16. Reg Secl ion 1.162-11(b) (4) . 11. Aev Rut. 71-412. 1971-2 C B 170 18. Reg Secl lon 1,162-17(c) 19. LA. C. Section 267(b) 20. Reg . Section 1.1 62-17(d) (1). 21. lAC Section 162. 212 22. LA. C. Section 274. 23. I.R.C . Section 274(a) (1) (A) . 24. I. A.C. Secl lon 274 (a) ( I ) (8) . 25. Aeg Sect ion 1.274-1 26. Reg Section 1.274-2(b) (1) <I) 27 . Aeg Section 1 274-2(C) (3) 28. Arthur E. Ryman . Jr .. 51 T .C . 799 (1969) 29. Reg Sect ion 1.274-2(c) (4 ). 30. ld. 31. Reg . Sec t ion 1.274-2(c) (7). 32. Aeg Sec t ion 1274-2(d) (1). 33. Reg Sec t ion I 274-2(d) (2) 34 . Reg Section 1.274-2(d) (3) (I) (a) 35. Reg Section , 274-2(d) (3) (I) (b) 36. Aeg Section , 274-2(d) (3) (ii). 37.ld. 38. Reg . Secl lons 1.274-2(d ) (2), 1.274-2( d) (4) 39. Richard A Sufler. 21 T .C. 170 (1953) . 40. Rev Rut 63_144. 1963-2 C B 129. 41. Reg Section 1.274-2(e) (2) (i ). 42. Reg Sect ion 1 274-2(e) (2) (ii): Robert W. Dun· can . 31 T.C. M . 130 (1972) 43. Reg Section 1 274·2(e) (3) (i) 44. Reg . Section 1.274-2(e) (3) (III). 45. Reg Section 1.274-2(e) (4) (i): Robert Lee Henry. 36 T.C. 879 (1961) 46. Reg Sect ion 1 274.2(e) (4) (III) 47. Reg Section 1274-2(e) (4) (il) 48. Reg Section 1.274-2(c) (7) 49. M . Brecker. 31 T.GM 257 (1972) . SO. LA.C . Section 274(e): Reg 1 274-2{f) (1). 51. William Andress, Jr .. 51 T.G . 863 (1969). alf'd 423 F.2d 679 (5th Glr. 1970) : Ric hard Stee l. 28 T.C M 1301 (1969). afl"d 437 F 2d 71 (2nd Clr 1970) ~ Regmald G Hearn. 36 T C 672 ( 1961 ). a l f'd 309 F.2d 431 (9th Clr. 1962). cert. den 373 U.S 909 (1962) 52 . Reg SectIon 1 274-5(c) (1) 53. I A C Secl lon 274(d) 54. Cohan v. Comm .. 39 F 2d 540 (2nd Gl r. 1930) 55. Reg Sec tion 1274·5(a) 56. Reg Section 1.274.5(b) (3) (i) . 57 Reg Secllon 1 274-5(b ) (3) (iv) 58. Reg Secllon 1 274-5(b) (4) (i) 59 . Reg SectIOn 1 274-5(c) (2) (II). 60. Reg . Sec l lon 1 274-5(c) (2) (ill) 61 . Reg Section 1 274-5(c) (3) 62 LaFo rge v. Comm .. 53 T .C. 41 (1969) . aII'd 434 F.2d 370 (2nd Cif 1970) 63 Imero O. Florentino, 29 T .C .M 1665 (1970) .

269

FAll ADMI~~ION~ C£R£MONY ARKAN~A~

~UPR£M£ COURT

~£PT£MB£R 11. 1972

Gues ts - Applicants

Swear ing-Ill

270

A rkansas Suprem e Cou rt

Motion For Admission

Bar Brie f ing

NOVEMBER, 1972

,

,

,

They are the depositaries of the law; the living oracles who must decide in all cases of doubt, and who are bound by oath to decide according to the law of the land.

- Blackstone, " Commentaries"

Tho !!hallongo is woll mot

Justice Lyle Brown Arkansas Supreme Court

by tho Justi!!o from

~outhwost Arkansas

Wo aro ploasod to toll him so ..

Commercial National Bank of Little Rock

THE ARKANSAS LAWYER

History Of Law In South Arkansas (Part I: from Statehood to 1874)

If a line be drawn running west along the Northern boundaries of the present Counties of Phillips. Desha, Jefferson . Grant , Hot Spring , Pike. Howard and Sevier, then all the area South of that line may well be con ­sidered " South A rkansas", which is about l !3 rd of the State in area. This IS the "Sou th Arkansas" about which this article is written . Chronologically, the history fa lls into four periods: 1 From Statehood to 1861 2 Fro m 1861 to 1874 3 From 1874 to 1917 4 Fro m 1917 to the present.

The present article will deal with the fir st two of these periods. It has been said that history 15 a series of biogra­ph ies 01 leaders ; so thiS history will be a li st of some of the Lawyers and Judges from Statehood to 1874 .

There were Territorial Courts before Statehood In the four CircUIts ( .) and twenty·four Counties: and ten of these Counties were In South Arkansas; haVing been created as follows: Clark 1818 . Hempstead 1819: Phltllps 1820: Chlcot 1823: Lafayette 1827 : Sevier 1827 : Union 1829: Jefferson 1829: Hot Spring 1829: and Pike 1833. ( .. ) Those ten South Arkansas Coun t ies are now twenty-five In number, the additIOnal ones being carved out of the original ten .

When Arkansas became a State In

1836. the entire population was less than forty-eight thousand : and fewer than 12 .000 persons lived In South Arkansas : but. even so. there were greal Judges and Lawyers: and an examinatIOn of Vol. I of the Arkansas Reports shows many cases came from South Arkansas. Most of the lawyers " rode Circuit " to the various counties. A lbert Pike (a lawyer Since 1835) wrote ( . .. ):

" I practised In Little Rock . In Chicot

272

by Judge Ed F. McFaddin

(Editor's note : This is Part I o f a two-part series, written by Judge McFaddin , to cover this area. The July 1972 and Sep­tember 1972 issues of The Arkansas Lawyer were dedicated to the early legal history of NW Arkansas and NE Arkansas, respec tively.)

County. at Helena (when John B . Floyd. though a p lanter, also practised there) , at Courts In Conway . Johnson, Pope, and Crawford Coun­ties: and a few years later In Saline, Ctark , Hempstead and LaFayette; and still later In Dallas. Ouachita and Union. riding circuit on horseback twice a year for some ten years. and then travelling in a buggy."

Again . Pike wrote: "Judge William Trimble (of Wash­

ington , I think) was then an old mem­ber of the Bar. as was Colonel Horner of Helena ... I do not remember whether Major Thomas Hubbard and George Conway were practising at Washington as early as 1835. but I think so ... "

From some of the present Circuit Clerks and from co-operating Lawyer and other Friends. a partial list of early Statehood Judges and Lawyers, of South Arkansas has been compiled . Since the Judges and Lawyers " rode Circuit " to the various Courts, some names appear several times: but here is the partial list :

In C lark County, the Court records disclose these names : George Bullet, J ames Cummins. Stephen Blanlon, Sam C . Roane, N. McLane, Robert C . Oden . IN. Bates. Thomas Fish . Jacob Barkman . William Trimble . Percy Wallis . Sam Davis, Thomas C . Eskridge. Isham B. Gordon . William H. Parrett. Thomas Hubbard, and William Conway B .

In Hempstead County, there are among others, the names of Grandi­son D. Roys ton, William Trimble, Thomas Hubbard, George Conway. John R. Eakin. Augustus H. Garland. Senator James K . Jones and Governor Dan Jones. Edward Cross was a ter­ritorial Judge and was president of the Iron Mountain Railroad from 1855

to 1862, and is buried in Hempstead County. Of course, the name of Gran­dison D. Royston stands out in the early history. He moved to Hempstead County in 1832, was a delegate to the Constitu t ional Convention of 1836, served as a delegate to the Con· federate Congress and was Chairman o f t he Constitutional Conven t ion in 1874 whic h framed our present Con. sti tution . He died in Hempstead County in 1889. and is called "The o td Roman ".

In Phillips County , there were Chartes W. Adams. Thomas J . Lacy. John B . Floyd , William K. Sebastian , Colonel Horner, Judge Theodore F. Sorrells, General Patrick Cleburne and Judge John T . Jones.

In Chicot County . the Court Records from 1832 to 1839 are missing : but from subsequent records there are these names: Terrence Farrelly (who was a de legate to the Constitutional Convention of 1836). Isaac Baker. Wm . H. Sutton , Edward A. Meany, Robert W. Johnson. Isaac Barnett. Thomas Bye rs. William M . Harrison , Madison G. Craig, F.A. James, Henry Smi th, John C. Murray, W .P. G race. S.G. Smith. James F. Robinson, Samuel F. Arnett. Charles H. Carlton, J . Chapman , J.S. Winter. and Euclid L. Johnson.

In LaFayette County, there are these names: William Trimble, Theodore P. Eskridge. EW. Cross. S.D. Handy. W.M. Conway. John Field. George W . Conway. Christopher C. Scott, John Quillin. J . Gould. Shelton Watson . A.A . Stith, Len N. Green, and Ben.

(.) F.N. by July 1839. there were 7 CirCUits . ( " ) Miller County was created In 1820 but abolished in 1836 and re-created In 1874.

("'J F.N. From pages 215 and 217 of Hallum 's History of t887.

NOV EM BER . 1972

i

r

jamin Abbott . In 1840. Governor E.N. Conway, after serving as Governor. moved to his plantation in LaFayette County. and lived there until his death in 1855. Of course, there was Judge B .B . Battle. of the Supreme Court.

In Sevier County, there are these names from the early Court Records: A .G . Stephenson , Samuel Moore, William Davis , George Conway , Thomas Hubbard. John W. Locke. Grandison D. Royston , and Leonard Moore.

In Union County there are these names of early lawyers as found in Goodspeed 's Memoirs: Robert Hardy, William Lacy. John H. Askew. John H. Carlton , Shelton Watson and Hugh D. Marr. Annie Laurie Spencer wr ites that there were also Archibald John­ston , Jarvis Lankford and the firm of Black & Askew .

In Jefferson County there are these names: Judge David Williamson Carrol . Judge Theodore F. Sorrells. and Wm . Harrison .

In Hot Spring County, the records prior to 1843 cannot be located, but these names appear in subsequent records : John Clendenn, William H. Field. John W. Fullerton . Richard Lyon , Daniel H. Bingham, Christopher Scott, William Davis, Fleming Jordan, Thomas F.G. Adams. John C. Murray.

Sheldon Watson. William G. Willough­by, Samuel W. Williams, James G. Witherspoon , Littlepage O. Harvey, Abraham C . Jones . Foster J . Cameron , James Thomason, Joseph Anderson , Francis M . Henry, Robert C. Newton . Abel R. Burke. David W. Carrell , and Pleasant Jordon.

In Pike County, Hen. A.B. Williams was one of the early lawyers. The Court records were destroyed when the Court House burned : and of the early lawyers, Goodspeed in his 1890 Memoirs of South Arkansas. says " Its legal talent in early days was mostly supplied by the Hempstead County bar - though several names from the County became prominent in later years

As previously mentioned. fifteen ad­ditional Counties were carved out of the ten that existed at Statehood. Seven of these fifteen were created too late to have substantial lists of lawyers prior to 1874. These, with year of creation , are : Little River 1867 Grant 1869 Lincoln 1871 Nevada 1871 Cleveland (formerly Dorsey) 1873 Howard 1873 Miller (recreated) 1874

In the eight remaining " new" Coun-

ties, the list of attorneys is extremely fragmentary.

In Desha County (1838). many of the early court records were lost when taken to Texas during the war, but there are these names: Col. J .W . Dickinson , X.J . Pindall and Judge Murphy.

In Bradley County (1840). these names appear: Isaac Baker, Josiah Gould . Charles Slaughter and J.R.S. Burbaze.

In Ouachita County (1842). the early records were destroyed in the Court House fire in 1857, but the following names are remembered : H.G . Bunn (Chief Justice of Arkansas Supreme Court) . Christopher C. Scott (Supreme Court Justice in 1848). G.A. Gallaher. Isaac Strain, J .H. Bullock. J .T. Bear­den and W.A . Purdom. To these must be added the name of Colonel Henry William McMillan , who will be discussed in the second article.

In Dallas Dounty (1845) . the records show these : Wi ll iam Sutton , F.W . Compton. S.G. Smith . C.P . Barbee. R.T. Fuller. B.T. Selman and R.B . Nor­ment.

In Drew County (1846), Hon. Adrian Williamson has a most interesting scrap-book ; and from it, these names

Continued on page 274

~tate ®f ~rkan%a% ({ount!' ®f 3J dfer%on

N.J. Gantt , Jr.

• Member. Arkansas Bar since 1903

• Presiden t , Arkansas Bar Association . 1940-41

• Arkansas Bar Foundation Outstanding Lawyer Award. 1961

• Pine Bluff City Attorney. 1929-32

• Member. Jefferson County Board of H ea lth since 1925

• Trustee , First Methodist Church of Pine Bluff since 1914

• Holder of 33 Degree of Scottish Rite Masonry

• Charter Member of Red Cross of Constantine

• Co-Founder o f Quapaw Lodge No. 730

• First Potentate of Sahara Shrine Temple

WitnQ!:!: Our RQ!:PQet And Adm irat ion For Our Mo!:t ~Qnio r MQmbQr , , . THE JEFFERSON COUNTY BAR ASSO CIATION

THE ARKANSAS LAWYER 273

Continued from page 273

appear as some of the ear ly lawyers: Co lonel Nathan B. Hooker, Colone l W.F. Slemons. J.D. Barry, James A. Jackson, T .M . Whittington, Robert B. Brice. From other sources, there are these names, also: Solon R. Jones, J .S. Winter, J .M. Brad ley, Hen ry S. H udspeth , Robert Anderson and Benor)i S. Dubose.

In Ash ley County (1848), these names appear : John C. Murray, J.F. Lowery, S.F. Arnett , D.W. Carro ll and W.F. Slemons.

In Calhoun County (1850), these names appear: Joe McCullough, Alex A. Mason, and Met L. Jones.

In Columbia County (1852), these names appear: General E.C. Turner, E.A. Warren, James Thompson , G.A. Gallagher, G.P . Smoote, B .F. Askew, L.B . Green, J.N. Hobson and John M. Kelso.

This Jist is only partial. In some cou nties (as Pike and Ouachita) the early Court records were lost in Court House fires, and time has not per­mitted a complete search of the records in other counties.

It is hoped that the local Bar Asso­ciation of each County may be en­couraged by this fragmentary article to make a complete list of the Law­yers and Judges ot each and every County of South Arkansas. The Bar owes this to posterity.

1861 to 1874 This is the Second Period in the

history of South A rkansas Law; and of it, li ttle wi ll be said .

For the year 1861 , the Su preme Court reports occupied an entire vo lume (No. 23). But one volume (No. 24) is sufficient for the Supreme Court proceedings from 1862 to 1867 in­clusive. Most of the lawyers were gone to war or so busy supporting the war that litigation was postponed.

From June 1862 to June 1863, there were thirty-three cases decided . The Confederate State Government was moved to Hempstead County and the Court was there all of .1864 and until mid summer of 1865 when the military constitution of 1864 created a court in Little Roc k.

The cases that had been decided by the Court in Hempstead County were placed back on the docket as though

never decided. But in Vol. 24 of th e Arkansas Reports from pages 371 to 477 , there appear the opinions of the Arkansas Supreme Court while in Hempstead County.

Then came the carpetbag consti­tution of 1868 - and the least said of it , the better. It was not unti l after the Supreme Court of the United States had decided Ex parte Garland that true Southern So ldiers were allowed to be lawyers.

Then came the Constitution of 1874 and the real lawyers of South Arkan­sas could f lower again . These will be considered in a subsequent arti cle .•

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NOVEMBER , 1972

;

• -Law

President Student Division

American Bar Association • Member -

New Commission on National Institute of Justice

Patrick H. Hays

The Arkansas Bar has two important reasons for being very proud of Law Student Patrick H. Hays of North Little Rock, Arkansas. He was elected President of the Law Student Division of the American Bar Association at the recent annual convention in San Francisco . He was just appointed by ABA President Robert W. Meserve as one of the 22-member Commission on National Institute of Justice .

Hays entered the University of Arkansas in 1965, majoring in political science. As an un­dergraduate, he was a member of the Sigma Chi Fraternity, the Razorback Debate Team, and the honorary military society " Scabbard and Blade ", and was designated a Distinguished Military Graduate upon graduation .

He entered the University of Arkansas School of Law at Fayetteville in 1970, becoming a member of the Phi Alpha Delta Law Fraternity and the Student Bar's Executive Committee as Law Student Div ision Representative to the ABA. In such capacity , he was honored with the Law Student Division 's Silver Key Award for outstanding service. He is presently enrolled in the Little Rock Division of the Law School and employed by Senator John L. McClellan .

As LSD President, he heads a division with some 20,000 members from all the states. As the largest law student organization , the Division's job is to see that these students have a strong voice in matters of interest.

The new Comm ission on National Institute of Just ice will draw plans for creation of the In­stitute, and is headed by President Charles S. Rhyne of the World Peace Through Law Cen­ter. The Institute would provide for the field of law and justice, the kind of centralized direc­tion and funding now available in other fields . Hays , the Commission's youngest member, will be working with leaders of the Bench and Bar, business, labor and civic groups as well as leaders of other professions.

THE ARKANSAS LAWYER 275

276

1914

"Soml Needed Reforms"

Proceedings of the

Seventeenth Annual Session

of the Bar Association of Arkansas

held in Pine Bluff, Arkansas

May 21 and 22, 1914

A young lawyer - by name, Lamar Williamson of Monticello - began his address during the Afternoon Session o f May 21 , 1914, as follows : -

" In order to justify its existence the Bar Association of Arkansas must be a very definite , vital and potent force in the molding of law and the adm inistration of justice for the people o f this State. The Bench and Bar of civilized countries have always been held responsible - and justly so - for the condition of the corpus juris of the country. Our Association is the most tangible and concrete evidence of the composite influence of the Bench and Bar of Arkansas. Therefore this Association must largely bear responsibility for the present condition of our remedial law . If there are serious defects in the ultimate product of ou r court procedure, or if the path of the litigant in pursuit of his rights is beset with the aggravating obstacles of uncertainty, expensive delay or archaic technicalities , then our society has not only fallen sho rt of its purpose and usefulness, but every member of our profession suffers from the sting of public criticism. Already the lawyer is the victim of many a sarcastic joke - shameful to us because of the element of truth provoking these thrusts from public opinion."

With such a beginning , readers will want to review his entire address , which may be found in the reported Proceedings at page 100 of the Append ix.

NOVEMBER , 1972

,

194&

II A Challenge II

President 's Address

delivered by

Lamar Williamson

Belore t he Bar Association of Arkansas at Hot Springs, Arkansas on May 3, 1946

Repeating the beginning words of his address some 32 years previous, Mr. Williamson urged con­sideration of unifying the Arkansas Court System, calling upon the Association to " first work out and fabricate the best possib le system for the administration of justice, and then vigorously and persistently work fo r its establishment as the living law of Arkansas." The reported Proceedings of the 48th Annual Meeting simply contains the word " CHEERS" following his address. One of his quotes is especially worth repeating: -

., / think that the underlying Ca&";9 of this defective administration of justice is that the Bar, and the people of the country generally, proceed upon a false assumption as to their true relation to judicial proceedings. Unconsciously, we all treat the business of administering justice as something to be done for PRIVA TE BENEFIT instead of treating it primarily as something to be done for the PUBLIC SERVICE. A clearer recognition of the old idea that the state itself has an interest in judicial procedure for the promotion of justice, and a more complete and unrestricted control by the court over its own procedure would tend greatly to make the administration of justice more prompt , inexpensive and effective." - Elihu Root

1972- WII Arll Pillaslld To Join In This Rllcognition Of Lamar Will iamson.

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THE ARKANSAS LAWYER 277

By Professor Robert Brockmann

The Committee to Aid in the Search for a new Dean of the Law School has made its report to President David W. Mullins of the University. In the mean­time, William David Newbern , a mem­ber of the Fayetteville faculty of the Law School , has been appointed ac· ting Dean in the place of Dean Ralph C . Barnhart who retired from the deanship effective September 1. 1972. Dave is quite familiar w ith the Fayette· ville sc ene, having called it home for the greater part of his life. He attend­ed the public sc hools here and re­c eived both his undergraduate and law degrees from the University (he did spend one year of his law schoo l career at Vanderbilt but we can for­give him for that!) While at the law sch ool as a student . he was Editor in Chief of the Law Review . After gradu-

ating from law 'school in 1961 Dave entered the U.S Army Judge Advocate General's Corps where he remained until 1970 when he was discharged with the rank of Major. During this period he received his LL.M . from George Washington University and A .M . from Fletcher School of Law and Diplomacy of Tufts University. His law teaching experience includes stints at the U.S. Army War College, U.S. Military Academy, American Univer­sity and Chung Ang University in Seoul. Korea. He came on the faculty here at the law school as an assistant professor in the fall 1970. Here his teaching areas inc lude Domestic Relations , Civi l Procedure. Remedies and Compara tive Law. Dave is married to the former Carlyn Lewis of Fayettevi lle and his grandfather was

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A.M . Harding , a former President of the University of Arkansas. Dave has the good wishes of all the faculty in his leadersh ip efforts during this period of transition at the law school.

At the t ime of this writing classes have started with another capacity enrollment at both divisions of the Law School. Again , there were many more applications than spaces avail­able, a continuation of the nationwide trend that started several years ago . Already applications are being received for the Fall 1973 semester. This year the LSAT is being adminis­tered on October 21 , December 16, February 10, 1973, April 14, 1973 and July 28 , 1973. There is no Arkansas testing site for the February testing and the July testing is too late for con­sideration for fali 1973 acceptance, so applicants are advised to take the December or April tests, with the earlier date preferred. Forms for appli ­cation to take the test can be obtained from Pre-law advisors or the Director of Admissions at the Law School.

The placement service at the Law School has resumed activity after be ing dormant during the summer. The service will arrange for interviews with prospective associates, provide resumes or therewise aid in the hiring process. Inquiries should be directed to Russ Meeks, Student Director, Uni· versity of Arkansas School of Law , Fayetteville, Arkansas 72701 . •

NOVEMBER , 1972

SEBASTIAN COUNTY BAR ASSOCIATION

HONORED

The American Bar Association has selected the Sebastian County Bar Association for the Award 01 Merit based upon the most outstanding and constructive work in its field during 1972 . The main project was the Legal Seminar Series on " Law for Everyone" which was presented in conjunction with Westark Junior College . The Seminar was a memorial to Attorney Thomas G. Graves, who was killed in an auto­mobile accident in 1971 . Chancellor Warren O. Kimbrough was the project director . The series is described in the March 1972 issue of The Arkansas Lawyer. Other projects included the Sebastian County Public Defender Office and Legal Aid Society.

L-R. A.B.A. President-Elect Chesterfield Smith; Sebastian County Bar Association member David T. Hubbard; Chairman Calvin H. Udall of ABA Section of Bar Ac­tivities .

L-R. Director Harold Hile of Community Services at West ark Junior College; Circuit Clerk Louise Patton in whose office the plaque will hang; Past President Bob Dawson of the Sebastian County Bar Association; Helen Jo Graves, widow of Thomas Graves; and the Association's President Don Calloway.

THE A RKAN SAS LAWYER 279

280

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SAFEGUARDING YOUR PROFESSIONAL FUTURE

Never Put Off ForTomorrow:

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the result

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THE ARKANSAS LAWYER

It May Be Too Late! A sales representative put in a claim on his home owner's insurance policy for losses that he sustained when his garage and contents were destroyed by fire in February, 1970. The insurance carrier refused to indemnify him for the loss of the garage and part of the contents on the theory that he was using the garage for business purposes. He argued the point, but to no avail. The insurance company then issued a draft for part of the contents without a Proof of Loss. Their argument that the business exclusion applied had some merit, but was not well documented.

The sales representative then retained an attorney to pursue his claim further. The insured attorney had a few discussions with the insurance company adjustor and then put his file on a long diary. Shortly after February 1, 1971 , he contacted the adjustor about the claim. He was told that the one year in which to file suit had lapsed and, therefore, his client had no claim. The insured attorney was unaware of the one year limitations period in the policy.

The claimant then retained another attorney to initiate a pro­fessional liability claim against the insured attorney.

Although there was questionable liability in the original claim, compromise was made with the sales representative because there was clear liability on the part of the insured attorney for failing to file the suit in a timely manner.

When handling insurance claims check thoroughly as to the time allowed in which action must be brought. First party policies usually have a limitation provision.

281

THE MULTIPLE TRUST Use Of Multiple Trusts As Income Tax Planning Devices In Connection With

Business Activit ie s O r Specific Forms Of Investment Activities

(EDITOR'S NOTE: This article was authored by Mr. Burton K . Kante,. a member of the Chicago law firm of Levenfeld, Kanter, Baskes & Lippitz, with the assistance of Elliot G. Steinberg. San Francisco, California; Charles A. Dukes, Hyallsvi lle, Mary land; Co leman Silbert, Boston, Massachusetts; and A.M . Vernava, Detroit, Michigan . It is the first in a series prepared for the Committee on Con· tinuing Legal Education and Reserach of the Section of Taxation of the American Bar Association. Chairman Rober' Holmes of the Taxation, Trust & Estate Planning Section of the Arkansas Bar Association has cleared the ar­ticle for publication in The Arkansas Lawyer. The material is presented in an interesting question-and-answer fo rmat.)

1. O. What are Multiple Trusts? A. It is not uncommon for one grantor to create numerous trusts each having different beneficiaries. However, the term " multiple trusts" as used in tax literature refers to a situation in which the same grantor creates more than one trust for what is substantially the same beneficiary.

2. Q . What provisions 0' the Internal Revenue Code refer to or define Multiple Trusts? A. There are no specific references in the Internal Revenue Code (" IRC " ) to multiple trusts; however, under IRC Section 641 (b) a trust is recognized as a separate taxable entity and is taxed in the same manner as is a married individual filing a separate return . Each separate trust pays tax each year on the income earned by that trust at the 14 per cent rate being the lowest tax bracket. Should the trustee, distribute the trust income to the beneficiary. that income is taxed to the beneficiary, rather than to the trust no matter whether the distribution is mandatory or discretionary. If , on the other hand , the trust accumulates Its Income, then the trust pays tax each year on the income earned and acc umulated . Although the Code neither specially taxes multiple trusts nor provides that trusts created by a given grantor for essentially the same beneficiaries are to be differently taxed , the Commissioner has proposed new regulations, disc ussed below , governing multiple trusts .

3. Q . How is a beneficiary of Multiple Trusts taxed upon a distribution? A. A distribution to a beneficiary of a multiple trust c auses the beneficiary to receive income subject to the unlimited throwback rule for accumulations in the trust after December 31 , 1968. The income is taxed to the beneficiary as if he had received it in the year it was earned by the trust. For example, if a trust earns $5 ,000 in year one. and $5 ,000 in year two . and in year three d istributes $10,000 to the beneficiary , the beneficiary would have to recompute his income tax for year one making provision for the receipt of $5,000 and also recompute his tax for year two making provision for the receipt of the remain ing $5 ,000.

4. Q . If the beneficiary i. taxed as though he had received the Income in the year It was earned by the trust, of

282

what advantage is the use of Multiple Trusts to the Beneficiary? A. The use at multiple trusts defers tax paid by the bene­ficiary during the years in which the trust accumulates in­come. Consequently, during the years of accumulation , the trust , collects a larger fund for reinvestment which in turn results in greater net earnings than would have otherw ise been possible. Even though the beneficiary, when f inally receiving a distribution , pays tax on the earnings obtained by tax deferral , he nonetheless re­ceives more money than if he had continuously paid tax on the income.

5. O. Must the beneficiary avoid using the money during the years 0' accumulation in order to enjoy greater tax savings? A. If the beneficiary receives a direct distribution from the trust , it is taxable to him in the year it was earned by the trust. Accumulations by the trust , however, are not taxable to the beneficiary during the years of accumu­lation . If the trusts are partners in the beneficiary 's business. then even though the trusts are taxable on their distributable share of net income from the partnership, the partnership is not required to actually distribute its funds to the trust partners ; it may continue to use the funds in the partnership business. If the beneficiary is in­volved in a closely held c orporation , the trust may pur­chase a portion of the corporat ion 's stock from it thereby increasing the capital of the corporation to be used in the corporate enterprise. A well drafted trust instrument might further contain provisions for secured loans under which the beneficiary, upon providing adequate security, could borrow from the trust without tax, if he repaid the loan within the terms of the loan agreement.

The trust , as an investment vehicle, may also purchase securities or real estate on behalf of the beneficiary. For example, if the trust has sufficient assets, it may pur­chase a piece 01 residential property which it could then sell to the beneficiary on a long term mortgage or first deed of trust or lease it to the beneficiary for a term of years. The flexibility of a trust as an investment vehicle provides numerous planning techniques which enable the beneficiary to use a trust without having to receive a taxable distribution .

6. Q . What situations or conditions suggest the use 0' Multiple Trusts? A. There are several reasons that may prompt creation of more than one trust for a single primary beneficiary : the desire to have a var iation of investment programs, the desire to vary the terms of distribution or termination ; the desire to select different remaindermen or trustee 's d iscretion. These constitute what may be called non-tax reasons for the creation of multiple trusts. Of course, the use of multiple trusts will also minimize income taxes. In­stead of distributing income to a beneficiary who already finds himself in a high tax bracket , a trust may be utilized to collect income and yet be taxed as a separate in­dividual. These tax savings are multiplied if a number of trusts accumulate the income. For example, if $100 ,000 were accumulated in one trust , the Federal tax would be more than $55,000. If, however, the income were ac-

NOVEMBER, 1972

cumulated in ten trusts of $10 ,000 each , the tax would be approximately $2,200 per trust , or about $22 ,000 , resulting in a tax savings of $33,000 at the trust level.

7. Q . What specific situations maximize the advantages Inherent in Multiple Trusts? A. Mu ltiple trusts may act as partners in a fami ly part­nership, as the shareholders in a closely held corporate business, as holders of marketable securities, real estate , or other business or fami ly investments.

8. Q . What has Congress said about Multiple Trusts? A. Legislation to narrow the use of mu ltip le trusts has been proposed from time to time since 1937, but the problem of various competing interests and the difficu lty of drafting adequate solutions have resulted in little Con­gressional action . The basic legislative concerns have been the following:

1. The separate entity trust doctrine is a traditionally ac­cepted and favored means of transferring and holding properly. 2. Only those who control or receive income should be taxed on it. 3. The amount of potential revenue must be weighed against the cost and complexities of administration , reporting , and recording . 4. Numerous important non-tax reasons are involved in both the creation and use of both single and multiple trusts. 5. The intricacies of defining beneficiary patterns are in d ire need of simplification .

9. Q . What Legislation has aflected Mult iple Trusts? A. Over the years the Treasury has attempted to get legislation passed that would restrict the use of multiple trusts. Some of the advantages were reduced in 1954; however other proposals died in Committee. Congress managed to come up wi th speci f ic legislation in the Tax Reform Act of 1969. The exceptions to the throwback rules that existed in the 1954 legislation were eliminated , and the five-year rule to provide for an unlimited throw­back period on all accumulation distributions was modified.

The ultimate effect of the Congressional approach to multiple trusts is to place the burden of taxation on the beneficiary after distribution , rather than at the trust level. Accumulation of income without distribution con­tinues, therefore, to result in tax savings to the extent of the difference between the tax bracket of the trust and that of the beneficiary. If more than one trust is used , tax savings increase.

10. Q . What has been t he attitude of the cou rts tow ard Mu ltiple Trust s? A. The most significant court decision was Estelle Morris Trusts. 51 T.C. 20 (1968), afi'd ., 70-2 U.S.T.C. Para. 9490 (CA-9, 1970), in which the Courl decided Ihat when multiple trusts are properly established and maintained. they are to be treated as separate tax paying entities -even if created for the same beneficiary by a given gran­tor, and even if the exclusive motive for the creation W&S tax avoidance. In the Morris case each trust had maintained accurate and separate books and records, filed separate inco me tax returns and made different investments. The Court ruled that since the creation of one trust resu Its in the splitting of income between the trust and beneficiary, the creation of mult iple trusts represents only a quantitat ive extension of the advan­tages of a single trust; the differences in degree, not in kind .

11 . Q. What is the current position of the IRS in light of

THE ARKANSAS LAWYER

t he 1969 Tax Reform Act and the decision In the Morris case? A. The Commissioner has proposed Regulations 1.665-(a)-QA(e) which would consolidate multiple trusts and treat them as one trust if the multiple trusts have no sub­stantially independent purpose or have substantially the same beneficiary and the same grantor and have as their principal purpose the avoidance of tax. The proposed regulations with respect to multiple trusts are a clear at­tempt by the Commissioner to add new Code provisions relating to multiple trusts not approved by Congress. The proposed regulations are similar to legis lation introduced in Congress during 1957-1960 which would have con ­solidated some mult iple trusts in order to treat them as one trust. The proposed legislation failed to obtain Congressional approval. The Treasury is now proposing to insert its consolidation approach into the tax law by means of these new regulat ions.

Continued on page 284

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12. Q. What Are the Objections to the Consolidation Ap­proach? A . The old legislative proposals and the new proposed Treasury Regulations aim to require certain trusts to con­solidate their incomes and to pay a tax on the combined amount. In the past the consolidation approach has required legislation so broad as to created numerous un­certainties and to ultimately prove to be unworkable. Th-a proposed regulations leave numerous questions unan­swered :

1. What wou ld be the resu lt if different grantors were to create trusts for "substantially the same" beneficiaries?

2. What criteria are to be used to determine when grantors or beneficiaries are "substantially the same"?

3. If multiple tru stees exist, who will have the obligation to file a consolidated return?

4. What are the cri teria to be used to establish that the multiple trusts were c reated for essentially non-tax reasons?

5. Would the governmental costs of investigation, indexing and reco rd-keeping outweigh the potential revenue in­volved?

6 . If a deficiency were assessed after the termination of one of the trusts, who is then to bear the burden of that trust's pro rata share of the assessed tax liability?

7. What happens if " substantially the same" beneficiaries are changed during the year?

8 . How are gains and losses to be allocated among the various trusts?

The most disturbing aspect of the conso lidation ap­proach is that it attempts to tax accumulation trusts based upon a suspected relationship among current

beneficiaries who may never actually receive a distribution from any of the trusts . In such a case it would penalize the ultimate beneficiaries.

13. Q . What considerations should be kept in mind when drafting Multiple Trusts? A. The following checklist should be consulted when preparing multiple trusts for the same beneficiary :

1. Create separate trust agreements for each trust; 2. Appoin t different trustees for each trust ; 3. Create separate bank accounts for each trust; 4. Use d ifferent investments by some trusts; 5. Maintain separate books and records for each trust; 6. Specify different dates of distribution and ter-

mination for some trusts ; 7. Insure irrevocability in the terms of the trusts ; 8. Provide documentation of the non-tax reason s for

the creation of the trusts. 14. Q . Can a Mu ltiple Trusts participate as a pa rtner in a

partnership? A. Under the partnersh ip rules, and specifically under IRC Section 704(e) relating to family partnerships, a trust can be a partner in a general or a limited partnersh ip. If, for examp le, a beneficiary were engaged in a retai l operation which needed additional capital for expansion, the trust, or group of trusts having sufficient funds might then make a capital contribution to the partnership in ex­change for a participation of the profits. The earnings of the partnership are then taxed to the various individual and trust partners if proportion to their contribution and participation in the profits and losses of the partnership .

15. Q . Are t here any restrictions against the participation of a trust in a fam ily partnership ? A. If a trust makes a con tribution to a family partnership in exchange for a partnership interest, the capital it con-

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tributes must be a material income producing factor in the partnership. If the contribution were to a strictly ser­vice partnership where significant capital is involved, it would be extremely difficult to demonstrate that the capita l was a material income-producing facto r in th e partnership. In such a situation , the Internal Revenue Service would argue that the individual partner was at­tamping to shift income from himself to the trust and would not recognize the trust as a partner taxable on its distributive share of partnership income.

16. Q . Can Multiple Trusts participate in a family cor· poration? A. If the trust instrument so provides, the trustee may pur­chase shares in a c losely held corporation on behalf of the trust. l lf the beneficiary of the trust contro ls the cor­poration, addi t ional capital for purposes of expansion may be injected without his necessarily relinquishing control of the corporation . For example, preferred or non­voting common shares could be sold to the trust without in any way affecting control of the corporation by the common shareholders. It should also be noted that dividends payable to a group of trust shareholders may be spread among the trusts, so that the tax on the dividends at the trust level is less than if they had been received by the beneficiary or by a single trust only.

17. Q . What Federal Gift Tax consequences result from the creation of Multiple Trusts? A. A gift made to a trust which accumulates income and which is not required to distribute income currently does not qualify for the annual gift tax exculsion of $3.000. Consequently, a gift tax return must be filed and gift tax paid to the extent to which the value of the gift exceeds the donor'5 lifetime exemption of $30,000.

18. Q . What are the Federal Estate Tax consequences with respect to Multiple Trusts? A. If the gift in trust is to an irrevocable trust and if the donor retains no controls or powers with respect to the trust , the value of the gift will not be included in the donor's estate. If the trust is to continue after the death of a primary beneficiary for the benefit of other bene­ficiaries, the value of the trust will not be inc luded in the estate of the deceased beneficiary.

19. Q . Can a beneficiary haye any powers oyer the ultimate d istribution of the trust fund ? A. Yes. The trust instrument may contain a limited power of appointment whereby the primary beneficiary has either an inter vivos or testamentary power to appoint the proceeds of a particular trust for the benefit of any per­son, or organization, other than himself, his creditors , or his estate. Thus, for example, if a father creates a trust for the benefit of his son and if the donor's grandchildren have not reached the age of majority, the trust instrument may permit the son to appoint the assets for the benefit of the grandchildren if one child should be in greater need than another or one more deserving than another.

20. Q . What estate planning considerations Justify the creation of more than one trust for the same beneficiary? A. We have listed above the general non-tax reasons for the use of multiple trusts. There are, however, numerous instances in which multiple trusts are necessary for ef­fective estate planning . A case involving only one primary beneficiary will serve as an example. Assume that a father creates a trust for his son and wishes to provide for alternate disposition upon the death of his

1 Section 1371 of the Internal Revenue Code provides that a corporation which has a trust as one of its stockholders is ineligible for Subchapter 5 status.

THE ARKANSAS LAWYER

son. In one trust, he may choose his son 's wife as the alternate beneficiary ; in another. the son 's children may be the alternate beneficiaries. A charity may be the alter­nate beneficiary in a third, and in a fourth , the trust may pass in accordance with a limited power of appointment exercised by the son.

Grantors ollen hesitate to place large amoun ts of money within the discretion of a single trustee. Dividing the assets among a number of trusts with different trustees may provide for a varied investment program and at the same time allow for different approaches by the trustee with respect to his discretionary power to distribute income or corpus. A grantor may have reasons for terminating trusts at different times. Considerations relating to types of investments may indi cate the use of multiple trusts ; one trust might invest in securities, another in real estate.

Bibliography Baiter. Major Tax Saving for Family in Use of Family Part · nership Plus Multiple Trusts, 5 J . of Taxation 212 (1956) . Bush. Multiple Trusts : Still A Valid and Valuable Estate Planning Tool, 28 NYU Inst. on Fed . Tax 923 (1970) . Childs, Multiple Trusts : A Word of Warning, 107 Trusts & Estates, March 1968. 183. Colson , The Taxation of Undistributed Income, 22 NYU Inst. on Fed . Tax 1087 (1964). Comment, Taxation of Multiple Trusts, 24 U. of Chi. L. Rev. 156 (1956). Ervin. Multiple Accumulative Trusts and Related Problems Under the Income Tax , 29 So. Cal. L. Rev. 402 (1956) .

Continued on page 286

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285

O. D. Longstreth 1917 - 1972

Oscar Douglas Longstreth , Jr. died in Little Rock on Aug . 28th , after a long illness.

He was born in Little Rock , where he lived his entire life ex­cept for time spen t in the military. In World War II he served as Captain in the Third Division in North Africa. Sicily, Ita ly, France, Germany and Austria ; and later became a Colonel in the National Guard.

He was a member of the Ark­ansas Bar Association and the American Judicature Society. He was a Methodist and taught a Sunday School Class for many years. He is survived by his wife , two daughters, and four grand children .

W. P. Brickell 1897 - 1972

William P. Brickell died in Mar­vell on Oc t. 8. 1972, after having served as Municipal Judge of that City for more than twenty­five years.

Judge Brickell was a veteran of W.W. II , a Mason and a Metho­d ist. He is survived by his wife, a son. a daughter. and a brother.

M . A. Hathcoat 1880 - 1972

Marvin A. Hathcoat died in Harrison on Sept. 12. after a long and distinguished career. He was a native Arkansan . and his father was a Confederate Veteran .

Continued from page 285

1fn ;§Memoriam Judge Hathcoat graduated

from the Un iversity of Arkansas in 1908, and years later served on the Board of Trustees of the Uni­versity, and was made Member Emeritus. He was also Chairman of the State Public Utilities Com­mission .

He was a charter member o f the Harrison Rotary Club, a Methodist , and a long time Sun­day School Teacher. He is sur­vived by four daughters and five grand children.

C. M. Erwin 1906 - 1972

Claude Mayo Erwin died in Newport on Aug . 26th. He at­tended Hendrix College and the University of Arkansas and grad­uated at the Arkansas Law School.

In the course of his legal ca­reer, he served as prosecuting attorney, County Judge of Jackson County. and City At­torney of Newport; and was a member of the Arkansas Bar Association , the American Bar Association, and the American Trial Lawyers Assoc iation. Mr. Erwin was a Mason and a Methodist and taught a Sunday School Class for many years.

He is survived by his wife and two sons.

D. L. Ford 1885 - 1972

Judge David L. Ford died in Fort Smith on May 25th after a

long and distinguished career. He was graduated from the

University of Arkansas in 1909, and served overseas in World War I.

Among other offices he ld by him were : County Judge of Frank lin County, Mayor of Fo rt Sm ith, State Commissioner of Revenues, and Chairman of the State Claims Commission, which later office he he ld for eig~teen years.

Judge Ford was a Mason and a Methodist. He is survived by his wife, two step-sons, a sister, a brother, eleven grand children, "nd one great grand chi ld.

U. A. Lovell 1899 - 1972

Ulys A . Love ll died in Spring­dale on August 10th. He was born in Arkansas, and graduated at the University o f Arkansas. He studied Law at Harvard Univer­si ty and was a law professor at the University of Arkansas for many years, while still engaging in the active practice in Spring­dale.

Mr. Lovell was very active in the American Legion, having been Department Commander and for many years a national committeeman . He was also a charter member of the Spring­dale Rotary C lub.

He was a Unitarian and a Mason ; and is surv ived by his wife , one sister and one brother.

Soter, Federal Taxation Aspects of Multiple Accumulation Trusts, 31 U. Cinn. L. Rev. 351 (1962)

Friedman and Wheeler. Advantages and Problems of Multiple Trusts , 20 NYU Inst. on Fed. Tax . 181 (1962) Friedman and Wheeler. Effective lise of Mu lt iple Trusts , 16 NYU Inst. on Fed. Tax 967 (1958)

Steinberg , Multiple Trusts , Vol. 6, No.4, Taxat ion for Ac­countants, 216 (1971) Stevens, Charges Foreseen in Taxes in Powers , At· tribu t ion of Income, Multiple Trusts , 13 J. Taxation 88 (1960) Gordon. Multiple Trusts : The Consolidated Approac h , 4

Wayne L. Rev. 25 (1957). Kirby, C~ rrent Developments in Use of T rusts in Income and Estate planning , 11th So. Cal. Inst. in Major Tax Problems 627 . 644 (1959) Note, Multiple Trusts and t he Minimization of Federal Taxes, 40 Col. L. Paul . The Background of the Revenue Ac t o f 1927, 5 U. 01 Chi. L. Rev . 41 . 71 (1937) Recent Cases, 22 Vand . L. Rev . 344 (1969) Recent Cases, 54 Iowa L. Rev. 867 (1969) Recent Developments. 14 ViiI. L. Rev. 344 (19691

286

Taylor. Use of Trusts to Divide Income, 15 NYU Inst. on Fed. Tax 853. 867-870 (1957) (853-872) Todd , Mu ltiple Accumulative Trusts, 7 J . of Amer. Soc. of Chartered Life Underwriters 145 (1953) Tomlinson , Cri ti c al Analys is of Proposed Law on Mult ip le Trusts Taxation, 96 Trusts and Estates 1180 (1957) Tremper, Sing le v. Multiple Trusts·$ome Observations , 17 Taxes 463 (1939) . Zissman. A Di lettante Views a Few Unsettled Areas in t he Taxation of Est at es and Trusts , 47 Taxes 855, 862-866 (1969) •

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