Lawyer's Top Cases Include Jani-King Tax Gambit
Jeff Haff’s picks for top legal cases of the year include Cavanaugh v. Commissioner, a sad story that caught the attention of American Bar Association Forum on Franchising attendees, as well as the secretaries in Haff’s office, he said.
The case “answers the question: If our CEO takes his 27-year-old girlfriend on vacation and she dies of a cocaine overdose, can we deduct the wrongful death settlement as a business expense?” Haff wrote in his summary. We’ll get to the tax court’s answer in a moment.
Here are excerpts of the story, according to Haff: “James Cavanaugh, then age 55, was the CEO of Jani-King International. For Thanksgiving 2002, he decided to take his 27-year-old girlfriend, Claire Robinson, with him to St. Martin. The trip was, admittedly, a pleasure trip and no Jani-King business was conducted.
“Claire Robinson died on Nov. 28, 2002 due to cardiac arrest caused by a cocaine overdose. Robinson’s mother brought a wrongful death action against Cavanaugh and Jani-King. The Jani-King board of directors authorized a settlement up to $5 million, and the mother accepted $2.3 million over two years.
“Then Jani-King deducted the $2.3 million over 2005 and 2006, plus attorneys’ fees. The court found the expenses were not ordinary and necessary business expenses, because the conduct in question did not arise for Jani-King’s profit-seeking activities.”
Haff is with Dady & Gardner in Minneapolis, and he and fellow Minneapolitan Michael Gray of Gray Plant Mooty summarized the most important cases in franchising at the annual ABA Forum on Franchising in October.
It’s a monumental undertaking for two attorneys every year, and Haff said of all the cases he summarized, this was the only one that legal secretaries wanted to hear about. Any others he brought up, he said, and they suddenly had “lots of filing to do,” he said at the forum.