A confidentiality clause can create a taxable event if it is not carefully crafted. The U.S. Tax Court has clarified that a confidentiality clause must be supported by sufficient and clearly worded consideration, or that the Internal Revenue Service (IRS) may award a « fair or equitable amount » as an amount within the scope of the consideration and that, in all cases, any consideration for confidentiality must be taxed on the recipient. See z.B. Amos/Commissioner, T.C. Memo. Docket No. 13391-01, 2003-329, December 1, 2003 (tinyurl.com/9d25phz). In that case, the tax court issued a memorandum decision that probably made Dennis Rodman smile. At a National Basketball Association game in 1997, Rodman assaulted a television cameraman, Eugene Amos, while chasing a loose ball on the field.
In the ensuing anger, Rodman Amos kicked. Amos filed a complaint, and the case was settled for $200,000. In the transaction agreement, the amount of the transaction was recited and a confidentiality and non-disappearance clause was added, without specifying the amount of payment of the clause. The agreement also included a $200,000 compensation clause for Amos breaching confidentiality. Given that this was the full amount paid, it was clear that confidentiality was essential to Rodman. Although the payment of a claim under the Internal Income Code is not taxable, the money paid to settle most claims is taxable. The IRS attempted to make the entire payment taxable and ultimately the Tax Court ruled that $80,000 was due to the confidentiality clause. As the confidentiality clause is itself a compensation for non-personal violations, a certain amount would be taxable. The transaction contract remained silent on the amount, so the analysis focused on the intent of the party who made the payment. In the absence of « sufficient and clearly articulated consideration » in the agreement, the tax court is free to allocate a « fair or equitable amount. » Regardless of the date of the transaction, the terms of a transaction may have consequences long after the deal is dismissed. A term that parties and lawyers will often discuss in detail is whether a confidentiality clause should be introduced.
For some, confidentiality is a necessary clause for any settlement of accounts, while others want the right to discuss publicly the conditions or conditions of the implementation. The conduct of many authorized and regulated sectors is bound by laws and regulations and it would be contrary to public policy to require the confidentiality of facts that attest to the violation of laws and regulations governing the conduct of the colonist and the right to participate in a licensed regulated profession or industry. In fact, such a clause is probably not applicable. A confidential transaction agreement is a provision of a transaction that prevents one of the parties from discussing the nature of the transaction. It is unethical for opposing lawyers to seek prior restriction of the right to freedom of expression as a term of agreement of the client, as this would compromise counsel`s advice to current and/or future clients (see aba Model Rules of Professional Conduct, Rule 5.6 (b), tinyurl.com/7j8at7g; District of Columbia Bar, Ethics Op. 335, tinyurl.com/8tl4fhr; South Carolina Bar, Ethics Advisory Op. 10-04, tinyurl.com/9p4j3fe).