FINRA Releases Additional Guidance Related to Social Media

FINRA social media

The Financial Industry Regulatory Authority recently released Regulatory Notice 17-18, which contains guidance pertaining to social networking websites and business communications.

FINRA clarified a number of topics, including:

  • Member firms are obligated to retain a record of communications that occur via text messaging applications and chat services between its registered representatives and investors in accordance with Rules 17a-3 and 17a-4 promulgated under the Security Exchange Act of 1934, as amended, and FINRA Rule 4511.
  • An associated person may, in a personal communication, link to content made available by its firm that does not pertain to the firm’s products or services without implicating FINRA Rule 2210.
  • If a firm shares or links to content posted by a third-party website (e.g., an article or a video), the firm has adopted such content and must ensure that the content, when read together with the firm’s original post, complies with the same standards applicable to communications created by the firm. If the shared or posted content contains links to other content, a firm generally does not adopt that other content, although the firm may be deemed to have done so in certain circumstances (e.g., if the firm controls such other content). A firm may link to a section of a third-party website without adopting the content of such website if the link is continuously available to investors via the firm’s site (regardless of whether the linked site contains favorable information about the firm), the linked site could be updated by the third party and investors would still be able to use the link, and the firm does not influence or control the linked content.
  • Firms may use native advertising (i.e., advertising that appears alongside and in a manner similar to content posted by the publisher) provided that such advertising complies with FINRA Rule 2210, among other requirements.
  • Comments or posts about a firm’s brand, product or services that the firm has arranged to be posted must be labelled as advertisements. In addition, if a registered representative likes or shares favorable comments about him or herself that are posted by third parties on an unsolicited basis to such registered representative’s business-use social media website, the registered representative would be deemed to have adopted the comments and such comments would be subject to FINRA’s communication rules, including the prohibition on misleading or incomplete statements.

The guidance supplements, but is not intended to alter, guidance contained in previous FINRA regulatory notices pertaining to social media.

Regulatory Notice 17-18 is available here.

©2017 Katten Muchin Rosenman LLP

Challenges and Priorities for the New Secretary of Labor

secretary of labor alexander acostaAlex Acosta was confirmed by the Senate to be the next Secretary of Labor.  He now takes responsibility for several high-profile issues with critical implications for government contractors.

As we have previously written, the Labor Department was an exceptionally active regulator from 2013 through the end of the Obama Administration.  Although few of us expect that pace to continue, Secretary Acosta will have to balance two competing pressures.  On one hand, the President has already signed a law repealing one of the Labor Department’s most controversial regulations (the Fair Pay and Safe Workplaces rule) and directed agencies to review current regulations with a critical eye.  On the other hand, Acosta will be leading a department charged with enforcing the laws that protect or favor workers’ rights, which sometimes compete with the priorities of their employers.

These potentially opposing viewpoints were on display during Acosta’s confirmation hearing where he was pressed repeatedly by Senators to discuss his views on various regulations.  Asked by Senator Roberts to give his “overall philosophy on regulation,” Acosta emphasized the need to eliminate regulations “that are not serving a useful purpose,” and the need to enable small businesses to thrive.

Some uncertainty remains with respect to two specific cases that government contractors are watching closely.  First, the regulations governing paid sick leave were not raised during Acosta’s confirmation hearing, and Acosta has not publicly opined on them.  They were issued late in President Obama’s second term, and therefore fell within the window of the Congressional Review Act (“CRA”), but the level of chatter about repealing those regulations has lately been quite low.

Second, the Department is currently litigating proposed changes to overtime pay rules.  A district court held last year that the Department acted without authorization by doubling the salary threshold for defining executive, administrative, professional, outside sales, and computer employees (so-called “white collar” employees) from approximately $24,000 to $47,000.  Acosta demurred when Senators asked for his opinion on the merits of the case.  He acknowledged, however, that the large increase was partially a result of the long delay in adjusting the salary threshold, which had not been changed since 2004.  Adjusting for cost of living rises, Acosta suggested, would result in a revised threshold closer to $33,000.  He declined to say whether the Labor Department might change its position in the litigation in the Fifth Circuit, where briefing is scheduled to be complete in at the end of June, or withdraw the rule and propose an alternative.

On a positive note, Acosta expressed support for the practice of publishing detailed “opinion letters” from the Administrator of the Wage and Hour Division.  This practice has been halted since 2009.  This type of guidance, although not binding on a court, could provide helpful clarity to employers with contracts covered by the Service Contract Act and the Davis-Bacon Act.

Get the Most Out of Retirement: Checklist for Happiness, Health, Purpose and Financial Security

Get the Most Out of RetirementThe American Bar Association and AARP have partnered to bring you Get the Most Out of Retirement: Checklist for Happiness, Health, Purpose and Financial Security. As our population continues to age, more Americans are retiring.  These Americans will need help with all the aspects of retirement.  This book provides an easy step-by-step approach to making decisions that are tailored for this growing segment of the populace.

Click here to order.

Whether you’re planning for or already living in retirement, there’s a lot that goes into making the most of every day. From crafting a budget and managing your money to last a lifetime to simplifying your life so you can really focus on what you want to do next, Get the Most Out of Retirement walks you through the process.

You’ll get step-by-step, practical tips to

  • Nurture new and old relationships
  • Find meaning through volunteer and work opportunities
  • Take classes and pursue hobbies
  • Decide where to live
  • Retire abroad
  • Get organized and clean out the clutter
  • Stay within your budget
  • Simplify the legal paperwork
  • Live healthfully
  • And more!

Our generation has decades of [bonus] years ahead that our parents didn’t have. This is the one book you’ll need not just to manage the business of life wisely but to make your retirement rich with health, happiness, and meaning.

 

Federal Court Blocks Portion of Trump’s Executive Order Denying Federal Grants to Sanctuary Cities

gavel sanctuary citiesOnce again, a U.S. District Court has blocked part of one of President Donald Trump’s Executive Orders – the January 25th EO “Enhancing Public Safety in the Interior of the United States.”.  In explaining the purpose of that EO, President Trump stated “[s]anctuary jurisdictions across the United States willfully violate Federal law in an attempt to shield aliens from removal from the United States. These jurisdictions have caused immeasurable harm to the American people and to the very fabric of our Republic.”  To further that purpose, President Trump stated in Section 9(a) of the EO that these jurisdictions that refuse to cooperate with federal immigration authorities “are not eligible to receive Federal grants, except as deemed necessary for law enforcement purposes. . . “  In a lawsuit filed by the cities of Santa Clara and San Francisco, California, U.S. District Court Judge William H. Orrick of the Northern District of California issued a preliminary injunction specifically blocking enforcement of Section 9(a) nationwide.

The government in defense of the EO argued that Section 9(a) had not actually done anything yet, that the President was only using the EO as a “bully pulpit” and that the cities could not show that they would be harmed. But like the various courts that ruled on the travel ban, Judge Orrick cited a list of comments made by President Trump, his advisors and Attorney General Jeff Sessions to cast doubt on the government’s argument and show that the administration planned to use the EO as a “weapon” against sanctuary cities.  He found that: “[t]he order’s attempt to place new conditions on federal funds is an improper attempt to wield Congress’s exclusive spending power and is a violation of the Constitution’s separation-of-powers principles.”

This case is highly likely to find its way to the 9th Circuit Court of Appeals and perhaps to the Supreme Court.  President Trump has already tweeted his disapproval:  “First the Ninth Circuit rules against the ban & now it hits again on sanctuary cities – both ridiculous rulings.  See you in the Supreme Court!”

Jackson Lewis P.C. © 2017

Trump Tax Reform Proposal

Trump tax reformOn April 26, 2017, Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn introduced the Trump Administration’s tax reform proposal (the “Trump Proposal”) in a briefing. The proposal appears to borrow heavily from the tax reform plan put out by Mr. Trump during his presidential campaign with the significant exception that this reform proposal advocates adoption of a territorial tax system.

The proposal, set forth in a bulleted one-page document, was notably short on detail, and Secretary Mnuchin stated that many details will be finalized in subsequent discussions with Congress. Below, we highlight the major components in the Trump Proposal that we anticipate will be of the greatest interest to our clients.

Major Proposals 

Reduce the number of individual tax rate brackets. Under the Trump Proposal, the top rate for individual income tax would go down to 35 percent from its current rate of 39.6 percent (which is above the top rate of 33 percent proposed by Mr. Trump during his presidential campaign). The number of tax brackets would also be reduced from seven to three (10 percent, 25 percent, and 35 percent). Effectively, these changes would reduce income tax rates for most individual taxpayers, though no determination has been made on the income levels where these brackets would be set.

Expanded standard deduction. The standard deduction for individuals would be doubled under the Trump Proposal, which would effectively create a zero rate for many lower income taxpayers. Additionally, a higher standard deduction would reduce the number of taxpayers who would use itemized deductions, thus simplifying the return filing process for many taxpayers.

Eliminate most individual deductions. Secretary Mnuchin noted that most individual deductions will be eliminated, with the exception of the mortgage interest deduction and the charitable contribution deduction. This change may prove controversial because it repeals the deduction for state and local income taxes.

Other individual provisions. Consistent with the Trump campaign’s position, the proposal also would repeal the alternative minimum tax, the estate tax, and the Affordable Care Act’s 3.8 percent tax on net investment income.

Adoption of a territorial system. The Administration would also shift the United States to a territorial tax system, a proposal that was also advocated in the House Republican Tax Reform Blueprint (the “House Blueprint”)1 released last year, as a way to “level the playing field” for U.S. companies. A territorial tax system generally would exempt from taxation the foreign earning of U.S. headquartered companies. This is a significant change from an early Trump campaign position that advocated a worldwide tax system without deferral.

One-time repatriation tax. The Trump Proposal includes a one-time repatriation tax on the foreign earnings of U.S. companies, which is consistent with the Trump campaign position. However, in his remarks, Secretary Mnuchin did not give a specific repatriation rate even though the Trump Administration in prior comments has advocated for a 10 percent repatriation rate. This may suggest that the Administration is moving to the House Blueprint’s suggested bifurcated rates of 3.5 percent for foreign earnings and profits invested in “hard” assets and 8.75 percent for earnings and profits held as cash equivalents.

15 Percent business income rate and treatment of pass-through entities. The Trump Proposal would impose a 15 percent rate on all business income, including corporations and individuals receiving business income from S corporations, partnerships and other pass-throughs. It is uncertain whether this 15 percent rate will apply to all pass-through income. Secretary Mnuchin has previously stated that the 15 percent business rate would apply to small business income but would not be “a loophole for people that should be paying a higher rate.”

No mention of a cash-basis tax system or the border adjustability tax. The Trump Proposal did not contain any discussion of a cash-basis tax system or the border adjustability approach under the House Blueprint. Under the tax reform proposals of the Trump campaign, U.S. manufacturers would have been allowed to elect full and immediate expensing (subject to loss of the interest deduction) or retain current law depreciation and interest deductions. The Trump Proposal did not contain this earlier campaign proposal. On the issue of the border adjustable tax, Secretary Mnuchin noted that the Administration was continuing discussions with the House. Because the Trump Proposal briefing only provided a general overview of the Administration’s proposals, it is possible that President Trump could endorse either of these ideas at a later date.

At this point, it remains unclear how the Trump Proposal will affect the current tax policy debate or the ongoing tax reform process.


1 The House Republican tax reform proposal is formally titled “A Better Way: A Pro-Growth Tax Code for All Americans.”

Estate Tax Planning for Non-United States Citizen Spouses: QDOT-ting I’s and Crossing T’s

estate tax planning non us citizensIndividual and corporate citizens from countries around the world have moved to North Carolina and contributed materially to our state’s economic, educational, and cultural growth. Foreign direct investment (“FDI”) in North Carolina generally surpasses $1 billion annually, which boosts our state’s private sector employment by hundreds of thousands of workers. In recent years companies based in Canada, Denmark, Germany, India, Japan, Switzerland, and the United Kingdom, among others, have invested in a range of industry projects “from Manteo to Murphy.”

Accompanying this foreign investment are individuals who are not United States (“U.S.”) citizens who establish residence here and who are known as “resident aliens” under U.S. tax law. In addition, nonresident, non-U.S. citizens (“nonresident aliens”) sometimes invest in real and personal property situated in our state—everything from vacation homes to ownership interests in North Carolina holding or operating companies. This increased foreign business and personal investment requires heightened attention to the complex Internal Revenue Code (“Code”) requirements applicable to non-U.S. citizens for income and transfer tax purposes.

The corporate and individual income tax issues surrounding such entities and persons have garnered much attention. For example, compliance with the sweeping changes under the Foreign Account Tax Compliance Act (FATCA) continues to affect U.S. citizen and resident alien taxpayers with foreign accounts and other foreign assets. Equally important are the tax issues that impact non-U.S. citizens in connection with transfers of money or property during lifetime or at death. This article is an overview of recurring basic considerations in estate and gift tax planning for non-U.S. citizen spouses. It is not intended to be an exhaustive treatment of this complex area of law, nor is it intended to address income tax planning for non-U.S. citizen spouses.

In general, the U.S. imposes estate and gift tax on the worldwide assets of U.S. citizens and resident aliens. A critical step in the estate planning process is the determination of the citizenship of a client and, if the client is married, that of the client’s spouse. The estate and gift tax implications largely depend on the type of tax, domicile tests, marital status, property ownership and situs tests, and treaty provisions.

With respect to the U.S. estate and gift tax rules, “residence” and “domicile” are threshold considerations that only a qualified tax professional should evaluate. The tests to determine “residence” in the U.S. income tax context are largely objective (e.g., the “substantial presence test”), but determining “residence” for transfer tax purposes is more subjective. For U.S. gift tax purposes, an individual donor is a U.S. resident if the donor is “domiciled” in the U.S. at the time of the gift. For U.S. estate tax purposes, a deceased person is a U.S. resident decedent if the person was “domiciled” in the U.S. at death. U.S. Treasury Regulations define “domicile” as living in a country without a definite present intention of leaving. The determination requires a facts-and-circumstances analysis of one’s “intent to leave” as demonstrated, for example, in visa status, tax returns, length of U.S. residence, social and religious affiliations, voter registration, and driver’s license issuance. Holding a “green card,” (i.e., status as a “lawful permanent U.S. resident” authorized to live and work here), though compelling, is not determinative evidence of U.S. domicile.

Tax treaties between the U.S. and other countries sometimes modify the Code provisions governing the transfer taxation of non-U.S. citizens. The treaties often explain concepts such as domicile, set forth which country taxes certain types of property, and relieve individuals from double taxation. The U.S. has entered into tax treaties with over 70 other countries. However, not all the treaties address estate and gift tax issues, including, significantly, the recent Code provisions regarding portability of a deceased spouse’s unused exclusion (“DSUE”). A recent check of the Internal Revenue Service (“IRS”) website reveals that treaties with at least 19 countries either contain estate and gift tax provisions or are freestanding estate and/or gift tax treaties.

To understand the general estate and gift tax rules applicable to non-U.S. citizen spouses, it is helpful first to review those applicable to U.S. citizen spouses.

The following examples illustrate the general rules relating to lifetime gifts:

EX. 1: LIFETIME GIFT FROM U.S. CITIZEN TO U.S. CITIZEN SPOUSE

Al, a U.S. citizen and resident, is married to Bea, also a U.S. citizen and resident. In 2017, Al Gives Bea $200,000, payable by check.

For U.S. gift tax purposes, Al’s gift to Bea does not trigger U.S. gift tax because Bea is a U.S. citizen spouse. The gift qualifies for the unlimited U.S. gift tax marital deduction applicable to gifts from one spouse to a U.S. citizen spouse.

The result would be the same if Al were a resident alien married to Bea, so long as she is a U.S. citizen. A gift from a resident alien to U.S. citizen spouse also qualifies for the unlimited U.S. gift tax marital deduction.

EX. 2: LIFETIME GIFT FROM U.S. CITIZEN TO NON-SPOUSE U.S. CITIZEN

Al, a U.S. citizen and resident, has an adult daughter, Claire, also a U.S. citizen and resident. In 2017, Al gives Claire $200,000, payable by check.

For U.S. gift tax purposes, $14,000 of the $200,000 qualifies for the U.S. present interest gift tax annual exclusion, while the remaining $186,000 must be reported on a U.S. gift tax return in 2018. Assuming no prior taxable gifts and a U.S. estate tax exemption of $5,490,000 (2017), the $186,000 reduces the U.S. estate tax exemption available at Al’s death from $5,490,000 to $5,304,000.

The tax treatment changes if one spouse is not a U.S. citizen.

EX. 3: LIFETIME GIFT FROM U.S. CITIZEN (OR RESIDENT ALIEN) TO RESIDENT ALIEN SPOUSE

Al, a U.S. citizen, is married to Dot, a citizen of Country X. They live in the U.S. Dot holds a “green card” and does not intend to leave the U.S. In 2017, Al gives Dot $200,000, payable by check.

Dot is a resident alien, so Al’s gift to her does not qualify for the unlimited U.S. gift tax marital deduction. For U.S. gift tax purposes, Al’s gift to Dot is subject to the special present interest U.S. gift tax annual exclusion for lifetime transfers to non-U.S. citizen spouses. In 2017, this special annual exclusion is ,000.

Accordingly, $149,000 of the $200,000 gift qualifies for the special U.S. present interest gift tax annual exclusion, while Al must report as a taxable gift the remaining $51,000 on a U.S. gift tax return in 2018. Assuming no prior taxable gifts, the ,000 reduces the U.S. estate tax exemption available at Al’s death from $5,490,000 to $5,439,000.

The result would be the same if both Al and Dot were married resident aliens.

The result also would be the same if Al were a nonresident U.S. citizen and Dot were a nonresident alien.

EX. 4: LIFETIME GIFT FROM U.S. CITIZEN (OR RESIDENT ALIEN) TO NON-SPOUSE RESIDENT ALIEN

Al, a U.S. citizen, has a cousin, Eva, a citizen of Country X. Both are U.S. residents. Eva holds a “green card” and does not intend to leave the U.S. In 2017, Al gives Eva $200,000, payable by check.

For U.S. gift tax purposes, Al’s gift to Eva, a non-spouse resident alien, is treated the same as if Eva were a non-spouse U.S. citizen. Thus $14,000 of the $200,000 gift qualifies for the present interest U.S. gift tax annual exclusion, while the remaining $186,000 must be reported as a taxable gift on a U.S. gift tax return in 2018. Assuming no prior taxable gifts, the $186,000 reduces the U.S. estate tax exemption available at Al’s death from $5,490,000 to $5,304,000.

EX. 5: LIFETIME GIFT OF U.S.-SITUS PROPERTY FROM U.S. CITIZEN TO NONRESIDENT ALIEN SPOUSE

Al, a U.S. citizen and resident, is married to Fay, a citizen of Country X. Both are residents of Country X but own personal and real property located in the U.S. In 2017, Al gives Fay $200,000 (payable by check drawn on a U.S. bank).

Al’s gift to Fay, a nonresident alien spouse, does not qualify for the unlimited U.S. gift tax marital deduction. For U.S. gift tax purposes, Al’s gift to Fay is subject to the special U.S. present interest gift tax annual exclusion for lifetime transfers to non-U.S. citizen spouses. In 2017, this special annual exclusion is $149,000.

Accordingly, $149,000 of the $200,000 gift qualifies for the special U.S. present interest gift tax annual exclusion, while Al must report as a taxable gift the remaining $51,000 on a U.S. gift tax return in 2018. Assuming no prior taxable gifts, the $51,000 reduces the U.S. estate tax exemption available at Al’s death from $5,490,000 to $5,439,000.

EX. 6: LIFETIME GIFT OF U.S.-SITUS PROPERTY FROM U.S. CITIZEN TO NONRESIDENT ALIEN NON-SPOUSE

Al, a U.S. citizen and resident, has a cousin, Grace, a citizen and resident of Country X. In 2017, Al gives Grace $200,000 (payable by check drawn on a U.S. bank).

For U.S. gift tax purposes, Al’s gift to Grace, a non-spouse nonresident alien, is treated the same as if Grace were a U.S. citizen. Thus $14,000 of the $200,000 gift qualifies for the present interest U.S. gift tax annual exclusion, while the remaining $186,000 must be reported as a taxable gift on a U.S. gift tax return in 2018. Assuming no prior taxable gifts, the $186,000 reduces the U.S. estate tax exemption available at Al’s death from $5,490,000 to $5,304,000.

EX. 7: LIFETIME GIFT OF U.S.-SITUS PROPERTY FROM NONRESIDENT ALIEN TO U.S. CITIZEN SPOUSE

Hope, a citizen and resident of Country X, is married to Al, a U.S. citizen. They live in Country X. In 2017, Hope gives Al real property located in the U.S. worth $200,000.

For U.S. gift tax purposes, Hope’s gift of U.S.-situs real property to Al, a U.S. citizen spouse, qualifies for the unlimited U.S. gift tax marital deduction.

EX. 8: LIFETIME GIFT OF U.S.-SITUS PROPERTY FROM NONRESIDENT ALIEN TO U.S. CITIZEN NON-SPOUSE

Ida, a citizen of Country X, has a cousin, Al, a U.S. citizen. They live in Country X. In 2017, Ida gives Al $200,000 (payable by check drawn on a U.S. bank).

Ida and Al are not married. Whether the U.S. gift tax applies to the transfer depends on whether the transferred property is situated in the U.S. The situs rules are complex and are not necessarily the same for U.S. estate tax and U.S. gift tax purposes. Ida’s gift to Al, cash held in a U.S. bank, is considered U.S.-situs “tangible personal property” for U.S. gift tax purposes. Therefore, after utilization of the $14,000 U.S. gift tax present interest annual exclusion available to Ida as a nonresident alien donor, the remaining $186,000 of the $200,000 gift is subject to U.S. gift tax payable in 2018 by Ida as a nonresident alien donor.

A nonresident alien may use the U.S. gift tax present interest annual exclusion ($14,000), but the Code prohibits a nonresident alien from using the $5,490,000 lifetime U.S. gift tax exemption that is available to U.S. citizens and resident aliens.

EX. 9: LIFETIME GIFT OF U.S.-SITUS PROPERTY FROM NONRESIDENT ALIEN TO NONRESIDENT ALIEN SPOUSE

Al and Jane are married citizens of Country X. In 2017, Al gives Jane real property located in the U.S. worth $200,000.

Al and Jane are married nonresident aliens, so Al’s gift of U.S.-situs real property to Jane does not qualify for the unlimited U.S. gift tax marital deduction. For U.S. gift tax purposes, Al’s gift to Jane is subject to the special U.S. present interest gift tax annual exclusion for lifetime transfers to non-U.S. citizen spouses. In 2017, this special annual exclusion is $149,000.

There is no lifetime gift tax exemption for a nonresident alien’s gift of U.S.-situs property to another nonresident alien. Thus, $149,000 of the $200,000 gift qualifies for the U.S. special present interest gift tax annual exclusion for non-U.S. citizen spouses. The remaining $51,000 of value is subject to U.S. gift tax. It is reportable and payable by Al as a nonresident alien donor on a U.S. gift tax return in 2018.

The examples above illustrate the general rules applicable to gratuitous lifetime transfers of property, or gifts. The following examples illustrate the general rules applicable to transfers at death:

EX. 10: TRANSFER AT DEATH FROM U.S. CITIZEN TO U.S. CITIZEN SPOUSE

Carl, a U.S. citizen and resident, is married to Dawn, also a U.S. citizen and resident. Carl dies in 2017 with a gross estate valued at $7,000,000. His will, revocable trust, and beneficiary designations leave his real and personal property to Dawn.

The U.S. imposes estate tax on the transfer of the taxable estate of every U.S. citizen or resident decedent. The taxable estate is reduced by the value of any property that passes from the decedent to a U.S. citizen surviving spouse. This is called the unlimited U.S. estate tax marital deduction.

Accordingly, the “date of death value” of the property passing from Carl to Dawn, $7,000,000, qualifies for the unlimited U.S. estate tax marital deduction. No U.S. estate tax is due upon Carl’s death. Furthermore, assuming no prior taxable gifts, Carl’s DSUE, $5,490,000 (the applicable amount for 2017), is “portable,” that is, transferable, to Dawn for use upon Dawn’s death in addition to Dawn’s available U.S. estate tax exemption.

The result would be the same if Carl, a resident alien, were married to Dawn, a US citizen.

EX. 11: TRANSFER AT DEATH FROM U.S. CITIZEN TO RESIDENT ALIEN (OR NONRESIDENT) ALIEN SPOUSE

Carl, a U.S. citizen and resident, is married to Evelyn, a citizen of Country X and U.S. resident (i.e., a “resident alien”). Carl dies in 2017 with a gross estate valued at $7,000,000. His will, revocable trust, and beneficiary designations leave his real and personal property to Evelyn.

Absent proper U.S. estate tax planning (i.e., “QDOT” structure described below), and assuming no prior taxable gifts, the property passing at Carl’s death to Evelyn, a resident alien spouse, would NOT be eligible for the unlimited U.S. estate tax marital deduction. Specifically, Carl’s available U.S. estate tax exemption, $5,490,000, would be consumed fully, leaving $1,510,000 subject to U.S. estate tax (top rate of 40%) with the balance passing to Evelyn.

If both Carl and Evelyn were married resident aliens, the result would be the same.

Why QDOT Planning Matters

In Example 11 above, proper planning with a “qualified domestic trust” (“QDOT”) could have preserved eligibility for the U.S. estate tax marital deduction and avoided the onerous U.S. estate tax imposed.

The QDOT is an exception to the non-U.S. citizen spouse exception to the U.S. estate tax marital deduction. The U.S. estate tax marital deduction operates to defer estate tax until the death of the surviving spouse. When Congress enacted the non-U.S. citizen spouse exception to the U.S. estate tax marital deduction (disallowing the U.S. estate tax marital deduction for non-U.S. citizen spouses), it did so to avoid the scenario where a non-U.S. citizen spouse inherits untaxed property then leaves the U.S. for a country without a treaty in place to facilitate the collection of U.S. estate tax upon the surviving spouse’s death.

In general, U.S. estate tax would be paid upon actual distributions of QDOT principal to the non-U.S. citizen spouse or upon the death of the surviving spouse. The QDOT enables deferral of the U.S. estate tax, as the exception to the U.S. estate tax marital deduction for non-U.S. citizen spouses does not apply when property passes to a properly drafted QDOT for the surviving spouse’s benefit.

To qualify as a QDOT, the trust must meet four general requirements:

• At least one trustee must be a U.S. citizen or a U.S. corporation;
• No distribution of trust property may be made unless the U.S. trustee has the right to withhold U.S. estate tax payable on account of the distribution;
• The trust must meet security requirements set out in the U.S. Treasury Regulations to ensure the collection of U.S. estate tax; and,
• The decedent’s executor must make an irrevocable election on Schedule M of IRS Form 706, the U.S. estate tax return.

The substantive provisions of a QDOT must meet the requirements of a marital trust intended to qualify for the U.S. estate tax marital deduction. A QDOT is often designed as a Qualified Terminable Interest Property (“QTIP”) martial trust of which the spouse is the sole beneficiary entitled to receive trust income. Other QDOT trust designs meeting the marital deduction requirements are available as well. It is essential that a QDOT is drafted with care. For example, to avoid being deemed a “foreign trust” under U.S. tax law, certain powers should be limited to U.S. persons and the trustee should be prohibited from moving the trust to a country beyond the reach of the U.S. courts.

QDOT planning is most effective when planning for gross estate values around, above, or expected to be above the U.S. estate tax exemption. However, if the date of death value of worldwide property owned by a U.S. citizen or resident is substantially below the U.S. estate tax exemption, then the U.S. citizen or resident may decide to leave such property outright to the non-U.S. citizen spouse, which would consume the decedent’s available U.S. estate tax exemption (illustrated in Example 11 above).

If the date of death value of property passing to the QDOT exceeds $2,000,000 (not adjusted for inflation) (known as a “large QDOT”), then additional requirements apply to secure payment of U.S. estate taxes attributable to the transferred property. At least one U.S. trustee must be a U.S. bank (several of which offer corporate trustee services to North Carolina residents). Alternatively, the U.S. trustee can furnish a bond or a letter of credit meeting certain conditions. These additional requirements also apply to smaller QDOTs where foreign real property holdings exceed 35% of trust assets.

If a decedent’s estate elected QDOT treatment and portability of DSUE on a U.S. estate tax return, then the estate also must report a preliminary DSUE that is subject to decrease as QDOT distributions occur or even modification by tax treaty. The DSUE amount is determined finally upon the surviving spouse’s death or other termination of the QDOT. The intersection of the QDOT rules and portability of unused estate tax exemption requires careful analysis upon filing the estate tax return and thereafter when planning for the non-U.S. citizen surviving spouse during the QDOT administration, including if the spouse attains U.S. citizenship.

Nonresident decedents are subject to U.S. estate tax on the value of U.S.-situs assets valued in excess of $60,000. The Code’s rules applicable to nonresident alien decedents are complex and should be analyzed with care. The analysis may include, for example, the types of U.S. property treated as U.S.-situs property subject to U.S. estate tax, whether any tax treaty modifies U.S.-situs property classification and the taxing jurisdiction, and whether a nonresident alien formerly a U.S. citizen or long-term resident alien is subject to the Code’s “covered expatriate” rules.

The following example illustrates these general rules and assumes no treaty between the U.S. and the foreign country.

EX. 12: TRANSFER AT DEATH OF U.S.-SITUS PROPERTY FROM A NONRESIDENT ALIEN TO A NONRESIDENT ALIEN SPOUSE

Carl, a nonresident alien, is married to Fran, also a nonresident alien. Carl leaves his worldwide assets, including U.S.-situs real and personal property, to Fran. His gross estate is valued at $7,000,000.

A nonresident alien decedent’s U.S.-situs property is subject to U.S. estate tax. Absent proper estate tax planning (i.e., QDOT structure described above), the U.S.-situs property passing at Carl’s death to Fran, a nonresident alien spouse, is ineligible for the unlimited U.S. estate tax marital deduction.

Specifically, Carl’s available U.S. estate tax exemption—only $60,000 for nonresident aliens—would be consumed fully, leaving $6,940,000 subject to U.S. estate tax (top rate of 40%) with the balance passing to Fran.

If Carl, a nonresident alien, were married to Fran—this time a U.S. citizen—the result generally would be the same except the U.S. estate tax marital deduction would apply only to U.S.-situs property.

In either scenario above, Carl’s executor must file IRS Form 706-NA, the U.S. estate tax return for nonresident alien decedents, and pay the U.S. estate tax due.

United States tax law is changing while families and businesses continue to move among countries. Estate planning for non-U.S. citizens is multidimensional and demands attention right here in North Carolina. The QDOT is a powerful U.S. estate tax planning technique to help certain non-U.S. citizen spouses defer taxes and preserve wealth in the face of such change.

© 2017 Ward and Smith, P.A.. All Rights Reserved.

Navigating Amazon: “On-Demand” Worker and World of Ultra Fast Delivery

amazon on demand workerOn March 22, 2017, Amazon unveiled its Prime Now” one-hour delivery service in Milwaukee, Wisconsin which brought the total number of cities where the service is available to over thirty. The Prime Now service provides the speed and convenience that many online consumers now expect. In meeting the growing consumer demand for speed and convenience, Amazon has adopted the “on-demand” workforce model similar to the one used by Uber Technologies and Lyft. The on-demand workforce concept is still somewhat in its infancy and is certainly not without its faults. It is (and will continue to be) the focus of increased regulatory scrutiny and a platform for potential suits from workers who may feel they are being exploited.

Labor Laws and the “On Demand Worker”

Amazon originally relied on third-party companies to handle its ultra-fast delivery service but began hiring “on-demand” drivers directly through its Amazon Flex program in September of 2016. There are a number of potential advantages of the “on-demand” workforce. For example, it helps the company reduce labor costs by classifying the drivers as independent contractors thereby providing flexible work arrangements and allowing the company to reduce its employment costs through opting out of local minimum wage and overtime laws. Using an on-demand workforce also allows the company to adjust the size of its workforce based on demand. However, the model also carries many risks. Namely, the risk of lawsuits from workers who claim worker’s compensation, unemployment benefits or other employee benefits. The relationship could also be subject to scrutiny by the Internal Revenue Service or state taxing authorities. These are risks that retailers will need to carefully analyze and consider before implementing the on-demand workforce concept.

The Drones Are Coming

One possible solution to the workforce issues that has garnered mass media attention is Amazon’s stated goal of using drones to deliver its products and packages in a half hour or less. The timetable for drone implementation has not been set but the use of drones purport to solve many of the labor law issues that continue to challenge the “on-demand” workforce model. However, the use of drones does require the review and analysis of myriad legal and regulatory issues. The legal issues requiring consideration include compliance with any applicable Federal Aviation Administration regulations which have gone into effect regarding drones. Some of these regulations appear to limit some of the potential to scale the use of drones. Retailers utilizing drones will also need to consider the labyrinth of local and state law and regulations that may be adopted.

As a leader in the world of hyper fast delivery, Amazon has already tested its competitors’ ability to adapt and so far Amazon has outperformed its competition in this space. The world of traditional brick and mortar will need to keep pace by more efficiently managing their retail operations and discovering innovative ways to deliver their products to assure customer satisfaction. To accomplish this, there are many leasing, distribution and economic factors which need to be properly considered and documented,

©2017 von Briesen & Roper, s.c.

The First 100 Days: The Trump Administration’s Impact on Labor and Employment Law Thus Far

Donald Trump first 100 daysTwenty-four executive orders, 13 signed Congressional Review Act resolutions, and one failed healthcare bill … political pundits and policy experts are no doubt tallying up these and other actions as we quickly approach April 29, 2017, which will mark the first 100 days of the Trump administration. While there has been some important activity in the labor and employment policy areas during these 100 days, many in the business community are still wondering what the Trump administration’s positions will be with respect to current labor and employment policy matters.

Indeed, while Trump has acted quickly and decisively in rolling back burdensome employment regulations like the “ blacklisting” and “Volks” rules, the same cannot be said about the speed with which he has appointed personnel to run important agencies like the National Labor Relations Board (NLRB or Board) and the U.S. Department of Labor (DOL). President Trump may even pass the 100-day marker without having a Secretary of Labor in place. Moreover, President Trump inherited two vacancies at the NLRB and had the ability to fill those seats immediately and begin the process of undoing eight years of mischief at the Board. Not only have these Board seats not been filled, but the president hasn’t even offered up nominees yet.

The failure to appoint individuals to these important posts has undoubtedly been a missed opportunity for President Trump. It also leaves employers wondering about the president’s commitment to undoing the heap of burdensome labor and employment regulations that have accumulated over the past eight years. How will the DOL handle the previous administration’s appeals of federal court injunctions of the overtime and persuader rules? How will the DOL’s fiduciary and silica rules be enforced, if at all? Will the NLRB’s amorphous joint employer standard continue? What impact will President Trump’s recent “Buy American and Hire American” executive order have on employers that rely on highly-skilled H-1B visa holders to meet their staffing needs? These are all questions that employers are asking.

Congress is back in session after a two-week hiatus from April 10–21, 2017. Their next extended break is not until August of 2017. At the 100-day marker, the employer community is hopeful that this will give both the administration and Congress ample time to begin making positive progress on a new labor and employment policy agenda.

© 2017, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

Failure To Pay Minimum Wage Can Jeopardize Employment-Based Visa Petitions

minimum wage employment-based visa petitionsRudyard Kipling famously noted, “East is East, and West is West, and never the twain shall meet.” Many employers may feel that this quote aptly describes the relationship between immigration law and wage & hour law — certainly, it is not often that these two areas are discussed in the same article, let alone the same sentence. However, a recent U.S. Citizenship & Immigration Services (USCIS) policy memorandum illustrates a circumstance in which the government will take wage & hour considerations into account when addressing a visa petition.

The April 12, 2017 policy memorandum binds all USCIS personnel to follow the reasoning of the agency’s earlier Administrative Appeals Office (AAO) decision. In that AAO decision, the agency establishes policy guidance which clarifies that USCIS cannot approve an employment-based visa petition that is based on an illegal or otherwise invalid employment agreement. Specifically, before approving an employment-based visa petition, it must be established that the employment visa beneficiary will not be paid less than the state or federal hourly minimum wage. (Whichever has the highest minimum wage is the minimum to follow.)

The AAO decision involved a U.S. semiconductor manufacturing company’s petition, in which it sought to temporarily employ a “Failure Analysis Engineer” in Oregon under the L-1B nonimmigrant specialized knowledge classification for intracompany transferee employees. USCIS California Service Center had denied this petition, concluding that the evidence did not show that the beneficiary had specialized knowledge or would be employed in a capacity requiring specialized knowledge. However, the AAO decision identified an overreaching issue that it determined had to be dealt with prior to addressing the issue of specialized knowledge. Namely, the U.S. employer intended to pay the beneficiary less than the minimum hourly wage. The AAO decision made clear the agency’s position that under no circumstances is a U.S. employer allowed to pay an employment visa beneficiary below the highest applicable minimum state or federal hourly wage.

Through this AAO decision, USCIS employment visa adjudicators have been instructed to prevent a conflict with the Fair Labor Standards Act by ensuring that any prospective employment agreement between a U.S. employer and a foreign national worker allows for compensation that cannot be less than the higher government-required hourly wage, whether it be the state or federal minimum — only if that highest minimum hourly wage is met can USCIS approve a U.S. employer’s employment visa petition. As we have frequently discussed in these updates, there are many reasons that it is critical for employers to comply with wage and hour requirements. Employers now have another reason to ensure compliance with the FLSA and state minimum wage laws: the risk of jeopardizing employee visa status.

© 2017 Foley & Lardner LLP

To IT or Not to IT: Why Your Firm Needs to Hire a Legal IT Consultant

Legal IT ConsultantWhether ’tis nobler in the mind to suffer through all the bad things luck throws at you, or to take arms against all those things that trouble you by putting an end to them? Yes, I am being a bit pretentious. But, Shakespeare’s words are relevant here. How do you deal with the day-to-day challenges of running your firm? Should you put up with it or do something about it? Simply put, if you want your firm to grow you have to take action. A legal IT consultant can help solo and small firms put an end to the challenges that are keeping them from being competitive with larger firms.

Why You Are Hesitating, Hamlet?

I have already argued in an earlier article that solo and small firms must embrace new technology in order to stay competitive. Nevertheless, I understand even a tech-savvy lawyer’s time is better spent being a lawyer than updating a website. Moreover, it does not matter if you have the latest software if no one can use it properly. So, who is going to train your employees to use the shiny and new technology? Set up, implantation, and training is a major time-killer. Add to this every other challenge that comes with running a firm.

The goal is to get lawyers back to practicing the law. This cannot be done without directly tackling the things draining your time. The fact is, technology can and will make your life easier and save you time. A legal IT consultant will use their ability to take some of the weight off your shoulders. Let them handle all your technology needs, therefore you can get back to your clients.

Bring an Objective Eye

I get it, Hamlet. Your firm is your baby. You have invested a lot of time and money in it. You want your firm to succeed, so it is hard to trust someone else with it. But, this is exactly what makes an IT consultant so beneficial. Sometimes, you are too close to something to see it objectively. An IT consultant is a neutral party. Vital changes will be made by someone who is objective. IT consultants are not yes men or untrustworthy. You can trust them to give you their fair thoughts on how to improve your firm.

You may already be using technology like case management software. However, one of the most common ways you waste billable hours is with bad software. You may choose your current software because a sales rep gives you a good pitch. It is difficult to realize why your current software is not saving you time without testing each one yourself. This trial-and-error process is just too time-consuming.

An IT consultant is not a salesperson. You can trust that they will recommend the best case management software for your needs. An IT consultant will learn what you and your staff need out of the software. They can assess which software meets those needs and ask the right questions to a salesperson. This process could take you weeks to complete on your own. Your consultant will handle the grunt work. You do not need to divide your time between cases and trial software.

Save Time and Money

Training is also not an issue. Lawyers tend to stick with bad software because it is inconvenient to train themselves and their staff in the software. The consultant will choose software that is the easiest to use and direct training themselves. Again, this is another task you do not have to deal with. You also save time spent on training, getting schedules in order, and implementing the new software. Overall, this is a much less stressful process for you and your staff.

IT challenges do not end after you install all the fancy hardware/software. We can look forward to AI solving this problem for us one day, but not yet.  IT consultants stick with you until the needed changes are complete. IT consultants do not just make suggestions and leave the rest to you. An IT consultant will develop a long-term strategy and work with you on how/when to best to make changes. There is no need to ask a ghost for advice. You can rely on regular updates from the consultant to make sure they are meeting goals.

Therefore, the most important part of an IT consultant’s job becomes to reclaim your billable hours and personal time. You have a dedicated professional handling all IT issues and implantation of new technology for you. Your firm can only grow if you are doing your job and helping your clients. The IT consultant eliminates the extra work that is important for growing your firm, but distracts from your billable hours.

Moreover, as you begin to add more technology you will also have to keep up with updates and changes. This is a difficult task even for fresh-faced lawyers. Technology is simply advancing too quickly to consistently stay up-to-date. Very few lawyers can dedicate the necessary time to keep up with all the changes, work with their clients, run their firm, and complete other tasks.

The IT consultant’s job is to keep up with the pace of change and trends. They will update your firm and guide you and your employees through those changes. Likewise, the shiniest, newest technology is seductive. IT consultants know what will work best for your firm. They will recommend only the technology your firm needs. You can rest assured that money is not being wasted on useless tech. The consultant will give you a detailed explanation on how/why the recommended changes will meet your firm’s needs.

Meet Goals with Less Stress       

One of the biggest challenges to meeting goals are employees. You can trust your employees to do the jobs you hired them to do. Employees, however, hate to have new tasks added to their workflow if they need to learn new skills. Employees are resentful of having to do a task they have little experience with or knowledge of. This creates extra stress on them and slows down the progress of their work. You cannot blame them for this. IT consultants realize it is a lot to ask of employees to add more duties to their plate.

An IT consultant will use their knowledge and resources to help your employees as well. The consultant does not simply train employees to use new technology. They serve as a guide and teach skills. The IT consultant will come up with a plan for helping employees adapt to their new tasks. This is especially helpful considering how multigenerational firms are becoming. Some employees will adapt quicker to their new tasks. The consultant will create specific schedules and strategies for these employees. Once the employees understand the changes, they will feel less resentful of the new work. This relieves stress and work gets started sooner. Thus, the IT consultant saves time and money in the short and long run.

There is no excuse not to take action. You should hire a legal IT consultant because they will help you grow your firm. Take your rightful place as king of all firms. The rest is silence.

© Copyright 2017 PracticePanther