Saturday, November 28, 2015

The tax implications of post-graduate legal training including school supervised incubator programs

This is a new article by Professors Adam Chodorow (Arizona State) and Professor Philip Hackney (Louisiana State) entitled Post-Graduate Legal Training: The Case for Tax-Exempt Programs which is scheduled for publication next year in volume 65 of the Journal of Legal Education but a draft of which is available now on SSRN here. From the abstract:

The challenging job market for recent law school graduates has highlighted a fact well known to those familiar with legal education: A significant gap exists between what students learn in law school and what they need to be practice-ready lawyers. Legal employers historically assumed the task of providing real-world training, but they have become much less willing to do so. At the same time, a large numbers of Americans – and not just those living at or below the poverty line – are simply unable to afford lawyers. In this Article, we argue that post-graduate legal training, similar to post-graduate medical training, is a good way to address these market failures and reduce the gap in both skills and legal services.

We consider a number of questions regarding how best to structure post-graduate legal training programs, including whether law schools should take the lead in developing them, and, if so, whether to locate such programs within law schools. We then turn to the important tax issues such programs raise. Programs operated within law schools should generally not affect those schools’ tax-exempt status. Tax exemption for stand-alone programs is more complicated, but we conclude that properly structured programs should be granted tax-exempt status, both as a policy matter and under current IRS guidance. We offer suggestions about how best to design programs to come within that guidance and call on the IRS to issue clear guidance for these kinds of programs.


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