M&A Nuggets
M&A Nuggets: Transparency
Suppose you are in the process of selling your business, and you are aware of an existing issue or a new issue arises that you believe could have an impact on a purchaser’s view of your company. Should you disclose the matter to the potential purchaser? The answer depends on where you are in the process of the sale. If you are at the preliminary discussion stage with potential purchasers, none of whom have committed to move forward, then disclosure is probably not called for. Prior to having a committed potential purchaser ready to move forward, many of these issues can be dealt with and disposed of. If, however, you are at the stage at which a potential purchaser is fully committed to move forward to acquire your business, then the answer is yes. You should disclose. The kinds of issues to be disclosed include an existing or new lawsuit, a difficult co-owner or key employee, or a provision in a key third party agreement, such as a right of first refusal, that has to be dealt with. Often, the perception of the severity of an issue is greater than reality. Further, purchasers of businesses are accustomed to hiccups along the way. Some of these kinds of matters may not be able to be resolved before closing and therefore a purchaser will have to deal with them after closing. Being transparent and communicating potential major issues to the purchaser early on allows both sides to determine whether to move forward and, if so, how to address the issue. Waiting to disclose a major issue to a purchaser could cause delays, higher expenses to be incurred and possibly the loss of a deal. A benefit of being transparent is that it engenders in the purchaser a sense of goodwill and fair dealing on the part of the seller. Certainly, throughout negotiations in the sale of a business, there are times when it is best to maintain a poker face and not let the purchaser know your reaction to an issue. In the event of a potentially major issue that the purchaser is likely to be concerned about, however, the chips are off the table and transparency is the better practice. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
March 16, 2022
Tax
Excess Compensation and Disguised Dividends – Take Care and Beware!
Yesterday I wrote about a case involving constructive dividends. Today it is disguised dividends. The issue in Clary Hood, Inc. v. Comm.,T.C. Memo. 2022-15, was whether the salary and bonus paid to the company’s president (Mr. Hood) was excessive under IRC 162(a)(1) and was therefore a disguised dividend. Recall that compensation, if reasonable and not excessive, is a deductible business expense for the company, but dividends are not. In this case the company was a C-corporation, which, because of the double layer of taxation (first at the corporate level, then again at the shareholder and employee level), had every incentive to characterize the payment as compensation, not as a dividend. The company’s story is the great American success story, and the opinion is well worth the read for this story alone. Starting with little money and used equipment in 1980, the company, largely through the efforts of Mr. Hood, who, together with his wife owned all the stock and were the only directors of the company, became a multimillion-dollar company by 2016 with revenues in excess of 60 million dollars. Along the way Mr. Hood did what many small business owners do when starting out – he often did not draw a salary, so the business had enough money to pay its other employees and creditors. When things finally began to turn around, Mr. Hood and his wife, as the company’s directors, decided to pay a bonus to Mr. Hood in the company’s 2015 and 2016 fiscal years. For the 2015 bonus, the company engaged its outside accountants to perform a salary survey. Based on the accountants’ recommendations, the company paid Mr. Hood a bonus of 5 million dollars in 2015. The company paid Mr. Hood the same bonus in 2016 but did so without engaging the company’s accountants to perform another salary survey. Without going through the math, the difference in the Hoods’ pocket between the company declaring and paying a dividend to the Hoods for 5 million (not deductible by the company) or paying the Hoods a 5 million bonus (deductible by the company) was about one million dollars. The substantial increase on Line 12 of the company’s return caught the watchful eye of the Service. Audits and notices of deficiencies promptly followed, including accuracy related penalties under 6662 for substantial understatement of income. The company put on several experts to demonstrate Mr. Hood’s bonus was calculated reasonably and the Service put on one expert. Based on deficiencies in their reports, the Tax Court placed little value in the company’s experts. On the other hand, the Service’s expert’s report did not have the same deficiencies and the Tax Court found that expert (who concluded Mr. Hood’s bonus was excessive) credible. The Tax Court determined reasonable compensation for Mr. Hood was $3,681,269 for tax year 2015 and $1,362,831 for tax year 2016. Further the Tax Court abated the substantial understatement penalty for 2015, based on the company’s engagement of and reliance upon its outside accountants, but did not waive the penalty for 2016 because the company essentially relied on the 2015 accountant report and performed no new study. Among the issues the Tax Court considered in ruling the bonus was excessive and therefore a disguised dividend, were the following: (1) Mr. Hood had no employment contract with his company; (2) other company executives did not receive bonuses comparable to Mr. Hood’s bonus and the company had no policy in place for setting non-shareholder employee compensation; (3) Mr. and Mrs. Hood were the sole shareholders and sole directors of the company, who, as such, had sole authority to review and approve the bonus amount; and (4) in its entire history, the company had never paid a dividend to its shareholders. Although every tax case is highly fact specific, things the company and Mr. Hood could have done differently that might have affected the outcome include: (1) had a written employment agreement with Mr. Hood specifying how salary and bonuses would be determined; (2) had a written compensation and bonus eligibility policy for all employees (and followed it); (3) had outside directors and perhaps even an independent compensation committee that reported to the board; (4) had a history of paying some dividends as approved by the board of directors. For practitioners, this case has an excellent discussion of the “independent investor” test versus the “multi-factor” test for excessive compensation. It also provides a detailed road map for what expert reports should include to be deemed credible. Offit Kurman counsels business owners on strategic business, tax, and risk management techniques, including the design and implementation of executive compensation packages. The views expressed herein are solely those of the author’s and do not constitute and are not intended as legal or tax advice.
March 11, 2022
Tax
S-Elections Gone Wrong
The IRS just released four separate Private Letter Rulings (“PLRs”) addressing the inadvertent termination of a taxpayer’s S-election. It is often said the devil is in the details, which is demonstrated aptly by these four PLRs. Fortunately for the taxpayer, in each case the Service found that the terminations were inadvertent, which means the taxpayer was allowed to correct the issues and be treated as though the S-election was never terminated, likely saving the taxpayer untold thousands of dollars in taxes, penalties, and interest. Although PLRs may be relied upon only by the taxpayer who obtained the PLR and may not be cited by other taxpayers in similar positions, PLRs reveal how the IRS approaches certain issues, in this case inadvertent termination of S-elections. Recall, a small business entity (100 or fewer equity owners) may elect to have the entity taxed as a S-corporation, rather than the default classification of partnership, corporation (meaning C-corporation), or disregarded entity). Depending on the revenue flow, it is often advantageous for a limited liability company (“LLC”) that would otherwise be taxed as a partnership or disregarded entity to elect to be taxed a S-corporation. This would permit the entity to receive the asset benefits of being structured as a LLC, and receive the tax benefits of being taxed as a S-corporation. Similarly, small businesses that are set up as corporations may wish to be taxed as S-corporations, not C-corporations, which is the default classification assigned by the Service (C-corporations have two layers of tax-one at the corporate level and one at the shareholder level, while S-corporations have just one level of tax-the shareholder level). In either case, the taxpayer and the taxpayer’s owners must qualify and make an affirmative election by filing certain forms in a timely manner with the Service. In PLR 2022090001 the taxpayer was a corporation that converted to a LLC, but failed to read or did not understand the operating agreement it adopted. This happens with some regularity, typically with DIY entities or when done by an advisor who simply relies on “a form” operating agreement without reading or understanding the tax provisions contained in the operating agreement. In this case the taxpayer’s operating agreement was one designed for a LLC taxed as a partnership, the provisions of which created interests with different rights, which violated the single class of stock rule applicable to all entities taxed as S-corporations (a S-corporation may only have one class of stock so every owner has the same dividend and liquidation rights. Non-voting shares are permitted if the non-voting shares have the same dividend and liquidation rights). The Service noted the operating agreement “included provisions in contemplation of Company being treated as a partnership for federal income tax purposes (inclusion of capital account rules under Treas. Reg. § 1.704(1)(b))(analysis supplied); however, the applicability of those provisions was not limited to such a situation…,” meaning that even though the entity was not seeking to be taxed as a partnership, it could under its operating agreement. In this case the taxpayer failed to make sure the operating agreement was drafted correctly for an entity to be taxed as a S-corporation (failure to remove the capital account provisions among other things). PLRs 202209003 and 202209005 each concerned trusts as owners of S-corporation stock that failed to make appropriate and timely elections. Only certain types of trusts may be S-corporation shareholders, and one of the steps a trust must take to be an eligible shareholder include making the affirmative election to be an electing small business trust (ESBT) under the requirements set forth in IRC § 1361(e). In PLR 2022090003, the trust at issue failed to do that. Similarly, in PLR 2022090005, the trust qualified as an ESBT within the meaning of § 1361(e), but the trustee failed to make an election under § 1361(e)(3) to treat the trust as an ESBT. In other words, make sure you dot your “I” and cross your “T.” Finally, PLR 2022090010, which also involved a LLC that sought to be taxed as a S-corporation, the entity’s owner (there was only one) failed to sign the required consent to be taxed as a S-corporation. As noted above, to be taxed as a S-corporation the entity and its owners must make an affirmative election to be taxed as a S-corporation. Here it appears the entity signed and timely submitted the requisite consent to the Service, but the entity’s owner failed to sign the consent. Although PLRs never mention specific dates actions were taken, it is possible that the S-election was submitted near the end of the allotted time for making the election so by the time the taxpayer became aware of the oversight the time for electing S-corporation treatment for that tax year had passed. PLRs are highly fact specific, and there is no assurance the Service would come to a taxpayer friendly resolution in a different case. To avoid making similar mistakes, business owners should make sure their business advisors understand the tax ramifications of the business documents being used, and are aware of the steps that must be taken and the time for taking those steps for the entity to make a valid S-election. Offit Kurman counsels business owners on strategic business, tax, and risk management techniques, including the design and implementation of executive compensation packages. The views expressed herein are solely those of the author’s and do not constitute and are not intended as legal or tax advice.
March 10, 2022
Tax
Ipads, iPhones, and Barter Transactions
From the hardly noticed case of Sherwin Community Painters, Inc. v. Commissioner, T.C. Memo. 2022-19, come some interesting tidbits. First, just the facts. Sherwin Community Painters, Inc. is a C-corporation with a single shareholder. As its name implies, Sherwin was a painting contractor. The case arose from the Service’s disallowance of certain business deductions claimed by Sherwin and the Service’s attempt to characterize the disallowed deductions as a constructive dividend. The Service also asserted accuracy related penalties against both taxpayers under IRC 6662(a) and a late filing penalty against the shareholder under IRC 6651(a)(1). All issues were limited to the taypayers’ 2016 tax year and returns for that year. Among the deductions Sherwin claimed were deductions for office equipment (iPads, iPhones, a speaker, accessories, and service contacts), office supplies, gas, entertainment (remember this was 2016 and entertainment expenses were deductible back then), and a business deduction for a coding course the company paid for that was taken by the shareholder’s soon to be son-in-law. After the coding course the soon to be son-in-law, using the skills acquired in the course, updated Sherwin’s website and made numerous changes to the website. PSA No.1 – File a timely request for an extension. The shareholder’s 2016 return was filed on October 12, 2017, three days before the automatic extension deadline of October 15, 2017 (actually four days because that year October 15th fell on a Sunday). Had the taxpayer timely filed an extension for the 2016 return, with the extension the return would have been timely filed and no late filing penalty would have been asserted. PSA No.2 – iPads, iPhones, speakers, and accessories are deductible provided they are ordinary and necessary under IRC 162(a). The Tax Court wasted little time in allowing this deduction noting the taxpayer properly substantiated the deduction. PSA No. 3 – Document your barter transactions! Sherwin argued that its tuition payment to the educational institution for the coding course was essentially a barter transaction in exchange for website design services. The Tax Court did not dispute Sherwin’s assertion that the soon to be son-in-law performed web design services, but did take issue with the lack of any documentation. The Court noted the soon to be son-in-law was not an employee of Sherwin and there was no agreement that the web design services were in consideration of payment of the tuition. It seems Sherwin was arguing an after-the-fact quid pro quo. Had Sherwin documented (in writing) the arrangement contemporaneously, that deduction would probably have been allowed. Finally, the Service attempted to argue the disallowed deductions were constructive dividends to the shareholder, which if true, would have been includible in the shareholder’s gross income under IRC 61(a)(7). Apparently the Service thought Sherwin made a loan to the shareholder and this was the basis for its constructive dividend claim. The records showed just the reverse-a loan from the shareholder to Sherwin. Refusing to give up the constructive dividend claim, the Service then argued the disallowed business expenses were a constructive dividend. You can almost see the Court scratching its head looking at counsel for the Service and saying “REALLY!?” Noting “Respondent [IRS] refuses to concede his error and instead argues on brief that the disallowed business expenses should be treated as a constructive dividend,” the Court held there was no relation between disallowed business expenses and a constructive dividend. All taxpayers should make sure they file an extension request in a timely manner to avoid a late filing penalty. All business owners should make sure expenses they deduct are ordinary and necessary, and are properly substantiated in case those expenses are later challenged. Finally, in the gig economy barter transactions have become more prevalent. To make sure businesses can deduct these expenses, businesses need to be sure to document such arrangements in writing, contemporaneously. Offit Kurman counsels business owners on strategic business, tax, and risk management techniques, including the design and implementation of executive compensation packages. The views expressed herein are solely those of the author’s and do not constitute and are not intended as legal or tax advice.
March 10, 2022
M&A Nuggets
M&A Nuggets: Listen, Listen, Listen
In the first M & A Nugget five years ago, I discussed the importance of “Think Win-Win”, which is Habit 4 in Stephen Covey’s book “The 7 Habits of Highly Effective People”. Habit 5 from that book is “Seek First to Understand, Then to be Understood”. This Habit is equally important in an M & A transaction. While both sides in a transaction often communicate early on what each side wants to achieve, it is important for the buyer and seller to first understand what the objectives and motivations of the other side are. This is crucial at an early stage, to determine whether the merger has the chance to succeed. For example, from the seller’s standpoint, what are the buyer’s short and long term plans for the target company, what is the buyer’s intention with respect to the employees of the target company post-closing, and what does the buyer want out of the owner of the target company post-closing? From the buyer’s perspective, what involvement with the business does the seller’s owner want to have post-closing, is the seller at a stage of life in which the seller desires to participate in an equity rollover and have a second opportunity to share in a future sale of the business, and what are the plans post-closing of the seller’s key management team? Understanding the other side’s answers to these questions goes a long way to help the listener decide whether to proceed and whether it makes sense to make any adjustments in the listener’s thinking about how to proceed with the transaction before and after closing. If the parties decide that it is mutually beneficial to move forward after listening to each other, the detailed negotiations will follow. As the myriad of important legal, operational, financial and tax issues arise, understanding one side’s viewpoint and overall objectives in the transaction is extremely productive in resolving these issues in a way that satisfies both sides. So, remember to listen first, and to then think and respond. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
March 9, 2022
Labor and Employment
Is Your Company Keeping Records as Legally Required?
A client just asked me in the course of moving offices what employee files the company needs to retain. What I’ve unearthed indicates that this is complicated. (Be sure to check with a lawyer to confirm that these requirements are in effect at the time the company is deciding this issue. Never rely on the internet for legal advice … I have stories.) Here are some requirements: IRS regulations dictate that companies retain all employee files reflecting payments for at least four years after the employment tax came due or was paid, whichever is later. The Department of Labor requires employers to retain 14 different types of documents! The Department of Labor regulations requires companies to retain all payroll records and collective bargaining agreements for three years. All-time cards and piece work tickets, wage rate tables, work and time schedules, and records of additions to or deductions from wages must be kept for two years. Form I-9s for every employee must be retained for three years after the employee was hired or one year after termination, whichever is later. Employers must retain employment applications and related documents, records regarding transfers, demotions, layoffs, selection for apprenticeships or training, and requests for accommodations under state or federal law (such as for disabilities) for at least one year from the date of making the record or the action reflected in the document. In the case of terminated employees, the records must be kept for one-year post-termination. Where a charge of discrimination has been filed under Title VII, the ADA, or GINA, or where the EEOC or the Attorney General has sued the employer under those laws, the employer must retain all records related to the charge or action until final disposition of the charge or action. The date of final disposition is 91 days of the complaining employee’s receipt of a Right to Sue Notice from the EEOC or the date on which the litigation ends. Keep benefits records such as plan documents, 401(k) forms, COBRA documentation, benefits election forms, plan termination records, and other such documentation for six years following the employee’s termination. There are more requirements if the company has had any workers employed by immigration visa or the company has been a federal contractor … I won’t go there today. Good luck organizing your documents! Ask me about document retention policies and why a company should or should not retain documents for longer than legally required.
March 9, 2022
The Weekly Scenario
The Weekly Scenario: Planning for Diminished Capacity
There are numerous decisions that must be made when considering an estate plan. One decision to think about is who will decide things for me from a financial standpoint if I am not able to decide for myself. This could be in a temporary or permanent situation or a situation of ‘cognitive decline’ or ‘diminished capacity.’ A financial Power of Attorney (POA) is a legal document where an individual can set up a series of legal protections to deal with the contingency of incapacity. The individual, as the “principal,” can designate an “agent” to act on his behalf. Most financial POAs are durable in nature, meaning they stay in effect until the principal either recovers or dies. Some states allow springing powers, where the POA only springs into being when the principal is incapacitated. Other states don’t permit this power, so the principal’s jurisdiction is an important consideration. While many POAs are indeed broad and grant a number of powers, it is important to clarify what powers the principal wants their agent to have. For example, do they want their agent to be able to make gifts on their behalf or change a beneficiary designation on a retirement plan account? A POA is a powerful tool, but all parties should be clear about expectations. Trusts are another tool for dealing with the issue of diminished capacity. A revocable or living trust allows the person to be the grantor, beneficiary and Trustee of the trust. Thus, the individual remains in charge of the trust assets so long as they’re willing and legally competent. If the individual can no longer serve as Trustee (due to incapacity or otherwise), the successor trustee will take over and act on her behalf. A trust offers a great deal of flexibility without forcing a person to give up any control upfront. Guardianship pre-designation: For most individuals, guardianship (called “conservatorship” in some states) is a situation that generally should be avoided because it is both cumbersome and expensive. However, in many states, the individual at least can influence who would be appointed as their guardian. These states allow the individual to pre-designate or pre-plan who they would want to act as their guardian. For many states, you can pre-designate a guardian in an advance medical directive. Representative payee: An important complement to many retirees’ personal retirement assets is their Social Security. The Social Security Administration (SSA) does not accept financial POAs; instead, the SSA requires a separate designation, called a Representative Payee, to act as the agent to manage Social Security benefits in the event of incapacity. If the Social Security beneficiary hasn’t designated a desired Representative Payee in advance, in the event of loss of legal capacity, the SSA will appoint one for them. While not fun to think about, these are important issues that should be addressed in every estate plan. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
March 4, 2022
Labor and Employment
Warning: Audit Your Worker’s Pay
This week I wanted to address a news item about the women’s U.S. national soccer team. These players have very high earning potential (depending upon their performance in the World Cup.) Unfortunately for their employer, the U.S. Soccer Federation, the men’s national team has even higher earning potential (depending upon various issues mentioned below.) This brings up that compensation specter: the Equal Pay Act. The Equal Pay Act provides that those performing equal work requiring equal skill and effort must be equally paid. The Federation settled an Equal Pay Act and sexual discrimination lawsuit filed by the women’s national team players by paying them $24 million (in total; $22 million is paid outright to the women and their lawyers). The settlement is contingent upon the players entering into a new collective bargaining agreement with the Federation and court approval. This is the real headache: the Federation still has to reconcile the current pay structures to ensure equity. At the moment, male players get $407,608, and a woman makes $110,000 if their team wins the World Cup. Women receive $37,500 for making a World Cup team; men receive $67,000. The men’s team receives pay even if they lose to a team outside the top 25 in the FIFA rankings and a bonus of $9,375 for winning. Women receive nothing for losing and $5,250 if they win. It really doesn’t matter if the women’s team deserved this win. It was very expensive for the Federation, cast it in a very negative light, and they ended up paying a lot of money to get rid of these expenses and ensure the women will play. So audit your company to ensure that those who are performing the same or very similar jobs are receiving the same money and benefits under the same working conditions (guaranteed by Title VII). And remember, the amount someone is making is NOT confidential information. Prohibiting workers from discussing pay violates the National Labor Relations Act. So people can compare notes. Tell me about your experiences with equal pay issues, or contact me for more information on audits.
March 2, 2022
The Weekly Scenario
The Weekly Scenario: Qualities to Look for When Choosing a Guardian for Minor Children
When you are nominating the guardian of your minor children, the goal is to provide each child as little disruption to his or her life as possible. To accomplish that, you want to choose someone who will raise your children the same way you would raise them if you were still alive. The guardian should have similar philosophies to yours about raising children, about education, about discipline and about religious or spiritual matters. A good indicator of how someone might raise your children is how they are raising their own children. If you are choosing a married person, you will need to decide whether to name just one individual (like a relative) or if you are naming the couple. You should consider what will happen if the guardians you appoint get divorced after your children have moved in with them. You will also want to consider the economic wherewithal of the guardian so that you don’t saddle them with responsibility that will overwhelm them financially. If you have more than one child and want to keep your children together, you’ll have to name a guardian that is willing and able to take all of them. All of this assumes that the person you name agrees to take your children. You should always check with them ahead of time to be sure they are willing and then name backup guardians in case circumstances change and the person who agreed in advance is unable to take the children at the actual time of your death. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
February 24, 2022
M&A Nuggets
M&A Nuggets: Exclusivity
One important component of the letter of intent for the sale and purchase of a business is the exclusivity paragraph. In that paragraph, the seller agrees to deal only with the interested purchaser for a specified period of time. This exclusivity is important to purchasers, because they will be devoting significant time, resources and money to investigate the seller, conduct due diligence and determine the final terms of the transaction to present to the seller. The exclusivity obligation is therefore almost always a requirement. However, sellers should be wary that the exclusivity paragraph is not too restrictive. The exclusivity language should always contain the period of time the seller agrees to negotiate only with the interested purchaser. That period of time needs to be thoughtfully considered. A seller’s business is not on the market during the exclusivity period. Too long of a period could result in missed opportunities if the deal contemplated by the letter of intent falls apart. Exclusivity periods of ninety days are common. The first drafts of exclusivity paragraphs presented by buyers usually contain a requirement that the seller notify the buyer of any other offers received, the names of the party submitting the offer and the terms of the offer. The problem with this language is that offers are often submitted on a confidential basis. So, while it is not problematic for a seller to notify the other party to the letter of intent that another offer has been received, the name and terms of the offer should be not be disclosed and the exclusivity paragraph should be modified accordingly. The bottom line here is that an exclusivity paragraph in a letter of intent is necessary, but it should be modified to accommodate the needs of the buyer while not unduly restricting the seller. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
February 22, 2022
Labor and Employment
Vaccination Exemption Guidelines
I’m getting more and more questions about exemptions from COVID vaccination/booster mandates. I thought I’d offer reminders about the legal analysis in these situations. As you know, the exemptions are for disability-related reasons and religion-based reasons. Here goes, I tried to cut the legalese. Disability Under the ADA, employers may require all employees to meet a qualification standard that is job-related and consistent with business necessity, such as a safety-related standard requiring vaccination. If an employee can’t meet such a safety-related standard due to a disability, an employer may not require that employee to comply unless it can show that the person would pose a “direct threat” to the health or safety of others at work. The federal regulations define a direct threat as “a significant risk of substantial harm to the health or safety of the individual or others that cannot be eliminated or reduced by reasonable accommodation.” This determination consists of two steps: (1) is there is a direct threat and, if so, (2) assessing whether a reasonable accommodation would reduce or eliminate the threat. To determine if an employee who’s unvaccinated due to a disability poses a “direct threat” in the workplace, an employer first must assess the employee’s present ability to safely perform the job’s essential functions. Consider: (1) the duration of the risk; (2) the nature and severity of the potential harm; (3) the likelihood that the harm will occur; and (4) the imminence of the harm. I advise my clients that the determination that an employee poses a direct threat should be based on the most current medical knowledge about COVID-19. Whether there’s a direct threat also depends on the work environment, such as whether the employee works alone or with others and where; the available ventilation; the frequency and duration of direct interaction the employee typically will have with others; the number of partially or fully vaccinated individuals already in the workplace; whether other employees are wearing masks or undergoing routine screening testing; and the space available for social distancing. If a person with a disability who isn’t vaccinated would pose a direct threat to self or others, an employer must consider whether providing a reasonable accommodation, absent undue hardship, would reduce or eliminate the threat. If there is undue hardship – expense, changing jobs, displacing other personnel, etc. – then the vaccination exemption might not be reasonable. Religion Once an employee presents evidence of a sincerely held religious belief, practice, or observance that prevents them from vaccinating, an employer must provide a reasonable accommodation unless it would pose an undue hardship. Courts define “undue hardship” (in this religious context) as more than minimal cost or burden on the employer. Considerations relevant to undue hardship may include, among other things, the proportion of vaccinated employees and the extent of employee contact with non-employees with unknown vaccination status. Ultimately, if an employee cannot be accommodated, employers should determine if any other rights apply under equal employment opportunity laws or other federal, state, and local authorities before taking adverse employment action against an unvaccinated employee. Just take all of the individualized circumstances into account each time. No two situations are the same, and you don’t want to be sued.
February 17, 2022
M&A Nuggets
M&A Nuggets: How Will Your Company Be Valued
Up until the early 2000s, the valuation of a privately held company was determined largely by following the guidelines of a 1959 revenue ruling issued by the Internal Revenue Service, which focused on earnings. A lot has changed and a lot has remained the same since then. How will your company be valued in the market? Presently, the most common valuation methodologies are (1) a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”), and (2) a multiple of gross revenues. The multiple of EBITDA method remains the most commonly used method of valuation. Earnings, or profits, before the deductions for depreciation, interest, taxes and amortization are determined for anywhere from the most recent one year to most recent three year period. The earnings are then adjusted, or smoothed out, to eliminate unusual variances that will not be recurring, such as one-time gains on sales of assets or one-time losses. The average adjusted earnings are then multiplied by a cap factor. The cap factor used ranges widely, depending on the industry. A more recent valuation phenomena, which is now commonly used, is the multiple of revenue method. By this method, gross revenues are simply multiplied by a number. As with the EBITDA method, the range of multiples can vary widely, again, depending on the industry. The revenue multiple method is not for every company. Younger companies with no profits or companies which have very fast growth prospects are often valued using the revenue multiplier method. Not surprisingly, that method is now common for technology companies. Under either the EBITDA or the revenue multiplier methods of valuation, a gem looked at and favored by buyers is recurring revenue, meaning revenue that is expected to continue in the future. Today, most companies that desire to increase value should focus on adding recurring revenue. Before looking for a purchaser for your company, it is important to understand how your company will be valued. The above nugget offers a brief explanation of that. If you have any questions about this or any other M&A issue, please contact Glenn Solomon at gsolomon@offitkurman.com or 443-738-1522.
February 15, 2022
Business
Before You Sell – Have an Accurate, Realistic Understanding of What You Actually Own
This statement seems obvious, right? From experience, I can tell you that while obvious, some sellers find out during the diligence and sale process that they do not own what they thought they owned. Take intellectual property and software rights as an example. Ownership of the software and the underlying source code can be complicated especially if the software went through a number of iterations. It can be fatal to a transaction to find out a key piece of software is not owned by the seller, or the seller has not secured the proper underlying licenses granting it the authority to do what it is doing. A best practice for all business owners is to regularly inventory their assets and confirm the ownership sourcing. Hard assets are easy to source, but finding titles and releasing liens during a transaction can add unnecessary stress. Soft assets can be tricky. A businesses’ name, logo and tag lines can be issues if the business never took the proper steps to register and confirm there were no conflicts. There is nothing worse than determining a business’ name has a conflict with another business and having to then rebrand the business and take a new course. In sum, the time to determine asset ownership and the status of any clean-up is well before being asked by a buyer to provide confirmation of ownership during the sale process.
February 9, 2022
The Weekly Scenario
The Weekly Scenario: Identity Theft and Protection of the Estate
Stolen identities and fraudulent usage of personal identifying information continues to be a big problem. These concerns grow when an estate includes digital assets that never existed only a few decades ago. As a result, being mindful of the risks of data breaches and understanding the need for the protection of electronic information have become critically important. Identity Theft of a Deceased Individual While technology allows us secure passwords, firewalls, and credit card chips to lessen the potential to become a victim, when a person dies, his identity can be illegally stolen, which is problematic for an estate that still has to safeguard assets and benefits for estate beneficiaries. Dealing with the identity theft of a deceased individual can complicate an already complex estate administration. Steps to Prevent Identity Theft of Deceased The executor of the decedent’s estate should take a number of steps depending on the specific estate. Credit card companies, banks, and places where the deceased individual had accounts should be notified. There may be estate debts that will need to be addressed, and a death certificate will be required by each company. For closed accounts, it may be a good idea to list an alert on the account that the individual is deceased to prevent theft or forgery. It may also be prudent to request a copy of the decedent’s credit report so you can check active credit cards, collection matters, or relevant account information. Some agencies that should be considered for notification include the Social Security Administration, Veteran’s Affairs, and MVA. Homeowners insurance and other service providers offer a range of identity services and indemnity coverage to address the immediate potential for financial harm. In most instances, relying on guidance from insurer experts or an identity restoration service provider can be cost-effective and efficient. Perhaps, the best protection against identity theft or fraud is to remain vigilant! As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
February 4, 2022
Labor and Employment
Supreme Court Ruling on OSHA’s ETS: Update
In my January 14, 2022, blog, Supreme Court Ruling on OSHA’s ETS: What Does it Mean and What’s Next? I discussed what could be next for OSHA’s Emergency Temporary Standard. As of January 26, 2022, OSHA has withdrawn the Emergency Temporary Standard and is pursuing a permanent standard through the standard process, which is slower and more rigorous. OSHA withdrawing the ETS means that employers can rest easy that they will never have to comply with its requirements. However, there’s more to come as OSHA looks to implement similar requirements through a permanent rule.
February 1, 2022
The Weekly Scenario
The Weekly Scenario: The Build Back Better Act
The Build Back Better Act did not pass in 2021. However, this is not to say that Congress won’t try to get something through in 2022 by piecing out the legislation into two bills or further trimming down programs. This takes us into the new year with the same uncertainty regarding taxation as we had in 2021. Estate and Gift Tax Exemption In 2022, the estate and gift tax exemption will climb higher to $12.06 million per individual – up from $11.7 million per individual in 2021. As such, an individual can leave $12.06 million to heirs and pay no estate or gift tax, and a married couple can pass $24.12 million estates and gift tax-free. (One version of the BBB Act included a provision that would have cut the estate and gift tax exemption to about $6 Million.) Gift Tax Annual Exclusion Amount In addition, the gift tax annual exclusion amount will increase to $16,000 for 2022, up from $15,000 since 2018. Individuals and couples will be able to give away $16,000 to as many people as they like – children, grandchildren, friends, fellow citizens, and anyone else – with no federal or gift tax consequences. Multiple annual exclusion gifts can add up significantly and do not reduce the $12 million credit. This is a simple way to reduce one’s estate. You can also make unlimited direct payments for medical and tuition expenses for as many people as you like with no gift, estate, or income tax consequence. Reducing the Likelihood of Estate Taxes The IRS taxes estates above the threshold at rates of up to 40%. By making gifts and transferring wealth early, the wealthy can reduce the likelihood of the estate tax. The state in which you reside is another consideration for gifting strategy. Seventeen states and the District of Columbia levy some form of an estate or inheritance tax (or in the case of Maryland – potentially both!), so even if you don’t qualify on the federal level, you might wind up owing taxes on a state level. As we enter 2022, regardless of what happens with tax legislation, there are steps you can take to prepare. But, first, everyone must evaluate their situations and identify opportunities. And if you have never done any estate planning and do not have a will or trust, it is essential to get this accomplished. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 28, 2022
Business
How to Know if You’re Ready to Sell Your Business
As a business owner, how does one now know the time is right to sell? The easy answer is that the time is right when the owner decides to sell. However, that answer is too simplistic and does not serve the owner well. There are two primary factors to evaluate the timing to sell a business – external considerations and internal considerations. External considerations frequently are not well vetted by many owners. External factors include the market conditions, such as the general receptivity to the owner’s business type (e.g., is the market hungry to acquire PT practices). Other external factors that impact market conditions include the tax framework and access to capital. As mentioned, too many owners decide they want to sell without fully understanding the external considerations as to the optimal time to sell their business. The reason this happens relates back to the internal considerations. The owner determines they want (or need) to sell. It could be circumstantially driven (a family illness or death). It could be a mindset such as an owner being fed up with the pandemic. Regardless, the internal pressures/decisions often outweigh what is going happening in the rest of the world. An owner can manage their mindset by getting themselves fully informed about the true state of their business and how it presently fits into the marketplace. In addition to speaking with the company attorney and CPA, the owner can get the insight of 2 other advisors and services. First, the owner may want to speak with an investment banker. The investment banker can provide the owner with market intelligence about the receptibility of the market to the owner’s business, as well as give the owner insight into how to position the business best for the sale. Further, the owner should speak with a financial advisor. Because a significant component of any sale relates to financial considerations, having an excellent financial advisor help the owner understand their financial picture is key. The financial advisor should do two things. First, this advisor should work with the investment banker/CPA to get a true market value for the business to include the likely composition of sale funds (all cash, cash plus deferred monies, etc.). Second, the financial advisor should work with the owner on their personal financial situation. Having an understanding of what the business is likely worth in the market coupled with the financial needs of the owner allows the owner to go into the selling state fully informed and ready to powerfully evaluate any offers. I find that too many owners decide to sell without having their financial house in order and thus have no ability to vet offers to know that the offers are fair and workable. Lastly, an owner may know they are ready to sell when their mindset is clear. When they have purpose beyond the business. I have experienced a number of owners that have sold their business only to become lost and disaffected. An owner that wants to sell needs to deliberately develop their “life” after their business is sold.
January 20, 2022
The Weekly Scenario
The Weekly Scenario: Three Common Estate Planning Mistakes
Estate planning attorneys frequently see certain common mistakes in an estate plan. Here are the three estate planning mistakes that you should be able to easily avoid. Naming Minors as Beneficiaries Beneficiary designations are a simple way to avoid probate and be certain that an asset goes to your beneficiary at death. Most life insurance policies, retirement accounts, investment accounts and other financial accounts permit you to name a beneficiary. Many well-meaning parents and grandparents name a child or grandchild as a beneficiary. However, a minor is not permitted to own property. Therefore, the financial institution will not name the minor child as the new owner. A guardian or conservator must be appointed by the court to receive the asset on behalf of the child and they must hold that asset for the minor’s benefit until the minor becomes of legal age. The guardian must file annual accountings with the court reflecting activity in the account and report on how any funds were used for the minor’s benefit until the minor becomes a legal adult. The time, effort, and expense of this are unnecessary and should be avoided. Handing a large amount of money to a child the moment they become of legal age is rarely a good idea. Leaving assets in trust for the benefit of a minor or young adult, without naming them directly as a beneficiary, is a possible alternative. Adding Joint Owners to Bank Accounts It seems like a good idea. Adding an adult child to a bank account, allows the child to help the parent with paying bills if hospitalized or lets them pay post-death bills. If the amount of money in the account is not large, that may work out okay. However, the child is considered an owner of any account they are added to. If the child is sued, gets divorced, files for bankruptcy or has trouble with creditors, that bank account is an asset that can be reached. This concept also applies to houses and other property that is owned jointly. Joint ownership of accounts after death can also be problematic if your will does not clearly state what your intentions are for that account (and even if they do, it could still result in a contest). Do those funds go to the joint owner, or should they be distributed between heirs? Analytical estate planning, that includes power of attorney and trust planning, will permit access to your assets when needed and division of assets after your death in a manner that is consistent with your intentions. Poor Choices of Co-Fiduciaries If your children have never gotten along, don’t expect that to change when you die. Recognize your children’s strengths and weaknesses and be realistic about their ability to work together when deciding who will make financial decisions under a power of attorney, health care decisions under a health care proxy and who will best be able to settle your estate. If you choose people who do not get along or do not trust each other (and never will), it will take far longer and cost more to settle your estate. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 18, 2022
Intellectual Property
New Year, New Trademark Law – Petitions for Expungement and Reexamination of Trademark Registrations
Petitions for Expungement and Reexamination of Trademark Registrations The Trademark Modernization Act took effect on December 18, 2021, and now it is easier and less expensive to cancel unused registered trademarks. Any party can bring an expungement or reexamination proceeding to remove a trademark from the register. An expungement proceeding is when a party believes that a trademark has never been used in commerce. The proceeding must be brought when the registration is between 3 and 10 years old (although until December 27, 2023, the proceeding can be brought against any registration more than three years old). A reexamination proceeding is for when a party believes that a trademark was not in use at the time an application based on use was filed or when use is claimed in an application originally based on intent to use. The proceeding must be brought before the 5th anniversary of the registration. Below are answers to questions some may have about these new proceedings. How do expungement and reexamination differ from a trademark cancellation action? These new, simplified proceedings will be brought before Trademark Examining Attorneys instead of the judges of the Trademark Trial and Appeal Board. A cancellation action, which is similar to a lawsuit in federal court, has discovery, a trial, and the possibility of motions. Expungement and reexamination will be much more streamlined – the petitioner files a petition setting forth the information to demonstrate non-use. The registrant then has the opportunity to file a response including evidence of use or excusable non-use. The Examining Attorney then reaches a decision based on the petition and response. If the Examining Attorney orders that the registration be canceled, the registrant has the opportunity to file a request for reconsideration and appeal. The costs for expungement and reexamination will be considerably lower than a start-to-finish cancellation proceeding. The filing fee for expungement or re-exam is $400 per class of goods or services, which is less than the $600/class fee for a cancellation action. More significantly, the legal costs for handling the proceeding will be significantly less than for a cancellation action. If there’s no discovery, how does the petitioner show that the mark was not used? The petitioner is required to submit the results of a “reasonable investigation.” This will vary based on the goods or services, relevant industry and customary channels of trade for the goods or services. Generally speaking, a thorough use investigation conducted by an experienced private investigator will likely be appropriate Why would I want to file a petition for expungement or reexamination of a third party’s registration? There are various reasons to file for expungement or reexamination, but the most common reason is likely to be that a party wants to adopt a new trademark that cannot be registered because of prior registration. How can I avoid a petition for expungement or reexamination being filed against a trademark registration I own? If you are selling the goods or rendering the services covered by your trademark, it is unlikely that someone will file a petition for expungement or reexamination against your registration. It will be helpful to make sure that you are actively demonstrating your use and showing your products and services on your website and on social media as may be appropriate for your business and industry. If you have any questions about the use of your trademarks, please feel free to contact me. I was able to get my registration without using the trademark. Can someone petition for expungement or reexamination against my registration? Trademark owners from most countries outside of the US can register trademarks in the US if they are registered in the owner’s home country. If this is your situation, your registration will be vulnerable to an expungement proceeding after three years (and before ten years) if it has never been used. The best way to avoid expungement will be to sell your goods or render your services in the US. Need assistance in navigating the new expungement and reexamination proceedings or guidance on protecting, enforcing or defending trademarks pursuant to these amendments? Please contact Laura Winston at lwinston@offitkurman.com or 347-589-8536.
January 14, 2022
Labor and Employment
Supreme Court Ruling on OSHA’s ETS: What Does it Mean and What’s Next?
On January 13, 2022, three days after the Occupational Safety and Health Administration (OSHA) Emergency Temporary Standard (ETS) COVID-19 vaccination and testing mandates went into effect; the Supreme Court stayed the mandate pending further review in the Sixth Circuit. However, the stay is only temporary, and employers should remain vigilant. For now, the mandate that would have impacted an estimated 100 million Americans is on hold, and employers, who were at the ready to race towards compliance, are likely breathing a collective sigh of relief. Supreme Court Ruling In a 6-3 decision, the Supreme Court reinstated the temporary injunction stopping OSHA from enforcing the ETS, pending resolution in the Sixth Circuit Court of Appeals. The Court’s decision focused on whether OSHA has the requisite authority to promulgate the ETS. In its ruling, the Court explained that, while OSHA has the power to “set workplace safety standards,” it does not have the authority to set “broad public health measures.” Ultimately, given that COVID-19 is a daily risk to individuals as they go about their daily lives, not just in the workplace, the Court found that “although COVID-19 is a risk that occurs in many workplaces, it is not an occupational hazard in most.” Accordingly, the Court views COVID-19 as part of “the hazards of daily living,” not a workplace hazard under OSHA’s purview. Justices Breyer, Kagan, and Sotomayor dissented, finding that OSHA acted within its scope of authority in issuing the ETS. The dissenting justices concluded that COVID-19 presents a “grave danger” to employees, and the ETS is necessary to address those dangers. What’s Next? It is now up to the Sixth Circuit Court of Appeals to determine whether the ETS is valid. If it does, based on the Court’s reasoning in staying the ETS, it is unlikely to survive should it go before the Court again. Another consideration for the future of this regulation is that the ETS is a temporary standard meant to be replaced by a permanent standard on or before May 5, 2022. As such, we could see some movement by OSHA to engage in the formal rulemaking process to publish a formal regulation in the coming months. Also, given that Court approval of a vaccine mandate is unlikely, we may see new targeted regulations from OSHA to implement additional safety measures in workplaces where in-person work is necessary and social distancing is difficult, which are less likely to face successful legal challenges. Though employers are not currently required to comply with the numerous requirements of the ETS, including mandatory vaccination, it is within their discretion to mandate vaccination and implement other COVID-19 safety protocols. Even without OSHA’s mandate, many employers are mandating vaccination or implementing safety protocols based on vaccination status. While businesses implementing voluntary directives do not need to jump through the regulatory hoops of the ETS, they must still take care to develop comprehensive and compliant policies to ensure compliance with Title VII and the Americans with Disabilities Act (ADA). Additionally, it is imperative that companies still carefully consider what safety protocols are suitable for their workplace as the transmittal of COVID-19 in the workplace has both practical and legal consequences, especially where employers are subject to state and local COVID-19 safety orders.
January 14, 2022
The Weekly Scenario
The Weekly Scenario: Estate Tax Liabilities
Protecting a Personal Representative When There are Retirement Plan Accounts In certain situations where a person has a large retirement plan account, such as an IRA, and a substantial estate tax liability, but insufficient probate assets to pay the estate tax, certain precautions may be in order. The personal representative of the estate is responsible to pay the federal and state estate tax to the extent there are probate assets. However, if a personal representative has knowledge of unpaid estate tax but distributes money to creditors of an estate instead of paying the federal and state taxing authorities, the IRS and state taxing authority can hold the personal representative liable for any unpaid taxes. Moreover, if IRA assets pass directly to a beneficiary or beneficiaries, each recipient can be held personally liable for the unpaid estate tax, generally limited to the amount of IRA distributions received. So how might a personal representative protect his or her own interests and the interests of the beneficiaries? One solution is to name a trust as the IRA beneficiary. The trust could stipulate that the Trustee will pay the estate an amount equal to the estate tax attributable to the retirement assets. The trust could also provide that the Trustee is required to pay the income taxes attributable to the IRA funds. This type of trust should be drafted to allow distributions to IRA beneficiaries, but after settling any taxes that are due. Any trust would likely be drafted as a short-term trust (2-4 years) with enough time to give the Trustee the ability to settle the tax liabilities. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
January 7, 2022
Labor and Employment
What Now for Employers? CDC Issues New Recommendations Regarding Isolation
So, the Centers for Disease Control and Prevention (CDC) has issued guidance shortening the recommended time that people should quarantine from 10 days to 5 days based on certain conditions. The CDC’s new guidance says: For those who test positive for COVID-19, but don’t have symptoms, the quarantine period may be reduced from 10 days to 5 days as long as the person wears a mask around others (everywhere) for at least 5 additional days. However, if a person has a fever, they should continue to quarantine until the fever resolves (without medication for 24 hours). The CDC’s recommendation is the same as above for symptomless people who had close contacts with positive individuals if they are:unvaccinated, over 6 months out from receiving the second dose of the Pfizer or Moderna vaccines, or 2 months out from their single dose of Johnson & Johnson (without a booster). (I’m sure that you remember the definition of “close contact”: someone within 6 feet of the positive person for 15 minutes or longer during a 24-hour period.) The CDC now advises that no quarantine is needed for those with close contacts with people who tested positive and who have no symptoms and: have received a booster shot, are less than six months out from being fully vaccinated with Pfizer or Moderna, are less than 2 months from their J&J vaccine, or vaccinated people who are not yet eligible for a booster – including students younger than 16. People who are fully vaccinated should wear a mask in public indoor spaces for 10 days. Keep in mind that even those meeting criteria in #3 above who have symptoms should test and follow #1. According to the CDC, for all those exposed, best practice would also include a COVID-19 test at day 5 after exposure. If symptoms occur, individuals should immediately quarantine until a negative test confirms symptoms are not related to COVID-19. Good luck getting a test at home, but states still have PCR testing centers and some pharmacies are providing rapid and PCR tests for free. What does all of this mean for employers? Revise your policies. There will be less impact from COVID-19 on attendance, so long as your employees wear masks and remain symptomless. Be sure to include and enforce the mask mandate. Collect data on employees’ vaccinated versus unvaccinated status and dates of vaccination and boosters in order to enforce the guidelines. Maintain strict confidentiality. Continue to inform other employees, customers, visitors, and the state’s health department of a positive case. I hope that this is helpful. Please feel free to contact me with any related questions.
January 6, 2022
Intellectual Property
Name, Image & Likeness (NIL): Three Key Legal Issues Facing Businesses in College Athlete Endorsement Deals to Date
The commercial landscape of college athletics has experienced significant change in recent months. The release of the new NCAA “interim policy,” prompted in part by the U.S. Supreme Court decision in NCAA v. Alston, has allowed college athletes and businesses to benefit from new endorsement and income opportunities involving the licensing of an athlete’s name, image, and likeness (“NIL”). Following the NCAA interim policy released in June 2021, a multitude of states enacted NIL statutes outlining the procedures and limitations for endorsement deals by athletes to license their NIL. Despite the world of opportunities that have opened up, the NIL landscape faces ongoing uncertainty and potential pitfalls due to the patchwork of NCAA, state, and university rules and regulations requiring compliance by college athletes and businesses. In order to benefit from all that NIL has to offer and avoid problems, businesses should be aware of three main legal issues that have been prevalent in NIL deals to date. (1) NIL agreements should comply with NCAA policies, state laws, and university rules In pursuing opportunities to contract with college athletes, businesses should perform their legal due diligence before finalizing any deal. Companies should strive to ensure that an NIL agreement complies with the NCAA interim policy, state law, and any applicable rules adopted by the school itself. If the state has yet to pass an NIL statute, the agreement should be flexible enough to accommodate future laws that may be enacted. Businesses should also consider that Congress may adopt a uniform federal law affecting NIL agreements. Even if a possible NIL deal satisfies the relevant state laws, businesses should also seek compliance with NCAA policies, such as the prohibitions against both pay-to-play and using NIL as a recruiting inducement. This means the agreement and related compensation cannot be, among other things, contingent on the athlete attending a specific school, participating in a certain number of games, or performing at a certain level. Businesses seeking endorsement deals with college athletes should also be aware of the categorical prohibitions on athlete association with certain brands or products under state law or university rules. These categorical exclusions vary by state and by institution and may even be enforced through team-specific codes of conduct. (2) NIL agreements should avoid conflicts with the university’s intellectual property and existing sponsorships A frequent hot topic in NIL deals has been the potential for conflicts with existing school or team sponsorships and with the use of school-specific intellectual property (“IP”), which may involve the school’s logos, nick-names, slogans, mascots, venues, and in some cases, team colors. Businesses should be aware of the possible limitations of NIL deals. NIL deals usually grant the sponsor the right to use the athlete’s IP. However, these agreements may not cover the use of the school’s IP, and the schools are not obligated to agree that their IP can be used. If the business wants the athlete to wear their team jersey, use the team locker room, or showcase a school landmark, the company will need to seek permission from the school itself. Universities have sometimes invoked their right to refuse such requests. Additionally, agreements between businesses and college athletes cannot conflict with existing school or team sponsorships with other companies. Athletes may face serious consequences if a NIL deal conflicts with existing sponsorships. Thus, it is in the business’s best interest to ensure that such conflicts do not occur. (3) NIL agreements should consider social media legal and branding issues The marketing opportunities presented by NIL deals have attracted both national brands and small, regional, and non-traditional businesses that may have previously struggled to secure high-profile endorsements. Nearly all businesses can now partner with college athletes, especially for relatively low-cost social media campaigns promoting their brands to an athlete’s followers. Using an athlete’s NIL in a social media campaign presents an enticing option for businesses that wish to engage with a younger audience, but there are certain risks associated with social media that should be evaluated and monitored closely. First, businesses should carefully vet the athlete and ensure that their personal brand and character align with the business’s approach to marketing. Social media campaigns can allow athletes to promote a company in a way that feels more personal and authentic to consumers. However, social media platforms also allow for real-time posting of user-generated content, which might not be subject to prior review. This could potentially hurt the business’s image if the athlete or others make comments that are not a good fit for the company. In addition, the ease through which photos and videos are shared on social media presents the risk of an athlete inadvertently violating IP limitations imposed by the school. To avoid these issues, businesses should consider designating a representative who will be responsible for managing the social media relationship between the athlete and the company’s brand. Conclusion In short, the groundbreaking changes in the NCAA interim policy on NIL have opened up a world of opportunities for businesses and college athletes. However, the legal risks associated with NIL deals require the respective parties to stay well informed on the relevant and quickly changing rules and regulations. In order to ensure your business is well protected, it is important to consult with counsel before entering into any NIL agreement. This summary of legal issues is published for informational purposes only. It does not dispense legal advice or create an attorney-client relationship with those who read it. Readers should obtain professional legal advice before taking any legal action.
December 29, 2021
The Weekly Scenario
The Weekly Scenario: How to Avoid Unintentionally Disinheriting a Family Member
When an account owner dies, the assets go directly to the beneficiaries named on the account. This overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits. Too many stories to count where the individual remarried after the death of his spouse but didn’t change his IRA beneficiary form. At his death, someone else (i.e., second wife, etc.) was left out. So the intended beneficiary receives nothing from the IRA, and the retirement money went to his first wife, the named beneficiary. Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set up as transfer on death, life insurance, annuities and retirement accounts. Generally, beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA. You can name as your beneficiaries individuals, trusts, charities, donor-advised funds, or your estate. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren). If you can help it, it is not recommended to leave assets to minors outright, because it creates the process of having a court-appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age. You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. A special needs or supplemental care trust is often a good solution. This preserves their ability to continue to receive the government benefits. As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
December 24, 2021
Business
Five Phases of a Deal from a Sell-Side Perspective: Due Diligence
You’ve signed your letter of intent (LOI). So what’s next? Now it’s time to roll up your sleeves as the real work on your sale begins. Due diligence commences. Prior to signing the LOI, you likely provided your buyer some limited financial diligence, enough that the buyer could determine to move forward and on what proposed terms. With the LOI execution, the buyer will now seek to learn much more about your business. Diligence will generally fall into three categories –financial, legal and operational. As a seller, the buyer will send you a very long and detailed diligence request list. Many times, this request list feels very overwhelming and beyond the scope of your business. This is intentional by the buyer. The buyer is casting a very large net in an effort to uncover and learn about your business in every aspect. Your approach to due diligence likely will require a new mindset. Diligence is opposite the natural inclination of entrepreneurs. Diligence requires disclosure of all things in your business –the good items and the not-so-good items. However, in all events, disclosure and diligence is the seller’s friend. Fully opening up your business in a complete and honest fashion allows the buyer to fully understand the mechanics of your business. The seller should not withhold or color any responses in an attempt to mitigate or spin matters. Rather, disclose what is requested and allow the buyer to ask its questions and make it own conclusions. No seller wants to be in a position where a buyer would revise its intentions had it known about an item (think fraud in the worst case). At times, a buyer will modify terms of the transaction (price, payment, etc.) based upon the diligence findings. While this is not usually positive for the seller (terms usually don’t get better), it is the opportunity for the parties to have open dialogue based on the same business knowledge. And remember, as a seller, diligence is a continuing process up until closing. It is not good enough to disclose and forget. Business is ever moving, and as items change in your business, the seller has the duty to update diligence to the buyer. Anatomy of the Deal 5 Phases of a Deal from a SELL-SIDE PERSPECTIVE: The Players and Their Involvement Pre- Transaction Planning Phase Rule: Find and eliminate skeletons; create multiple options Phase I: Letter of Intent Phase Rule: Know what you want and get it in writing as the LOI may be your high water mark Phase II: Due Diligence Phase Rule: Disclosure is your friend Phase III: Contracts Phase Rule: Confirm Business terms and Phase IV: Closing Phase Rule: Time is your enemy Phase V: Post Closing Phase Rule: Remember to dot the I’s and cross the t’s to meet all conditions Post-Transaction Planning Phase Rule: Enjoy your new status in life; make sure you’ve considered life without the business Sell Side M&A: Three Rules of Thumb for the Transaction Rule #1: You haven’t sold your business until you’ve sold your business Rule #2: Get your money upfront (as soon and as much as possible) Rule #3: Reduce and eliminate your trailing liabilities
December 22, 2021
Immigration Law
The H-1B Visa and the Employment Based Green Card: Explaining the Difference
Among the various ways in which foreign nationals can enter and legally work in the United States are two similar but distinct pathways. First, there is the H-1B non-immigrant visa, and second is the employment-based green card or immigrant visa. Some aspects of the two programs are similar and even overlap, but there are other features that are radically different. Whether you are a business that is interested in employing a qualified foreign professional, or you are a professional who is seeking to explore options for employment in the United States, this article will answer your questions regarding the two programs. There is often some confusion among employers and employees alike regarding the criteria for the two programs, which unfortunately can sometimes result in failing to utilize them. The motivation for this article is to provide a clear and concise explanation to employers and employees so that they can utilize the program that best suits them and not shy away from them because they have not understood the programs fully. H-1B Petitions The H-1B program allows employers to employ foreign nationals in specialty occupations for a temporary period of up to three years. Foreign national employees can spend a total of six years in H-1B status. An exception to that rule applies to certain foreign nationals with an approved employment-based green card petition (I-140). United States Citizenship and Immigration Services (USCIS) caps the number of H-1B visas issued at 65,000 per year, with an additional 20,000 visas reserved for applicants possessing a master’s degree or higher. Determining Eligibility The basic criteria for an H-1B employee are detailed in the guidance provided by USCIS: The employee must have an employer-employee relationship with the petitioning U.S. employer. The employee’s job must qualify as a specialty occupation by meeting certain specified criteria. The employee’s job must be in a specialty occupation related to his or her field of study. The employee must be paid at least the actual or prevailing wage for the occupation, whichever is higher. An H-1B visa number must be available at the time of filing the petition unless the petition is exempt from numerical limits. Who can apply for the H-1B visa? The applicant must be a well-qualified person who has been offered a job in the United States for a term of three years or less at the outset. If the visa is granted, it can be extended for a further three years if the employer still requires the visa holder’s services at that stage. The types of jobs that can qualify for an H-1B visa are quite broad and include those in the following fields: sciences and mathematics, information technology, engineering, architecture, medicine, business and accounting, theology and the arts, education, the law, and other fields. The H-1B Annual Lottery If you are familiar with the H-1B process, you may have heard of the chaos of “Cap Season,” the weeks leading up to the H-1B lottery. Previously, all cap-subject H-1B petitions had to be prepared in full and received by USCIS no later than the first week of April. USCIS would then select 65,000 regular cap petitions (+20,000 master’s cap petitions) for processing from the thousands it received. Thankfully, the horrors of “Cap Season” are behind us, since USCIS implemented a new registration system to streamline the lottery process. Now, employers interested in filing an H-1B petition simply need to complete an online registration form, which USCIS opens for a 14-day period in March. At random, USCIS selects 65,000 regular cap registrants and 20,000 master’s cap registrants. After the selection lottery, notifications are issued to the selected registrants. Only applicants who received selection notifications are permitted to file cap-subject petitions. The new system has drastically improved efficiency for employers and attorneys by eliminating the need to fully prepare petitions which would not be adjudicated. It is important to note that some petitions are not subject to the annual quota. These include petitions filed by universities, nonprofit research organizations, and government research organizations, as well as petitions for applicants who already hold H-1B status and are requesting to amend or extend their stays. Labor Condition Application Once a petitioner receives their registration selection notice, they must file a Labor Condition Application (LCA). The LCA is an attestation that the petitioning employer will pay the H-1B employee either: a wage equivalent to all other workers with similar experience and qualifications for the position; or the prevailing wage level for the occupational classification in the area of employment. The employer is required to pay the employee the higher of the two figures. Processing time for the LCA is usually one week. A copy of the certified LCA signed by the petitioning employer must be filed with the H-1B petition. Processing Times H-1B applications can be submitted and processed in a matter of weeks. The H-1B process is much quicker and preparation is much less time-consuming than a traditional employment-based green card application. Once the LCA is certified, the attorney prepares and files the H-1B petition, which includes Form I-129, the certified LCA, and additional supporting documentation. Applicants requesting expedited processing by USCIS can pay an additional fee for “premium processing,” which guarantees processing within fifteen calendar days. Therefore, the H-1B petition can be prepared, filed, and approved fairly quickly in contrast to an employment-based green card application, which can take months in preparation, filing, and approval. Identify Potential Candidates As Soon As Possible U.S. employers may offer positions to overseas candidates who have recently obtained U.S. degrees. In this case, the employee will be able to start work on Optional Practical Training (OPT). However, once this relatively short period ends, H-1B sponsorship will be required if the employer seeks to retain the employee’s services. For employers considering H-1B sponsorship of an employee, it is critical to speak with an immigration attorney well ahead of the registration period in March to ensure timely entry into the H-1B lottery. Having adequate time to prepare is invaluable for filing a petition which will survive USCIS scrutiny without additional delay. We recommend consulting with one of our esteemed immigration attorneys as soon as a potential candidate is identified. There Can Be Delays If USCIS Is Not Satisfied USCIS can issue a Request for Evidence (RFE) if it is not satisfied with the contents of an application. RFEs cause delays that most employers cannot afford if they want to get their staffing right for the next year. While RFEs cannot be avoided entirely, detailed crafting of the employee’s job description and the job’s location, category, and duties greatly reduce the chances of an RFE being issued. The Employment-Based Green Card While an H-1B visa generally authorizes an employee to work for a U.S. petitioner for up to six years, the U.S. employer may also petition for permanent residence for an employee by filing Form I-140. Obtaining an employment-based green card is a longer and more intense process than obtaining an H-1B visa. However, obtaining a green card is ultimately more rewarding as it allows the holder and any dependent family members to live permanently in the United States. Further, permanent residents can generally apply for U.S. citizenship after five years of living in the United States. Permanent Labor Certification (PERM) Similar to the H-1B visa process, the petitioning U.S. employer must submit a permanent labor certification request with the Department of Labor. This process is known as the PERM process. The PERM process is much more intensive than the LCA process for H-1Bs, as the information supplied in the labor certification request must confirm, with suitable evidence, that there is a lack of availability of U.S citizen or permanent resident workers for the proposed position. As part of the process, the employer must advertise the job through various means and maintain a detailed recruitment report, carefully documenting all contact with candidates who express interest in the position. Advertisements in Newspaper or Professional Journals The U.S. employer must generally place an advertisement on two different Sundays in the newspaper of general circulation in the area of intended employment most appropriate to the occupation and most likely to bring responses from able, willing, qualified, and available U.S. workers. This is not a requirement for an H-1B visa and can make the employment-based green card more difficult to obtain. Recruitment Report The U.S. employer must also prepare a recruitment report signed by the employer or the employer’s representative describing the recruitment steps undertaken and the results achieved, the number of hires, and, if applicable, the number of U.S. workers rejected, categorized by the lawful job-related reasons for such rejections. The DOL Certifying Officer, after reviewing the employer’s recruitment report, may request the U.S. workers’ resumes or applications, sorted by the reasons the workers were rejected. The Green Card Applicant Can Be Working For Another Employer In H-1B Status If the employee is already in the U.S. on an H-1B visa, the petitioning employer does not necessarily need to be the same employer as the H-1B employer. It can be another employer who wishes to employ that person after they obtain their green card. After the Labor Certification is approved by the DOL, the same employer files an I-140 immigrant petition. The person applying for the green card will have to wait for visa availability and will need to fill in a form to change their visa status if they are already living in the United States, or go through consular processing in their home country. Green Card Annual Number Restrictions By Country Unfortunately, like H-1B visas, employment-based green cards are subject to quotas. There are annual caps on employment-based visa categories, resulting in significant waiting lists for applicants from certain countries. There is a fixed quota of green cards issued every year which depends partly on the country and partly on the category of employment. Currently, the annual number of green cards issued is 140,000. Countries such as India and China are subject to long backlogs due to the huge number of applicants that belong to these countries. In comparison, applicants from less populated countries have a shorter wait period to obtain a permanent resident visa. Green Card Employment Categories EB1 (28.6% of quota)—Priority Workers. Priority workers are comprised of the following three sub-groups:Foreign nationals with extraordinary ability in sciences, arts, education, business, or athletics Foreign nationals that are outstanding professors or researchers with at least three years of experience in teaching or research and who are recognized internationally. Foreign nationals that are managers and executives are subject to international transfer to the United States. EB2 (28.6% of quota)—Professionals Holding Advanced Degrees or Persons of Exceptional Ability. Qualifying EB2 candidates must possess a Ph.D., master’s degree, or five years of progressive post-baccalaureate experience or exceptional ability in the sciences, arts, or business. EB3 (28.6% of quota)—Skilled Workers, Professionals, and Other Workers not classifiable as EB1 or EB2 workers. EB4 (7.1% of quota) —Special Immigrants. This group includes certain religious workers, employees or previous employees of the U.S. government, and U.S. Armed Forces, translators. EB5 (7.1% of quota)—Employment Creation. The EB5 categorization is for immigrant investors who make a substantial investment in a U.S. commercial enterprise which will create or preserve 10 permanent, full-time jobs for qualified U.S. workers. Conclusion In sum, both the H-1B visa and the employment-based green card application processes are lengthy and involve significant information and documentation to be provided. Confusing the process, or presenting insufficient or incorrect information can derail, prolong, or even lead to rejection of the applications. It can help significantly if you have the assistance of an experienced U.S. immigration attorney to advise and assist you with each step of the visa process.
December 21, 2021
Business
Treasury Department Issues Proposed Regulations on Disclosure of Beneficial Ownership for Most Business Entities
On December 8, 2021, the Department of Treasury issued a release containing a set of proposed regulations that would implement the reporting requirements for disclosure of Beneficial Ownership Information (BOI) of most US and foreign entities doing business in the US under the Corporate Transparency Act (CTA) adopted by Congress in January 2021. The comment period for these regulations extends until February 22, 2021. Commencing with the effective date of the final rule, the reporting regime would commence for all newly formed entities. All existing entities would be subject to the reporting requirements commencing one year after the effective date of the regulations. It is estimated that these reporting requirements would apply to approximately 4 million newly formed entities each year and 25 million existing entities in the first year of its effectiveness. The proposed regulations require all “reporting companies”, as discussed below, to report to the Financial Crimes Enforcement Network (FinCEN) identifying information concerning any individual who either (i) exercises substantial control over the entity or (ii) owns or controls at least 25% of the ownership interests of the entity. The proposed regulations provide a range of activities that would constitute “substantial control” including (x) service as a senior officer of the entity, (y) authority over the appointment or removal of a senior officer or dominant member of a board of directors or similar body, or (z) direction, determination, or decision of, or substantial influence over, important matters for the entity. The proposed regulations also indicate that substantial control can be exercised through a number of ways by title, contract, arrangement, understanding, relationship, or otherwise, whether directly or through intermediate entities. Similarly, “ownership interests” can be evidenced in a variety of ways including equity, capital or profits interest, convertible instruments, options, through trusts, or otherwise, and either directly or indirectly through intermediate entities. Reporting companies are defined to include all domestic corporations, limited liability companies and other entities that are formed by the filing of a document with the secretary or similar agency of a state or Indian Tribe, or foreign entities that qualify to do business by the filing of a document with a state or Indian Tribe. Therefore, the regulation clarifies that limited partnerships, statutory trusts, and most other business entities would be subject to the regime. As listed in the CTA, there are 23 exempted categories of entities that are not subject to the regulations, primarily because most of these are already subject to FinCEN regulations or other governmental requirements regarding disclosure of beneficial ownership. The broadest category of exempt entities is so-called “large operating companies” which are defined as companies operating in the US that have more than 20 full-time equivalent employees and have reported over $5 million in gross operating receipts on a federal tax return. In addition to the BOI disclosure, the proposed regulations would require the disclosure of information concerning the individual or individuals who directed or controlled the formation of a reporting company. The BOI that must be reported for each beneficial owner by a reporting company includes (i) the individual’s full legal name, (ii) date of birth, (iii) current residential or business address, and (4) unique identifying number, which would include a passport number, driver’s license, or similar number issued by a governmental agency, together with a copy of the document that contains such identifying number. Once an individual’s information was included in a report, FinCEN would issue its own identifying number to be used for any subsequent reports filed with respect to such individual. Identifying information concerning the reporting company would also be mandated under the proposed regulations. Under the CTA, as implemented by the proposed regulations, the disclosure of BOI for each beneficial owner must be reported not only within 14 days of the formation of the entity, or for existing entities, within one year of the effective date of the regulations, but also upon any change in the information reported. The proposed regulations state that the updated BOI must be reported within 30 days of the change. The release indicates that FinCEN has to develop a new IT system, to be called the Beneficial Ownership Disclosure System (BOSS) in order to collect and provide access to the BOI, which may ultimately affect the effective date of the final regulations. The intent behind the CTA and the proposed regulations is to promote financial transparency and compliance and to assist the US government and law enforcement agencies in combatting money laundering, terrorist financing, drug and arms trafficking, and other illegal acts conducted through so-called “shell companies”. These proposed regulations are part of a larger effort by the Biden administration to combat business corruption, and two other rule-making initiatives were announced in the issuing release, including a strengthening of FinCEN’s Customer Due Diligence rules adopted in 2016 and the implementation of protocols regarding access to and the disclosure of information collected by FinCEN under the CTA. We will be monitoring further developments in the adoption of regulations regarding the reporting of BOI for business entities. Please feel free to contact me with any questions.
December 20, 2021
The Weekly Scenario
The Weekly Scenario: Roth IRA/401(k) Head to Head
Both Roth IRA and Roth 401(k) contributions are made with after-tax dollars, grow tax-free, and can be withdrawn tax-free as a qualified distribution. If you believe your tax rates are lower now than they will be when distributions are made, a Roth contribution often makes sense. Anyone meeting certain income restrictions can contribute up to $6,000 (or $7,000 if age 50 or older), to a Roth IRA for 2021 or 2022. Employer plans are not required to offer Roth contributions. If a company does offer a Roth 401(k) option, employees can make Roth plan contributions of up to $19,500, or $26,000 if age 50 or older, in 2021. There is no combined limit for Roth IRAs and Roth 401(k)s. This means that you can contribute the maximum amount to both a Roth IRA and Roth 401(k) in the same year. That is a good outlay of cash to maximize both a Roth IRA and 401(k). If you were presented with both options, which is the correct one to choose? Advantages to a Roth IRA No Lifetime Required minimum distributions (or RMDs): One of the most significant advantages of Roth IRAs is that owners are not subject to required minimum distributions (RMDs) during their lifetime. In contrast to Roth IRAs, Roth 401(k) participants are subject to RMDs. More investment options. Roth IRAs have almost the universe of investment options. Prohibited investments include are collectibles, life insurance and S corporation stock. By contrast, Roth 401(k) investments are restricted to the limited options offered by the plan. Easier accessibility. Roth IRA distributions can be taken at any time (note that earnings may be taxable and subject to the 10% early distribution penalty). With Roth 401(k)s, not so much. An employee still working cannot access his Roth 401(k) assets before age 59½ (except in cases of financial hardship). Easier-to-satisfy “qualified distribution” rules. Earnings on both Roth IRA and Roth 401(k) contributions can be withdrawn tax-free as long as the distribution is considered “qualified.” A qualified distribution requires that the distribution be taken after a so-called ‘triggering event’ and satisfaction of a five-year holding period. Triggering events for both Roth IRA and Roth 401(k) distributions are attainment of age 59½, death, or disability (and also – for Roth IRA distributions, a first-time home purchase also qualifies). In general, the Roth IRA five-year holding period rules are easier to satisfy (I can’t go into all the details here so …trust me?). Advantages of Roth 401(k) Higher annual limit and no income restrictions. The annual Roth 401(k) contribution limits are significantly higher than the Roth IRA limits and do not have income restrictions. As noted, Roth 401(k) contributions have no income restrictions. By contrast, Roth IRA contributions cannot be made directly if MAGI exceeds a certain dollar limit (for 2021, the phase-outs are $198,000- $208,000 for married couples filing jointly and $125,000-$140,000 for single filers). Matching contributions. Many 401(k) plans match Roth 401(k) contributions, but there is no comparable bonus for making Roth IRA contributions. Loans and life insurance available. 401(k) plans often allow loans. Roth IRAs (like traditional IRAs) cannot offer loans and cannot be invested in life insurance. Age-55 10% early distribution penalty relief. Roth 401(k) distributions made after separation from service are exempt from the 10% early distribution penalty if separation occurs in the year the employee turns age 55 or older. This age-55 exception does not apply to Roth IRAs. So, the answer? It depends. Of course! As always, if you have any questions or would like to learn more, please contact Steve Shane at sshane@offitkurman.com or 301.575.0313.
December 17, 2021
Labor and Employment
Why Your Company Should Adopt a Vaccination or Test and Mask Policy Regardless of Its Size
The court that stayed the OSHA vaccination ETS rejected the Biden administration's request to set deadlines in the legal challenge that would have had the case ready for oral argument by the end of December. Accordingly, even if the ETS is implemented, it won't be for a while because the court won't even hear an argument until January at the earliest. So many companies thought leaders are asking: what if the OSHA ETS is never effective? What if our company has less than 100 employees? Should our company still adopt a similar vaccine or test and mask policy? My advice is yes. Even if the ETS is ruled illegal by courts, it won't be illegal for a company to adopt the same policy. If the ETS is ruled invalid, it will be rejected on arguments that the government can't force this on private employers. For instance, the argument's being made that there shouldn't be an OSHA emergency rule unless something poses a "grave danger" to the workplace. At this point, lawyers are arguing that it's not "grave" anymore because of the vaccines. This has no impact on private employers' ability to promulgate a policy like this. OSHA is the Department of Labor's workplace safety expert agency. They have studied this situation, have statistics on the number of cases (and clusters) and have investigated how these cases spread at workplaces. In other words, OSHA has a lot of data on this subject. They have good safety reasons for the recommendations. The approach is not as intrusive as dictating vaccines but could make employees feel safer (because even vaccinated people can get COVID, and they don't know who around them is vaccinated.). Protecting employees portrays the company as a caring employer. At the same time, this type of policy reduces the likelihood that employees or customers may successfully sue the company for negligence if they contract COVID. Key to lawyers! Finally, preventing illness minimizes loss of productivity. Mandating vaccinations, with the required exemptions, would be the best way to prevent illness. But if employees who oppose vaccination aren't forced to vaccinate, they are more likely not to resign. This is a concern in the current labor market. For all of those reasons, I recommend a policy very similar to the ETS policy be implemented. But I welcome your input and discussion.
December 10, 2021
Labor and Employment
Rules Regarding Vaccinations Applicable to Certain Health Providers
Personally, I’m getting “breaking COVID news” fatigue. I’m willing to guess that you are too, but I have to constantly re-write these blogs. Yesterday, a federal court in Missouri blocked the Biden administration from enforcing a vaccine mandate for healthcare workers in 10 states. The U.S. District Court for the Eastern District of Missouri entered a preliminary injunction and the decision marks the first victory for opponents of the mandate, which requires workers at certain facilities that participate in the Medicare and Medicaid programs to be vaccinated by Jan. 4, 2022, and take other action by December 5. This is no longer the case at this time in the states of Missouri, Nebraska, Arkansas, Kansas, Iowa, Wyoming, Alaska, South Dakota, North Dakota and New Hampshire. They aren’t subject to the rule while the injunction stands. More than half of states are now involved in challenges in different federal courts, which claim that the mandate will exacerbate staffing shortages along with other complaints. However, a federal judge in Florida already declined to block the rule in a separate suit. Some with knowledge believe that the mandate is likely to be upheld ultimately because the Centers for Medicare & Medicaid Services have the right to govern the rules for facilities if they want funding. But, the Eastern District federal judge Schlep ruled that the vaccine exceeds the agency’s authority because Congress did not authorize it. The conservative advice is for the qualifying health care businesses to proceed with the requirements for the planning as the December 5 deadline looms. It’s not safe to assume that any other court will enter an injunction. Again, this is still required in all states except the ones highlighted above. The facilities are required to: Develop a process/plan for vaccinating all eligible staff (who must be vaccinated by January 4, so two-shot vaccination series must begin by December 5); develop a process/ plan for providing exemptions and accommodations for those who are exempt; and develop a process/plan for tracking and documenting staff vaccinations. If your business needs more details on the mandates, please reach out.
December 8, 2021
Page 32 of 36
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