■ Loans on Your Life Insurance. Your back is up against the wall, and you borrowed on your life insurance. Caveat Emptor -the loan can have some nasty tax consequences if the policy contract is terminated. The insured borrowed on the policy and did not pay interest on the loan until the loan balance and accrued interest increased to the point where it exceeded the policy cash value. The policy provided that if the outstanding debt exceeds the cash value that the policy will be cancelled 31 days after a notice is sent to the insured. That cancellation requires recognition of gain. 72(e)(1)(A)(i), (5)(A), and (C). Reinert v. Commissioner; T.C. Summ. Op. 2008-163.
■ Liable For Partner's Misdeeds. The recession has flushed out lots of bad boys. Unfortunately, you may only have to look down the hall. The fall of the NYC law firm Drier LLP highlights another landmine many people will have to contend with. If you were partners with someone who defrauded customers, stole money or committed other misdeeds as a partner, you may be on the hook regardless of your innocence. You might have to return money you thought you earned from work that was not completed. If you were held out to the public as a partner, even if you had no signature authority over bank accounts and did nothing wrong, you still may have had "apparent authority" to act. You have an obligation to monitor your partners. How far that obligation extends, and the scope of your liability, may turn on the partnership agreement and other terms of your relationship. You could be held liable for your partner's wrong doing. Bottom line: if the economic turmoil has brought to light misdeeds of one of your partners, don't assume you can duck the fallout. Get legal counsel and determine the scope of your liability.
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