Because the IRS knows so much about attorneys, good record keeping is a must. When you add to this the complicated Bar Association rules for maintaining trust records, tracking of advanced costs, tracking fees due to and from co-counsel and complex tax reporting (including the reporting of cash payments of $10,000 or more and taxability of “Lawsuits, Awards, and Settlements”, you need to be a tax expert in addition to an attorney.
Attorneys hold a special place in the heart of the IRS, that is, if the IRS really has a heart. We know this is true because the only time 1099s are required for payment of services to a corporation is when that corporation is a law firm. The IRS knows something, or at least they think they do, about how attorneys do business. At the very least they have provided some extra checks on the profession. They have even published a special “Attorneys Audit Technique Guide” just to make sure that auditors know where to look when auditing a law firm.