A retired Coudert Brothers partner has won a US court battle over income tax on his pension, despite a cash black hole threatening to scupper further payment from the firm.
John McDermott’s case before the State of New York Division of Tax Appeals could have broad implications for retired lawyers whose retirement income is derived from a continuing share of their former firm’s profit.
The ruling establishes for the first time in New York that a federal law barring state taxation on retirement income for non-residents applies not only to monies set aside for retirees, but also to payments linked to partnership profits.
Administrative Law Judge Thomas Sacca found that, under federal law, New York State had no right to collect personal income tax on the retirement income that McDermott, who lives in Florida, receives from the firm.
However, McDermott, who retired in 1997, is one of 40 either retired or nearly retired Coudert partners who are unlikely to continue to receive full payment of their pensions following the firm’s disbanding last year.
They must wait until claims made by several of the firm’s other creditors are finalised to find out how much of the estimated $60m (£34.4m) needed to fund their pension obligation will be covered.