Commercial Litigation
Five Common Pitfalls Hard Money Lenders Must Avoid to Reduce Risk and Protect Their Deals
This article details five pitfalls hard money lenders’ teams face when working on potential deals. Detailing these pitfalls is intended to be a useful guide for those new to the industry (and want to avoid costly mistakes) and, for more experienced people in the industry, a helpful reminder of the biggest red flags everyone must be vigilant about when working on deals. The business of hard money lending carries enormous risk. Starting out requires raising sufficient capital to lend and navigating the thicket of licensing requirements and regulations that apply to hard money lenders (an endless process due to ever-changing regulations in the industry). Once established, however, hard money lenders, and their teams, have to maintain the standards they set for each deal that gets onboarded. From the sales stage through underwriting to closing, mistakes, indiscretions, and oversights may occur, and some of those errors have very costly consequences. If there is one thread tying together each of these five pitfalls, it is: know your borrower—and especially so if it’s an entity. Here are the five pitfalls. For borrowing entities, failing to properly evaluate and research individual members. When the borrower is an entity, the individual owners of that entity must be evaluated thoroughly. Hard money lenders, although they are not financial institutions in the same vein as major banks, are subject to the same requirements that the Bank Secrecy Act imposes. Those requirements include an obligation to file a suspicious activity report (SAR) with the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) for transactions that are suspicious and raise questions as to whether the transaction is an attempt at money laundering. Similarly, FinCEN requires that hard money lenders maintain an anti-money laundering program with written procedures, personnel responsible for day-to-day operations, employee training to detect suspicious activity, and testing and review of the program. For each owner of the business entity, it is crucial to run a background search on that individual. Vetting individual owners of the borrower entity is not only important for understanding who is effectively the borrower; it is also essential for the lender to comply with the Bank Secrecy Act’s requirements. Sometimes, an individual working for the lender does not realize the consequences of missing a detail like this. The most common consequence in this type of situation is an audit. If the lender faces an audit—whether from FinCEN or a state licensing authority—and that audit reveals the lender missed a red flag related to a borrower and its individual owners, the consequences can be significant. Although an audit can result in a timeframe for the lender to take corrective action, regulators also may impose fines and civil penalties, issue cease-and-desist orders requiring the lender to stop its lending activities, require loan rescissions or restitution, or pursue more frequent audits. That range of consequences coming from an audit may be daunting, but regardless of the result, it means taking resources and time away from deals and instead diverting those into managing audit responses and working with counsel to mitigate the negative consequences. For borrowing entities, not confirming the signatory has the authority to bind the entity. For any type of business entity, whether a corporation, limited liability company, or another type, it is crucial to ensure that the lender knows the signatory has the authority to sign documents on behalf of the entity. Typically, during the onboarding phase, the entity will have provided an operating agreement and a resolution authorizing the person to sign on behalf of the entity. Reviewing that operating agreement’s terms to verify the process it sets out for passing a resolution is a step that too often gets overlooked. Connecting each dot, from the company’s formation to its operating agreement setting out how a resolution may be passed, to having a resolution appointing the signatory, is necessary for any deal involving a borrower entity. If there is no follow-through on this step, the lender’s position becomes perilous for clawing back the funds it lent. In short, if the signatory did not have authority to sign, the loan documents are essentially meaningless, and the lender has virtually no recourse. A signatory lacking authority does not just arise where there is fraud. For example, if there is a dispute among the owners of the business entity regarding the operations of that entity, and there is a potential buyout or sale of an owner’s interest in the entity, that may end up affecting the lender’s loan. To avoid being caught in the middle of such a dispute, the lender, at the time of the loan, must clearly establish that the person signing on behalf of the borrowing entity had authority to do so and then maintain copies of those documents. If there is any dispute about the signatory’s authority to sign, then it may lead to a court deeming the loan documents and any guaranties invalid and unenforceable. The debt would thus not be collectible, and foreclosure on the property—the most effective way for the lender to pursue collection, if not the only way—becomes impossible. In many cases, the lender will be able to conclude that the debt is not collectible only after commencing a lawsuit seeking to enforce the loan documents and pursue a foreclosure of the property. It is only after incurring legal fees, expenses, costs, and time that a court would then potentially declare the documents to be unenforceable and leaving the lender with a loss on the loan and then the fees, expenses, and costs incurred. For borrowing entities, not confirming the structure of sub-entities. When the entity is a borrower with sub-entities, it is necessary to understand the owners of the sub-entities, as well as the layout of those sub-entities. Often, when there are sub-entities, there are specific, easily identifiable reasons, such as being a family business that incorporates family members’ interests. Other times, a web of sub-entities can be used to hide the true ownership of the borrowing entity, conceal financial problems with that entity, shield individuals known to be bad actors, or launder money. Those same requirements coming from the Bank Secrecy Act, the anti-money laundering programs and suspicious activity reports come when analyzing the sub-entities for a borrower. Every individual owner associated with the sub-entities should have a background check performed, and there should be clarity about the structure and all the individuals involved with the business. As with other failures to comply with the Bank Secrecy Act and other such regulations, one of the most common consequences is an audit. As detailed above, that audit may be very disruptive to the lender’s operations. Overlooking open judgments and liens. Thoroughly reviewing active litigation, unpaid judgments, and open liens is critical to evaluating the viability of the loan. If there is active litigation, reviewing the documents filed in that litigation is necessary to understand how it might impact the deal. That litigation may impact the real estate or the borrower’s business. As to the real estate, neighbors could have filed lawsuits that are seeking access to portions of the property or restrictions related to the property. Lawsuits like that could not only affect the salability of the property; they could also affect the lender’s rights to the property even if it foreclosed on the property and sought to sell it afterward. But, most often, it will affect the lender’s priority of lien on the property. When there are multiple liens on the same property, the priority of lien dictates who gets paid first when the property is sold, either at foreclosure or just on the market. Many times, the value of the property may only pay off the first loan, or even part of the second loan. If the lender’s lien is second, third, or fourth priority, then the lender may end up totally empty-handed when attempting to collect the loan. Failing to verify the legitimacy and contents of bank statements or other documents submitted by borrowers. Lenders’ guidelines for loans require the borrower to submit bank statements and other documents to verify the borrower’s qualifications for the loan. These are helpful mechanics for ensuring the borrower is capable of repaying the loan. Sometimes, however, borrowers engage in fraud or other unlawful activity leading them to submit documents that are either entirely fabricated or partially doctored and tailored to meet the lender’s requirements. Reviewing those documents through the lens of common sense can go a long way in revealing that they are false. When documents are suspicious or simply do not add up, it becomes important to make additional requests for documents that corroborate those already submitted and come from third parties over which the borrower has no control. Ideally, the lender maintaining these standards roots out fraudulent documents prior to the closing. For most hard money lenders, an overwhelming majority of the closed loans are then sold to private capital providers/secondary market buyers or to institutional private credit funds, such as private equity funds or hedge funds. When each loan is sold, there are representations and warranties about the loan that the lender makes to the purchaser. Those representations and warranties virtually always require the lender to buy the loan back if there is any fraud, regardless of whether the lender knows of the fraud. If, for example, the bank statements were fake and the borrower defrauded the lender, the lender would be obligated to buy back that loan. Then, if a loan is bought back, the lender would have to service the loan and take steps to collect it. This would be a highly burdensome process for a lender to undergo and would divert resources away from new deals. Conclusion Although these are not the only pitfalls that hard money lenders face, they are the most common and guarantee outsized consequences. Every member of the lender’s team needs to be aware of not only these pitfalls but others as well, to ensure that the deals being closed are the right ones.
March 24, 2026
Construction
A (Simple) Primer on the Voiding of Tariffs by the Supreme Court and Its Impact on the Construction Industry
On February 20, 2026, the United States Supreme Court voided the tariffs on international goods imposed by President Trump under the IEEPA. The initial, immediate effect is that the recently imposed (and relatively high) tariffs on imported goods are immediately void. This has raised various questions in the construction industry. Will prices go down? Will new tariffs be imposed? Simply because the tariffs were voided does not necessarily mean that prices will go down. Prices are affected by other market forces, not just tariffs. Also, there is the likely prospect of other tariffs being imposed. In fact, that is exactly what the Trump Administration immediately did in response to the Supreme Court ruling. The tariffs are less onerous, however, and they might be temporary. Still, there is the potential for additional or increased tariffs to be imposed on goods. Also, not all construction materials were exclusively under the new tariffs; some materials, such as steel, had longstanding protectionist tariffs dating back decades. If the tariff was through something other than IEEPA, then, the refunds are inapplicable. Thus, even with the voiding of the recent Trump Administration Tariffs, other tariffs or price volatility may still affect certain goods and materials. Contractors should carefully examine the specific tariffs that apply to specific goods and should continue to account for forthcoming tariff volatility risk in all contracts by negotiating clauses (or prices) that address economic volatility. What about the tariffs that I already paid on imported materials and goods? Generally, the key point to understand is that the “Importer of Record” has the right to seek a refund of moneys paid on the tariffs. If you are not the Importer of Record, then, it is likely difficult for you to seek a refund. Refunds are to be sought directly from Customs and Border Protection (“CBP”) or the Court of International Trade (“CIT”). Refunds from CBP generally require filing specific documents within 180 days of the “liquidation” of the initial entry of the goods. Consult with an attorney to identify the correct filing(s) for which you might be eligible, as the filings are time-sensitive with deadlines. Even if you ultimately paid the tariff cost through pass-through clauses in your contracts, if you were not the Importer of Record, you likely do not have eligibility to file a refund claim against the government. Still, each circumstance should be reviewed by an attorney. Theoretically, depending on your contract clauses, the Importer of Record could seek a refund and pass the refund dollars to you. Why did I pay all those tariff costs if the whole thing was void from the start? Shouldn’t I have refused to pay them from the start? Once the executive branch of the federal government imposed the tariff, it became required to be paid in order to receive the imported good. There really was no other option in real time (other than refusing to receive the good). You could negotiate in your contract who would bear the cost of the tariff, but refusing to pay it meant that you would be unable to receive the imported goods. Theoretically, you could have filed a protective claim with CIT with the intent of appealing to the United States Supreme Court; but realistically, that is a very expensive and burdensome process. Typically, for significant matters of this nature, a single contractor importing a good would not want to carry the cost and burden of a Supreme Court case. Thus, you did what everyone did—paid the tariff to get the goods imported and attempted to price and account for the risk in your contracts accordingly. But, with the recent Supreme Court ruling, refunds are available for certain eligible claimants, including interest. JEFFREY C. BRIGHT is a Principal attorney in Offit Kurman’s Construction Practice Group and maintains a multi-state construction law practice, representing contractors, subcontractors, owners, construction managers, design-builders, and design professionals. He is licensed and active in construction law matters in PA, MD, DC, VA, and CA. In addition to handling construction litigation and project disputes, including time impact claims for liquidated damages, delays, or disruptions, he regularly advises on the preparation, revision, and negotiation of construction contracts for various project delivery systems. He can be reached at jeff.bright@offitkurman.com. Special thanks to Janine Campanaro and Matthew Reddington from the Offit Kurman tax law group for contributing to this article.
March 24, 2026
Commercial Litigation
Defeating the IRS at Trial: Lessons from the Taxpayer Victory in Ankner v. United States
After successfully trying Ankner v. United States and defeating a multi-million-dollar promoter-penalty assessment, Matthew S. Reddington analyzes what the verdict means for the government’s burden of proof under IRC § 6700—and for taxpayers and advisors facing promoter investigations. In Ankner v. United States, a federal jury rejected the Internal Revenue Service’s attempt to impose approximately $4 million in promoter penalties under IRC § 6700 against a captive insurance manager. Janine Campanaro and I served as trial counsel for the taxpayer and successfully tried the case to verdict in the United States District Court for the Middle District of Florida. The decision offers an important reminder for businesses, advisors, and professionals facing promoter-penalty investigations: even in industries the IRS has publicly targeted, the government must still prove each statutory element of § 6700 at trial. When the government cannot meet that burden, the penalties cannot stand. As the trial record and jury verdict in Ankner illustrate, promoter-penalty disputes frequently turn not on sweeping policy debates about the legitimacy of an industry, but on far more specific evidentiary questions. The government must prove that materially false statements were made regarding the tax benefits of the transaction and that the alleged promoter knew or had reason to know those statements were false. When those elements are carefully examined through witness testimony, documentary evidence, and expert analysis, the government’s theory does not always hold. § 6700 Promoter Penalties Require the Government to Prove Specific Elements Internal Revenue Code 6700 authorizes the IRS to impose substantial penalties on individuals or businesses that promote abusive tax shelters. The statute permits penalties equal to 50% of the gross income derived from the promotional activity, which can quickly result in multi-million-dollar assessments. Despite the severity of the penalty, the government must still establish specific statutory elements when the penalty is challenged in court. In particular, the government must prove: A False or Fraudulent Statement The promoter made false or fraudulent statements regarding the tax benefits of a transaction. Knowledge or Reason to Know The promoter knew, or had reason to know, that the statements were false. In practice, the knowledge requirement frequently becomes the most contested issue in promoter-penalty litigation. A Federal Jury Found the Government Failed to Meet That Burden in Ankner Ankner v. United States arose from the government’s investigation of a captive insurance manager who assisted small businesses in forming insurance companies intended to qualify under IRC § 831(b). Rather than focusing exclusively on promotional statements regarding tax benefits, the government argued that the underlying captive insurance arrangements did not constitute legitimate insurance companies. Based on that premise, the government asserted that the captive manager and related entities made false statements regarding the tax consequences of participating in the arrangements. After paying a portion of the assessed penalties permitted in promoter-penalty disputes, the taxpayer filed suit challenging approximately $4 million in penalties related to tax years 2010 through 2016. Following the trial, the jury concluded that the government failed to carry its burden of proof, and the taxpayer was not liable for the penalties. Although jury verdicts are necessarily fact-specific, the case underscores an important point: even in areas the IRS has identified as enforcement priorities, the government must still prove each element of § 6700. Traditional Promoter-Penalty Cases Often Involved Clear Tax-Avoidance Schemes Historically, many litigated § 6700 cases involved blatantly abusive tax-avoidance schemes, where the government’s evidentiary burden was comparatively straightforward. For example, in United States v. Schulz, the defendants promoted materials instructing taxpayers how to stop withholding and paying federal income taxes. The court concluded that the promoters knowingly advanced positions repeatedly rejected by the courts. Similarly, in United States v. RaPower-3 LLC, the government successfully pursued promoter penalties against a company marketing solar-energy technology that was incapable of producing electricity. Participants were promised tax benefits tied to equipment that never functioned as represented. In Tarpey v. United States, the Ninth Circuit affirmed an $8.5 million promoter penalty related to a timeshare-donation scheme, emphasizing the broad scope of § 6700 when determining the gross income derived from the promotional activity. These cases involved clear factual records demonstrating knowingly false representations. By contrast, more recent promoter-penalty investigations increasingly involve legitimate industries and complex transactions, where the relevant facts and legal standards are far more nuanced. The IRS Is Expanding the Use of Promoter Penalties Across Multiple Industries The significance of Ankner must also be viewed against the backdrop of expanding IRS enforcement initiatives. In recent years, the IRS has increasingly relied on promoter penalties as a mechanism to deter activity in industries it believes involve aggressive tax planning. Current enforcement efforts have focused on areas such as: Micro-captive insurance arrangements Syndicated conservation easements Employee Retention Credit (“ERC”) promotions Certain partnership basis-adjustment transactions The IRS’s Office of Promoter Investigations has become particularly active in these matters, and promoter-penalty assessments are frequently pursued alongside broader civil or criminal investigations. Given the scale of potential penalties, these disputes can carry significant financial and reputational consequences for businesses and advisors. For Taxpayers and Advisors Facing § 6700 Investigations, Litigation Strategy Matters For taxpayers, captive managers, tax advisors, and other professionals facing promoter-penalty investigations, Ankner highlights an important strategic point: § 6700 cases ultimately turn on proof of statutory elements—not simply the IRS’s view of the underlying transaction. Promoter-penalty disputes often begin with extensive government investigations that focus heavily on the perceived legitimacy of the transaction itself. While those issues may form part of the broader context, the government must ultimately prove far more specific facts at trial—namely, that false statements were made and that the alleged promoter knew, or had reason to know, those statements were false. In practice, those evidentiary requirements can present meaningful challenges for the government. Because promoter-penalty cases frequently involve complex industries, expert testimony, and extensive factual records, early strategic guidance is critical. Decisions made during the investigative stage—often long before litigation begins—can substantially influence how the case develops if it proceeds to court. For that reason, businesses and advisors confronting potential § 6700 exposure should consider engaging counsel with significant experience litigating complex tax disputes through trial. Promoter-penalty cases are not merely technical tax controversies; they are fact-intensive litigation matters that require careful development of the evidentiary record and a disciplined focus on the government’s burden of proof.
March 23, 2026
Family Law
The Most Common Lies Spouses Tell Their Divorce Lawyer
People rarely walk into a divorce lawyer’s office intending to lie. What they usually bring instead is fear—fear of judgment, fear of consequences, fear that telling the full truth will somehow make everything worse. So they edit. They minimize. They leave things out. And they tell themselves it doesn’t matter; however, it almost always does. One of the most common things clients say early on is some version of “I’ve told you everything.” They believe it at the time. But as the case progresses, details start to surface—an old relationship that wasn’t quite over, a text thread they forgot about, a financial account they assumed was irrelevant, an incident they didn’t think would come up again, or a monetary transfer they didn’t think would be noticed. Divorce has a way of dragging the past into the present, whether you’re ready for it or not. When information emerges late, it puts your attorney on the defensive instead of in control, and that shift can be costly. Another frequent claim is that money doesn’t matter. Clients say they just want out, that they’re willing to walk away from assets or support to keep the peace. That mindset is usually emotional, temporary, and short-lived. Once the dust settles and real life resumes—housing costs, childcare expenses, retirement planning—that earlier indifference often turns into regret. The law doesn’t assume you’ll feel the same way six months from now, which is why your lawyer can’t afford to either. Many people also present their divorce as a story with a clear hero and villain. They insist they’ve done nothing wrong and that all the blame lies with the other spouse. While that narrative may feel emotionally satisfying, it rarely aligns with reality or how judges, mediators, and evaluators see cases. Family court isn’t about moral perfection. It’s about credibility. When someone claims absolute innocence, it often signals that there’s more beneath the surface, and opposing counsel is very good at finding it. Financial honesty is another area where clients often convince themselves they’re being truthful while still withholding information. Money moved before filing, cash withdrawals, side income, business perks, cryptocurrency, or funds held “temporarily” by family members are frequently dismissed as insignificant or unrelated. But financial disclosures are sworn statements, and inaccuracies, intentional or not, can damage a case far more than the underlying financial issue ever would. Then there’s digital behavior. Clients routinely downplay how much they’ve accessed their spouse’s phone, email, or social media accounts. They assume that if the information exists, it must be fair game. But how evidence is obtained matters just as much as what it shows. Illegally accessed material can be excluded and can even create legal exposure for the person who obtained it. When a lawyer doesn’t know the full story behind the evidence, they can’t properly assess the risk. Parents often tell their attorneys that the children are “fine.” Sometimes that’s wishful thinking. Sometimes it’s an attempt to appear cooperative or resilient. But children talk to teachers, to therapists, to friends, and sometimes directly to the court through evaluators. Minimizing concerns doesn’t protect children, and it can make a parent appear disengaged or unaware of what’s actually happening. Dating during divorce is another subject where honesty tends to falter. Clients insist they aren’t seeing anyone, or that it’s not serious, or that it has nothing to do with the case. In reality, new relationships can affect custody dynamics, financial claims, and settlement negotiations, especially if children are involved or marital funds are being spent. And these relationships almost always come to light. Perhaps the most deceptively loaded statement clients make is that they just want things to be “fair.” Fair, however, is a deeply personal concept, not a legal one. Clinging to a personal sense of fairness often leads to prolonged litigation, unrealistic expectations, and mounting legal fees. The law doesn’t divide assets or assign responsibility based on who feels more wronged. It relies on statutes, evidence, and precedent. Clients lie—or half-lie—not because they’re bad people, but because divorce is uncomfortable and exposing. The irony is that these small acts of self-protection usually have the opposite effect. They limit an attorney’s ability to plan, anticipate, and negotiate effectively. They increase costs, delay resolution, and weaken outcomes. A divorce lawyer isn’t there to judge you. They’re there to protect you. But they can only do that with the full picture, even when parts of it are embarrassing, messy, or inconvenient. In divorce, the truth almost always comes out. The only real question is whether it comes out early enough to work in your favor.
March 20, 2026
Real Estate
Understanding Like-Kind Property and IRS Requirements for a 1031 Exchange
A 1031 Exchange is a valuable tool for real estate investors to defer capital gains tax when investment property is sold, provided the proceeds are reinvested in replacement property. According to the IRS, like-kind exchanges, when you exchange real property used for business or held as an investment solely for other business or investment property that is the same type or “like-kind,” have long been permitted under the Internal Revenue Code. Generally, if you make a like-kind exchange, you are not required to recognize a gain or loss under Internal Revenue Code Section 1031. If, as part of the exchange, you also receive other property or money (not like-kind), you must recognize a gain to the extent of the other property and money received. You can’t recognize a loss. Under the Tax Cuts and Jobs Act, Section 1031 now applies only to exchanges of real property and not to exchanges of personal or intangible property. An exchange of real property held primarily for sale still does not qualify as a like-kind exchange. A transition rule in the new law provides that Section 1031 applies to a qualifying exchange of personal or intangible property if the taxpayer disposed of the exchanged property on or before December 31, 2017, or received replacement property on or before that date. Thus, effective January 1, 2018, exchanges of machinery, equipment, vehicles, artwork, collectibles, patents, and other intellectual property and intangible business assets generally do not qualify for non-recognition of gain or loss as like-kind exchanges. However, certain exchanges of mutual ditch, reservoir, or irrigation stock are still eligible for non-recognition of gain or loss as like-kind exchanges. Properties are of like-kind if they’re of the same nature or character, even if they differ in grade or quality. Real properties generally are of like-kind, regardless of whether they’re improved or unimproved. For example, an apartment building would generally be like-kind to another apartment building. However, real property in the United States is not like-kind to real property outside the United States. The rules of the exchange in order to qualify for the capital gains deferral are as follows: First, the definitions: the property that is sold in a 1031 Exchange is referred to as the “relinquished property,” and the property that is subsequently purchased is referred to as the “replacement property.” There may be one or multiple relinquished/replacement properties. Any real property can be exchanged for other real property within the same state or other state(s). Property outside of the United States, however, is not considered like-kind. In order to avoid paying any taxes on the sale of the relinquished property, the replacement property must be of equal or greater value than the net sale price of the relinquished property. Also, if all of the proceeds from the sale of the relinquished property are not reinvested in the replacement property, and some of the cash is taken out, this is known as “boot.” Boot is taxable up to the amount of total realized gain on the sale. A key point to watch for is utilizing less debt to purchase the replacement property. For example, the relinquished property is sold for $2,000,000 with debt in the amount of $1,000,000, and the replacement property is purchased for $2,000,000 using $500,000 of debt. Even though the replacement property’s value is equal to (or more than) the replacement property, the $500,000 difference in debt would be taxable. This can be offset, however, if more cash is put into the replacement property purchase. The timing of identifying and purchasing the replacement property is very important. The possible replacement property(ies) must be identified within 45 calendar days of the sale date of the relinquished property. Up to three properties, of any value, can be identified, but only one (or two or three) must be purchased within the time frame below. Keep in mind that all of the net proceeds must be reinvested, or there will be taxable boot. More than three replacement properties can be identified, but their value cannot exceed 200% of the value of the relinquished property. Otherwise, 95% of what was identified will need to be purchased. The replacement property must be purchased within 180 calendar days of the sale of the relinquished property. The actual rule, however, states that the closing on the replacement property must be completed on the earlier of 180 days or the next due date to file an income tax return, including extensions. So, if the relinquished property is sold between October 17 and December 31, the replacement property must be purchased on or before April 15 if the seller’s tax return is filed accordingly or an extension request is made in order for the full 180 days to complete the transaction to be allowed. The tax return and name appearing on the replacement property must be the same as those on the relinquished property. If the property is owned using a wholly-owned limited liability company, known as a single-member LLC, the LLC is treated as the taxpayer. Below is the 1031 Exchange Process. Determine whether the property should be the subject of a 1031 Exchange. Not every property is a good candidate for a 1031 Exchange. For example, if there is significant passive activity losses whereby those losses will be greater than or equal to the gain on the sale of the property, it may not be a good fit for a 1031 Exchange. In addition, the taxpayer1 should run the numbers on the tax savings and consider that rates may be different compared to what they may be down the road. The seller should discuss the tax consequences with an accountant or tax attorney to determine whether a 1031 Exchange is appropriate. Contact a Qualified Intermediary. Assuming that a 1031 Exchange is appropriate, the taxpayer should contact a qualified intermediary. A qualified intermediary is a person (or entity) who is not the taxpayer (or a disqualified person). The qualified intermediary enters into a written agreement with the taxpayer (the exchange agreement) under which the qualified intermediary: Acquires the relinquished property from the taxpayer Transfers the relinquished property to the buyer Acquires the replacement property from the seller Transfers the replacement property to the taxpayer The exchange agreement must expressly limit the taxpayer’s rights to receive, pledge, borrow, or otherwise obtain benefits of money or other property held by the qualified intermediary. The property to be relinquished should be listed for sale. The property would be listed whether or not there is going to be a 1031 Exchange, and there is no different procedure for a 1031 Exchange (other than including a 1031 disclosure in the sales contract), so there will be no elaboration regarding listing real property for sale at this time. Look for replacement property(ies). At this point, the taxpayer should start looking for replacement properties. Possible replacement property(ies) must be identified within 45 calendar days of the sale date of the relinquished property. One easy way for a 1031 Exchange to fail is by not identifying potential replacement properties in time. The sale of the relinquished property. The sale is very similar to a typical real estate sale, except the qualified intermediary will hold the sales proceeds in a special account. The taxpayer cannot have access to the proceeds from the sale of the relinquished property. From this account, the proceeds will be distributed to purchase replacement property or properties. Identify the replacement property. The replacement property or properties must be identified within 45 days of selling the relinquished property. The property(ies) must be identified to the qualified intermediary. Purchase the replacement property(ies). Working with and through the qualified intermediary, the replacement property or properties must be purchased within 180 days of selling the relinquished property (or the next due date to file an income tax return, including extensions). The funds for this purchase must be sourced from the qualified intermediary’s account. The taxpayer may bring additional cash if needed to close the transaction. 1The person/entity selling the relinquished property and buying the replacement property will be referred to as the taxpayer.
March 19, 2026
Estates and Trusts
The Hidden Estate Planning Crisis Facing the Sandwich Generation
Why millions of families caring for two generations are legally unprepared for either. Across the country, millions of adults are quietly living in what has come to be known as the sandwich generation. Statistics show that one in six Americans is in the sandwich generation, supporting aging parents while also raising children or helping launch young adults. Much of the public conversation around this group focuses on the emotional and financial strain of caregiving and those receiving the care. What receives far less attention, however, is the legal vulnerability many of these families face. Many estates and trusts attorneys see a growing and largely invisible problem: a hidden estate planning crisis affecting the very people holding multiple generations together. Many people still consider estate planning something to address later in life. Yet the sandwich generation sits at the exact intersection where planning becomes essential for two generations at once. It is not uncommon for estate and trust attorneys to encounter families whose aging parents have not established even the basic vital legal documents, such as powers of attorney and health care directives. At the same time, and as a result, the adult children who are helping manage their parents’ lives have no legal authority to make decisions on their behalf. Even more striking, those same caregivers—busy raising children and supporting parents—often have not completed estate planning for their own families. In other words, the individuals coordinating care, finances, and medical decisions for everyone else are often doing so without a legal framework protecting anyone involved. A common situation involves adult children informally stepping in to help aging parents. They begin by paying bills, organizing, advocating at medical appointments, and helping manage finances. Over time, those responsibilities expand. Without the proper legal documents in place, the adult child may technically have no legal authority to act. What these adult children find, often too late, is that financial institutions refuse to discuss accounts and medical providers limit the information they can share. Important decisions become delayed and complicated, even when everyone in the family agrees on what should happen. If an aging family member or parent experiences cognitive decline before these documents are in place, the situation becomes even more difficult. Families may suddenly find themselves navigating court proceedings to obtain guardianship or simply to manage basic financial and medical matters. What could have been handled through proactive planning becomes a crisis-driven, stressful, and expensive legal process at precisely the moment families are already under inordinate emotional and often financial strain. Another dynamic frequently emerges within sandwich generation families when one sibling becomes the primary caregiver for the aging parent. Often referred to as the “caretaker child,” this person may take on the bulk of responsibility for coordinating care, managing finances, or in some cases, even housing a parent. While these arrangements are often made with the best intentions, they can create fractures within the sibling relationship as the parent grows more dependent. The opportunity for discord grows with certainty when estate plans are unclear or nonexistent. Questions about whether the caregiving child should be compensated or how caregiving contributions should be recognized, often surface only after a parent becomes incapacitated and can no longer take part in those discussions, or worse, after the parent dies. Without clear planning and communication, these issues can quickly evolve into family conflict or worse, family estrangement. Making matters worse, the caregiver’s own legal planning is frequently neglected. Many members of the sandwich generation are simply too busy managing daily responsibilities to focus on their own estate planning, creating another significant vulnerability. If something were to happen to the caregiver such as an illness, accident, or an unexpected death, there may be no legal structure in place to protect their children or guide decisions about their assets. The people responsible for stabilizing two generations of family life often overlook the fact that they remain central to their own household’s future security. There are varying studies that indicate that a caregiver can be 18-40% more likely to die before the care recipient, a testament to the necessity that the caregiver, too, must consider their own planning. The encouraging news is that this crisis is entirely preventable: addressing it does not necessarily require complex legal strategies. What it requires most is starting the conversation early and recognizing that estate planning is no longer a single-generation exercise. Families navigating the sandwich generation need planning that considers the needs of aging parents while also protecting the caregiver’s own family. When parents have clear legal authority in place for trusted decision-makers, when siblings communicate openly about caregiving roles, and when caregivers ensure their own families are protected, the most difficult and painful conflicts can be avoided. Demographic trends suggest the sandwich generation will continue to grow as people live longer and families remain financially interconnected for longer periods. What once happened sequentially, raising children first and caring for parents later, is now happening simultaneously for millions of households. Yet the way many families approach estate planning has simply not adapted to this reality. Planning today is no longer simply about preparing for the end of life. It is about creating stability for families managing the complex responsibilities of supporting multiple generations at once. The individuals carrying that responsibility deserve a legal framework that reflects the critical role they already play in their families’ lives. The question facing many families is not whether they will encounter these issues, it is whether they will confront them prepared or in crisis.
March 19, 2026
Construction
Pennsylvania Supreme Court Entertains Oral Argument on Significant Construction Statute of Repose Appeal in Aloia v. Diament Building Corp
On March 12, 2026, the Pennsylvania Supreme Court heard oral arguments in Aloia v. Diament Building Corp., a closely watched appeal that could significantly affect the future of Pennsylvania’s Construction Statute of Repose. The key question presented to the Court is how the statutory phrase “lawfully performing” design or construction services will be interpreted. Pennsylvania’s Construction Statute of Repose has long provided architects, engineers, and contractors with a defined endpoint for liability arising from improvements to real property. Unlike the statute of limitations, which begins to run when an injury occurs or is discovered, the Pennsylvania statute of repose establishes a firm cutoff for claims, without regard to discovery or other equitable tolling. The dispute in Aloia arises from a residential construction project completed in the mid-2000s. Certificates of occupancy were granted in 2006 and 2007 to the original owner. In 2021, more than a decade later, homeowners who purchased the home in 2016 filed suit alleging latent construction defects. The contractor invoked the construction statute of repose as a complete bar to the claims. Both the trial court and the Superior Court determined that the twelve-year repose period applied to the claims alleging building code violations, dismissing the homeowners’ claims. Key Themes from Oral Argument On appeal to the Pennsylvania Supreme Court, the homeowners advance an interpretation of the statute, asserting that the repose period did not apply where the construction work was alleged to violate the applicable building code. The homeowners asserted that a design professional or contractor who was alleged to have violated the building code was not a person “lawfully performing or furnishing” construction services, and, therefore, the construction statute of repose was inapplicable to the homeowners’ claim. At argument, the Court repeatedly framed the central issue as whether “lawfully performing” requires compliance with all code requirements or, instead, requires that the individual or person be lawfully entitled to perform the services (i.e. authorized). Interpreting the phrase “any person lawfully performing” to require full compliance with any and all applicable statutes, building codes, and regulatory requirements would effectively nullify the construction statute of repose, exposing design professionals, contractors, and subcontractors to claims decades after substantial completion. At argument, the Court discussed the statute’s underlying purpose was to promote a robust building industry, preventing unlimited liability by protecting those who work within the industry’s regulatory framework (i.e. licensing and permitting requirements). Additionally, the Court engaged in questioning focused on the fact that the failure to comply with building codes constitutes a construction deficiency, and that the homeowners’ reading makes other provisions of the statute, which require claims for design or construction deficiencies to be brought within 12 years, mere surplusage. Further along these lines, the Court also questioned the statutory or regulatory authority of an individual to bring a private cause of action to enforce the building code, noting that no violations were issued by the code official and, therefore, the homeowners were necessarily pursuing deficiency claims squarely within the construction statute of repose. The Court also engaged in a robust discussion regarding the structure of the statute itself. Looking to the grammatical structure, justices noted that the structure of the statutory phrase, “a person lawfully performing or furnishing,” in which the term “lawfully performing” modifies the term person rather than the terms building or improvement. The Court also scrutinized the statutory structure, as the contractor emphasized that the homeowners’ interpretation effectively rewrites the statute by inserting an additional exception into subsection (a), which establishes the general rule, rather than looking to subsection (b), in which the legislature expressly set forth the statutory exceptions. The Supreme Court’s decision in Aloia stands poised to shape the contours of construction liability in Pennsylvania and will determine whether the Commonwealth’s longstanding statute of repose will remain a meaningful barrier against stale claims against design professionals and contractors. Offit Kurman through Anthony S. Potter, Franklin C. Miller, and Robyn St. Hilaire represented the American Institute of Architects ("AIA"), AIA-Pennsylvania, the American Council of Engineering Companies (“ACEC”), ACEC/PA, the Structural Engineers Association of Pennsylvania, the Pennsylvania Society of Professional Engineers, the Pennsylvania Society of Land Surveyors, and the Pennsylvania-Delaware Chapter of the American Society of Landscape Architects as Amici Curiae before the Pennsylvania Supreme Court.
March 17, 2026
Business
Planning for a Sale: Engineering the Best Possible Outcome
Most business owners approach a potential sale by asking a single question: What is my business worth? While valuation is important, it is rarely the most important question. A more productive starting point is: What do I want the sale of my business to accomplish for my family, my legacy, and the next phase of my life? A recent series by Family Business Magazine outlines a useful framework for thinking through that question. It moves the conversation beyond price and into a broader discussion of life planning, liquidity planning, and post-sale purpose. I highly suggest taking at those articles here: Part 1: How to exit a family business with purpose, profit and peace of mind - Family Business Magazine Part 2: Planning for the best possible outcome of a business sale - Family Business Magazine The below focuses primarily on maximizing enterprise value while preparing for a sale, but the articles linked above are a must read for owners planning an exit. Many of these themes closely mirror what we see in transactions involving search funds, independent sponsors, and family office investors acquiring privately held businesses, because many of those deals pull from the same group of sellers. Sellers Should Define "Enough" Before Negotiating One of the most common mistakes founders make is negotiating a transaction before defining what success actually looks like. Owners should enter negotiations with clarity on: The lifestyle they want after the sale How much liquidity is required to support that lifestyle Legacy or philanthropic goals Whether they want to remain involved in the business Without defining what "enough" means, sellers can end up optimizing for headline price rather than overall outcome. Some reject reasonable offers while others accept deals that ultimately do not support their long‑term financial goals. From a planning perspective, this is where tax modeling, estate planning, trust structuring, and charitable planning should occur before a letter of intent is signed. Once negotiations begin, many of these planning opportunities become more limited. Transaction Structure Matters as Much as Price A higher purchase price does not always produce a better result for the seller. Owners should carefully evaluate the structure of a proposed transaction, including: Cash at closing versus rollover equity Earn‑outs and performance contingencies Seller financing Employment agreements and non‑compete obligations Indemnification exposure and escrow provisions Capital tied up behind unrealistic performance benchmarks, potential clawbacks, and unintended tax consequences can quickly change how a seller views the attractiveness of a deal. A Practical Example: How Structure Shapes the Outcome Consider a common lower‑middle‑market transaction. A founder sells a services company for $12 million to a search fund backed by several investors. The deal structure may look something like this: $8 million paid in cash at closing (often financed through SBA or senior debt) $2 million rolled over by the seller as minority equity $1 million tied to performance‑based earn‑out targets $1 million held in escrow to cover indemnification exposure On paper, the headline purchase price is $12 million. In practice, the seller only receives $8 million at closing, with the rest dependent on future performance and negotiated protections. For some sellers, this structure can be extremely attractive. Rollover equity allows them to participate in future growth, particularly if the buyer plans to pursue add‑on acquisitions or scale the platform. For others, the priority may be liquidity and simplicity. The Emotional Transition Is Real Selling a business is not purely a financial event. For many founders, the business represents years of personal effort and identity. The business may represent: A founder's reputation in the community Their daily structure and purpose Their primary social and professional network This is why many successful transitions incorporate some form of gradual change rather than an immediate exit. Options may include: A phased transition period A recapitalization instead of a full sale Minority liquidity events Installing professional management before a transaction These approaches can allow owners to preserve value while also managing the emotional realities of stepping away from the enterprise they built. Post‑Sale Wealth Requires Structure For many founders, the sale of a business represents the single largest liquidity event of their lives. The transition from operating income to investment income requires a completely different mindset and governance framework. A successful sale often creates a new set of challenges. A significant liquidity event can introduce complexity that many founders have never previously faced. Common considerations include: Investment governance Asset protection Estate and gift tax exposure (although much of this should be planned prior to the sale date) Family alignment around wealth management Many families explore options such as establishing a family office, joining a multi-family office platform, or pursuing their own investments in different asset classes (real estate, private equity, traditional stocks and bonds, etc.). The legal and governance infrastructure supporting these structures is just as important as the purchase agreement that completes the sale. Why Sellers Need to Have This Conversation Now Several market trends are increasing the number of potential transactions in the lower middle market. We are seeing: Growing number of retiring business owners Continued growth of search funds Increased independent sponsor activity Expansion of family office direct investing Strong buyer demand in certain service sectors As a result, many business owners are receiving inbound acquisition interest earlier than expected. But inbound interest does not necessarily mean a business or its owner is ready for a transaction. The most successful exits tend to occur when three elements align: The owner is personally ready The business is operationally prepared Legal, contractual, and financial structures are organized When those pieces are in place, a transaction can achieve far more than simply generating liquidity. It can provide the foundation for the next chapter of the owner's personal and financial life. Seller Readiness Checklist For founders considering a potential exit, several questions can help determine whether the business and owner are ready for a transaction: Have you defined what financial outcome is "enough" for your post‑sale goals? Are your financial statements, contracts, and corporate records organized and diligence‑ready? Do you understand how different transaction structures affect liquidity and taxes? Have you discussed succession and estate planning with your advisors? Do you know whether you want to exit completely or remain involved post‑transaction? Is your management team capable of operating the business during and after a transition? Owners who address these questions early often enter negotiations from a position of clarity and strength. Final Thoughts Selling a business is one of the most consequential financial decisions an entrepreneur will make. The best outcomes rarely result from focusing on price alone. Instead, they come from thoughtful planning that integrates transaction strategy, tax considerations, estate planning, and personal goals. For owners considering an exit, taking the time to plan intentionally, before negotiations begin, can make the difference between a good outcome and a transformative one.
March 17, 2026
Tax
ERC Refund Claims Are Running Out of Time: Why Waiting on the IRS Could Cost Businesses Their Credit
The Employee Retention Credit may be closed to new filings, but the controversy surrounding unpaid and disallowed claims is very much alive. For many businesses, the real risk in 2026 is no longer just whether the IRS will eventually act. The real danger is that waiting too long may eliminate a taxpayer’s ability to force action and recover the refund at all. That risk is becoming acute. The IRS’s own ERC disallowance guidance states that once a Letter 105C is issued, the taxpayer generally has two years from the date of that letter to file suit. Requesting an administrative appeal does not extend that deadline. In other words, a protest can sit comfortably in the IRS administrative queue while the clock on your right to sue keeps ticking away. This is not a theoretical concern. In its Annual Report to Congress, the National Taxpayer Advocate warned that the IRS issued roughly 28,000 ERC disallowance notices during the summer of 2024. By the time the report was published, many of those taxpayers had fewer than six months remaining on the two-year period to file suit. That should get the attention of any business with an unresolved ERC dispute. The practical message is straightforward. A taxpayer cannot assume that “waiting on appeals” preserves the claim. It does not. Nor can a taxpayer assume that the IRS will affirmatively safeguard the deadline. And while TAS has reportedly set up a universal email address where taxpayers and practitioners can send Form 907s that need immediate attention, there is no clear definition of what “immediate” means or how submissions with be prioritized. That is if you can get one signed. Practitioners have widely reported that the IRS has a directive to deny any requests for extensions. For businesses stuck in the administrative process or waiting out IRS inaction, that is not encouraging news. Just as troubling is the disconnect between official reporting and what many practitioners are seeing on the ground. The Government Accountability Office (“GAO”) reported in February 2026 that the IRS told GAO it had closed all ERC claims, except for the 41,000 still in examination or appeal. BUT the IRS did not provide documentation for that figure, did not define what it meant by a “closed” claim, and had not publicly updated ERC processing status since October 2024. That lack of transparency matters. A claim that the IRS internally considers “closed” may not feel closed at all to the business that has received no payment, no final resolution, no meaningful movement in the administrative process, and no clear explanation of what happens next. And practitioners, who have direct knowledge about how many ERC claims remain unresolved or pending for their clients, are scratching their heads at the IRS’s numbers. When the government’s statistics and the real-world experience of taxpayers diverge this sharply, the problem usually isn’t arithmetic. It’s visibility. The disconnect could be driven by resource constraints. The IRS is attempting to manage complex amended return inventories, controversy matters, and operational changes at the same time its workforce has shrunk significantly. According to the National Taxpayer Advocate’s 2026 report, the IRS workforce fell from 102,113 to 75,702 over the prior year, with major reductions in taxpayer services, small business and self-employed functions, and information technology. A workforce reduction of that magnitude inevitably affects how quickly and effectively disputes are resolved. All of this to say: businesses should not treat delay as harmless. Put differently, this is not an environment in which a company should confidently assume its case will be resolved through the ordinary administrative process before a limitations problem arises. When the statute of limitations is involved, time does not merely fly, it sprints. For businesses with ERC claims, 2026 should be treated as a decision year, not a waiting year. If your claim has been denied, you should determine the date on the denial letter and calculate the two-year suit deadline now. Many businesses will find that deadline is coming this July. If your protest is pending, you should evaluate immediately whether the statute is still running and whether action is necessary to preserve your rights. If your claim remains unresolved after prolonged inaction by the IRS, you should assess whether court action is appropriate rather than assuming the administrative process will eventually resolve itself. Businesses that filed ERC claims in good faith should not lose their recovery rights because the IRS process is slow, opaque, and under-resourced. They should not lose a legitimate tax credit simply because a handful of aggressive promoters created skepticism around the program. Yet that is precisely the position many taxpayers now face. One of the important nuances of filing for a refund is that it takes it out of the hands of the Office of Chief Counsel (IRS in-house attorneys) and thrusts it into the arms of the DOJ. At a time when the DOJ has defunded its tax division and spread its specialized attorneys amongst its various criminal and civil litigation divisions, perhaps an abundance of filings creating pressure will cause the DOJ to push the IRS into action and resolution. Who knows. But there’s only one way to find out. Either way, the window to act is narrowing, particularly for taxpayers who received ERC disallowance letters in the summer of 2024 and assumed their protest would preserve the claim. It may not. If your company has an unpaid ERC claim, a pending protest, or a disallowance letter that has been sitting for months, now is the time to review the file, confirm the applicable deadlines, and determine whether litigation or other protective action is necessary. You still have options today, but that may not be true for long. Waiting for the IRS to move first may be the very thing that costs you the chance to recover.
March 16, 2026
Family Law
In Depth Crypto Secrets and Divorce: Valuing Hidden Wealth in New York Splits
As cryptocurrency moves from the margins of finance into the mainstream, matrimonial practitioners are increasingly encountering digital assets in divorce proceedings. Assets such as Bitcoin, Ethereum, and other blockchain-based tokens, once considered speculative investments, now appear regularly within marital estates. The presence of cryptocurrency in a divorce raises issues that traditional financial assets rarely present. These assets exist outside conventional banking systems, are often held in decentralized digital wallets, and may be transferred or stored in ways that are not immediately apparent from traditional financial records. As a result, identifying, valuing, and dividing cryptocurrency can present unique challenges during equitable distribution proceedings. Under New York law, cryptocurrency is generally treated as property subject to equitable distribution if acquired during the marriage. However, its technological structure, market volatility, and potential for concealment often complicate discovery and valuation. For matrimonial attorneys and litigants alike, understanding how courts approach digital assets has become an increasingly important component of modern divorce practice. Understanding Cryptocurrency Cryptocurrency is a digital asset that uses cryptographic technology and decentralized networks to verify and record transactions. Unlike traditional currencies issued by governments or central banks, cryptocurrency operates on a distributed ledger known as a blockchain. The blockchain functions as a permanent digital record of transactions maintained across a network of computers. While these transactions are publicly recorded, the individuals behind them are typically identified only by alphanumeric wallet addresses rather than by name. This structure creates a level of pseudonymity that can complicate efforts to identify ownership. Control of cryptocurrency is determined by possession of private cryptographic keys associated with a digital wallet. Whoever holds the private keys effectively controls the asset. Cryptocurrency may be stored through online exchanges, mobile wallets, hardware wallets, or offline storage devices, often referred to as “cold storage.” While the technology underlying cryptocurrency offers transparency because transactions are permanently recorded on the blockchain, it also creates practical challenges when these assets must be addressed in a matrimonial context. Cryptocurrency as Marital Property in New York New York is an equitable distribution state governed by Domestic Relations Law §236(B). Under this framework, marital property is distributed in a manner the court considers fair under the circumstances, though not necessarily equal. For purposes of equitable distribution, cryptocurrency is generally treated as property in the same manner as other financial investments. Digital assets acquired during the marriage are therefore typically considered marital property subject to distribution. Conversely, cryptocurrency acquired prior to the marriage, or received individually by gift or inheritance, may be considered separate property, provided it has not been commingled with marital assets. Practitioners are increasingly encountering cases where one spouse began investing in digital assets years before the marriage, but continued trading during the marriage using marital funds. In those circumstances, careful tracing is often required to determine what portion of the asset may remain separate and what portion may be marital. Discovery and Identification of Cryptocurrency Perhaps the most significant challenge in cases involving cryptocurrency is identifying whether such assets exist in the first place. Traditional financial accounts generate regular statements and leave clear documentary trails. Cryptocurrency, by contrast, may be stored in decentralized wallets that are not tied to any financial institution. As a result, the existence of these assets may not be readily apparent from standard financial disclosures. Ownership of cryptocurrency is not determined by whose name appears on an account, but rather by who controls the private keys associated with the digital wallet. A spouse who controls those keys effectively controls the asset. For this reason, discovery in cases involving cryptocurrency often requires a detailed examination of financial records. Attorneys frequently review bank and credit card records for transfers to cryptocurrency exchanges such as Coinbase, Binance.US, Kraken, Uphold, or Gemini, as well as unexplained withdrawals or transfers that may indicate digital asset purchases. Common discovery tools include subpoenas to exchanges, requests for wallet addresses and transaction histories, and forensic analysis of electronic devices and financial accounts. Although cryptocurrency is sometimes perceived as anonymous, transactions recorded on the blockchain are permanent and publicly available. When analyzed by professionals familiar with blockchain technology, these records can often reveal patterns of transactions and help trace the movement of digital assets. In several recent matters handled by the New York Supreme Court, the Court has permitted expanded financial discovery when credible evidence suggested undisclosed digital asset holdings. As with other financial assets, the failure to disclose cryptocurrency may result in sanctions, adverse inferences, or adjustments to equitable distribution. Valuation Considerations Once cryptocurrency has been identified as part of the marital estate, determining its value presents additional challenges. Cryptocurrency markets are well known for their volatility. Prices may fluctuate dramatically within hours or days, which can complicate the valuation process. In New York divorce proceedings, courts may value marital property as of the date of commencement of the action, the date of trial, or another date deemed equitable under the circumstances. Given the volatility of digital assets, the selection of the valuation date can significantly affect the final distribution. Practitioners often retain financial experts to analyze historical pricing data from major exchanges and determine a reliable fair market value. In cases involving substantial holdings, experts may calculate average pricing over a defined period in order to minimize the impact of short‑term market fluctuations. Methods of Distribution Once cryptocurrency has been identified and valued, the parties or the court must determine how the asset will be distributed as part of equitable distribution. Several approaches are commonly used. In‑Kind Division One option is to divide the cryptocurrency itself between the parties. Each spouse receives a proportionate share of the digital asset. While this allows both parties to share in future gains or losses, it also requires both individuals to maintain secure digital wallets and understand how to manage the asset. Buyout or Offset In many cases, one spouse retains the cryptocurrency while the other receives an offsetting asset of comparable value, such as cash or additional equity in the marital residence. This approach is often preferred when only one spouse was actively involved in managing digital investments during the marriage. Liquidation Another option is to sell the cryptocurrency and divide the proceeds. This approach eliminates the uncertainty associated with price volatility, but may create tax consequences depending on the asset’s appreciation and holding period. Concealment Concerns The decentralized nature of cryptocurrency can make it easier for individuals to attempt to conceal assets during divorce proceedings. Digital assets can be transferred rapidly between wallets or across exchanges in ways that may initially appear difficult to trace. In some instances, individuals attempt to obscure transaction histories by transferring assets through multiple wallets or converting them into privacy‑focused tokens. Despite these challenges, blockchain technology can also work in favor of investigators. Because blockchain transactions are permanently recorded, forensic specialists are often able to reconstruct transaction histories and trace the movement of funds. In practice, experienced matrimonial attorneys are increasingly working with forensic accountants and blockchain analysts to determine whether undisclosed digital assets exist. Tax Implications Cryptocurrency also raises important tax considerations in divorce proceedings. The Internal Revenue Service treats cryptocurrency as property rather than currency. As a result, selling cryptocurrency to divide proceeds may generate capital gains taxes depending on the asset’s cost basis and holding period. Transfers of cryptocurrency between spouses incident to divorce may qualify for non‑recognition of gain under federal tax law. However, the receiving spouse generally assumes the original cost basis of the asset, which can create tax implications when the asset is later sold. Accordingly, tax consequences should be carefully evaluated when structuring any settlement involving digital assets. The Role of Experts As cryptocurrency becomes more prevalent in marital estates, the role of financial and forensic experts in matrimonial litigation continue to expand. Professionals experienced in blockchain analysis and digital asset valuation can assist attorneys and courts in identifying hidden assets, tracing transaction histories, and determining fair market value. In complex cases involving substantial digital holdings, these experts often provide the evidentiary foundation necessary for courts to confidently include digital assets within the marital estate. Conclusion By 2030, the global cryptocurrency market is expected to surpass $3 trillion in value. As digital assets continue to expand within personal and marital financial portfolios, understanding how these holdings are identified, valued, and equitably distributed in a New York divorce has become not merely important, but essential. Coin Market Cap is an online platform that provides data on the cryptocurrency market.
March 13, 2026
Landlord Representation
HUD’s New Citizenship Verification Mandate: What HUD-Assisted Housing Providers Must Do
In January 2026, the U.S. Department of Housing and Urban Development (HUD) issued a surprise directive announcing immediate verification of citizenship and eligible immigration status for all households receiving federal housing assistance. Owners, public housing authorities, and managers of HUD‑assisted properties are now subject to a 30‑day deadline to identify and correct documentation gaps—or face potential consequences. HUD already issued the same mandate directly to Public Housing Authorities nationwide in late 2025. At Offit Kurman, we have been closely monitoring this development and advising affordable housing providers on what this mandate means, how to comply, and how to protect against significant legal risk during implementation. Why HUD Issued This Directive HUD recently executed a Memorandum of Understanding with the Department of Homeland Security (DHS) to align their data systems—specifically HUD’s Enterprise Income Verification (EIV) system and DHS’s SAVE (Systematic Alien Verification for Entitlements) program. They combined the two into a new joint registry called the EIV-SAVE Tenant Matching Report. After conducting their own preliminary audits, the agencies assert they identified: Households receiving assistance without verified eligibility Non‑citizen household members with inconsistent or missing SAVE records Deceased residents listed as active in EIV files Who Must Comply If your property participates in a HUD‑assisted program, the mandate applies. This includes: Public Housing Authorities Section 8 Project‑Based properties Section 202, 236, 221(d)(3), 811 HUD Multifamily assisted housing programs What HUD Requires You to Do Immediately HUD expects these affordable housing providers to: Review and verify the citizenship or immigration status of all assisted household members Correct discrepancies identified in the EIV-SAVE Tenant Matching Report Prorate assistance applied to mixed‑status households Document every step along the way and ensure electronic and paper files align This mandate is a significant operational challenge, but it is manageable with structure, consistency, and careful communication. The biggest risks lie not in HUD’s verification requirements, but in missteps during resident interactions, potential selective enforcement, or insufficient documentation. Remember: National origin and race/color are protected classes under the Fair Housing Act, which is federal law. Your jurisdiction may have additional protected classes to be aware of. Housing providers should keep in mind that communication with all residents should be neutral, factual, uniform, non-threatening, and non-political. Housing providers who respond quickly, apply the process uniformly, and preserve clear records are well‑positioned to navigate this change successfully.
March 12, 2026
Landlord Representation
After the Layoff: Rebuilding Trust and Avoiding Legal Landmines
A reduction in force is one of the hardest decisions any organization makes. Even when the business case is clear, the human impact is not. Jobs are lost. Teams are disrupted. And the employees who remain are left trying to process a complicated mix of relief, anxiety, and uncertainty. For employers, the work does not end when the layoff notices go out, or the separation agreements are signed. In many ways, the real challenge begins the next morning when the remaining workforce logs in and asks the same quiet question: what happens now? From a labor and employment perspective, the post-layoff period is where culture, communication, and legal risk collide. Organizations that handle this moment thoughtfully can rebuild trust and stabilize their teams. Those that do not may find themselves facing declining morale, increased turnover, and avoidable legal exposure. The employees who remain are often referred to as “survivors,” and that description is not far off. Survivor’s guilt is common. Employees may feel uneasy about colleagues who lost their jobs while they remained. At the same time, many are wondering if they will be next. The instinct for some leaders is to move on quickly and return to business as usual. That approach rarely works. Silence invites speculation, and speculation almost always fills the gap with worst-case assumptions. The first step toward rebuilding trust is clarity. Employees do not expect leadership to promise that layoffs will never happen again. They do expect honesty about why the reduction occurred and what the path forward looks like. When leaders explain the business realities behind difficult decisions, employees are more likely to view the process as legitimate, even if they wish it had not happened. Transparency also means explaining how decisions were made. Without sharing confidential information, employers should communicate the factors used to evaluate roles and determine which positions were eliminated. When employees understand the reasoning, they are less likely to assume the process was arbitrary or unfair. Managers play a critical role in this moment. Frontline supervisors are usually the first people employees turn to with questions and concerns, yet they are often the least prepared for those conversations. Employers should provide managers guidance on how to address the layoff, answer common questions, and recognize signs of burnout or disengagement on their teams. At the same time, organizations need to take a realistic look at workload. One of the most common mistakes after a reduction in force is assuming the remaining employees can simply absorb the work of those who left. In the short term, teams often step up heroically. Over time, however, sustained overload leads to frustration, mistakes, and eventually departures. Rebuilding trust means acknowledging this reality and adjusting priorities where necessary. Recognition matters as well. Employees want to know their contributions are seen and valued, especially during periods of uncertainty. Celebrating small wins, inviting employee input, and acknowledging extra effort can go a long way toward restoring a sense of stability. But rebuilding morale is only part of the equation. The period following a reduction in force also comes with a number of legal landmines that employers should not ignore. One of the biggest risks is inconsistent messaging. If leaders offer different explanations about why the layoff occurred or how decisions were made, employees may begin to question whether the stated business reasons were genuine. Confusion and mixed signals can quickly fuel discrimination or retaliation claims. Employers should make sure leadership, HR, and managers are aligned on what will be communicated and how. Another key issue is whether the layoff had a disproportionate impact on certain employee groups. Even when a reduction is driven by legitimate business needs, the selection criteria can sometimes result in unintended disparities affecting protected groups. Conducting an adverse impact analysis before implementing a reduction is a critical step that many employers overlook. Age-related issues deserve particular attention. When employees aged 40 and older are asked to sign releases in exchange for severance, employers must comply with the Older Workers Benefit Protection Act. That means using clear language and providing the appropriate review and revocation periods. In group termination situations, employers must also provide specific disclosures regarding job titles and ages of individuals selected and not selected for the program. These requirements are technical, and cutting corners can undermine the enforceability of the agreement. Retaliation is another common flashpoint. Employees who previously raised concerns about discrimination, harassment, pay practices, or workplace safety may claim they were selected for the layoff because they spoke up. That does not mean they cannot be included in a legitimate reduction in force, but it does mean the employer should have well-documented, objective business reasons for the decision. Employers should also be mindful of wage-and-hour issues that may arise after layoffs. When teams shrink, but expectations stay the same, remaining employees may start working off the clock, skipping breaks, or accumulating overtime that managers quietly hope will go unreported. That dynamic can quickly lead to wage claims. Reviewing timekeeping practices and reminding managers of their responsibilities can prevent small issues from becoming larger ones. Severance agreements themselves can also create problems if they are drafted too aggressively. Overly broad confidentiality or nondisparagement provisions may run afoul of employee rights to discuss workplace conditions or participate in protected activity. The goal should be a thoughtful, compliant agreement, not language that attempts to silence employees entirely. Another surprisingly common mistake occurs when leaders try to reassure employees by making promises they cannot guarantee. Statements like “this was a one-time event” or “there will be no more layoffs” may calm nerves in the moment, but they can create credibility problems if circumstances change. Honest, measured communication is always safer than absolute assurances. Finally, employers should remember that documentation matters. Casual comments in emails or internal messages can look very different when reviewed months later by a government agency or a court. Descriptions of employees lacking “energy,” not fitting the “new culture,” or being “close to retirement” may seem harmless in conversation, but can quickly become problematic in litigation. The bottom line is that a reduction in force is not just an operational decision, it is a defining moment for an organization’s culture and leadership. Employers that communicate clearly, train managers thoughtfully, and review decisions through both a business and compliance lens are far better positioned to move forward. Just as important, they signal to the employees who remain that they are valued partners in the company’s future. And in the aftermath of a layoff, that message matters more than ever.
March 12, 2026
Tax
When Will the IRS Compromise Tax Liability?
We have all seen the television commercials hawking tax relief with “satisfied clients” shilling for the promoter. But will the IRS really compromise a tax liability? If so, when, how, and why? There are four grounds on which the IRS is authorized to compromise a tax liability: (1) Effective tax administration on grounds of equity or public policy; (2) Effective tax administration on grounds of economic hardship; (3) Doubt as to liability; and (4) Doubt as to collectability. Because the business is the taxpayer, a request to compromise must be made in the name of the business. This means that partners in a partnership cannot compromise an individual’s portion of a partnership tax debt. The partnership must submit its own offer in compromise based upon the partnership’s and the individual partner’s ability to pay. The Internal Revenue Manual (IRM) is the IRS’s internal policies and procedures manual and contains a wealth of information regarding how the IRS evaluates offers in compromise (among many other topics). To see what factors the IRS considers and how it evaluates offers in compromise as set forth in the IRM, click here. Effective Tax Administration on Grounds of Equity or Public Policy This means there is no doubt the tax liability is owed, and that the full amount could be collected. In this case, compelling public policy or equity considerations exist, such that collection of the full liability would undermine public confidence that the tax laws are administered in a fair and equitable manner. Not to say the IRS has never compromised a tax debt on these grounds, but a successful result is almost unprecedented. Effective Tax Administration on Grounds of Economic Hardship Like its sibling, a compromise on grounds of public policy, this exception also means there is no doubt the tax liability is owed and that the full amount could be collected. This ground would apply where full collection would cause severe economic hardship, such as an inability to pay basic, reasonable living expenses. Most efforts to compromise a tax debt under this exception fail because other, more common grounds exist. Doubt as to Liability This means there is a genuine dispute whether the amount of the assessed tax is correct or whether the assessment is correct. Tax protester arguments, i.e., the Income Tax Act is unconstitutional, the income tax is a voluntary tax, wages are not income, the sovereign citizens theory, and a plethora of other arguments do not constitute a genuine dispute. In fact, all these tax protester arguments have been repeatedly characterized as frivolous, which, if made, will subject the person making them to possible sanctions under IRC § 6673(a). For information on tax protester arguments (and the consequences) click here. Doubt as to liability frequently arises in cases involving innocent spouse relief, but may arise in other areas as well. Doubt as to liability can arise in a number of circumstances such as a missed notice from the IRS resulting in the IRS disallowing all deductions, which, assuming the time for correction has not expired, can be proven and credited, mistaken or incorrect reporting such as when a payroll service reports (and pays) employment taxes for one affiliate when it should have been the other affiliate, or the IRS examiner made a mistake in applying the law or in calculating a tax liability. It happens. Doubt as to liability could arise when the IRS seeks to impose a Trust Fund Recovery penalty—the Trust Fund Recovery penalty, or TFR for short, is a 100% penalty— on a corporate official for not making payroll tax deposits and a genuine issue exists whether the person is a “responsible party” for purposes of withholding, collecting, and remitting payroll taxes. In virtually all the litigated tax cases, the issue is doubt as to liability. In each case, the determination of whether there is any doubt as to liability will be made on the totality of the facts and circumstances. To raise the issue of doubt as to liability, several conditions must be met: (1) there cannot be a final court determination regarding the tax liability; (2) there must be a legitimate dispute regarding the tax liability (no tax protester arguments); and (3) you must have supporting documentation. Typically, doubts as to liability are resolved well before the offer in compromise stage; but if not, an offer in compromise on the basis of doubt as to liability is made using Form 656-L. The last category, doubt as to collectability, is the most often used ground for compromising a tax debt. Doubt as to Collectability This means the IRS does not think it can collect the full amount of the tax liability through forced collection, so it would rather have something rather than nothing. Before the Service will consider compromising a tax debt due to doubt as to collectability, it will require the taxpayer to submit Form 433-B, Collection Statement for Businesses (for individuals, there is Form 433-A). Form 433-B requires a business to list extensive financial information. Though it may seem intrusive at first blush, the purpose of Form 433-B is to determine what the IRS can achieve through force collections. After all, the IRS will not compromise a tax debt for doubt as collectability where the full amount can be paid through available assets or income, either in full immediately or through an installment agreement. Though some may be tempted to understate assets and overstate liabilities on Form 433-B, this is a very bad idea. Form 433-B, like all forms submitted to the IRS, is signed under penalty of perjury. Intentionally understating assets or overstating liabilities on a Form 433-B is a 1001 violation (a crime punishable by up to five years imprisonment) just as if the person signing the form had lied to a federal agent. As thorough as Form 433-B is, it is just numbers on a piece of paper. To maximize the chances of getting the IRS to compromise a business tax debt, the business’s story needs to be told, in writing, ideally accompanying Form 433-B. An offer in compromise (OIC) for doubt as to collectability is made on Form 656-B. If the taxpayer can demonstrate that it is unlikely that the IRS will collect the full amount through forced collection and the offer in compromise reflects the taxpayer’s reasonable collection potential (RCP), the IRS will likely accept the offer and compromise the tax debt.
March 11, 2026
Family Law
Cryptocurrency in Divorce: How Courts Handle Bitcoin, Valuation, and Disclosure
As cryptocurrencies become more common, Bitcoin is increasingly showing up in divorce cases. Unlike traditional bank accounts, dividing Bitcoin involves unique issues related to valuation, transfer, and tax consequences. In most states, including Maryland, property acquired during the marriage is generally considered marital property, regardless of how it is titled. If Bitcoin was purchased during the marriage using marital funds, it is typically subject to division. If it was acquired before the marriage, some or all of it may be non-marital property. However, any increase in value during the marriage may still be considered when dividing assets. Bitcoin’s price fluctuates significantly. Courts must determine a valuation date, which could be the date of separation, filing, or trial, depending on the jurisdiction. Because of volatility, the timing of valuation can meaningfully affect the outcome. Some settlements divide the actual Bitcoin amount rather than assigning a fixed dollar value to account for price swings. There are three common methods to dividing Bitcoin: 1) Transfer in-kind: one spouse transfers a portion of the Bitcoin directly to the other; 2) Sell and divide proceeds: the parties agree to liquidate the Bitcoin and the cash is split, and 3) Offset with other assets: one spouse keeps the Bitcoin, and the other receives different marital assets of equal value. Each method has tax and risk considerations that should be analyzed and assessed. Cryptocurrency can raise concerns about hidden assets, especially when wallets or exchanges are not fully disclosed. Courts take nondisclosure seriously. Bitcoin is also treated as property for tax purposes. Selling it may trigger capital gains, so the tax impact should be considered when structuring any division. While Bitcoin is divisible in divorce, its volatility and tax implications make it more complex than dividing traditional assets. Careful planning and clear settlement terms are essential to ensure a fair and enforceable outcome.
March 10, 2026
Family Law
Public vs. Private School in Divorce: Who Decides and Who Pays?
When parents divorce, disagreements about whether a child should attend public or private school are common. The answers to “who decides?” and “who pays?” depend largely on custody and the family’s financial circumstances. Who Decides? School choice is part of legal custody, which governs major decisions about things like a child’s education, medical care, and religion. If parents share joint legal custody, neither parent can unilaterally choose a private school or switch schools without the other’s agreement. If they cannot agree, a judge may decide based on the child’s best interest. Maryland courts apply guidance from cases such as Taylor v. Taylor and Montgomery County Dept. of Social Services v. Sanders, focusing on stability, the child’s academic history, parental involvement, and practical considerations like distance and scheduling. If one parent has sole legal custody, that parent typically has authority to decide the school, although the other parent may challenge the decision if it is harmful or unreasonable. Who Pays for Private School? Even if a private school is chosen, tuition is not automatically required. Courts examine factors like whether the child historically attended private school, whether the family can afford the expense, and whether private education is consistent with the child’s best interest. Private school tuition is often treated as an additional child-related expense and may result in child support adjustment. Courts are more likely to require payment if the child attended private school during the marriage and the parents have the financial ability to continue it. The Bottom Line Educational decisions in divorce should not be about what one parent prefers; instead, they should be about what serves the child’s best interests while remaining financially realistic. If you are facing a dispute about school choice, early legal guidance can help you protect both your parental rights and your financial stability.
March 9, 2026
Estates and Trusts
Protecting the Modern Family with Mindful Estate Planning
Early in the show Modern Family, we meet a family formed through remarriage, cultural differences, and a significant age gap. When Jay Pritchett marries Gloria Delgado, he becomes stepfather to her sensitive teenage son, Manny. Gloria, in turn, joins a family that already includes Jay’s adult children, Claire and Mitchell. Blended Families, Real-Life Challenges The show has a field day as Jay grapples with Manny’s love of espresso, poetry, and candlelit dinners, while Gloria adjusts to having stepchildren old enough to be her high school classmates. Later, Jay and Gloria welcome a son they have together, Joe, adding another layer to the family structure. While these moments provide plenty of laughs on screen, similar situations in real life raise serious legal questions. Their household reflects many of the realities of today’s blended families—the complexities of prior relationships, stepparenting, and children with different legal ties to each parent. Manny has a biological father, Javier, who remains part of his life. If Gloria were to die unexpectedly, what arrangements would protect Manny’s financial future? If Jay were to die first, how would his estate be divided among Gloria, Claire, Mitchell, Manny, and Joe? Would Manny inherit in the same way as Jay’s biological children? Would Gloria have full access to Jay’s assets, and if so, how might that setup affect what ultimately passes to Claire and Mitchell? Questions like this call for thoughtful estate planning. Prenups and Marital Trusts: Planning for Every Scenario Before tying the knot, Jay and Gloria could have met with an estate-planning attorney to clarify their intentions and protect everyone involved. One possible tool would be a prenuptial agreement. Second marriages, especially those involving children from prior relationships, often benefit from a written agreement that defines property rights and financial expectations. A prenup outlines how assets will be divided in the event of divorce and can also address inheritance rights upon death. For Jay, who built a successful business before marrying Gloria, this document could ensure that certain assets are preserved for Claire and Mitchell while still providing generously for Gloria. Another strategy would be to create a marital trust under Jay’s will. If Jay died first, his assets could be placed in trust for Gloria’s lifetime benefit. She would receive income and, if needed, principal for her health and support. After Gloria’s death, the remaining trust property could pass according to Jay’s wishes—perhaps divided among Claire, Mitchell, and Joe, or allocated in a way that also provides for Manny. This structure enables a surviving spouse to remain financially secure while preserving the first spouse’s intentions regarding his children. Gloria would need similar planning. Because Manny has another living parent, Javier, questions of guardianship and inheritance require thoughtful consideration. Having a current will, clear beneficiary designations on assets like life insurance and retirement accounts, and possibly a trust could ensure that Manny and Joe are protected without unnecessary complications. Adoption presents another consideration in some blended families. If Jay adopted Manny (and Manny’s biological father consented), that would strengthen Manny’s inheritance rights and formalize his legal relationship with Jay. Adoption would also affect how assets are passed under intestacy laws if either Jay or Manny died without a will. Blended families often bring love and complexity in equal measure. With a clear estate plan in place, Jay and Gloria could focus on raising Joe, supporting Manny, and staying connected to Claire and Mitchell—confident that their legal foundation supports the family they built together. Putting Your Plan Into Action If you are part of a blended family—or considering creating one—taking time to address the legal and financial details can be just as important as building emotional bonds. Speaking with an experienced Estates & Trusts attorney can help you protect your spouse, your children, and your intentions. With mindful planning, you can ensure a more secure future for the family you build today.
March 6, 2026
Estates and Trusts
Using a Private Foundation to Preserve an Artist’s Legacy
Thoughtful estate planning is essential for artists seeking to ensure the long‑term preservation, management, and presentation of their lifelong work. Although executors and trustees can competently administer the legal and financial aspects of an estate, they may lack the specialized knowledge required to oversee a significant body of artistic work. Establishing a private foundation—whether in the form of an operating foundation that directly manages, displays, and loans artwork, or a non-operating foundation that supports public charities—can provide a structured and durable mechanism for stewardship. By appointing directors who are artists or professionals familiar with the creator’s oeuvre, these entities can administer, conserve, and promote the artwork in a manner consistent with the artist’s intent. As a result, private foundations can serve as an effective vehicle for extending an artist’s legacy and ensuring that their work remains accessible and properly managed for many years beyond the administration of the estate. Structure of a Private Foundation: Corporate vs. Trust A private foundation can be established in either trust format or as a nonprofit corporate entity. Choosing the format of the entity depends on desired flexibility, liability, and administrative burdens. Nonprofit corporations are generally preferred for their flexibility, greater liability protection for their directors, and ease of modification. Trusts are simpler to form but are more rigid, often requiring court approval to amend, and are best for straightforward non-operating or grant-making foundations. Nonprofit Corporations Flexibility: Allows for amending bylaws, changing the charitable purpose, or moving the location — all without court intervention. Liability: Offers better protection for its officers and directors. Structure: Requires a board of directors, regularly scheduled meetings held at least annually, minutes, and formal state filings. Best for: Foundations with complex activities, multiple individuals in charge, or that may evolve over time. Trusts Simplicity: Easier and less expensive to set up, with fewer administrative requirements such as regular meetings and minutes. Control: Usually in the hands of one or more trustees who are appointed by the donor, who provides rigid guidelines in the governing instrument that are difficult to change. Modification: Amending a trust often requires court approval, making it less flexible and adaptable to change. Best for: Simple, grant-making foundations with a specific, unchanging purpose. What is the difference between operating foundations and non-operating foundations? An operating foundation is a private foundation that focuses on direct service by running its own programs in support of its charitable purposes, while a non-operating foundation is a charitable entity that distributes funds to public charities rather than operating its own programs. An operating foundation actively conducts its own programs, such as operating a museum, library, or research facility. An operating foundation may also provide grants to individuals, provided that those grants are within the foundation’s purposes. It must meet IRS "income" and "asset/service" tests to prove it is actively running programs rather than just holding assets. Generally, an operating foundation offers higher tax deductions for donors (up to 50%-60% of adjusted gross income) than a non-operating foundation. However, an operating foundation must spend at least 85% of its annual income on direct, active charitable activities. A non-operating foundation exists to support one or more specific public charities. It is typically funded by one or more individuals and focuses on grant-making to other qualified non-profits. Deductions to a non-operating foundation are limited to 30% of an individual’s adjusted gross income, and the foundation is required to pay out at least 5% of its assets annually to public charities. Since most artists’ foundations are formed to support and promote an artist’s legacy, they are usually formed as operating foundations unless the foundation is formed to sell the artist’s works and donate the proceeds to public charities. What are the duties and responsibilities of the board of directors of a private foundation? The board of directors of a private foundation leads the organization by defining its strategic vision, managing operations, and ensuring financial, legal, and ethical compliance. They are responsible for overseeing the officers of the foundation, who are the face of the organization with respect to fundraising, stewarding donors, cultivating relationships, and overseeing grantmaking programs that align with the foundation's mission. The board of directors is usually composed of at least three individuals. Some of the key responsibilities of the board of directors include: Mission & Strategy: Developing long-term goals, policies, and strategic plans for the foundation. Financial Oversight: Managing the foundation’s investment portfolio, approving budgets, reviewing audits, and ensuring tax compliance. Grantmaking and Programs: Developing grant guidelines and monitoring the distribution of funds. Leadership Oversight: Hiring, supporting, and evaluating the officers of the foundation, actively identifying and managing potential conflicts of interest, and ensuring transparency and accountability. Governance: Recruiting new board members, planning for succession, and maintaining foundation records. How do the foundation directors and officers interact with an artist’s works and intellectual property? The directors and officers are responsible for overseeing the management, preservation, and use of both the foundation’s physical artworks and its related intellectual property rights. Their authority and responsibilities are defined by the foundation’s governing documents, applicable state nonprofit law, and federal tax‑exempt organization rules. Some examples include ensuring the proper care, conservation, storage, and security of the foundation’s art collection; overseeing how copyright or other intellectual property rights to the artist’s work are licensed, enforced, or shared; ensuring that all interactions with the artwork and intellectual property comply with the IRS’s private foundation rules. Are the foundation directors and officers permitted to donate the artist’s artwork, organize exhibits, or sell the artwork? In general, the directors and officers of a private art foundation may donate, exhibit, or sell artwork only to the extent that those activities are consistent with the foundation’s governing documents, tax‑exempt purposes, and fiduciary duties. A private foundation’s charter, bylaws, and mission statement typically define how the artwork may be used and the scope of the directors’ and officers’ authority. Directors and officers may donate artwork if the donation furthers the foundation’s exempt purposes, for example, advancing the arts or supporting educational or cultural institutions. However, directors must avoid self‑dealing, meaning the artwork cannot be donated in a way that benefits disqualified persons, including directors, officers, substantial contributors, or related parties. Directors and officers are generally permitted to organize exhibitions, loan artworks, or otherwise make the collection accessible to the public. These activities are typically well aligned with a private operating foundation’s mission to directly manage and display the artist’s work, or a non-operating foundation’s mission to benefit public charities that further the foundation’s purposes. Directors and officers must ensure that exhibition or loan arrangements are documented at fair market terms and are consistent with the foundation’s charitable objectives. Directors and officers may sell artwork when doing so is allowed by the governing documents, consistent with the foundation’s purpose, and conducted at arm’s length and for fair market value. Sales to insiders or related parties can raise significant self‑dealing concerns under IRS rules applicable to private foundations. When permitted, sales may be used to fund operations, conservation efforts, or long‑term endowment needs. Finally, directors and officers must always act in the foundation’s best interests, preserve charitable assets, and comply with the Internal Revenue Code rules governing private foundations, including those related to self‑dealing, excess benefit transactions, and prudent investment of assets. How often do foundation directors meet? How are the meetings, held and what is discussed in those meetings? Board meetings are necessary because directors have legal fiduciary duties, which include the duties of care, loyalty, and obedience, all of which require active oversight and informed decision‑making. Regular meetings ensure that the foundation complies with nonprofit and tax‑exempt requirements, documents major decisions, manages charitable assets responsibly, and carries out its mission. Written and recorded minutes of all board meetings are essential to provide a clear governance record should the foundation ever face audit, regulatory review, or future questions about its stewardship of the artist’s legacy. The frequency and format of board meetings for a private foundation are determined primarily by the foundation’s governing documents, its bylaws, and organizational policies. Most private foundations hold board meetings at least annually, while many choose to meet quarterly or semi‑annually to fulfill fiduciary oversight responsibilities. Additional special meetings may be convened as needed, particularly when significant decisions arise concerning the foundation’s assets, including the management or disposition of artwork. Meetings may be held in person, virtually, or through hybrid formats, provided the bylaws and applicable state nonprofit law permit remote participation. Virtual meetings have become increasingly common due to their practicality and flexibility. Regardless of format, directors must receive proper notice, and the foundation must maintain accurate minutes documenting the actions taken. At each meeting, directors review matters related to governance, finances, and program activities. For an art-focused private foundation, discussions often include the following: Collection Management: Conservation needs, storage conditions, insurance coverage, cataloguing updates, and loan requests. Exhibitions and Programming: Potential exhibitions, partnerships with museums or cultural institutions, and educational initiatives. Intellectual Property Management: Licensing requests, reproduction permissions, and protection of the artist’s moral rights. Financial Oversight: Review of operating budgets, endowment performance, fundraising (if applicable), and compliance with expenditure responsibility rules. Legal and Compliance Matters: IRS private‑foundation compliance, conflict‑of‑interest reviews, self‑dealing safeguards, and approval of significant transactions. Strategic Planning: Long‑term preservation of the artist’s legacy, mission alignment, and governance succession planning. Are foundation directors compensated? The directors of a private foundation may be compensated with a "reasonable" salary or fees. Compensation should be outlined in the foundation's bylaws or governing documents, must not be excessive, and is typically based on industry standards. However, most directors of private foundations serve without compensation; only about 25% of private foundations compensate its board members, often using methods like annual retainers or per-meeting fees. Directors’ compensation is considered reasonable if it is what similarly situated individuals are paid for similar work at comparable organizations. Directors can be paid for professional and administrative services, including managing investments, legal work, accounting, overseeing foundation operations, and any work that is necessary to conduct the foundation’s exempt purposes. Directors are prohibited from receiving compensation for routine clerical work, physical labor, or services not related to the charitable purpose. Since directors are "disqualified persons," improper or excessive compensation can trigger IRS penalties (excise taxes) for self-dealing. Common methods of compensation include monthly or annual retainers, per-meeting fees (often $2,000+), or salaries. It is essential to document board approval and justify the salary amount to ensure it is not excessive, particularly for founder salaries, which are often 10%–25% of revenue. How are private foundations exempted under Section 501(c)(3) of the Internal Revenue Code? Private foundations qualify for tax‑exempt status under Section 501(c)(3) of the Internal Revenue Code by being organized and operated exclusively for charitable purposes, such as educational or cultural activities. To obtain this status, the foundation must (i) have organizing documents that limit its purposes to those permitted under §501(c)(3), (ii) refrain from activities that provide private benefit to insiders, and (iii) file Form 1023 or Form 1023‑EZ with the IRS to request recognition of exempt status. Once approved, the foundation must comply with the private‑foundation rules, such as restrictions on self‑dealing and minimum distribution requirements, to maintain its exempt status. If the application for a charitable exemption under Section 501(c)(3) of the Internal Revenue Code is submitted within 25 months of the formation of the private foundation, gifts to the foundation will be eligible for a charitable exemption under Section 170(c) and Section 2522 of the Internal Revenue Code dating back to the date of formation of the entity. Filing Form 1023 within 25 months (which is within the 27-month deadline) allows a non-profit to be recognized as tax-exempt retroactively from its date of formation. If the application is filed after the deadline (27 months from the end of the month of formation), the exemption is only effective from the date of the submission, meaning previous years may require amended tax filings by both the entity and its donors. Filing before the 25-month deadline ensures that all income earned since formation is exempt, and donations made to the organization are tax-deductible from the inception, provided it met 501(c)(3) requirements during that period. If done properly, the organization avoids having to pay corporate income tax for the period between its formation and the approval of the exemption, avoiding potential "gap" issues where tax might be owed. What are other team members in a private foundation? A private foundation typically relies on a broader team beyond its board of directors to ensure proper governance, financial management, and strategic oversight. While the board of directors is ultimately responsible for fulfilling fiduciary duties and guiding the foundation’s mission, several key roles support the foundation’s operations and compliance. Officers are the public face of a foundation. There are four types of officers that help the directors manage a private foundation, and they include the president, vice president, secretary, and treasurer. Each role serves a different purpose, but it is common for one person to hold one or more roles. President/CEO The president or chief executive officer provides overall leadership, reports to the board, sets agendas, and ensures that the foundation operates in accordance with its mission and governing documents. The president often serves as the primary liaison between the board and the public, including donors, museums, advisors, and service providers. Vice President The vice president supports the president and may assume leadership responsibilities in the president’s absence. Depending on the bylaws, the vice president may oversee specific committees or initiatives, such as exhibition planning or legacy programs. Secretary The secretary maintains the foundation’s official records, including meeting minutes, board resolutions, and governance documents. This role is critical for ensuring transparency, regulatory compliance, and properly documented decision‑making, particularly important for a private foundation managing valuable artwork. Treasurer The treasurer oversees financial matters, including budgeting, accounting practices, investment oversight, and compliance with IRS rules governing private foundations. The treasurer works closely with financial advisors and accountants to ensure proper stewardship of assets and adherence to annual reporting requirements. In addition to the directors and officers, the foundation may engage other professionals to serve as part of its advisory team. Although not required, these individuals can help ensure that the foundation operates smoothly and effectively. Legal Counsel Attorneys experienced in nonprofit and tax‑exempt organizations help interpret IRS rules, draft governance documents, review contracts (e.g., loan agreements or licensing deals), and advise on self‑dealing and conflict‑of‑interest safeguards. Accountant / CPA A certified public accountant plays a central role in maintaining the foundation’s financial books, preparing the annual federal tax Form 990‑PF, ensuring compliance with private‑foundation excise tax rules, and advising on issues such as valuation of artwork, endowment management, and expenditure responsibility. Art Advisors, Curators, or Conservators For foundations centered on an artist’s legacy, professionals with expertise in art handling, conservation, exhibition planning, and market knowledge may assist the directors and officers in making informed decisions about the artwork. Executive Director or Administrative Staff (if applicable) Some foundations appoint an executive director or administrative team to manage day‑to‑day operations, coordinate programs, and support the board in implementing strategic initiatives. Together, these individuals form a governance and advisory structure that ensures the private foundation operates responsibly, fulfills legal obligations, and effectively advances its charitable mission, particularly important for foundations entrusted with preserving and promoting an artist’s work. For artists, the process of estate planning involves more than transferring assets; it requires establishing a structure capable of preserving, interpreting, and managing a lifetime of creative work. A private foundation can serve as a legally durable vehicle to steward an artist’s collection, intellectual property, and reputation in a manner consistent with the artist’s intentions. Whether organized as an operating foundation dedicated to managing and exhibiting the artwork directly, or as a non-operating foundation whose purpose is to support public charities, this approach provides a clear governance framework and ensures that qualified directors are entrusted with long‑term oversight. Given the legal, tax, and fiduciary complexities associated with forming and administering a private foundation, artists should seek guidance from competent legal counsel. An attorney experienced in nonprofit, tax‑exempt, and estate planning matters for artists can help determine whether a foundation is the appropriate vehicle and ensure compliance with applicable state and federal laws.
March 5, 2026
Commercial Litigation
When Hypothetical Liquidations Become “Illogical”: Otay Project LP v. Commissioner
The Tax Court’s recent decision in Otay Project LP v. Commissioner, T.C. Memo. 2026-21, is likely to become one of the most discussed partnership cases of the year — not because it announces a new doctrine, but because it quietly rewrites how § 743(b) is expected to operate in large tiered partnerships. At issue was a familiar structure. A real estate development partnership underwent ownership changes that triggered a technical termination under pre-2018 § 708(b)(1)(B). Because the partnership had a § 754 election in effect, the termination required a basis adjustment under § 743(b). The partnership computed that adjustment using the regulatory hypothetical liquidation framework in Treas. Reg. § 1.743-1(d), which assumes a fully taxable disposition of partnership assets at fair market value. That hypothetical recognition of embedded gain — including large deferred income under long-term contract accounting — produced a substantial negative “previously taxed capital” amount and therefore a large positive § 743(b) adjustment. The IRS disallowed the deduction, and the court ultimately agreed. But the court did not reject the adjustment primarily on economic substance grounds. Instead, it concluded the calculation itself was “illogical,” pointing to the resulting balance sheet, which reflected negative partner capital and a basis adjustment far larger than the partnership’s book of equity. That reasoning deserves scrutiny. The Problem with the Court’s Analytical Frame Section 743(b) is mechanical. When a partnership interest is transferred, and a § 754 election exists, the statute requires the partnership to adjust inside basis so that the transferee partner’s share of inside basis matches its outside basis. Congress did not condition the adjustment on accounting symmetry, economic parity, or a positive capital account. The statute simply compares two numbers. Treasury regulations likewise adopt a mechanical approach. Treas. Reg. § 1.743-1(d) defines a transferee partner’s share of partnership basis using a “hypothetical transaction”; an immediate sale of all partnership assets for cash equal to fair market value. The regulation expressly requires gain recognition in that hypothetical liquidation. In a development partnership using the completed contract method, such a hypothetical sale necessarily accelerates large amounts of deferred income. The resulting negative capital is not anomalous — it is the direct product of the regulatory model. The purpose of § 743(b) is precisely to prevent that phantom gain from being taxed to the transferee partner a second time. The court, however, treated the result as evidence that the computation must be wrong rather than evidence that the regulation is working as intended. Negative Capital Is Not a Defect The opinion implicitly assumes that inside basis cannot produce a negative capital allocation. But neither the statute nor the regulations impose that limitation. To the contrary, § 743(b) adjustments routinely arise when outside basis exceeds a partner’s share of inside basis — especially in partnerships holding appreciated property or deferring income. The regulatory hypothetical liquidation is not a balance-sheet exercise; it is a tax allocation exercise. Its purpose is to determine how much gain would be allocated to the transferee partner if the partnership sold all of its assets immediately after the transfer. If that hypothetical gain exceeds the partner’s liquidation proceeds, negative capital necessarily follows. Calling that result “illogical” effectively replaces the regulation with a net-equity test that does not appear anywhere in subchapter K. The Liability Expansion Issue The government also argued that additional liabilities — including construction obligations — should reduce the § 743(b) adjustment. The court appeared receptive to this position. That approach risks blurring an important doctrinal boundary. Section 752 governs partnership liabilities. It does not treat executory performance obligations as liabilities simply because the partnership must perform under a contract. Real estate developers frequently have future performance obligations, but those obligations do not automatically create recourse liabilities for basis purposes. If performance obligations are treated as § 752 liabilities in order to neutralize § 743(b), the liability rules cease to be administrable. A Practical Consequence The most significant implication of Otay is not confined to pre-2018 technical terminations. The reasoning threatens routine partnership transactions: family succession transfers upper-tier partnership restructurings real estate development partnerships using CCM any partnership with a large built-in gain and a § 754 election Under the decision’s logic, a § 743(b) adjustment may be disregarded whenever the result is large enough to appear economically disproportionate. That converts a mechanical statute into a facts-and-circumstances inquiry — exactly what subchapter K historically sought to avoid. What the Case Really Reflects The opinion appears less concerned with statutory interpretation than with scale. The partnership reported substantial deferred income and an offsetting basis deduction attributable to the prior § 743(b) adjustment. The court viewed the magnitude as incompatible with economic reality. But subchapter K has never limited tax consequences by magnitude. Congress allowed long-term contract deferral. Congress allowed § 754 elections. Congress required § 743(b) adjustments to maintain parity between inside and outside basis. Large numbers are sometimes the inevitable consequence of those interacting provisions. Courts traditionally police abusive transactions through economic substance or anti-abuse doctrines. Here, however, the court did something more consequential, it recast a regulatory computational rule into an equitable limitation. Why the Decision Matters The importance of Otay lies in its methodological shift. Instead of asking whether the statute and regulations were followed, the court asked whether the result looked sensible on a balance sheet. That is not how subchapter K operates. Partnership taxation depends on predictability. Taxpayers make structural decisions — § 754 elections in particular — based on mechanical consequences. If courts can override those consequences whenever hypothetical liquidation math produces large disparities, then § 743(b) becomes unreliable as a planning tool. In short, Otay Project does not merely deny a deduction. It introduces uncertainty into one of the most fundamental coordination rules in partnership taxation: the alignment of inside and outside basis. The case will likely be remembered not for its facts, but for its implication that regulatory mechanics yield to judicial intuition. For partnerships relying on § 754 elections, that is a far more significant development than the adjustment at issue in the case itself.
March 4, 2026
Tax
Treasury and IRS Issue Interim Guidance on Prohibited Foreign Entity Rules with New Safe Harbors Under Notice 2026‑15
On February 12, 2026, the Department of the Treasury and the Internal Revenue Service released Notice 2026-15, the first substantive regulatory action implementing the prohibited foreign entity ("PFE") provisions enacted by the One, Big, Beautiful Bill Act ("OBBBA") on July 4, 2025. The Notice provides interim guidance on restrictions to the Section 45Y clean electricity production credit, the Section 48E clean electricity investment credit, and the Section 45X advanced manufacturing production credit, with respect to sourcing from a PFE. It establishes temporary safe harbors and reliance rules for determining whether a facility, energy storage technology ("EST"), or eligible component includes "material assistance from a PFE," while previewing how Treasury and the IRS intend to approach related concepts, including effective control, in forthcoming proposed regulations. Unlike the domestic content bonus credit, which merely offered an incremental adder, these rules are binary: a facility that fails is ineligible for the tech-neutral ITC or PTC entirely with potentially devastating consequences for project capital stack. The Statutory Framework The OBBBA added new Sections 45Y(b)(1)(E), 48E(b)(6) and (c)(3), and 45X(c)(1)(C) to the Code, providing that the terms "qualified facility," "energy storage technology," and "eligible component" do not include items that incorporate material assistance from a PFE. The OBBBA simultaneously amended Section 7701 to add new paragraphs (a)(51) and (a)(52), defining a "prohibited foreign entity" and "material assistance from a prohibited foreign entity," respectively. Under Section 7701(a)(52), "material assistance from a PFE" is present when a facility's, EST's, or eligible component's material assistance cost ratio ("MACR") falls below the applicable threshold percentage. The threshold percentages phase in over time based on the calendar year during which construction of a qualified facility or EST begins (for Sections 45Y and 48E) or the calendar year during which an eligible component is sold (for Section 45X). For example, a qualified facility beginning construction in calendar year 2026 must achieve a Clean Electricity MACR of not less than 40% (for qualified facilities) or 55% (for ESTs), and a solar energy component sold during calendar year 2026 must achieve an Eligible Component MACR of not less than 50%. Calculating the MACR: A Two-Track System Notice 2026-15 establishes a detailed framework for calculating the MACR, distinguishing between two tracks: the "Clean Electricity MACR" (for qualified facilities and ESTs under Sections 45Y and 48E) and the "Eligible Component MACR" (for Section 45X eligible components). Clean Electricity MACR For qualified facilities and ESTs, the Clean Electricity MACR equals the taxpayer's total direct costs attributable to all manufactured products ("MPs") and manufactured product components ("MPCs") incorporated into the facility or EST, minus the total direct costs attributable to MPs and MPCs that were mined, produced, or manufactured by a PFE, divided by the total direct costs. The calculation requires a taxpayer to: (a) identify MP and MPC types; (b) track relevant characteristics of each MP and MPC; (c) determine direct costs; and (d) determine PFE direct costs. A separate Clean Electricity MACR must be calculated for each qualified facility or EST placed in service during a taxable year. Eligible Component MACR For Section 45X eligible components, the Eligible Component MACR substitutes "total direct material costs" for "total direct costs," focusing on the constituent elements, materials, or subcomponents ("Constituent Materials") incorporated into or consumed in the production of the eligible component. The relevant costs are those paid or incurred by the taxpayer for direct materials under Section 1.263A-1(e)(2)(i)(A), including freight-in and tariffs. Interim Safe Harbors: The Core of the Notice The most consequential aspect of Notice 2026-15 is its three-tiered interim safe harbor framework, which is intended to significantly simplify the compliance burden. Identification Safe Harbor The Identification Safe Harbor allows taxpayers to use the 2023–2025 domestic content safe harbor tables (from Notices 2023-38, 2024-41, and 2025-08) as the exclusive and exhaustive list of MPs and MPCs (or Constituent Materials) for purposes of identifying what must be tracked and costed. Components not appearing in the tables are disregarded entirely and do not factor into the MACR calculation. This is material compliance relief, it obviates the need for deeper upstream tracing that many in the industry feared and instead limits the inquiry to a discrete, published list of components. However, this pathway is available only for projects and components listed in the safe harbor tables. Facility types without specified tables, such as nuclear, fuel cells, or geothermal, cannot use this safe harbor. Likewise, facilities relying on the incremental production rule cannot use the Cost Percentage Safe Harbor. The Treasury has acknowledged these industries’ interest in obtaining updated tables, but guidance remains forthcoming. Cost Percentage Safe Harbor Building on the Identification Safe Harbor, the Cost Percentage Safe Harbor permits taxpayers to use the Assigned Cost Percentages from the safe harbor tables in lieu of tracking actual direct costs. The taxpayer sums the Assigned Cost Percentages for each listed MP and MPC (the "Total Percentage"), sums the Assigned Cost Percentages attributable to PFE-produced MPs and MPCs (the "Total PFE Percentage"), and calculates the MACR as: (Total Percentage – Total PFE Percentage) / Total Percentage. Structural steel and iron are excluded entirely from the MACR calculation, consistent with their treatment under the domestic content rules. Used property in facilities qualifying under the 80/20 rule is also disregarded; only the costs of new MPs and MPCs count toward the calculation. The Notice’s examples, particularly the PV facility illustration walking through both safe harbors, will be invaluable in standardizing the calculation methodology. Certification Safe Harbor The Certification Safe Harbor provides an alternative pathway allowing taxpayers to rely on supplier certifications to determine direct costs, PFE direct costs, and PFE status. Three certification forms are available, tracking the statutory framework in Section 7701(a)(52)(D)(iii)(II)(bb): (AA) an attestation that the property was not produced or manufactured by a PFE and the supplier has no knowledge of PFE involvement in the upstream chain; (BB) for Section 45X, a statement of total direct material costs not produced or manufactured by a PFE; or (CC) for Sections 45Y/48E, a statement of total direct costs attributable to non-PFE manufactured products. Importantly, pathways (BB) and (CC) do not facially require the supplier to possess knowledge of the entire upstream chain, as does pathway (AA). Certifications must include the supplier's employer identification number (or foreign equivalent), be signed under penalties of perjury, be retained for at least six years by both the supplier and the taxpayer, and be produced upon IRS request. A taxpayer may rely on a certification unless it "knows or has reason to know" the certification is inaccurate. The “reason to know” standard is the most significant area of ambiguity in the Notice and is driving intense market discussions. Early practice suggests a tiered diligence approach: baseline certifications with PFE-status checklists from established suppliers, supplemented for higher-risk Tier 2 suppliers and battery storage components by third party supply chain audits. Suppliers offering compliance packages, including legal memoranda and compliance presentations, are gaining a competitive edge. Tracking and Averaging Flexibility The Notice provides meaningful flexibility in how taxpayers track components to specific facilities or eligible components. Three tracking methods are available: Individual tracking. The default approach requiring each MP or MPC to be traced to the specific facility or EST into which it is incorporated. De minimis assignment-based tracking. Allows MPs or MPCs of the same type to be assigned across qualified facilities or ESTs placed in service during the same taxable year without individual tracing, provided the assigned components represent less than 10% of the Total Direct Costs of each facility. Average-cost tracking for small ESTs. For ESTs of the same type, each under 1 MW, placed in service during the same taxable year, taxpayers may use averaged costs and PFE Production Percentages over specified periods within the taxable year. Section 45X manufacturers may use a similar averaging system for Constituent Materials incorporated into eligible components during specified time periods. Binding Written Contract Election A notable feature of the statutory framework, addressed in the Notice, is the elective grandfather provision under Section 7701(a)(52)(D)(iv). Upon a taxpayer's election, MPs, eligible components, or Constituent Materials acquired or manufactured pursuant to a binding written contract entered into before June 16, 2025, and placed in service before January 1, 2030 (or January 1, 2028 for applicable wind facilities) in a facility where construction began before August 1, 2025, may be excluded from the MACR calculation entirely. For Constituent Materials, the item must be used in a product sold before January 1, 2030 (or January 1, 2027 for Section 45X). Treasury has been granted anti-abuse authority to prevent stockpiling of components during any period prior to the application of the PFE requirements. Qualified Interconnection Property The Notice addresses the separate treatment of qualified interconnection property under Section 48E with a nuanced approach. A taxpayer seeking to include interconnection property expenditures in its qualified investment must calculate a separate Clean Electricity MACR for the interconnection property, apart from the facility itself. Each project component: solar, storage, and interconnection, qualify independently; failure on one does not disqualify the others. However, the safe harbors are unavailable for interconnection property, requiring the direct cost method, with practitioners view as significantly more invasive and more susceptible to error. Effective Control and Anti-Abuse Provisions Notice 2026-15 previews forthcoming regulatory action on two important fronts. First, the Notice clarifies that effective control under the foreign-influenced entity provisions of Section 7701(a)(51)(D) is determined independently under each prong of the statute. Notably, any licensing agreement for intellectual property with respect to a qualified facility entered into or modified on or after July 4, 2025, constitutes effective control, even absent any of the other enumerated prohibited provisions, such as limits on IP usage. Second, Treasury and the IRS intend to propose regulations to prevent entities from evading, circumventing, or abusing the PFE restrictions, including through temporary lapses of restricted foreign ownership or control. Suppliers restructuring ownership of supply chains mid-stream to achieve compliance raise particularly difficult questions, as the rule lack specificity on the timing of qualification relative to procurement and delivery. Enhanced Penalty and Statute of Limitations Framework The OBBBA established a robust penalty regime supporting the PFE rules. New Section 6662(m) lowers the substantial understatement threshold to 1% (from 10%) for credit disallowances attributable to overstating the MACR. New Section 6501(o) extends the statute of limitations to six years for deficiencies attributable to MACR determination errors. New Section 6695B imposes a separate penalty on suppliers who provide certifications they know or should have known to be inaccurate, equal to the greater of 10% of the resulting underpayment or $5,000, though a reasonable cause defense is available. Reliance and What Comes Next Taxpayers may rely on the guidance in Sections 3 and 5.01 of the Notice for projects that begin construction after December 31, 2025, and continue through 60 days after publication of the forthcoming proposed regulations. The Section 4 safe harbors may be relied upon through 60 days after publication of the forthcoming safe harbor tables under Section 7701(a)(52)(D)(iii)(I), which must be issued by December 31, 2026. While Notice 2026-15 resolves several of the most pressing compliance questions confronting the clean energy tax credit market, particularly around supply-chain depth, cost allocation methodology, and certification standards, it expressly defers comprehensive guidance on the PFE definitional framework, constructive ownership mechanics, and long-term recapture rules to forthcoming proposed regulations. Stakeholders should use the comment period strategically and begin integrating the safe harbor frameworks into project and deal structures without delay. The early market consensus is that Notice 2026-15, while demanding increased diligence and documentation relative to the domestic content regime, provides workable and solvable rules. Storage remains the highest-risk area given the battery supply chain’s continued dependence on Chinese components. Stakeholders should engage counterparties and advisors early, integrate the safe harbor frameworks into deal structures without delay, and prepare for escalating MACR thresholds in future years.
March 3, 2026
Landlord Representation
Landlord Liability for Tenant Safety: Lessons from the Jason Billingsley Case
In recent years, courts have taken a closer look at what landlords must do to keep tenants safe, especially when property owners give employees access to residents’ homes. A major example is the civil case that followed the violent attacks committed by Jason Billingsley in Baltimore. The lawsuit, filed by survivors April Hurley and Jonte Gilmore, resulted in a jury awarding more than $21 million in damages against the landlord and related property management entities. The case provides a powerful study in landlord liability, negligent hiring, and premises safety law. In September 2023, Billingsley, who had been hired as a maintenance worker and given access to tenant areas, knocked on April Hurley’s door, identified himself as “maintenance,” and claimed there was a water leak in her kitchen that needed immediate attention. Once inside, Billingsley violently assaulted Hurley and Gilmore inside the apartment and set fire to the premises. Days later, he murdered tech CEO Pava LaPere in a separate incident. Billingsley ultimately pled guilty to two counts of attempted first-degree murder, one count of first-degree murder, and was sentenced to life in prison. Hurley and Gilmore brought a civil lawsuit against the property owner and management company. Their argument was not that the landlords committed the assaults, but that their negligence made the assaults foreseeable and preventable. The case illustrates three central doctrines of landlord liability: Negligent Hiring Negligent hiring occurs when an employer or property owner fails to exercise reasonable care in selecting someone for a position that poses a risk to others. Maintenance workers typically have: Master keys Unsupervised access to private units Knowledge of tenant schedules and vulnerabilities In this case, the plaintiffs argued that the landlord failed to conduct a reasonable background check before hiring Billingsley. Given his prior violent criminal record, which included convictions for assault in 2009, 2011, and 2013, the plaintiffs contended that giving him access to tenants’ apartments created a foreseeable risk of harm. The defendants argued that Billingsley was not an employee. According to reporting by the Baltimore Banner, one of the management company’s owners testified that he met Billingsley at a bar and subsequently allowed him to reside in one of the complex’s apartments rent-free in exchange for completing “odd jobs” around the property. A jury agreed with the plaintiffs, finding that reasonable property managers would have investigated his background and that the failure to do so constituted a breach of duty. Premises Liability Under premises liability law, landlords owe tenants a duty of reasonable care to maintain safe conditions on the property. Traditionally, this doctrine covered physical hazards (e.g., broken stairs or inadequate lighting), but modern courts increasingly recognize that safety can include protection from foreseeable criminal acts. The key legal question is foreseeability: Was the harm reasonably predictable? Did the landlord’s conduct increase the risk? The jury concluded that giving a person with a violent criminal history unrestricted access to tenant homes made the harm foreseeable. Breach of Lease and Implied Warranty of Habitability Residential leases carry an implied promise that the premises will be safe and habitable. While this doctrine historically addressed structural conditions, plaintiffs argued that tenant safety includes reasonable screening of employees granted intimate access to living spaces. Although the negligent-hiring theory was central, contractual duties reinforced the broader argument that landlords must safeguard tenants’ security. Why the Verdict Matters The jury’s multimillion-dollar award sends a strong signal about evolving expectations for landlords: Access equals responsibility. The more access an employee has to private living spaces, the higher the duty of care. Background checks are not optional in high-risk roles. Courts may treat failure to screen as unreasonable when foreseeable harm results. Tenant safety extends beyond physical maintenance. Security policies and hiring practices can create liability. Importantly, this was a civil negligence case, not a criminal proceeding. The standard of proof was “preponderance of the evidence,” meaning the jury had to find it more likely than not that the landlord’s negligence caused the harm. Broader Legal Implications The case may influence: Property management industry standards Insurance underwriting requirements Corporate risk policies for residential landlords Litigation strategies in negligent security cases Landlords are not insurers of tenant safety — they are not automatically liable for all crimes on their property. But when their own actions increase the risk of foreseeable harm, courts may impose substantial financial consequences. The litigation arising from the Jason Billingsley case demonstrates how landlord liability can extend beyond broken locks and dim hallways. When property owners place individuals in positions of trust and access without reasonable vetting, they may face significant civil exposure. The defendants have appealed the jury’s ruling, and the case is currently pending before the Appellate Court of Maryland. For landlords, the lesson is clear: tenant safety includes not only maintaining the building, but also carefully screening the people given keys to it.
March 3, 2026
Business
Investor Equity Placement: Why HoldCo vs. OpCo Matters
When a searcher or independent sponsor brings in outside capital, the conversation often centers on valuation and percentage ownership. But an equally important question is structural: Should the investor hold equity in the operating company (OpCo) or in the parent holding company (HoldCo)? This decision carries meaningful legal, economic, governance, and strategic implications. It affects dilution, future capital raises, control dynamics, exit flexibility, and long-term alignment. The analysis also becomes more nuanced depending on the investor’s role and non-monetary contributions. Consider a common scenario: a sponsor raises $2 million to acquire a $10 million HVAC company, with plans to pursue add-on acquisitions over time. In a roll-up strategy like this, what if one investor brings domain expertise, sourcing capabilities, or operational leadership that materially influences growth? That strategic contribution may justify equity at the HoldCo level, where the investor participates in platform-wide upside and profits. By contrast, a passive investor whose involvement is limited to board oversight may be more appropriately placed at the OpCo level, particularly in a single-asset acquisition. Of course, this assumes the target will operate as a subsidiary rather than being merged into an existing operating entity — which is itself a separate structural decision. An investor in this scenario will usually see investment income flow solely from OpCo (instead of the entire portfolio of companies). The structure and placement of an investor's equity is rarely mechanical. It should reflect strategy, bargaining power, long-term vision, and investor expectations. The considerations below provide a framework for both searchers/sponsors and investors to consider when evaluating this decision. The Two Primary Structures Investor Holds Equity at the Portfolio Company Level (OpCo) Under this structure, the investor owns equity directly in the acquired operating business. OpCo is typically maintained as a standalone entity or as a clearly defined subsidiary beneath a holding structure. Key Implications The investor’s economics are tied solely to the business of OpCo Governance rights are limited to decisions within OpCo Exit proceeds flow from the sale or recapitalization of OpCo The investor has no direct rights to unrelated subsidiaries or future acquisitions Common Use Cases Single-asset traditional search fund deals One-off independent sponsor acquisitions Transactions without a broader platform thesis Situations where negotiation dynamics support a narrower investment scope Advantages Structural simplicity Clear alignment around a single asset Cleaner distribution waterfall Reduced complexity in governance documents Easier return modeling tied to one business Risks and Considerations Limited investor participation in future add-on acquisitions Potential need to restructure if platform ambitions later emerge Dilution of equity will occur at the operating level if additional capital is raised, although usually unlikely unless part of a larger restructuring Misalignment if investors expect exposure to future platform growth OpCo equity works best when the investment thesis is narrowly defined and neither party anticipates a broader multi-asset strategy. Many first-time searchers/sponsors and their investors will fall into this structure. Investor Holds Equity at the Parent Holding Company (HoldCo) In this structure, a parent entity owns one or more subsidiaries, and the investor holds equity at the parent level. Key Implications The investor participates in the economics of all subsidiaries beneath HoldCo Add-on acquisitions can be completed without issuing new OpCo equity Governance is centralized at the parent level Platform value creation accrues across the entire enterprise Common Use Cases Platform or roll-up strategies Independent sponsor models contemplating multiple acquisitions Long-term scaling plans involving additional capital raises Advantages Centralized governance and decision-making Easier implementation of sponsor promote structures Ability to allocate management incentive equity across subsidiaries Greater flexibility for future capital formation Risks and Considerations Increased complexity in operating agreements and shareholder documents Need for carefully drafted distribution waterfalls Cross-subsidiary economic exposure if not properly structured Greater sensitivity to dilution stemming from future equity financing More robust negotiation of protective provisions and investor rights HoldCo structures reward forward planning but require thoughtful drafting and clear alignment among stakeholders. Legal and Governance Considerations In practice, HoldCo structures centralize power and economics at the parent level, while OpCo structures localize rights and obligations within a single operating entity. Where the investor equity sits directly impacts: Voting rights and approval thresholds Board composition and observer rights Protective provisions Information and reporting rights Drag-along and tag-along mechanics Transfer restrictions and liquidity rights Put and call rights, if negotiated If the investor sits at HoldCo, governance documents must anticipate: Future equity issuances Add-on acquisitions and layered capital structures Sponsor promote mechanics Reallocation of advisor and/or employee incentive equity pools Distribution waterfalls across multiple subsidiaries Potential conflicts between legacy investors and new investors If the investor sits at OpCo, documentation tends to focus more narrowly on: Operating distributions Exit triggers tied to a single asset Seller rollover alignment These differences materially affect control and economics. They also influence negotiations with senior lenders, particularly where covenants intersect with equity commitments. Strategic Questions Before Deciding Before finalizing entity placement, sponsors and investors should consider: Is this a single-asset investment or the foundation of a broader platform? Are add-on acquisitions part of the near-term or long-term strategy? Will additional investors likely participate in future rounds? How centralized should governance be? What is the intended exit pathway (strategic sale, recapitalization, long-term hold)? How does the structure align with sponsor promote economics and incentive equity? Does the investor bring strategic value beyond capital? Common Structural Mistakes Frequent errors to keep in mind (and avoid): Defaulting to OpCo equity without evaluating long-term platform goals Granting HoldCo equity without clearly defining dilution mechanics Misaligning promote structures with entity placement Overlooking interaction between investor rights and senior debt covenants Ignoring tax, estate, or succession planning implications Treating entity placement as a documentation detail rather than a strategic decision These choices are difficult to unwind and can create friction during future capital raises, refinancings, or exits. Final Perspective Bringing on an investor is not merely a capital event. It is a structural decision that defines governance, economics, capital formation, and exit flexibility. Whether you are a search funder acquiring your first business, an independent sponsor building a scalable platform, or a family office co-investing alongside operators, the level at which equity is issued matters. The best structures anticipate the second deal before the first one closes. Structure intentionally. Plan forward. Align incentives early.
March 3, 2026
Intellectual Property
Britney Spears' Music Catalog Sale Highlights Rise in IP Deals Across the Music Industry
Britney Spears is the latest cultural icon to monetize her intellectual property by selling the rights to her entire music catalog to publisher Primary Wave for an estimated $200 million. This landmark agreement encompasses over two decades of hits and underscores a surging industry trend in which creators convert the long-term value of their IP portfolios into immediate capital. Spears joins a growing list of major artists (including Bruce Springsteen, Bob Dylan, Justin Bieber, and Katy Perry) who have recently brokered massive nine-figure transfers of their publishing and recorded music rights. For artists evaluating their intellectual property strategy, liquidating a catalog offers compelling advantages. The chief and obvious benefit is the immediate, guaranteed lump-sum payout an artist receives, which protects the artist from the uncertainties of fluctuating streaming revenues and shifting market trends. Additionally, a sale relieves the artist and their heirs from the complex, ongoing administrative burdens of managing copyright rights, negotiating licensing deals, and auditing royalties. The firms that acquire these rights assume the responsibility of actively pitching the catalog for lucrative placements in film, television, and commercial branding, by using their resources to maximize the IP's reach. However, cashing out requires artists to make significant trade-offs, the most notable drawback being the forfeiture of long-term royalty streams. If the music's value spikes due to a viral trend or a high-profile placement, the publishing firm reaps the financial windfall, not the creator. Furthermore, artists often surrender the ultimate right to control how their work is commercialized, opening the door for their music to be licensed for campaigns or media they might otherwise have rejected. In today’s highly charged political climate, this trade-off is not insignificant. This monumental sales strategy highlights the immense, tangible value of a well-protected IP portfolio, illustrating the careful balance creators must strike between immediate financial certainty and the long-term stewardship of their brand.
March 2, 2026
Mergers and Acquisitions
Preparing to Sell: The Most Common Deal-Killing Mistakes Business Owners Make, and How to Avoid Them
For many middle-market business owners, 2026 could present an ideal window to explore a sale. With financing markets improved and private equity (PE) sitting on significant amounts of dry powder, strategic buyers are in a prime position to pursue acquisitions that offer them growth and efficiency. Smart sellers will be prepared to take advantage of these improved conditions and strike while the iron is hot. But even in healthy deal environments, deals can fall apart, and most of these failures are preventable. As a corporate M&A attorney, what I typically see are the same avoidable issues that derail transactions. Below, we look at the most common mistakes business owners make before going to market and most importantly, how to avoid them. Sloppy or Unvetted Financials An easy way to erode buyer confidence is to present unreliable financials. Buyers expect clean financial statements, normalized EBITDA with clearly supportable add-backs, transparent revenue recognition policies, and thorough documentation. This requires significant preparation and engagement of advisors early in the process (at least 12 to 24 months before a contemplated sale). Taking the time to get your financials in order can help reduce friction, prevent re-trades, and ultimately protect your company’s valuation. Failure to Clean Up Your House Failure to clean your corporate house before going to market is a very common mistake owners make. Before engaging in any sale process, sellers should take a critical look at everything in the business, making sure it is all in order. This includes ensuring customer contracts are in writing, properly assignable, and free of any change of control termination rights that can present problems. Vendor agreements should also be scrutinized, making sure they clearly document pricing terms and are commercially sustainable. Do your debt structures contain restrictive covenants? And are your equity records and governing documents accurate and up to date? Is your intellectual property ownership properly documented? A deep dive into all of this and more is critical. Buyers do not like surprises in the diligence process. Further, having to “clean-up” the business in front of the buyer can cost credibility as well as deal value. Conducting a thorough pre-sale legal audit can help eliminate surprises as well as the costly delays (or worse). Limiting the Potential Universe of Buyers Assuming you already know your ideal buyer can be a major mistake. Many owners assume they will sell to a competitor or a PE firm, but the universe of buyers in 2026 is much larger. Limiting yourself to only certain types of buyers can materially depress value. Today’s buyers span strategic acquirers seeking bolt-on growth, family offices in search of long-term cash flow, international buyers looking to enter the US market, and more. To ensure you are maximizing your valuation and considering all options, there must be a broad, well-run process to vet buyers. This will increase competitive tension, which in turn, drives up the price and lays the groundwork for better deal terms. Overlooking Tax Structuring Tax structuring is not an afterthought. It must be a part of the strategy. After all, taxes drive transactions. How your transaction is structured matters. Whether it is an asset sale, stock sale, rollover equity arrangement, or partial liquidity event, it can materially impact net proceeds. Therefore, it is important to coordinate early with both legal and tax advisors who can dramatically change the “after-tax” outcome of your transaction. That is the number that truly matters. The Owner is the Business There are some red flags that buyers look for in an acquisition in relation to the owner and their role within the organization: Is the owner the primary salesperson? Are they the sole keeper of customer relationships? Are they the only decision maker? Without the owner, does the organization run into an operational bottleneck? If the answer is yes to these questions, then you do not have a truly transferable business. This creates a real issue for buyers, as they discount businesses that rely entirely on a founder. They want systems and processes in place, depth of management, and a company that can exist without its owner. Start working early to develop a solid management team, formalized processes, and institutionalized customer relationships to decrease risk and increase value. Failure to Incentivize Key Employees When key employees start to feel uncertain or that they are unprotected, it can negatively impact a transaction. Employees want some clarity, and buyers are looking for continuity. That means you must plan and communicate regularly and effectively. Retention plans, bonuses tied to the transaction, or equity offers are all incentives that can help preserve stability during and after the close. Failure to Plan Ahead Selling a business is a major financial event, but it is also a significant life transition. Most owners have spent years, if not decades, building their business, and it has become a part of their identity. So, it is surprising that they don’t often consider the role they will play (if any) with the company moving forward. Nor do they consider what’s next. What lies beyond the day after the sale? These might seem like afterthoughts, but they are not. They must be considered upfront so that expectations with the buyer are clearly communicated and there is no tension or dissatisfaction on either end. Waiting Too Long to Involve Advisors If you wait too long to involve your legal and financial advisors, you may have already lost your leverage. You cannot wait until you have received an unsolicited offer. Involving advisors early in the process is the key to success and to avoiding the mistakes we have discussed. Reach out to your advisors 12-24 months before considering a sale so that you can address any issues and ensure preparedness. By engaging experts early on, you are shortening diligence timelines and strengthening your negotiating position. And remember, valuation can be significantly eroded by avoidable preparation failures. Prepare your business, and yourself, for the outcome you want.
March 2, 2026
Tax
Tariff Litigation & Section 122 Tariffs
On February 20, 2026 the U.S. Supreme Court issued a landmark decision in Learning Resources, Inc. v. Trump holding that the International Emergency Economic Powers Act (IEEPA) does not authorize the President to impose tariffs. The decision invalidates the reciprocal tariffs and trafficking/immigration tariffs imposed in 2025 under IEEPA and confirms that the power to impose tariffs lies with Congress. The Court did not prescribe a refund mechanism; that responsibility now falls to the U.S. Court of International Trade (CIT) and U.S. Customs and Border Protection (CBP). Within hours of the decision, the Administration imposed a new 10% tariff under Section 122 of the Trade Act of 1974 (now 15%), effective February 24, 2026, and limited to 150 days (absent congressional action). This creates two immediate opportunities: Refund claims for prior IEEPA tariffs (available to domestic and foreign companies) Advisory and planning work related to new Section 122 tariffs and potential replacement regimes (Section 232/301) What Changed: 1. IEEPA Tariffs Invalidated The Supreme Court ruled that IEEPA does not authorize tariff imposition. IEEPA tariffs imposed in 2025 are unlawful ab initio. Refunds are not automatic. Importers must act. 2. Section 122 Tariffs Now in Effect 15% tariff on most imports entered on or after February 24, 2026 Limited to 150 days (approx. expires July 24, 2026 unless extended) USMCA-qualified goods excluded “Goods on the water” exception for certain shipments loaded before Feb 24 and entered before Feb 28 This is a temporary bridge. Section 232 (tariff imposed for national security) and 301 (tariffs imposed on foreign products to counter unfair trade practices) actions may follow. Who May Have a Refund Claim: Those who: Imported goods between February 2025 and February 24, 2026 Paid additional IEEPA ad valorem duties Are the importer of record Have entries that are unliquidated or recently liquidated Did not yet file a protective Court of International Trade (CIT) action Refund claims are available to domestic and foreign companies – the controlling factor: who is the Importer of Record on the customs entry Important: Only IEEPA duties are refundable — not Section 232 or 301duties. Downstream buyers may have contract-based reimbursement claims. Areas Where Offit Kurman Can Assist You: 1. Tax Litigation / Customs Litigation Refund analysis and quantification Protest filings Protective CIT litigation Federal Circuit appeals Strategic coordination of administrative and judicial remedies 2. Transactional Tax Tariff deductibility analysis Accounting method considerations Timing of refund recognition Contingent asset treatment Structuring to mitigate future tariff exposure 3. Corporate & Business Structuring Restructuring importer-of-record status Creating new import entities Evaluating transfer pricing implications Risk allocation between affiliates Supply chain realignment 4. Commercial Contracts Review of tariff pass-through clauses Reimbursement rights for downstream buyers Force majeure and change-in-law provisions Supplier renegotiation strategy Indemnification enforcement 5. Commercial Litigation Claims between buyers and suppliers over tariff allocation Breach of contract actions Indemnity disputes Class or coordinated actions among distributors 6. Restructuring & Insolvency Tariff-driven liquidity pressure Claims valuation in bankruptcy Recovery of tariff refunds as estate assets Documents You Should Be Gathering: Entry summaries (CF 7501) Duty payment records Liquidation dates PSC filings Contracts allocating tariff responsibility ACE and ACH refund account status SKU lists affected by Section 122 Bottom Line: IEEPA refunds are potentially significant. Deadlines are running. Section 122 tariffs create immediate planning needs. If you import goods, manufacture overseas, distribute foreign products, or rely on cross-border supply chains, connect with Offit Kurman for consultation.
March 2, 2026
Labor and Employment
Safeguarding Your Business in an Era of Restrictive Covenant Scrutiny
For years, businesses have relied on non-competes and broad confidentiality agreements to protect themselves when employees leave. That approach is changing. Courts and regulators are increasingly wary of restrictions that limit employee mobility, as reflected in the last several years of activity by the Federal Trade Commission, the National Labor Relations Board, and state legislatures. This shift, however, is not anti‑business. It is aimed at curbing overbroad restraints that prevent former employees from earning a living. In many respects, it reflects a return to the true purpose of restrictive covenants: protecting legitimate business interests and competitive advantage. As a result, employers’ litigation focus is moving away from preventing former employees from simply joining competitors and toward examining whether company information was improperly taken or used. In practical terms, protecting the business now centers on protecting its data. Importantly, restrictive covenants are not dead. Properly tailored covenants remain enforceable in most jurisdictions and continue to play a meaningful role in safeguarding legitimate interests. Courts are far more likely to enforce restrictions that are narrowly drafted, periodically reviewed, and tied to an employee’s role and access to sensitive information. Employers should therefore refine—not abandon—restrictive covenants to ensure they can withstand scrutiny. Within this framework, data protection operates as a supplement to, not a replacement for, other restrictive covenants, providing an added safeguard if contractual restrictions are narrowed or fail. Most businesses are not harmed simply because a former employee takes a new job. Rather, the harm occurs when something leaves with that employee: customer lists, pricing strategies, internal processes, technical know‑how, reports, or analytics. To qualify for protection, this information must be valuable, not generally known, and subject to reasonable safeguards. Modern disputes increasingly turn on trade secret principles under the Defend Trade Secrets Act and comparable state laws. Courts focus less on contractual labels and more on whether the company actually treated the information as valuable. Effective protection requires more than labeling information “confidential.” At hiring, employees should be clearly informed about the information they will access and the limits on its use. At departure, employers should require exit certifications confirming that devices were returned, company files were removed from personal accounts, and no information was retained or forwarded. This process alone prevents many disputes and creates a clear record if concerns later arise, allowing employers to investigate based on objective representations rather than speculation. During employment, employers increasingly rely on monitoring tools that provide objective evidence of whether files were accessed, transferred, or retained improperly. Courts are generally more receptive to such technical proof than to assumptions based solely on an employee joining a competitor. The takeaway is straightforward. Courts are becoming less concerned with where a former employee works and far more concerned with whether protected information was misused. Businesses best positioned going forward will not be those with the longest non‑compete agreements, but those that can show they identified their critical information and consistently safeguarded it.
February 27, 2026
Tax
Top Audit Red Flags Businesses Shouldn’t Ignore
My recent blog, So, The IRS Has Selected Your Return for Audit, discussed the four types of IRS audits. What factors may trigger an audit of a business’s income tax return? The presence of multiple red flags in a business’s income significantly raises the likelihood of an audit. Round Numbers While rounding 49 cents up to 50 cents is not problematic—the IRS instructs you to round cents up or down for whole dollar amounts—reporting $10,000 of income from a customer instead of the actual $10,089 or reporting depreciation of $7,500 instead of $7,448 is. The algorithms the IRS uses to select returns for audit are programmed to identify rounding like this because the IRS knows (as we all do) that transactions are rarely in exact round amounts. Claiming Excessive Expenses The IRS compares your deductions against deductions for similarly situated businesses, using figures from returns filed by businesses similar in size and industry sector. The IRS has a bell curve for each category of expense. These figures are tweaked by the Taxpayer Compliance Measurement program. Similarly, your business expenses must be ordinary and necessary. Ordinary means the expense is a type common in your business’s industry sector. Necessary means the expense is helpful for your trade or business. If your business’s figures are excessive as measured against the IRS’s figures or the types of expenses are different than what the IRS routinely sees for businesses of your size or type, the chance of your return being audited increases. The more categories your figures are above the norm or are different from what the IRS usually sees, the greater the chances of an audit. It is also a matter of degree. Being slightly high in several categories is not necessarily an audit flag, but being very high in a few categories is a red flag. It is important to mention business use of automobiles. As a result of changes to the law in the Tax Cut and Jobs Act of 2017, the ability of employees to deduct unreimbursed business expenses was all but eliminated. However, self-employed persons (which includes partners in an entity classified as a partnership for federal income tax purposes) can still deduct business use of automobiles. Claiming 100% business use is a red flag. Likewise, because of accelerated depreciation associated with heavy SUVs and large trucks, the IRS may look twice at purchases near the end of the tax year. So, take advantage of that year-end sale but have the records to substantiate the business purpose and use. Misreporting Income First, beyond rounding cents, don’t round. Second, just because you didn’t receive a 1099 doesn’t mean the payor didn’t file the 1099 with the IRS. If you know you are missing a 1099, call the payor and ask for it otherwise this brings up the next flag. Large Cash or Large Numbers of Cash Transactions Some businesses naturally have large cash transactions or large numbers of cash transactions. If a cash transaction is over $10,000, financial institutions are required to file a currency transaction report (CTR). Breaking a cash transaction into smaller transactions to avoid the CTR threshold is known as structuring and is a crime under federal law. If your business deals in cash, keeping an accurate record of all transactions and documentation is essential in the event of an audit. Real Estate Rental Losses The IRS has strict rules regarding the ability to deduct losses from real estate rental against other income. For those who are not real estate professionals, which means you spend more than 50% of your working hours and more than 750 hours each year materially participating as a developer, landlord, or agent, you must own at least 10% of the value of all interests in the activity (spousal interests are combined for this threshold test) and you must actively participate in the operations of the rental property in the year in which the loss is claimed and in the year in which you seek recognition of the loss. If you meet these requirements, then you may deduct $25,000 of losses from real estate rental activity. This deduction phases out beginning with an adjusted gross income (AGI) of $100,000 and is completely phased out once AGI reaches $150,000. Deducting Hobby Losses Only losses incurred in a trade or business are deductible, which means you are engaging in the activity with the reasonable expectation of making a profit and you conduct the activity in a business-like manner. If your activity three out of every five years (two out of seven years for breeding horses), the IRS presumes that the activity is for profit. If not, whether the activity is for profit depends on the facts and circumstances. If you claim losses year after year, which is common among start-up businesses, your business will likely be audited. As with other areas, substantiation of expenses is imperative. Misclassification of Employees Whether a worker is an independent contractor, in which case your business issues them a 1099 at year end, or an employee, in which case your business issues the worker a W-2, is a hot bed item with the IRS and the U.S. Department of Labor. If a worker is misclassified as an independent contractor, then your business (and potentially you personally) owe employment taxes and withholding, plus interest and penalties. As with other areas, proper documentation (which includes agreements setting forth the worker’s independent contractor status) are essential. If your workers are employees (W-2) consistently filing and paying payroll taxes (941s) will also trigger additional scrutiny that likely will result in an audit. Claiming the R&D Tax Credit The R&D credit is great—if your business qualifies and if your business substantiates the credit. The One Big Beautiful Bill Act (OBBBA) reversed a 2022 law that required businesses to amortize research and development expenses over a five-year period. Businesses are now permitted to expense R&D costs immediately. The OBBBA also provided additional relief for small businesses that applied the new rule retroactively for the 2022 through 2024 tax years. Unscrupulous promoters (for a fee that is a percentage of the R&D credit) offer to analyze a business’s records to see if the business can claim the R&D credit retroactively. Often these promoters try to persuade a business to claim routine expenses as R&D activities to qualify for the R&D credit (which increases the promoter’s fee). Activities that are not eligible for the R&D credit include modifying an existing product, customer-funded research, research after commercial production, or research on a product about which there is no doubt about the expected result (this merely confirms what the company already knows). With proper substantiation costs for these activities still are deductible, just not eligible for the R&D credit. Growing and Selling Mary Jane Despite the current administration’s proposed rescheduling of marijuana, it is still a controlled substance at the federal level. It does not matter to the IRS that marijuana is legal in your state. Because it is illegal, expenses (other than cost of goods sold) incurred in the production, distribution, and sale, even if permitted under state law, are not deductible. Here is the real burn—you must still report and pay taxes on the income generated from your marijuana business. Because marijuana is illegal at the federal level, it also means if you invest in a marijuana business you can’t deduct investment losses. It also means you cannot use your self-directed IRA to invest in marijuana businesses. Bummer man. Home-Office Expense Deduction If you can take the home-office deduction (see Claiming Excessive Expenses above regarding restrictions on the ability to deduct unreimbursed business expenses incurred by employees), to claim the deduction you must use the space exclusively and regularly as your principal place of business. Guest bedroom, bonus room where the kids watch TV or play X-Box? Nope. Exclusive means exclusive. In the IRS’s eyes, returns that claim the home-office deduction is a target rich environment. Don’t paint a bullseye on your back. In the end, avoiding an audit is not about fear—it is about diligence. By keeping accurate records, understanding which expenses truly are allowed, and steering clear of overly aggressive tax positions, businesses can reduce their audit risk significantly. Most importantly, thoughtful documentation and consistent business practices provide the strongest defense should the IRS come knocking.
February 25, 2026
Construction
A Primer on Mechanics’ Lien Claim Waivers in Pennsylvania
Waiver of mechanics’ lien claims is an important and frequent issue on construction projects. There are various approaches to lien claim waivers, depending on the type of project and the preferences of the parties. Because of the various types of lien claim waivers, there is often confusion. This article explains the different types of lien claim waivers. An initial fundamental point regarding mechanics’ lien claims and waivers, is that they are creatures of statute. Each state has its own laws that govern mechanics’ liens and waivers. There is no universal, national law that governs. Instead, each state has its own statutes and interpretation of the law. Additionally, mechanics’ liens generally cannot be asserted against public projects. Advance Lien Claim Waiver Versus Progress or Final Lien Claim Waiver One categorical distinction between lien claim waivers is whether they apply in advance of the work, versus lien claim waivers that are executed during the progress of the project and apply to work performed as of the date of the waiver. An “advance” lien claim waiver is executed prior to the work being performed. Accordingly, it waives lien claim rights before doing the work. Most states prohibit advance lien claim waivers. In Pennsylvania, however, advance lien claim waivers are enforceable, but only on specific types of projects, and only if specific requirements are met (more on that below). In contrast, a progress or final lien claim waiver is executed during the project, or after the work is completed, and it typically clarifies that it applies to the work already performed. The standard approach is to identify a “through date,” which means that the waiver applies to all work performed “through” a certain date. Typically, the “through date” would be a prior date that has already passed, and the lien claim waiver states that it is effective to waive lien claim rights for all work performed up to and including that date. Typically, progress lien claim waivers are executed with each payment application. None of the “through dates” are future dates—which would instead be an advance lien claim waiver. Progress and final lien claim waivers are effective and enforceable. In Pennsylvania, for advance lien claim waivers to be effective, it must be a commercial project (non-residential), and a payment bond must be posted that covers the project. Also, the advance lien claim waiver is only effective to waive downstream (subcontractor/supplier) lien claim rights. The prime contractor with a direct contract with the owner cannot waive lien claim rights in advance, and the payment bond is posted by the prime contractor (so the payment bond does not cover the prime contractor’s demands for payment). Conditional Versus Unconditional Lien Claim Waivers Another categorical distinction in lien claim waivers is “conditional” versus “unconditional.” A conditional lien claim waiver identifies that it is only effective if certain conditions (typically pending payment) occur. Thus, for example, with a conditional lien waiver, it will expressly state that the waiver is “conditioned” on the future receipt of the identified payment. If the identified payment is not received, then, the waiver (even if executed) is unenforceable. Unconditional lien claim waivers, on the other hand, expressly state that the payment has already been received, and that there are no other requirements or events to occur for the lien claim waiver to be effective. Typically, these lien claim waivers identify themselves with the words “unconditional,” and they often state that the payment identified has been “received in fact,” or “received in hand.” Complications can arise when payment has not in fact already been received; yet, an unconditional lien claim waiver (stating that payment has already been received) is erroneous executed. Generally, it is fair and reasonable to insist that lien claim waivers accurately express whether the payment has in fact already been made, or whether a conditional lien claim waiver should be used instead, because the payment is pending and not yet received. It is also appropriate to revise or annotate a lien claim waiver to expressly state that certain claims, disputed amounts, open change orders, etc., are preserved and not waived. This avoids confusion on whether the payment was intended to cover any disputed, open, or unresolved items. Preliminary Notices of Lien Rights, Construction Notices Directory, and Other Requirements Lien claim waivers are specific documents that address whether a lien claim has been waived or preserved. Different and separate from lien claim waivers are statutory requirements that must be satisfied in order to preserve or pursue lien claims. Most states, including Pennsylvania, have requirements to notice and enforce lien claims. If you fail to satisfy all the requirements, including timeliness, it is likely that your lien claim will be lost. Pennsylvania, similar to most states, has certain requirements that must be fulfilled when pursuing lien claims. In Pennsylvania, certain projects may be eligible for registration on the Construction Notices Directory, which is maintained by the Department of General Services. If a project is registered, then, the requirements under the mechanics’ lien law that pertain to the Construction Notices Directory must be followed; otherwise, the lien claim may be lost. One such requirement is to provide (and file with the Directory) early notice of potential lien claim rights. Additionally, in pursuing a lien claim, certain processes must be followed; otherwise, the lien claim may be lost. In Pennsylvania, as a general rule, if the claim is by a subcontractor or anyone who is not in direct contract with the property owner, then, the claimant must give advance notice to the property owner of the intent to file the lien claim. Also, any claimant, whether a downstream subcontractor/supplier or the prime contractor must meet specific deadlines in pursuing the lien claim. And the substance of any notices or lien claim filings must fulfill the statutory requirements. Failure to timely notice or file any of the items, or failure to adhere to the substantive requirements, will often result in the lien claim being unenforceable. These requirements for noticing and pursuing the lien claim are not technically “waivers,” of the lien claim, but failure to follow the rules may result in the same outcome—the lien claim being lost and unenforceable. This article also appears in the February 2026 edition of the Spokesman, a publication of ABC Keystone.
February 25, 2026
M&A Nuggets
M&A Nuggets: Stop Signs
Contrary to popular belief, most business purchases do not succeed. That is not necessarily a bad thing, because occasionally the best deal is the deal that does not happen. To avoid closing a bad deal, the acquiror should be on the lookout for big red stop signs. Some stop signs are obvious, like material litigation, declining revenues, downward profits or a seller that engages in a particularly risky business. Some stop signs are not so obvious. These more subtle stop signs can spell disaster for a business combination. Examples include: a lack of symmetry in business culture between the purchaser and the seller the seller’s lack of proper recordkeeping, such as poor financial books and records, corporate documents or human resources files a seller who is unable to express a rational reason for sale a seller who appears recalcitrant in its position and/or somewhat aloof in the negotiation process Special attention should be paid to these last two items. Starting early in the process, the acquiror should ask a seller about its motivation to sell and its plans for devoting resources to the sale, and then track whether the seller’s actions follow its words. Otherwise, an acquiror could be negotiating with a seller who is not “all in,” wasting months of time and resources on a fruitless endeavor.
February 23, 2026
Labor and Employment
Employer Use of AI Wage-Setting Tools: Risks, Bias Concerns, and Employer Responsibilities
As employers increasingly adopt artificial intelligence to streamline compensation decisions, the promise of efficiency must be carefully balanced against significant legal and ethical risks. AI‑driven wage‑setting tools can help analyze market data, standardize pay ranges, and reduce human error, but only when the underlying data and algorithms are reliable. When these systems rely on incomplete, outdated, or biased inputs, they may unintentionally replicate or even worsen existing disparities. For example, algorithms trained on historical pay data can reinforce gender‑ or race‑based wage gaps, regardless of an employer’s intent. Lawmakers are also signaling that wage‑setting algorithms will not operate in a regulatory vacuum. Over the last year, legislators in California, Colorado, Georgia, and Illinois have introduced bills to curb discriminatory or opaque uses of AI in compensation decisions. Several states, including Georgia, Illinois, Maryland, and New York, are renewing or expanding these efforts in 2026. Many of these proposals reflect a growing concern that businesses may rely on personal data unrelated to job duties – such as biometric characteristics, behavioral patterns, or even parental status – to generate so‑called “optimized” pay rates. Employers should remember that AI does not shield them from longstanding legal obligations. Anti‑discrimination statutes, equal pay laws, and wage‑and‑hour requirements apply regardless of whether a human or an algorithm drives the recommendation. With state activity accelerating, employers should take a proactive approach to assessing their exposure and strengthening internal controls over wage decisions. Regular pay‑equity audits, careful review of the data inputs and assumptions behind AI tools, and meaningful human involvement in all compensation decisions are essential steps to ensure employers can meet emerging legal standards and maintain fair, compliant pay practices. By reinforcing these safeguards now, organizations will be better positioned to adapt as regulatory requirements continue to evolve.
February 23, 2026
Labor and Employment
A Practical Guide to Collective Bargaining: Strategies, Obligations, and Best Practices for 2026
Collective bargaining remains one of the most important processes governing labor–management relations in the United States. For organizations preparing for negotiations in 2026 and beyond, the key to success is understanding not only the legal framework, but also the strategy, preparation, and interpersonal dynamics involved. This outline walks through the essentials of collective bargaining under the National Labor Relations Act (NLRA), along with practical techniques, negotiation tactics, and preparation tips drawn from decades of labor‑relations practice. What Is Collective Bargaining? Collective bargaining is the structured process by which an employer and a union negotiate wages, hours, benefits, and working conditions of employees represented by the union. The outcome is a Collective Bargaining Agreement (CBA), a binding contract that sets those terms for a defined period. The process is regulated by the National Labor Relations Act, which preempts state labor laws for private employers. Though every negotiation is unique, all follow a similar progression. Collective bargaining typically unfolds in several key phases: Preparation - Both sides analyze the existing CBA, gather economic and operational data, and develop proposals. Negotiation - Each party presents its proposals, discusses priorities, and responds to the other side’s demands. Agreement - Once consensus is reached, the parties draft a written agreement or memorandum of understanding. Ratification - The union’s membership votes on the agreement, and the employer formally approves it. Implementation The new CBA takes effect, often retroactively if negotiations extend past the previous contract’s expiration. The Legal Duty to Bargain Section 8(d) of the NLRA requires both parties to meet at reasonable times and negotiate in good faith over mandatory subjects such as wages, hours, and working conditions. Importantly, neither party is required to agree to any specific proposal, nor must they make a concession. Types of Bargaining Subjects Mandatory Mandatory subjects are those that “vitally affect” wages, hours, or working conditions. Examples include: Compensation and incentive pay Pension and benefit plans Paid and unpaid leave Discipline and discharge Seniority Work rules Grievance procedures Employers may not make unilateral changes to mandatory subjects without bargaining. Permissive Permissive subjects are relevant, but not central to working conditions They include definition of the bargaining unit, internal union procedures, and terms for non-unit employees. Parties may negotiate these, but neither side can be forced. Illegal Illegal subjects are topics prohibited by law, and include closed shop provisions, hot-cargo agreements, and discriminatory clauses based on race, religion, sex, age, disability, national origin, or union activity. Understanding these categories helps both sides stay compliant and focused on productive negotiation topics. Good Faith vs. Bad Faith Bargaining Good-faith bargaining is legally required and is the foundation of the negotiation process. It requires sincerity, openness, and a genuine desire to reach an agreement. What Good‑Faith Bargaining Looks Like: Meeting at reasonable times Making concessions and counteroffers Providing relevant information upon request Engaging in meaningful discussion Drafting written agreements when terms are reached Importantly, good faith does not require either party to accept proposals or make concessions they find unacceptable. Automatic Violations of Good Faith Certain actions are considered violations regardless of intent: Making unilateral changes to mandatory subjects before the impasse Bargaining directly with employees instead of the union Refusing to meet or discuss mandatory subjects Refusing to sign a written agreement reached at the table Other Signs of Bad Faith The National Labor Relations Board may also infer bad faith from patterns of behavior, such as: Delaying tactics Unreasonable demands Withdrawing previously agreed‑upon terms Failing to designate a representative with authority to bargain Attempting to bypass the union Good‑faith bargaining is not just a legal requirement—it is essential to building trust and reaching durable agreements. The Duty to Provide Information Under the National Labor Relations Act, both the employer and the union must provide information relevant to bargaining, resolution of grievances, or contract administration. Failure to provide information can result in: Unfair labor practice charges Conversion of an economic strike to an unfair labor practice strike Delayed or invalid impasse claims Even vague or burdensome requests may need to be answered, and requests cannot be ignored simply because they involve confidential information. Preparing for Negotiations Preparation is the backbone of successful bargaining. Management’s team typically includes: A chief spokesperson Financial and cost specialists HR representatives Operations experts A note‑taker Decision makers with authority The NLRA prohibits either side from interfering with the other’s choice of representatives, and employers cannot limit the size of a union bargaining team. Economic data collection is essential. Key sources include: Bureau of Labor Statistics (CPI, wages, employment data) Bloomberg Law contract settlement databases Local and industry CBA comparisons Teams should identify desired changes, anticipate union demands, prioritize issues, and prepare arguments with supporting data. Negotiation Strategies and Tactics Collective bargaining is both a legal process and a strategic exercise. Successful negotiators understand the unwritten rules, anticipate the other side’s priorities, and maintain discipline throughout the process. Experienced negotiators follow unwritten norms, such as: Neither party expects to get everything it asks for Parties begin with broad proposals and refined goals Early progress often focuses on non‑economic issues Major issues are typically addressed closer to contract expiration Common Bargaining Styles Auction bargaining - High opening proposals lowered incrementally. Trade‑off bargaining - Movement on one issue in exchange for concessions on another. Blue‑sky bargaining - Unrealistic initial demands with slow movement. Illegal Bargaining Styles Boulwarism - Presenting a single “fair, firm offer” and refusing to negotiate. Surface bargaining - Pretending to bargain with no real intent to reach an agreement. Experienced and successful negotiators operate from a realistic, “give and take” perspective that often involves some of the following tactics. Acknowledge the other party’s views Use real‑world examples Highlight points of agreement Ask open‑ended questions Keep negotiations fair, calm, and professional Build trust, rapport, and momentum Running Effective Bargaining Sessions The first meeting sets the tone and bargaining climate. Each party makes an opening statement, establishes schedules and routines, and exchanges initial proposals. Unions typically present more than they expect to receive, setting room for concessions. At the next session— usually the second meeting— the parties clarify demands, understand priorities, and begin evaluating economic impacts. This is critical for setting expectations and building negotiation strategy. For subsequent sessions as the deadline approaches sessions become more frequent, offers and counteroffers accelerate, committees may handle complex issues, and tentative agreements (TAs) are recorded clause-by-clause. Best Practices: Tips, Tricks, and Traps Collective bargaining has elements of skill. Skilled negotiators will recognize the other party’s perspective, provide clear explanations and supporting data, often ask open-ended questions, keep discussions focused and productive, and importantly remain calm and respectful. The most effective teams are well‑prepared, unified, and strategic in how they present and defend their proposals. Here are some hints and tips: Treat all early agreements as tentative until the full contract is settled. Document everything—written summaries, session notes, and caucus discussions. Never lose your temper, even if provoked intentionally. Avoid claiming you “cannot afford” a proposal, which could obligate financial disclosure. Caucus frequently to regroup or strategize. Build momentum through small agreements. Always preserve the authority and credibility of the chief negotiator. Advanced Negotiation Techniques Certain techniques may be useful for resolving conflicts and finding common ground. These include: (a) caucuses, which are private discussions of each negotiating team that are used to refine proposals, assess costs, or cool tensions; and (b) so-called “sidebar” meetings, which are private meetings between lead negotiators to break logjams or explore sensitive options. Trust is essential. If negotiations stall, the Federal Mediation and Conciliation Service (FMCS) can facilitate resolution by suggesting compromises, tradeoffs, or settlement formulas. Understanding Impasse An impasse occurs when good‑faith negotiations no longer offer a realistic path to agreement. When negotiations stall, executives and in-house counsel must navigate a complex landscape of legal standards, operational risks, and strategic considerations. Understanding impasse and mediation is essential to avoiding missteps that could escalate conflict or trigger legal exposure. After impasse is declared: Employers may implement their last, best, and final offer—but only positions already proposed before impasse Strikes and lockouts may occur The duty to bargain is suspended, not terminated Impasse may be broken by events, such as new proposals, the passage of time, strikes, or changed economic conditions. Business Decisions and “Effects” Bargaining Employers must bargain over employment-related decisions such as layoffs or production quotas, but not over core entrepreneurial decisions like closing a business unit. However, even when not required to bargain the decision, employers must bargain over the effects of that decision—timing, transition issues, severance, etc.—at a meaningful time. Key Questions for Upcoming Negotiations Collective bargaining is one of the most consequential legal processes an organization undertakes. It shapes labor stability, operational flexibility, cost structure, and long‑term workforce relations. For executives and in‑house counsel, the goal is not simply to negotiate a contract — it is to manage legal exposure, protect enterprise interests, and ensure compliance with federal labor law at every stage. Below are some key questions that may help achieve these goals. What are the union’s likely demands? Which CBA provisions are most problematic for management? What changes does the company desire? What internal or external constraints shape negotiation limits? Final Thoughts Effective collective bargaining is both an art and a science—grounded in legal requirements but shaped by preparation, data, trust, communication, and strategy. With thoughtful planning and disciplined execution, organizations can reach agreements that are fair, workable, and sustainable for both labor and management.
February 20, 2026
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