Woman Billed $1,000 For Credit Card Error Gets $83 Million Verdict, But IRS Gets Last Laugh |Forbes

download (1)Juries sometimes do strange things, and one in Missouri has ordered a company that buys up consumer debts to pay an astounding $83 million to Maria Guadalupe Mejia of Kansas City. Why, you may ask? The jury said the credit company wrongly tried to collect an erroneous $1,000 credit card bill. Credit.com has an extensive story about this shocker, the woman who sues a debt collector, and then wins $83 Million. KCUR reported the verdict and the jury finding that the defendant–Portfolio Recovery Associates LLC–was guilty of violating the Fair Debt Collection Practices Act.

That law contains many safeguards for borrowers. With the small $1,000 disputed debt, as you might imagine, most of the verdict was for allegedly bad conduct, The verdict called for $250,000 in damages plus a few dollars shy of $83 million in punitive damages. The verdict calls it malicious prosecution, the debt not being hers to begin with.

PRA Group Inc., which owns Portfolio Recovery Associates, sent an email statement to Credit.com: “This outlandish verdict defies all common sense,” wrote spokesman Michael McKeon. “We hope and expect the judge will set aside this inappropriate award, and we plan to file motions to make that request formally in the near term. Any fair reading of the facts of this case makes plain that a verdict of this size is not justice by any means, and cannot stand.”

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Paying Yourself Too Much? Too Little? Be Ready for an IRS Challenge | Biz Action

It is generally more tax-efficient to be paid a salary than to receive dividends, given that salary expense is deductible and dividends are paid on an after-tax basis. If the IRS thinks some portion of your salary really should be treated as a distribution of profit, that portion would be added to the pool of corporate revenue subject to tax.

It all comes down to the meaning of the word “reasonable.”

It all comes down to the IRS definition of “reasonable.”

“Whether the pay is reasonable depends on the circumstances that existed when you contracted for the services, not those that exist when the reasonableness is questioned,” according to the IRS.

Suppose, for example, you paid yourself a $250,000 salary at a time when your company was small, with gross revenue of $500,000, two employees besides yourself, and you were not working around the clock. Suppose further that after five years your business has tripled in size and you are still paying yourself $250,000.

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January/February 2011 SBA Advocate Newsletter | SBA


Release Date: February 2011

Volume 30, number 1

The Small Business Advocate is a periodic newsletter that details economic developments and regulatory trends related to small business as well as the latest initiatives of the Small Business Administration’s Office of Advocacy.

In This Issue

Executive Order 13563 to Improve Regulatory Review, 1

Text of E.O. 13563, 6-7

OSHA Withdraws Two Rules, 1

Startup America Launched, 2

Rodgers Appointed Deputy Chief Counsel, 11

New Advocacy Staff, 11

Message from the Chief Counsel

Small Business Talks; Advocacy Listens, 3

Research Notes

Small Business Economy Released, 2

Legislative Focus

Freshmen Senators Schooled in Small Business Values, 4

Regional Report

Nine Regional Advocates in Place, 8-10

Regulatory News

IRS Modifies PTIN Rule, 12

Financial Rule Delayed, 5

Major Clark Receives Public Service Award, 5

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