Recovering loss of earnings for our self-employed clients who are seriously injured in a bicycle, pedestrian, motorcycle or auto accident can present certain difficulties that do not arise in cases where our clients are employees who received predictable and documented W2 income. For example, if one of our clients is an employee of a company, we simply send a form to her employer to find out how much work our client missed when she was recovering for the accident, and what her salary is in order to calculate her loss of earnings. We can also submit pay stubs and/or W2 forms to make a relatively easy claim, assuming the client received a doctor’s instructions (and provides those to us in writing) to take the time off from work. Obviously, we do not have this option when establishing a self-employed client’s lost earnings, and thus we have to use other means to ensure they are compensated for the losses they endured as a result of another party’s negligence.
To make a valid loss of earnings claim for our self-employed clients, we must gather documentation that showsthe lost profits, revenue and earnings they suffered as a result of the accident. This could include collecting receipts during quarterly periods prior to and after the accident, and subtracting the two to determine how the accident affected their business. A yearly tax return is also a method of ascertaining a self-employed client’s earnings. However, it is important to keep in mind that federal and state laws limit the opposing party from discovering a plaintiff’s tax return documents. In Webb v. Standard Oil Co. (1957) 49 Cal.2d 509, 513 the California Supreme Court held that a plaintiff cannot be compelled to produce a copy of his federal or state tax return, except in cases involving tax enforcement or the prosecution of violations. The Court found that such information is privileged, and thus, not discoverable by a defendant in personal injury cases. The Court reasoning was based on the purpose behind the federal and state statutes governing tax enforcement, which is to encourage taxpayers to make full and truthful declaration in her returns without fear that her statements will be revealed or used against her for other purposes. Thus, prior to obtaining such information from our clients to calculate loss of earnings, we advise our clients of their right to keep that information private and also assure them that we will not disclose that information to the opposing party unless they expressly consent. Some personal injury lawyers may operate differently, but you want to be sure YOU are the one allowing disclosure of this information, not your attorney.
We often have clients provide us with 1099’s for the year before the accident the year after the accident, depending on whether or not the injury is permanent. Also, profit and loss statements generated by accounting software or even just a simple Excel spreadsheet can be helping in proving this loss. The problem with these self-generated documents is that they can be altered for the purposes of litigation, therefore they are less trusted by the insurance carriers and defense attorneys. That is why they ask for tax returns, because you are under an obligation to provide truthful and accurate information on you tax returns. Therefore, they are seen as more reliable. However, this is the reason the Webb Court held that such documents are not discoverable in the normal personal injury case. It is really a judgment call made by the client and attorney as to whether or not you turn these over.
If you are a self-employed individual and want to make a loss of earnings claim it is always best to seek consultation with an experienced San Francisco personal injury attorney before making the claim. You want to be sure you are doing it right.