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
Business
Trends in the M&A Market Heading into 2022
M&A in 2021 is roaring to a close. Most will agree that the 2021 M&A market was exceptional, regardless of geography, industry, sector, etc. Many deals were successfully closed, and a number of transactions are still pushing towards the finish line. What has driven this robust market? I think 3 factors have played a large role. First, the continuing Covid cloud has pushed many sellers into the marketplace that considered sale transactions sooner than they may have otherwise. Covid impacted everyone and for many business owners, the uncertainty around Covid made some owners conclude they want out – or at least to take some risk off the table. Second, though rates, etc., are slowly creeping up, access to money and significant funds on balance sheets have translated to many buyers in the market. The match of multiple buyers with many sellers has driven values up. Deals are bigger than they might have been. Third, tax considerations and the potential for taxes to increase has caused significant pressure to get the deal concluded in 2021. So what does 2022 look like? In my opinion, 2022 will continue where 2021 left off. Covid issues are still with us and the uncertainties of Covid shutdowns and restrictions matched with vaccine mandates are proving too much for some business owners. This will continue to cause many sellers to look for a deal. Further, there are still funds to be had and money to be invested. The M&A boom in this regard has not flattened and I do not believe it will go into 2022. And taxes? Who knows. Earlier in 2021, it appeared certain there would be tax changes that would make business taxes higher. But now there is much speculation, given recent political events, that any tax law changes may not be as significant or perhaps there will not be any tax changes next year given it is an election year with much at stake. So, in conclusion, if you are considering a business sale but did not get moving in 2021, I think 2022 will continue to be a receptive marketplace for buyers and sellers to make good deals!
December 8, 2021
The Weekly Scenario
The Weekly Scenario: 529-ABLE Programs
The 529-ABLE programs have been available nationwide for about 5 years now. With Maryland ABLE, you can contribute up to $15,000 per year (or more if the beneficiary is working) for a wide range of qualified disability expenses. The ABLE to Work Act allows beneficiaries who are employed to contribute an amount equal to their current year’s gross income --up to a maximum of $12,760 in 2021 each year to their ABLE accounts in addition to the annual standard contribution limit of $15,000. The account’s growth is tax-free, and contributions could qualify for an income deduction (for Maryland state income taxes). Contributions can be made up to a maximum account value of $500,000 over the life of the account. Other federal means-tested benefits such as Medicaid, housing and food assistance are not impacted by the balance of the ABLE account. Similarly, ABLE account balances are disregarded for the purpose of determining eligibility to receive, or the amount of, any assistance or benefits from Maryland means-tested programs. Before ABLE accounts, the only way families could save for the future of a disabled child without losing access to SSI and Medicaid benefits was with a special needs trust. That generally involves lawyer’s fees and other costs. While the ABLE isn’t a substitute for a special needs trust, it is a good solution to improve the life of someone with a disability and save some on income taxes. The account works like a 529 college savings account—earnings and withdrawals for qualified expenses are federal and state tax free. 529-ABLEs can be used to save for medical and educational needs, job training, and housing. What’s tricky is the basic rules for the accounts--set by Congress--are the same, but important details vary among plans. All ABLEs are for individuals who were disabled before age 26; An individual can open only one account; The maximum annual contribution is tied to the federal gift tax exclusion amount which is currently $15,000. What’s different? Things like investment choices, fees, and benefits for in-state residents. You must do a little digging on each state plan’s web site and the plan disclosure statements to compare ABLEs. Before you open an account in a state that’s not your home state, check to see if your state will be offering tax incentives for contributions. 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.
November 19, 2021
Family Law
How to Manage the Expense of a Family Law Case
It is a concern that every client has, but few are willing to discuss with their counsel. So, what are some tips to keeping your fees as low as possible? You can control some of the expenses, but not all of them. What you cannot control is the reasonableness of your spouse or the other attorney. But what you can control may make a significant difference in the expenses associated with your case. Be aware of the fact that divorce cases require disclosure regarding income, expenses, assets and liabilities. The more documents you can locate and provide to your attorney in an organized manner, the better. Generally, we are seeking three years’ worth of records, including tax returns, credit card statements, etc. But it’s also helpful to provide information regarding how and when the assets were acquired. We normally recommend that our clients prepare a chronology of important events, so that we can refer to that document in the future if needed, and we will then be able to fill in some of the blanks that may arise in the future. Because tracing of non-marital funds may be a significant part of a case, documents that trace funds that are premarital, inherited, or gifts from a third party will make a huge difference in educating your attorney in a coherent and organized way. You may not know the value of all of your assets, but you can do some research that will help get the value in the ballpark. Be responsive to requests from your lawyer for documents and information. If your lawyer is looking for the information, it’s because there is a need for it. The sooner you can provide the information, the better. Be aware of the fact that most attorneys rely upon a team, that often includes a paralegal, an administrative assistant and associates. That is often to your benefit, as their hourly rates are generally lower than that of the lead attorney. Show them respect and respond to them just as you would your lead attorney. Listen to your attorney’s recommendations. It’s your case, but there may be opportunities for compromise and settlement that occur early on or later in the case. If you delay considering a resolution until the day before trial, you have incurred substantial fees and costs associated with litigation. Rely upon your lawyer’s advice. That’s why we are often called “counselors.”
November 18, 2021
Family Law
How Long Will I Have to Pay Alimony?
When a couple gets divorced, one party may need to financially support the other party in some shape or form; this divorce-specific monetary support is referred to as alimony. When a client learns that they may be required to pay alimony, they understandably want to know how long they’ll have to make those payments. In order to answer this question, it’s important to first understand that there are three types of alimony in Maryland: pendente lite, indefinite and rehabilitative. The type of alimony a party will be required to pay is discretionary to the judge. Pendente lite alimony is fairly straightforward. Pendente Lite is Latin for pending litigation, and these are payments that a higher-earning party pays to the lower-earning party during the divorce proceedings only. The payments are meant to maintain the family finances at, or as close to, status quo as possible during the legal process of divorce. The definition of indefinite alimony is exactly as it sounds: alimony that has no specific end date. Indefinite alimony is ordered when a dependent party is unlikely to ever become self-supporting. This type of alimony is typically established in cases of long marriages where one spouse did not work outside the home for many years, or when one party is unlikely to acquire a self-supporting income due to age, illness or disability. Indefinite alimony ends if one of the parties dies, or the dependent party remarries. Indefinite alimony may end upon modification of the court or a written agreement between the parties. Rehabilitative alimony is meant to provide support to the lower-earning party for a period of time long enough for him or her to become self-supporting. This is the most common type of alimony awarded, and it usually has an end date. In most cases, this means that the higher-earning party will support the lower-earning party while that person takes the time to acquire the necessary job training or education needed for employment. In some cases, the higher-earning party may need to pay for the lower-earning party’s education to help them become self-supporting. As mentioned, the type of alimony one pays is solely up to the judge; however, if the parties prefer to negotiate alimony amongst themselves, they may come to an agreement as to the terms, but the judge will still have to approve it to ensure that the agreement is fair to both parties. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
November 17, 2021
The Weekly Scenario
The Weekly Scenario: Newest Tax Law Updates
My recollection is that Ben Franklin can be credited as saying, “nothing in this world is certain except death and taxes.” Perhaps more apt right now with all the pending tax legislation and the potential changes to the estate tax system is that nothing is certain aboutdeath and taxes! As tax advisors, we have been waiting on pins and needles to see whether a new tax bill will be passed and, if it is passed, what language the final bill would contain. While the proposed legislation failed to include any changes regarding estate taxes, including a reduction in the estate/gift tax exemption amount to approximately $5,000,000 like many thought, that is not to say it may not be added later. Anything can still happen, and we could find ourselves in a situation like 2012, where a significant change was made at the 11th hour. At this time, the main focus is a new 5% tax to be applied to individual taxpayers’ whose Modified Adjusted Gross Income (MAGI) is in excess of $10,000,000 ($5,000,000 if married but filing separately) and high income (really about $200,000) earning trusts and estates. There is also an expansion of the Net Investment Income Tax for individual taxpayers with a MAGI in excess of $400,000 ($500,000 for joint filers) and trusts and estate undistributed income with no income threshold. Should the new proposed tax legislation go into effect on January 1, 2022, high earners will also feel a significant impact on their Net Investment Income Tax, specifically those who use S-corporations and partnerships to shield themselves from higher taxes. Other proposed changes to note include a 100% gain exclusion on the sale of Section 1202 Qualified Small Business Stock would be limited to 50% of the gain for those with an AGI exceeding $400,000 (unless otherwise contracted for prior to September 13, 2021), a requirement that cryptocurrencies be subject to the constructive and wash sale rules, and 15% minimum tax for large corporations on reported income to be calculated based on complex formulas. The proposed legislation did not include (as was originally expected) a removal of the limitation on deductions for State and Local Income taxes paid (SALT Cap). There was no proposal for an increase in personal income tax or capital gains tax rates, no proposal to compress the current rate brackets, and no proposal to deny fair market value income tax basis for estates of individuals who die owning appreciated assets. To recap, some of the best news from the proposal came from what was omitted: There was no increase in personal income tax rates; No increase in capital gains tax rates; No reduction of the estate tax exemption; No elimination of the step-up in basis on death; and No proposals to eliminate the ability to utilize grantor trusts or valuation discounts for non-active trades or businesses. 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.
November 12, 2021
Labor and Employment
ETS Legal Challenges, Requirements and Omissions
Ok, so now everyone’s heard that – as promised - OSHA’s new Emergency Temporary Standard has been issued and that, in general, employers with 100+ employees must require workers to vaccinate for COVID or be tested weekly starting January 4. (Incidentally, the guidance for contractors is now requiring vaccination by that date, as well.) Important note – don’t pull the trigger yet, if you haven’t already – although the standard took effect on Nov. 5, the U.S. Court of Appeals for the Fifth Circuit stayed the rule the very next day, pending further litigation (which will be expedited, so the question of whether it was validly issued is decided). To be honest, I would not be surprised if this went to the Supreme Court. We’ll see. The biggest question that my clients have asked so far is who pays for testing, given the ETS doesn’t require employers to pay testing fees or compensate workers for the time spent being tested? Employers are not off the hook because other laws may require it. Importantly, the Fair Labor Standards Act guidance reads: “[the] employer is required to pay you [worker] for time spent waiting for and receiving medical attention at their direction or on their premises during normal working hours. … For many employees, undergoing COVID-19 testing may be compensable because the testing is necessary for them to perform their jobs safely and effectively during the pandemic.” Safe advice: pay non-exempt workers if you’re requiring COVID testing. You don’t want the DOL to come calling and assess double damages and a fine for your company’s failure to pay. Stay tuned, I’ll update you further. In the meantime, contact me if you have any questions and as always, I’d love your feedback. What is your company planning to do?
November 11, 2021
The Weekly Scenario
The Weekly Scenario: Portability
As I (and many others) have reported, the estate tax exemption amounts may change this year. Right now, the latest is that it does not look like the House proposal will include a lowering of the federal estate tax exemption this year, but regardless of what happens this year, the rules covering the estate tax exemption are scheduled to sunset after 2025. Estate Tax Portability Depending on inflation, the exemption could drop to between $5- $6 million after 2025. With this prospect in mind, it has become vital for married couples to make the most of estate tax portability. Mistakes can lead to a reduced exemption and a substantial amount of unnecessary tax. Married Couples and Estate Tax Portability With estate tax “portability” in place, a married couple can effectively use both spouses’ estate tax exemptions, passing as much as $23.4 million to other heirs with no federal estate tax liability. Example 1: Mike has $8 million in assets, including a $5 million IRA, and Mike’s wife, Megan, has $6 million in assets (including joint property). Mike dies in November 2021, leaving everything to Megan. Marital bequests don’t generate estate tax, so Megan gets to keep all $8 million from Mike, estate tax-free. Going forward, Megan might die with a $15 million estate, including the assets inherited from Mike. If her estate tax exemption then is $6 million, Megan’s estate would be $8 million over the limit and her heirs could owe $3 million in tax, at today’s 40% estate tax rate. The tax bill could be even higher because of an increased rate or state tax obligations or both. Deceased Spouse’s Unused Exemption (DSUE) Something called “Portability” can prevent this type of scenario because the surviving spouse can use the Deceased Spouse’s Unused Exemption (DSUE) as well as her own. Mike did not use any estate tax exemption at his death, because he left all his assets to his spouse. If Mike dies in 2021, his unused exemption amount — the DSUE — would be $11.7 million, which Megan can claim as part of her own. Thus, if Megan dies with a $6 million exemption, under the law effective at her death, using the $11.7 million DSUE from Mike would raise her exemption to almost 18 million. Megan’s hypothetical $15 million estate, mentioned previously, would generate no estate tax with an $18 million estate tax exemption. Note that the IRS has announced that a deceased spouse’s unused exemption is locked in, even if the estate tax exemption is reduced, the unused exemption amount claimed at the death of the first spouse will remain in effect, assuming all the proper elections are made. 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.
November 5, 2021
Real Estate
This Week in Real Estate: Title Insurance
This Week in Real Estate (TWIRE) has explored different series in previous editions. TWIRE will now focus on a new series of discussions on a topic that is very important in the world of real estate: title insurance. Over the next several week's TWIRE will discuss what it is, the different types and provisions included in title insurance policies. What is Title Insurance? Title insurance is a form of indemnity insurance that protects lenders and real estate owners from financial loss sustained from defects in the title to a property. When a property is financed, bought or sold, a record of that transaction is generally filed in public archives. Similarly, records of other events that may affect the ownership of a property, like liens or levies, are also archived. When you buy title insurance for your property, a title company searches these records to find and remedy, if possible, several types of ownership issues. First, the title company searches public records to determine the property's ownership status. After this search, the underwriter will determine the insurability of the title. Even the most skilled title professionals may not find all problems associated with a property. Some risks, such as title issues due to filing errors, forgeries or undisclosed heirs are difficult to identify. After the title company finishes its search, it provides a title insurance policy that will help protect the purchaser, borrower and/or lender from a variety of issues that might be uncovered later. Types of Title Insurance Policies There are two types of title insurance policies: a lender’s policy and an owner’s policy. Both types of policies are typically offered as a bundle together. Lender's Policy A lender’s policy is required in just about every purchase and refinance transaction, and the borrower typically pays for it. This insurance typically insures that the lender is in the lien position it has contracted to be. Should there be a potential title issue, this policy protects only the mortgage lender in the amount of the loan. Owner's Policy On the other hand, an owner’s policy protects the buyer. Although it’s not required by law for borrowers to purchase an owner’s policy, it is highly recommended to make sure that you, as the title holder, are protected from any potential legal issues that may come up. Next week, we will begin to discuss the different parts of each insurance policy.
November 4, 2021
Labor and Employment
Unexpected Long-Lasting Impacts of the COVID-19 Pandemic on Employers
The COVID-19 pandemic has undoubtedly had long-lasting impacts on the workplace as we now enter the twentieth month of the pandemic. Some effects were expected, such as increased safety precautions, layoffs, rehiring, closed offices, and remote work. However, some of the challenges facing employers have been a bit more unexpected and longer-lasting than initially anticipated. In the later months of the pandemic, companies have been navigating vaccine mandates and increases in Americans with Disabilities Act (ADA) requests against a backdrop of worker shortages and continued safety concerns, which weigh heavily on the decisions they are making as it relates to workplace policies. Vaccine Mandates Since vaccines became available earlier this year, employers have been grappling with whether to mandate or encourage vaccination or stay silent. Initially, the lion’s share of employers were opting to remain silent on vaccination or encourage vaccination through incentives or gentle nudging to avoid the hassle of mandating vaccination and providing religious and medical exemptions. Though, as it became clear over the summer that the COVID-19 pandemic was far from over, many employers began to consider mandating vaccination. This change was largely driven by a shift in public opinion, bold moves at the federal level, and the practical need for many employers with in-person operations to keep their workforce healthy and working. However, with many companies struggling to hire and retain enough employees to staff their operations fully, the analysis for many employers has gone well beyond the health and safety of their employees. Ahead of the implementation of the federal mandate through the Occupational Safety and Health Administration (OSHA) issuing an Emergency Temporary Standard, due to industry-agnostic worker shortages, many employers have opted to encourage vaccination over requiring it since they cannot afford to terminate employees for failing to comply with a vaccine mandate. For those who have decided to mandate vaccination, many have faced walkouts and terminations, sometimes resulting in a mass exodus of their workforce. ADA Requests The COVID-19 pandemic has resulted in many business owners and Human Resource (HR) professionals taking a crash course in ADA compliance. While many employers may typically receive a couple of requests per year, the pandemic has led to an increase in these requests, with some being COVID-19 related and many being COVID-19 adjacent. As it relates to COVID-19 specifically, while temporary COVID-19 illness is not a disability, many employers have received leave and accommodation requests related to managing risk around contracting COVID-19 with a pre-existing condition or COVID-19 long-hauler illness. Additionally, companies have seen an increase in employees needing to take time away from work or needing accommodations for mental health conditions. In many instances, these requests have led employers to dig deep into the EEOC’s guidance on these issues and examine the interaction between the ADA and FMLA and determine how accommodating employee needs impact the business's operations. Overarching in both of these issues are the operational burdens of administering these policies and the impact on the company’s workforce based on employees being unavailable to work or terminated or restricted from returning to the office. As employers continue to navigate employment matters related to the COVID-19 pandemic, they will continue to face increased administrative burdens related to keeping their workforce safe and accommodating and retaining employees. There is no shortage of complex issues and legal landmines involved, and employers must stay vigilant regarding legal compliance and consider the practical and legal consequences of their actions.
October 28, 2021
The Weekly Scenario
The Weekly Scenario: Tax Update
As you have likely heard, there are a number of proposed tax rules under Federal law that are working their way through Congress. One potential change could have a dramatic impact on people who own life insurance policies inside of irrevocable life insurance trusts. The House Ways and Means Committee recently released an outline detailing possible tax increases designed to pay for the administration’s infrastructure plan. Of the proposed modifications, one change would cause so-called "grantor" trusts to be included in the taxable estate of the person who made the gifts into the trust. Many life insurance trusts are considered "grantor" trusts and could fall within the scope of this proposed rule. While the details have not yet been released, it appears that the new rule would cause these trusts to be included in a person's taxable estate only if the person made gifts into the trust after the date the law is passed. This could cause problems for those who make cash gifts to their insurance trusts in order to fund insurance premiums. One potential solution may be to make a large gift to an insurance trust now before the law becomes effective. The gift may be retained inside the trust and used to pay premiums in later years -- thereby avoiding future gifts to the trust that would violate the new rule. Right now, this is only a proposal that is part of a larger outline released by the Ways and Means committee. To become law, the outline must first clear the House Ways and Means Committee, be voted on by the full House, have the same rule be proposed in, and voted on, in the Senate, and then have the final bill be signed by the President. If the proposal does become law, then there may be little time for people to preserve the tax-free treatment that life insurance trusts are intended to provide. 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.
October 22, 2021
The Weekly Scenario
The Weekly Scenario: Executor of an Estate
An executor of an estate has several duties. Of the many duties, one that is often missed is to ensure that all income tax returns have been filed for the decedent, including filing the final personal income tax return. After a person dies, any income earned prior to their death must be reported to the IRS (and state taxing authorities) on the final income tax return. The deadline is April 15th of the year following death. If a person passed away in 2021 and had income before he died, then by April 15, 2022, the final income tax return needs to be filed or an extension needs to be filed. The filing of the income tax return can sometimes hold up the closing of the estate. An executor would be prudent to wait until the final income tax return is filed to close out the estate. If a decedent was married, keep in mind that the surviving widow or widower may file a joint return. If there is money owed for income taxes, then the executor must make the payment from the estate. If there is a refund, then the executor must claim the refund. In order to claim the refund, an IRS form 1310 must be filed with the final return. Note that there is no requirement they a probate administration be opened to request the tax refund. The form 1310 allows the IRS to pay the refund directly to the executor, therefore, avoiding the need for an estate administration (probate). 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.
October 15, 2021
Intellectual Property
Trademark Trial and Appeal Board Finds Reckless Disregard for the Truth Equals Fraud, Cancels Trademark Registration
The U.S. trademark law provides that a trademark registration may be canceled if it was obtained fraudulently. A registration may also be canceled if the registrant commits fraud in post-registration filings, including a Section 15 Declaration of Incontestability. Often filed in combination with the Section 8 Declaration of Use due in the 6th year of a registration, the Section 15 Declaration of Incontestability may be filed if the registrant has been using a registered mark continuously for the previous five years. However, certain other conditions are met, including that there are no pending proceedings, such as a lawsuit in federal court or a cancellation action before the US Patent and Trademark Office (USPTO) or Trademark Trial and Appeal Board (TTAB). This was the issue in Chutter, Inc. v. Great Management Group, LLC and Chutter, Inc. v. Great Concepts, LLC, 2021 USPQ2d 1001 (TTAB 2021). In 2010, when Great Concepts was submitting a combined Section 8 and 15 Declaration of Use and Incontestability for its trademark DANTANNA’S, the attorney for Great Concepts signed the declaration. He was aware that there were pending proceedings involving the trademark registration but, he later admitted, he did not read the declaration before signing it, and he was not familiar with the requirements of the Section 15 declaration. Years later, Chutter, Inc. filed a cancellation action against the registration, claiming that the Section 15 Declaration was fraudulently filed. In its decision, the TTAB noted that fraud requires an intent to deceive; false statements made with a reasonable and honest belief that they are true do not result in a finding of fraud. The TTAB went on to find that the attorney who signed the declaration acted with reckless disregard and held that this reckless disregard rises to the level of intent to deceive needed to find fraud. Moreover, although the trademark law allows for the opportunity in certain circumstances to correct misstatements once they are discovered, the attorney who signed the declaration did not take any corrective steps once he discovered that he had made false statements in the declaration. “By failing to ascertain and understand the import of the document he was signing, far from conscientiously fulfilling his duties as counsel, [the attorney] acted in reckless disregard for the truth; nor did he take any action to remedy the error once it was brought to his attention.” Stating that the attorney’s reckless disregard was “the legal equivalent of finding that Defendant Great Concepts had specific intent to deceive the USPTO”, the TTAB granted the petition to cancel the DANTANNA’S registration. Why does this decision matter to trademark owners? It’s a reminder to review carefully the statements in the documents you are signing and to ask questions if you do not understand something and speak up if something does not sound right. Although there is generally a high bar to a finding of fraud leading to the cancellation of a trademark registration, this case shows that a lack of attention to reviewing and understanding the statements being made in trademark declarations can constitute “willful blindness” that rises to the level of reckless disregard and cancellation of one’s trademark registration could be the result.
October 14, 2021
Business
Skeletons in the Closet: The 5 Biggest Undiscovered Issues that Can Halt the Sale of a Business
You have an interested buyer and they have submitted an exciting letter of intent for the purchase of your business. What could possibly derail the sale? Well . . . the golden rule for a seller is that the business is not “sold” until the closing and the monies hit the account. Before receiving your monies and having the business sold, be aware of a number of issues that could cause problems. By the way, with proper advanced planning these issues can be alleviated/mitigated prior to going to the market. Proper documentation of owner relations. Nothing ices a sale transaction like equity owners not on the same page. Ownership disagreements on the terms of a sale will quickly sour any potential buyer. However, with a proper stockholders’ agreement or operating agreement, the sale of equity can be controlled and “dragged” along into a transaction. Locking up key employees. Too often key employees are not properly locked up. All buyers will compel sellers to lock up their key persons, making such requirement a condition to closing. Going to a key employee on the eve of a sale is a very bad place to be if you are the seller. Poor financials. One of the first intersections a buyer will have with your business is the review of your financial data. Too many sellers have a mess for their financials. A buyer cannot evaluate the value of your business if it cannot review financial statements that are prepared to standard. Wrong corporate form. Many buyers have corporate structures that are not friendly to investors to maximize gains. The form a seller operates their business during normal times (an S corporation for example) may not be the corporate form desired by an acquirer. Uncertain ownership of key assets. Too many sellers rely upon the assumption that they own the assets of their business. This rings especially true with technology and intellectual property. The time to learn that you do not own the source code to your software is not in the middle of your sale transaction. These are a few of the most common pitfalls that many sellers experience during the sales process. Many times a seller is not aware of these items until a buyer brings it up in diligence as part of a larger conversation regarding the path to closing. All M&A transactions spin on leverage. Sellers should be careful to give over leverage to a buyer by falling into one of the traps.
October 13, 2021
The Weekly Scenario
The Weekly Scenario: Naming a Trust as Beneficiary of an IRA
There are certainly valid reasons for naming a trust as beneficiary of an IRA. But if an adult beneficiary is otherwise healthy and responsible, and if there is no desire to control assets after death, then naming a person directly as an IRA beneficiary may be a better option. In cases when a trust is necessary, be sure the trustee – the person responsible for following the provisions of the trust and dispersing its assets — understands the trust and IRA rules. Putting an inexperienced trustee (often an unwary family member or friend of the family) on such a task can lead to a number of egregious mistakes. I’ve reported on botched IRA trust beneficiary articles in the past. In a recent Private Letter Ruling (202125007) relayed a few months ago by the IRS, an IRA owner named a trust as an IRA beneficiary. After her death, the IRA assets were properly moved into a trust-owned inherited IRA. In this case: The adult children of the original IRA owner, as trustees and trust beneficiaries, had total control of the assets. The children wanted to do their own investing in the IRA. They were informed by the custodian that the existing account could not accommodate their request. So, the trustee children decided to transfer the stocks held in the inherited IRA assets to a non-qualified (non-IRA) brokerage account, owned by the trust. This action resulted in a taxable distribution — at trust tax rates of most of the IRA assets. When inherited IRA dollars are withdrawn by a non-spouse beneficiary, there is no putting the genie back in the bottle. Even if the error is discovered within 60 days of the original transaction, a rollover is not allowed, and the distribution is likely going to result in the entire account being subject to tax. Even though the trustees identified their error several months later and requested that the former IRA dollars be returned, there was no remedy that could be done here. The IRS concluded that: “…once the assets have been distributed from an inherited IRA, there is no permitted method of transferring them back into an IRA.” The moral of the story is to be sure that there is a good and legitimate purpose of having a trust that will inherit the IRA account, and if there is a good reason, be sure there are safeguards put in place so mistakes are not made by the Trustee along the way. 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.
October 8, 2021
The Weekly Scenario
The Weekly Scenario: Legislative Tax Update
About two weeks ago, the House of Representatives Ways and Means Committee released an agenda as part of a $3.5 trillion spending and tax bill that Democrats hope to pass. Many of the details will likely change as the bill makes its way through a series of deliberations and votes. But the initial draft provides a good deal of insight about what we can expect. Below is a summary of the proposed changes in the estate tax and some key takeaways: Lowers lifetime gift/estate tax exemptionto $5.85 from $11.7 million, effective January 1, 2022. Clients looking to maximize exemptions should make their gifts as soon as possible, especially gifts to grantor trusts, in case the date of enactment is moved up. Irrevocable grantor trusts in estates, effective upon enactment. A grantor trust is a common estate planning tool which allows an individual (or ‘grantor’) to establish a trust for another (typically a family member). The new provision pulls the assets held in a grantor trust into a decedent’s taxable estate when the decedent is the deemed owner of the trusts. Prior to this provision, taxpayers were able to use grantor trusts to keep assets out of their estate while controlling the trust closely. Establishes an income tax on sales to grantor trustby grantor, effective upon enactment. Currently, a sale to a grantor trust would not trigger an income tax. Clients looking to sell assets to a grantor trust may wish to consider doing so now. However, the proposal maintains stepped-up basis at death. In conjunction with reducing their taxable estates, clients should continue to keep highly appreciated assets in their taxable estates to the extent possible. 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.
October 1, 2021
Immigration Law
COMING TO AMERICA How The United States is Changing Travel Restrictions
It’s a slogan that’s been ingrained in us: “fly the friendly skies.” But let’s face it, for the past eighteen months, flying has been anything but friendly, and when it comes to the majority of foreign nationals hoping to enter the United States, well, the sky hasn’t been the limit. In fact, the sky has been nearly non-existent for them. Last spring, as COVID-19 enveloped the globe like an iron fist, the Trump administration clamped down on international travel to the U.S., hoping to slow down the spread of the virus here. On March 13, 2020, President Trump’s proclamation banned travel into the United States from more than 30 countries, and that list of nations quickly expanded. Although there were specific exceptions, such as foreign diplomats or certain family members of U.S. citizens who were allowed to fly into the U.S., most international travel bound for America came to a halt. For instance, flights from the U.K. to the U.S. were down 76% from pre-pandemic times. And while there was a change of administration in early 2021, that didn’t translate to a change in policy. However, as the worldwide vaccination rate has continued to rise, with roughly six billion shots having been administered globally, the Biden administration recently modified the restrictions that have been in place for the past year and a half. The focus is now on individuals rather than the broad restrictions that had been in place for entire countries or regions. So, what does that mean if you are a foreign national hoping to come to the United States for employment, vacation, or to see family? Starting in early November, in nearly all instances, all foreign nationals must show proof of full vaccination as well as proof of a negative COVID-19 test taken within three days of boarding a flight to the United States. Failure to provide proof of both full vaccination and a negative COVID-19 test will preclude a foreign national’s entry to the U.S. Also, all passengers must remain masked for the duration of their flight unless they are eating or drinking. Expect this mask mandate to stay in place at least through early 2022. There are a few exceptions to the new vaccination requirements, including children who are not yet old enough to be vaccinated, COVID-19 vaccine clinical trial participants, and people traveling for an important humanitarian reason who lack access to vaccination in a timely manner. However, if you are exempted from the vaccine requirement, it is important to note that you may be required to be vaccinated upon your arrival in the U.S. Similar to the requirements for foreign nationals, vaccinated U.S. citizens returning to the United States must show proof of vaccination as well as proof of a negative test taken no more than three days before departure. Unvaccinated U.S. citizens are required to provide their airline proof of a negative test result taken within one day of departure. Additionally, unvaccinated U.S. citizens must present proof of having purchased a viral test to be taken after arrival in the U.S. No matter what your vaccination or citizenship status is, the Centers for Disease Control (CDC) is in the process of developing a Contact Tracing Order that will require airlines to collect comprehensive contact information for every passenger coming into the United States and to provide that information promptly to the CDC upon request. This will allow the CDC to follow up with travelers who have been exposed to COVID-19 variants. Airline carriers initially resisted contact tracing measures, but over the last several months, several airlines have taken steps to collect more contact information from customers on a voluntary basis. Expect this to no longer be “voluntary” soon. While airlines have hailed the travel restriction changes, regarding them as “a major milestone that will help spur an economic rebound,” the decision to implement the changes was not fueled by economics for the Biden administration. Instead, the decision was fueled by science, given the rising worldwide vaccination rate and increased availability of testing. These new travel policies will go into effect in early November, and I’m sure there will be more changes coming down the road, or should I say “through the air,” sooner rather than later. We’re dealing with a very fluid situation, both scientifically and politically. But with more than twenty years of experience as an attorney at Offit-Kurman specializing in international law, I’m here to help you with any questions and situations that arise...and to make this a smooth flight...both figuratively and literally.
September 30, 2021
The Weekly Scenario
The Weekly Scenario: Roth Conversion Planning Review
As we all have heard, Congress is targeting apparent tax loopholes used by wealthy people with the goal of raising taxes to help finance proposed spending. Retirement plans happen to be in their scopes too. The way this may have come about is a widely publicized story of a guy who managed to amass $50 million or so in a Roth IRA. Forget that the story was made public due to an illegal release of his confidential tax return information from the IRS! The following proposed changes to personal retirement plan accounts apply, for years after 2021, to a person who: Is a “high income” individual, that is, a married filing jointly taxpayer with taxable income in excess of $450,000 or a single filer with taxable income over $400,000. This appears to line up with President Biden’s campaign promise not to increase taxes on anyone making less than $400,000 a year. The combined balance of a person’s IRAs, Roth IRAs, and other defined contribution plan accounts (e.g., a 401(k) plan) exceeds $10 million in value as of the prior year-end. Here are the tax consequences inflicted on such as person: He/she may not make a regular contribution to an IRA. Since the maximum annual IRA contribution is in the range of $7,000, this is not such a problem for someone who already has over $10 million in plans. The rest are more consequential: He/she must take a “required minimum distribution” equal to half the excess over $10 million. And.... If this person has more than $20 million in combined value in such plans, he/she must take an RMD equal to 100% of the excess over $20 million! And such excess must be taken from Roth accounts first! Note that these new RMD requirements have no age component. There’s one change in the mix that may cause some 2021 action. They propose to outlaw the Roth conversion of after-tax money whether in an IRA or in a qualified plan, and this new prohibition would not be limited to higher-income individuals. The Roth conversion of after-tax money is a true “loophole” and it makes sense for them to close it, but it will also make sense for a lot of individuals to take advantage of the loophole while it still exists and complete conversions of their after-tax money (if possible) this year. 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.
September 24, 2021
Family Law
What’s the Deal with Adultery in Maryland?
Adultery is a misdemeanor in Maryland, punishable by a $10 fine. It’s doubtful that a prosecutor would ever prosecute that crime, but it may have a consequence in a divorce case. So what’s the big deal? There are two areas where an allegation of adultery has a role in the family law arena. First of all, there are the emotional or psychological considerations. The one who has committed adultery may be embarrassed and may not want those allegations to appear in a pleading that is filed in Court. These pleadings are public record, and, even if no one in the press is interested, children, grandchildren, friends and neighbors may, at some time in the future, access those pleadings. The “innocent” spouse may believe that he/she has a “leg up,” and use the possibility of relying upon those formal allegations in negotiations. The allegation of adultery, however, does not have the same stigma that it did when I began practicing law, many years ago. The “legal” consequences of an allegation of adultery is that, should the case be litigated, the Court is to consider fault as one factor of many in determining both an award of alimony and a division of the marital property. Generally adultery that occurs subsequent to a separation, but while the parties are still legally married, is not nearly as concerning as an adulterous relationship that caused or contributed to the separation. Since even if proven to be true, the allegation of fault is only one of many factors to be considered. And, since that Court has great discretion in making those decisions, the impact of the fault grounds can be significant or minimal. There’s a risk, and that’s the concern/consequence that the parties and their counsel must consider.
September 22, 2021
Family Law
I Received an Inheritance – Will I have to Share the Money with My Ex-Spouse?
The answer to this question can go in two different directions, depending on what the recipient did with the money. When evaluating a divorce, most states view inherited funds as separate property, whether those funds were received before or after the marriage. In Maryland (and in the vast majority of states), inherited funds are considered separate, or non-marital property. Here is the catch, though: the designation of “separate” can change based on what the recipient did with the funds. Generally, marital property is subject to division in a divorce, while separate property is not. However, inherited funds that start out as separate property can become marital property if they are “commingled”—i.e., turned into marital property by using the money for things like remodeling the marital house, paying for a vacation, paying off bills, or other similar things that benefit both spouses. Here are some other specific examples of comingling: If one spouse inherits a house and then adds the other spouse’s name to the deed, the inherited house then becomes a comingled asset. If one spouse receives funds and then puts the money into a savings account for a significant period of time under both their name and their spouse’s names, those funds are now comingled and considered marital property. If one spouse uses inherited funds to renovate the marital home, which is titled in both spouse’s names, the inherited funds become commingled. Because comingling can happen so easily and unintentionally, some couples opt for a postnuptial agreement when they inherit funds. This is an agreement that happens after marriage, wherein the parties agree that the inherited funds used for the renovation, vacation, or other mutually beneficial activity shall be and remain the inherited party’s sole and separate non-marital property, free and clear of any interest of the other spouse. It’s wise to consult with an experienced family law or divorce attorney when one receives a large sum of money from an inheritance. Even if the recipient decides not to pursue a postnuptial agreement, being aware of what actions would be classified as comingling can be extremely helpful when deciding how to use the funds. If you have any questions on this topic, please contact Sandra Brooks at sbrooks@offitkurman.com or 240.507.1716.
September 20, 2021
The Weekly Scenario
The Weekly Scenario: How Can a Trust Protect My Children’s Inheritance?
One of the main reasons for estate planning is to provide loved ones with protection from claims of future creditors and divorcing spouses or lawsuits. If you leave your property to your child as an outright distribution, the property will not necessarily be protected. 'Spendthrift' Protection There is a longstanding concept in trust law known as ‘spendthrift’ protection. These provisions state that the Trustee will have sole control to make distributions from the Trust without interference from others. The spendthrift clause prevents a third party (e.g., creditor) from being able to compel the Trustee into making distributions of trust property for the benefit of the third party. Protection from Creditors Under the spendthrift rules of most states, a person is free to leave assets in the trust for another person, with specific language in the trust specifying who, besides a trust beneficiary, can have access to the trust assets. If the trust includes a ‘spendthrift’ clause that specifically states that trust income and principal is not to be available for payment to a trust beneficiary’s creditors, then as a general rule the trust would be immune from attack by a beneficiary’s creditors. This strong protection would apply regardless of the amount or nature of a beneficiary’s liabilities and would include protection of the trust assets if the child were to go through a divorce. Variation Between States However, the extent of protection offered by a trust with a spendthrift clause will depend upon state law. In some states, certain creditors are still permitted access to the trust. This might include obligations for alimony, child support or payments to creditors who have provided certain ‘essentials of life’ to the beneficiary. 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.
September 17, 2021
Page 33 of 36
About the Blog
Receive timely content, newsletters and event information delivered to your inbox.
