The Fundamentals of Guardianship: What Every Guardian Should Know [BOOK]

The Fundamentals of Guardianship: What Every Guardian Should KnowServing as guardian is never simple or easy. Having the responsibility to make major life decisions for another is much more difficult than making decisions for oneself. Recent studies by the National Center for State Courts estimate that between one to two million adults are under court-supervised guardianship. The Administrative Conference of the United States estimates that approximately 75 percent of guardians are family members or friends. A constant refrain in multiple national studies and legislative reports is that once guardians are appointed they receive little instruction on how to carry out their responsibilities and have few resources to guide them.

Fundamentals of Guardianship is the much-needed, basic manual for new guardians that explains those roles and responsibilities. The court orders guardians to make decisions; Fundamentals of Guardianship explains how to make those decisions. It guides the new guardian step-by-step through the process of how to make responsible and ethical decisions, prudently manage another’s resources, avoid conflicts of interest, and involve the person under guardianship in the decision process. Fundamentals of Guardianship is the authoritative resource written by guardians with decades of experience and members of the National Guardianship Association.

Click here to order The Fundamentals of Guardianship: What Every Guardian Should Know

This book will appeal to all who have been appointed as guardian or conservator, whether lawyer, family member, friend, volunteer, or public or private entity, as well as all those who serve vulnerable adults. Included on this list are judges, court administrators, law enforcement officials, adult protective services, social workers, health care providers, case managers, residential care administrators, long-term care ombudsmen, financial institutions, and financial advisors.


Prepared for the Border Adjustment Tax? A U.S. and Global Perspective

border adjustment taxWe have been monitoring the potential impact of the Border Adjustment Tax (BAT) across a number of jurisdictions.

In our 14 February 2017 update, we commented that issues regarding the legality of BAT and the serious and significant international implications of its application meant that the introduction of BAT was uncertain.

In this further update we consider further the issues being raised in the United States about the BAT, look at potential challenges to the BAT by the World Trade Organization (WTO) and consider what the BAT may mean for jurisdictions outside the U.S. trading with U.S. business.

U.S. concerns

The BAT is part of a comprehensive tax reform plan that would shift the U.S. system from an income tax to a cash-flow destination based consumption tax. It would operate by exempting gross receipts from exports from U.S. federal income tax, and denying any deductions for the cost of imports. The BAT would apply to sales and imports of products, services and intangibles, and affect all forms of businesses, including corporations, “pass-throughs” and sole proprietorships.

The blueprint is vague as to whether the BAT applies to financial transactions and advice. The expectation is that financial transactions will be exempted from the BAT base in some form, but that investment management services would be included in the base.

The policy of the BAT is to incentivize business activity in the U.S. by effectively penalizing imports and subsidizing exports. It is intended to discourage corporate inversions and erosion of the U.S. tax base by making transfer pricing issues moot. It also is estimated to pay for one-third of the cost of the overall tax reform bill.

The U.S. business community is pushing for tax reform in order to make U.S. companies more competitive in a global marketplace. However, because the BAT rewards exporters and punishes importers, the proposal has ironically divided the very business community that is driving reform. While importers could potentially have a larger tax liability than book income, exporters could potentially experience a negative tax situation, since their costs would remain fully deductible (assuming they were not imported). The controversy extends beyond the business community. Consumer groups fear the BAT will result in higher prices. Importers fear U.S. consumers would work around the tax by buying directly from offshore vendors. The BAT could spur increased mergers and acquisitions, as net exporters seek companies with income sufficient to offset negative taxable incomes.

House Republicans, who proposed the BAT, say the value of the U.S. dollar will increase concomitantly with the tax increase, effectively increasing the buying power of importers and thus mitigating the impact of the BAT. Economists and other analysts are mixed in their reaction as to how the dollar will react. Since many international contracts are denominated in the U.S. dollar and because many currencies are not free floating, it is unclear to what extent any fluctuation in the dollar will offset the impact of the BAT.

Further, it is unclear whether the Trump Administration will endorse the BAT. There have been mixed messages from the White House, but President Trump has made it clear he would like to impose some sort of levy on imports to level the playing field for U.S. businesses and to bring jobs back to the U.S.

WTO Implications

While the focus has been on the impact on U.S. businesses and consumers, there are significant and serious international implications of the BAT. It is unclear whether the BAT would violate WTO protocols and a challenge from the WTO seems almost certain.

The WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement) only allows border adjustability for taxes imposed on products, the most common of these being value added taxes, sales tax and stamp duties. Whilst there seems to be some argument that a BAT is similar to a value added tax as it is focused on destination based consumption, the majority of commentators disagree with this analysis saying that the proposed BAT is a true corporate tax which in effect imposes a discriminatory subsidy in favour of net exporters. Further, the SCM Agreement prohibits the subsidizing of exports and of the use of domestic over imported goods.

Article II of the General Agreement on Tariffs and Trade (GATT) prohibits charging tariffs in excess of those in each country’s tariff schedule. The denial of deductions for the cost of imports could be considered equivalent to a tax on the imports themselves. In WTO terms, this could be viewed as the imposition of tariffs in excess of those provided for in the U.S. schedule or might violate the Article II requirement not to impose “other” duties or charges on imports. Article III of the GATT, which sets forth what are known as “national treatment” principles, generally requires that imports be treated no less favorably than domestically-produced goods. To the extent the BAT permits certain deductions (such as the cost of domestic wages), and thus generates lower tax rates for domestically-produced goods, while denying the same deductions for the same imported products, it would seem to violate the basic national treatment rules of the WTO.

The Effects of the BAT will extend far beyond the U.S. border

The European Union (EU) has already clarified it will not stand by without taking responsive action. Officials from jurisdictions like Canada, Mexico and Germany, have indicated their disapproval and concerns about the BAT. The impact on tax treaties, intended to prevent double taxation, is unclear. Many think a U.S. exemption from taxation of exports will result in a shift of the location of taxation, with non-U.S. jurisdictions taking custody of the income and taxing it. Countries around the world are concerned about how the denial of a deduction for the cost of imports and the strengthening of the U.S. dollar will affect the demand for their products, and their ability to afford products from the U.S.

Being a destination based cash flow tax, the BAT is not consistent with a corporate tax system, it goes against current principles of international taxation underlying the double tax treaties, and is not in alignment with the more recent global Base Erosion and Profit Shifting Rules (BEPS) initiatives launched by the Organisation for Economic
Co-operation and Development (OECD), Australia and the European Union.

Initial observations as to the BAT:

  • Granting a corporate income tax exemption on income derived from exports leads to a reduction of the income tax base and qualifies economically as a subsidy.

  • Disallowing a deduction for expenses relating to imports from the U.S. corporate tax base is effectively an increase of the tax base.

  • Due to its nature as a destination-based (cash-flow) tax, it is often compared to the European style value added tax (VAT) or the Australian goods and services tax (GST). However, the proposed BAT substantially differs from VAT and GST, e.g., in that:

    • VAT and GST is typically economically neutral for most businesses; and

    • end-consumers bear the same VAT burden irrespective of whether the services and supplies originate from the domestic market or from abroad.

  • Materially, the BAT appears to be a customs duty collection tool dressed in an income tax garment.

Economically, it has been said that BAT will eventually be trade neutral, due to the expected increase of the value of the U.S. dollar, however the value of a currency is also influenced by many other factors. In addition, it may be questioned whether (potential) effects on the exchange rate can be taken into consideration when analyzing and discussing the application of existing domestic and international tax law.

It is too early to finally assess the potential reaction of other countries on a potential enactment of the BAT by the U.S. In case of an enactment, many details will have to be better understood such as whether and how cross-border income payments from outside the U.S. (e.g., interest, royalties, dividends) will be subject to tax but exempted or rather be excluded from tax. In case of substantial frictions with the current tax systems, the reaction in Europe for example, may be a combination of both, a reaction at EU level as well as consequences drawn by individual member states.

Some states may question the income tax nature of the BAT or deny certain benefits such as treaty benefits based on applicable “subject-to-tax” clauses or alike. Whether or not certain states will go beyond that by requesting changes to the existing Double Taxation Treaties or their interpretation remains to be seen. Why for example should a country apply reduced withholding tax rates on royalties or alike if the respective income is not taxed in the U.S. for reasons of impeding the free trade between the U.S. and that particular country?

BAT may well also impact the current approach to globally harmonize the common understanding of fair international taxation, including the battle against the so-called BEPS which was triggered by biased rules governing international taxation.


Australia has been an early adopter for many of the OECD BEPS measures. It has recently passed legislation to implement a diverted profits tax, similar to that in the United Kingdom, a “Netflix” tax being a GST on intangible supplies via a digital platform operator by non-resident suppliers to Australian consumers. It has also introduced the Multinational Anti Avoidance Law to combat tax avoidance by multinational companies operating in Australia.

These measures show an increasing focus on cross border flows of business, and a move toward a destination model of taxing rather than an origination model. That is consistent with the BAT principles. However, given that the U.S. is Australia’s biggest trading partner and a destination of choice for many Australian companies seeking to expand globally, the impact of the BAT for Australian business cannot be underestimated.

While much of the focus in the U.S. has been on the impact of BAT on the import and expect of manufactured goods and products, cross border utilisation of intellectual property, intangibles, and management and head office charges are likely to be an area of ongoing focus as the BAT works its way through the legislative agenda.


The BAT could jeopardise the application of the tax treaty entered into by the U.S. and France. According to the most recent case law of the French high administrative court (Conseil d’Etat), treaty benefits must only be granted where there is an effective double taxation. If a French company pays a royalty to a U.S. company, such royalty will be exempt in the U.S. and the French revenue may take the view that the treaty does not apply. French domestic withholding tax of 30% may apply accordingly.

The BAT would clearly contradict some of the provisions of this treaty. By way of example, Article 7 provides that in determining the profits of a permanent establishment, there shall be allowed as deductions expenses which are reasonably connected with such profits, whether incurred in the State in which the permanent establishment is situated or elsewhere.


Germany has also been an early adopter of the BEPS rules – to the extent such rules were not already enacted before as German rules fighting cross-border base erosion and profit shifting were already rather sophisticated.

A mere reduction of the U.S. corporate income tax rate itself should generally not be of a concern from a German tax perspective. However, for purposes of the application of the Controlled Foreign Corporation (CFC) and Passive Foreign Investment Company (PFIC) rules pursuant to the German Foreign Tax Act, there will be an issue where the effective corporate income tax burden in the U.S. drops below 25%, measured by German tax standards.

However, Germany would certainly not welcome substantial single-sided impediments on the free trade imposed by BAT or other means.

United Kingdom

For United Kingdom businesses that export to the U.S., the introduction of a BAT could have far reaching consequences for sales, FX strategy and business organisation.

One area of particular difficulty relates to cross-border financial services (UK outbound and inbound): it is not yet clear how a BAT would deal with these (VAT systems are themselves complex in this area). Useful practical strategies may be drawn by U.S. businesses in conjunction with advisers both in the U.S. and jurisdictions with VAT systems, like the United Kingdom, as and when any BAT reform is rolled out in detail.

On a more general level, tax issues have gained a higher profile in the UK over the last few years. Like many other jurisdictions the UK is actively adopting the recommendations of the OECD’s BEPS initiative and actively encouraging EU policy to endorse the same. The UK’s implementation of these OECD recommendations has resulted in the UK seeking to tax profits created in UK, and trying to ensure that where value has been created in the UK that value is not artificially diverted for tax purposes to offshore jurisdictions.

The current UK Government’s enthusiasm for these OECD initiatives (and the automatic exchange of tax information including private tax rulings) is a continuation from the previous administration, faces little or no political opposition and is not in any way contaminated by BREXIT.

It can be noted that the OECD BEPS initiative’s overarching economic goal to ensure that value is taxed where it is created (not located) in fact, with increased attribution to human resource (rather than capital or IP), is not necessarily incompatible with the political objective of the Blueprint to increase value creation in the U.S. (and taxing it there).

Global high brand value service and product suppliers, and other businesses which are head-quartered outside of the UK, argue that the value of their sales derives from their domestic jurisdictions where their global high value brand products or IP was developed and where their technicians, designers, board etc. are based. As a result, value is not derived from a UK based sales centre, the services of which, if outsourced, would only cost a small amount in fees or commissions. It will be interesting to see how the lobby groups for U.S. based multinationals and a post-BREXIT UK each respond to the EU Commission’s state aid challenges, which were aimed at preventing low EU tax on EU sales. It may prove harder to resist greater taxation in the EU if there is no domestic tax in the U.S. in relation to the EU operations.

In addition to the policy arguments there are also technical issues with how the UK’s value based approach will sit with the proposed destination based approach in the US. For example, the U.S.-UK double tax treaty currently deals with direct taxes (such as federal profits, income and gains taxes) and is predicated on traditional tax bases such as residence and source and does not address indirect taxes (like VAT) at all. How this will be applied in the context of the U.S.-UK double tax treaty is not clear.


Given both the uncertainty regarding the intricacies and workings of the BAT as well as how it will interact with existing Double Tax Treaties, the introduction and operation of the BAT remains unclear

The impact of the proposed tax on net importers vs net exporters divides the business community and creates further uncertainty in an already uncertain economy. The same applies to the consequences on the application and interpretation of domestic tax and international tax law outside the U.S. It is hoped that detailed legislation as well as commentary addressing the concerns of the U.S. domestic and international community will go some way in resolving these issues in a time efficient manner.

Copyright 2017 K & L Gates

Seventh Circuit Breaks New Ground: Sexual Orientation Discrimination Prohibited by Title VII

sex discrimination seventh circuitIn a landmark decision reflecting a potential turning of the tide for the LGBT community, the U.S. Court of Appeals for the Seventh Circuit has become the first federal appeals court in the nation to hold that discrimination on the basis of sexual orientation is a form of sex discrimination prohibited by Title VII. Hively v. Ivy Tech Community College of Indiana, No. 3:14-cv-1791 (7th Cir. April 4, 2017).

Last July, a panel of the Seventh Circuit affirmed dismissal of the sexual orientation discrimination claim of Kim Hively, a lesbian who claimed she was denied promotions and a full-time position due to her sexual orientation. (See Seventh Circuit: Title VII Offers No Protection Against Sexual Orientation Discrimination.) The Seventh Circuit voted to rehear the case en banc. Yesterday’s decision followed.

The Seventh Circuit began by observing that the question is not whether the court can, or should, add a new category of protection to Title VII, as that is beyond its authority.  Instead, the court viewed itself as charged with interpreting the existing language of Title VII, specifically, whether discrimination based on “sex” includes sexual orientation.

The court considered a number of interpretive aids. It cited the U.S. Supreme Court’s blessings on expansion of traditional sex discrimination claims in such cases as Meritor Savings Bank, FSB v. Vinson, 477 U.S. 57 (1986), which expanded the law to include sexual harassment, Oncale v. Sundowner Offshore Servs., Inc., 523 U.S. 75 (1998), expanding the law to include same-sex harassment, Price Waterhouse v. Hopkins, 490 U.S. 228 (1989), expanding the law to include discrimination based on gender non-conformity, and Obergefell v. Hodges, 135 S.Ct. 2584 (2015), upholding the right of same-sex couples to marry. The Seventh Circuit noted that the Congress that enacted Title VII in 1964 may not have envisioned the necessity of these protections at the time, but nonetheless, experience has since caused the Supreme Court to recognize them as forms of prohibited sex discrimination.

The court also cited other Supreme Court decisions favoring sexual orientation-based protections, including Romer v. Evans, 517 U.S. 620 (1996), holding that a provision of the Colorado Constitution forbidding state government from taking action designed to protect “homosexual, lesbian, or bisexual” persons, violated the federal Equal Protection Clause; Lawrence v. Texas, 539 U.S. 558 (2003), wherein a Texas statute criminalizing homosexual sex between consenting adults violated the federal Due Process Clause; and United States v. Windsor, 133 S.Ct. 2675 (2013), striking down the Defense of Marriage Act’s exclusion of same-sex partners from the definition of “spouse.”

Ivy Tech argued that Congress has repeatedly considered—and refused—to add “sexual orientation” to the language of Title VII, and that should be interpreted as Congress’ intent to exclude it. This argument has been recited by numerous federal appellate courts in denying Title VII coverage to such claims. However, the Seventh Circuit noted that the legal landscape has changed over the years, and the Supreme Court has shed more light on the scope of the statute through its decisions, and for these reasons, the court was unable to draw any reliable inference from the failed “truncated legislative initiatives” in Congress.

As to the existence of the significant contrary authority, the court stated: “[T]his court sits en banc to consider what the correct rule of law is now in light of the Supreme Court’s authoritative interpretations, not what someone thought it meant one, ten, or twenty years ago.” The court reversed dismissal of Hively’s claim and remanded the case to the district court.

Inevitable Result, Uncertain Future

With the landslide of litigation in the courts seeking protections for the LGBT community, it may have been inevitable that one of the federal circuit courts hearing such a case would eventually rule in favor of Title VII protection from sexual orientation discrimination. Indeed, numerous recent decisions that have refused to recognize such protections have acknowledged the untenable results that have come to pass in so holding. The Seventh Circuit’s decision recognized: “It would require considerable calisthenics to remove the ‘sex’ from ‘sexual orientation.’ The effort to do so has led to confusing and contradictory results…”

Indeed, many courts in other jurisdictions continue to find creative ways to allow sexual orientation-based claims to proceed despite the legal roadblock, including most recently, the Second Circuit’s decision last week that allowed a gay advertising executive to proceed with his Title VII claims based on gender non-conformity as opposed to sexual orientation. Christiansen, et. al. v. Omincom Group, Inc., 2017 WL 1130183 (2nd Cir. March 27, 2017).

With yesterday’s ruling, the Seventh Circuit has created a split in the federal circuit courts, making this issue ripe for U.S. Supreme Court determination. The country likely will receive uniform interpretation of Title VII on this issue from the Supreme Court at some point. Until then, the law in this area is truly a mixed bag. Employees in the Seventh Circuit have an additional cause of action to bring under Title VII, and employers in this jurisdiction may see a rise in these claims in the near term. For most employers outside the Seventh Circuit, employees are barred from pursuing sexual orientation bias claims under Title VII.  However, alternate theories may be advanced, such as the plaintiff successfully did in the Second Circuit case. In addition, many state laws include sexual orientation protections.

While the law of the land is unsettled, one thing remains clear: employers that uphold principles of equal opportunity and fairness, and merit-based employment rewards, will fare the best.

© 2017 Schiff Hardin LLP

Supreme Court Bars Structured Dismissals of Bankruptcy Cases That Violate the Code’s Priority Distribution Scheme – Could it Affect Your Creditor Position?

supreme court structured dismissalsOn March 22, 2017 the Supreme Court issued its long-awaited ruling regarding the legality of structured dismissals of Chapter 11 bankruptcy cases that would make final distributions of estate assets to creditors in a manner that deviates from the Bankruptcy Code’s statutory priority distribution scheme.1 In Czyzewski v. Jevic Holding Corp., the Court held that such a structured dismissal was forbidden, absent the consent of the negatively affected parties. However, the Court did not bar all distributions of estate assets which violate the priority distribution scheme, suggesting that interim distributions that serve a broader Code objective such as enhancing the chances of a successful reorganization might be allowed, meaning that important bankruptcy tools like critical vendor orders and first-day employee wage orders are still viable.

In Jevic, the debtor was taken over by an investor in a leveraged buy-out (“LBO”), with money borrowed from a bank. The LBO added a significant and ultimately unsustainable level of the debt to the company. Shortly before the bankruptcy, Jevic ceased operations and fired all of its employees. A group of those laid-off employees (the truck drivers) filed a lawsuit against Jevic and the investor for violations of the federal WARN Act.2 The employees prevailed in the WARN Act litigation against Jevic and obtained a $12.4 million judgment, $8.3 million of which was entitled to priority status in Jevic’s bankruptcy case because it was for wages. As the holders of a priority claim, the truck drivers were entitled to be paid before any of the general unsecured creditors in the Jevic bankruptcy. The employees also had a WARN Act claim pending against the investor, the acquirer in the LBO. During the bankruptcy, the unsecured creditors’ committee sued the investor and the bank for fraudulent transfer claims arising from the LBO. While those cases were pending, and during the bankruptcy, several constituencies attempted to negotiate a resolution to the case with a plan of reorganization, but that effort failed. Ultimately everyone but the truck drivers agreed to a settlement regarding the fraudulent transfer claims and distribution of estate property and a structured dismissal of the bankruptcy case.3 The settlement excluded the truck drivers from any recovery, but did provide some recovery to consenting lower-priority unsecured creditors.

The truck drivers and the United States Trustee objected to the structured dismissal since it deviated from the Code’s priority rules. However the Bankruptcy Court approved it, and was affirmed by both the District Court and the Third Circuit Court of Appeals. Those courts reasoned that under the settlement and structured dismissal, there would be at least some recovery to some priority and general unsecured creditors—even if not to the bypassed truck drivers—whereas otherwise no one but the secured creditor would get anything.. The truck drivers could not really complain, those courts concluded, because they would have gotten nothing regardless. Furthermore, those courts did not believe that the absolute priority rule applied to a dismissal.

The Supreme Court, however, reversed the Third Circuit Court of Appeals, and concluded that in a final distribution of estate assets, by whatever mechanism, the Code’s priority rules must be respected, absent the consent of adversely affected parties.

However, the Court narrowly tailored its ruling, stating that strict compliance with the priority rules is only required in a final distribution of estate assets upon the conclusion of the bankruptcy case, whether via liquidation, plan confirmation, sale of assets, or dismissal. The Court noted that during a reorganization case, bankruptcy courts routinely approve interim distributions of estate assets in ways that violate the priority distribution scheme. For example, in almost every chapter 11 case, debtors seek the ability to pay their employees for pre-petition wages that are accrued but unpaid on the petition date. In some cases, debtors also seek critical vendor orders that allow them to pay certain key suppliers the pre-petition amounts due so that those suppliers will continue to ship goods or provide services during the bankruptcy case. The Court distinguished these interim priority-violating distributions from the one at issue in Jevic because the interim distributions served the goal of the bankruptcy system: the rehabilitation of debtors. Priority-violating final distributions made pursuant to structured dismissals do not serve that goal.

Jevic’s ruling will drastically curtail the growing trend of structured dismissals, eliminating some wiggle room bankruptcy stakeholders had in fashioning a resolution to a case outside a plan of reorganization. No longer can recalcitrant groups of creditors be threatened with being squeezed out of any distribution if they won’t cave in and agree to play ball; they can insist on their priority rights. However, the ruling still preserves the flexibility that has developed in chapter 11 cases to allow debtors to attempt to reorganize their business and protect parties that are willing to work with debtors during the bankruptcy.

© 2017 Foley & Lardner LLP

Czyzewski v. Jevic Holding Corp., 580 U.S. ___ (2017); 2017 WL 1066259.

2 The WARN Act is the Worker Adjustment and Retraining Notification Act. Among other things, the WARN Act requires companies to give workers facing a mass layoff at least 60 days’ notice of the layoff, or pay their wages for the 60 day period. 29 U.S.C. 2102.

3 The truck drivers were excluded because they would not agree to drop their WARN Act claims against the investor, who was a party to the settlement.

IRS Dirty Dozen for 2017, Tax Shelters, and Captive Insurance: Attacking Past Problems Using a Voluntary Disclosure Strategy

House, Money, The IRS summarized its annual “Dirty Dozen” List of Tax Scams for 2017 in February. Practitioners and taxpayers should pay particular attention. The IRS is broadcasting their playbook. This list includes two principal types of tax matters: (1) scams that are intended to victimize taxpayers directly, and (2) scams in which taxpayers voluntarily – or unwittingly – agree to participate. The first set of scams includes identity theft, phone scams, and things like solicitations from fake charities. These items often result from direct attacks on taxpayers. The second set of scams typically involves a taxpayer’s voluntary participation, but there often are misunderstandings and reliance questions that can be very important to the resolution of the issue. Whatever the source, each problem creates a set of issues that taxpayers, their CPA advisors, and experienced tax counsel should evaluate very carefully.

Abusive Tax Shelters – Including Captive Insurance – Make the Dirty Dozen List…Again

Key among the scams that make the “Dirty Dozen” list is the abusive tax shelter. Abusive tax shelters have been a perennial target of the IRS for decades, and the IRS annually reaffirms its commitment to uncovering and stopping complex tax avoidance/evasion schemes.

One abusive tax shelter that repeatedly makes itself a topic for the IRS is the captive insurance structure. Captive insurance is a perfect example of a structure that can be fully defensible, fully abusive, or somewhere between the two. In many cases, captive insurance can be a legitimate business activity; however, often an ill-advised taxpayer will implement a plan that is attacked by the IRS as “abusive” because it was not properly designed.

Captive insurance generally is a legitimate, legislatively-approved tax structure. However, the IRS often determines that an abuse has occurred with respect to certain small or “micro” captive insurance companies. Federal tax law allows businesses to create “captive” insurance companies to protect against certain risks. The insured business claims tax deductions for premiums paid for the insurance policies, and the premiums are paid to a captive insurance company that normally is owned by the same owners of the insured business. The captive insurance company, in turn, can elect to be taxed only on the investment income from the pool of premiums, excluding taxable income of up to $1.2 million per year in net premiums.

In the type of structure that is likely to be classified as abusive, promoters persuade closely-held entities to create captive insurance companies. The promoters assist with creating and “selling” “insurance” binders and policies from the captive to the business to cover either ordinary business risks, or implausible risks, and charging high premiums while maintaining market rate commercial coverage with traditional insurers.

The promoted structure often results in premiums equal to the $1.2 million annually to take full advantage of the tax code provision. Underwriting and actuarial substantiation for the insurance premiums often do not exist, and the promoters manage the captive insurance companies in exchange for significant fees.

There are myriad variations of legitimate captive structures, and taxpayers should carefully evaluate any existing or proposed captive insurance program. Like other structures that are designated to be “abusive,” a captive insurance structure can result in a protracted and costly audit – and potentially a criminal investigation – if it is discovered by the IRS.

A clear warning sign to practitioners is when their client is advised to exclude you from analysis or review of the strategy or product.

Taking a Proactive Approach to Tax Issues: Considering a Voluntary Disclosure Strategy

It is the specter of exposure, including both investigations and costly audits, that reminds us of the alternative to simply sitting back and waiting for the government to audit: a voluntary disclosure. A voluntary disclosure may be used to address past reporting, non-reporting, or mis-reporting, and may be a viable strategy for many types of missteps – both the types specifically referenced by the IRS in its “Dirty Dozen,” and other items that create similar audit risks. The voluntary disclosure alternative is not an unconditional surrender, and it is not without risk, but a well thought-out, designed, and implemented voluntary disclosure can minimize costs, penalties, and the time involved in addressing problems. A thoughtfully designed voluntary disclosure strategy can offer material benefits, but it should never be implemented until after there has been comprehensive analysis conducted in an attorney-client privileged environment.

© 2017 Varnum LLP

Tip Credit Does Not Apply to Delivery Drivers Declares Connecticut Supreme Court

delivery drivers pizza tip creditIn a decision released on April 4, 2017, the Connecticut Supreme Court found that employers cannot take advantage of a “tip credit” for delivery drivers in order to meet the state minimum wage.

The case, Amaral Brothers, Inc. v. Department of Labor, addressed the issue of whether delivery drivers (in this case, drivers for a pizza chain) fall within the scope of employees who are eligible for a “tip credit.” Under Conn. Gen. Stat. § 31-60(b), a tip credit may be taken for “persons, other than bartenders, who are employed in the hotel and restaurant industry . . . who customarily and regularly receive gratuities.”

A tip credit allows businesses—namely, hotels and restaurants—to pay “service employees” salaries below the state minimum wage. This is because employees in some positions, on account of their service to customers, normally receive gratuities in addition to their base wages, making up any difference between their salaries and the minimum wage rate. Specifically, a “service employee” has been defined as “any employee whose duties relate solely to the serving of food and/or beverages to patrons seated at tables or booths, and to the performance of duties incidental to such service, and who customarily receive gratuities.”

The Connecticut Department of Labor (CT DOL), the agency responsible for enforcing the minimum wage requirement, determined that delivery drivers were not tip-credit eligible, primarily because it found their “service” was limited to passing food to customers at their door. The CT DOL rejected the plaintiff’s argument that a driver transporting pizza to a customer’s home in a car is comparable to a waiter carrying food to a customer at a table.

Upon appeal by the pizza restauranteur, the Connecticut Supreme Court affirmed that delivery drivers do not fall within the scope of the tip credit. The court held that it was “reasonable for the department to conclude that the legislature did not intend that employees such as delivery drivers, who have the potential to earn gratuities during only a small portion of their workday, would be subject to a reduction in their minimum wage with respect to time spent traveling to a customer’s home and other duties for which they do not earn gratuities.”

With this ruling by the Supreme Court affirming the position of the CT DOL, it can be expected that the agency will pay close attention to how delivery drivers are paid in Connecticut. Accordingly, those in the restaurant and hotel industries should take time to review how their delivery drivers are paid. In addition, if waitstaff are also utilized as delivery drivers, it is best practice to break out the time spent on each of those duties if the tip credit is being utilized, so as to have adequate records if challenged.

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

USCIS Issues Guidance on H-1B Petition Adjudication, Announces ‘Targeted’ Site Visits

H-1b petitionUSCIS issued a policy memorandum to increase scrutiny of H-1B petitions for computer-related positions and an announcement regarding increased H-1B employer site visits—what will these changes mean for foreign worker visa programs?

In a policy memorandum dated March 31, United States Citizenship and Immigration Services (USCIS) announced that it is formally rescinding the 2000 Immigration and Naturalization Guidance Memo on H-1B Computer Related Positions issued to Nebraska Service Center employees adjudicating H-1B petitions. USCIS considers the 2000 memo to adopt an “obsolete” view of the types of computer-related occupations that qualify as specialty occupations for H-1B purposes (based on the memo’s inaccurate reading of the Occupational Outlook Handbook) and also to not “properly” apply the regulatory criteria that govern qualification for H-1B status. Specifically, the policy memorandum calls attention to the fact that the rescinded memo, while observing that “most” computer programmers hold bachelor’s degrees, did not note in which “specific specialties” such degrees were held. The rescinded memo is also criticized for not mentioning that only “some” computer programmers hold degrees in computer science or information systems, and for inaccurately presenting the fact that some jobs held by computer programmers require only two-year or associate’s degrees. The memo is further criticized for not clarifying that entry-level computer programmers will generally not qualify for H-1B status. Thus, the policy memorandum concludes that an H-1B petitioner cannot rely on the Occupational Outlook Handbook to establish that a computer programmer position is a specialty occupation and that “other evidence” must be provided to establish the specialty occupation.

Several immigration lawyer groups have raised concerns that this new policy memorandum may constitute a first step by the Department of Homeland Security (DHS) to carry out the previously announced intentions of the presidential administration to make foreign worker visa eligibility more restrictive. The new memorandum, by withdrawing a little-known memo, may well make it more difficult for H-1B petitions filed for persons working in computer-related positions to be approved. Its practical effect is that companies in the IT industry seeking H-1B status for their employees will likely have to prove that the positions at issue are not entry-level computer programming positions and that the employees’ degrees and education are specifically related to such positions. Extensive Requests for Evidence (RFEs) seeking such proof are expected to become commonplace, as are denials for failure to offer such proof. As an indication of the scrutiny and limited focus that H-1B petitions for persons working in computer-related positions are now receiving, apparently a number of RFEs questioning the relevance of a degree in electrical engineering to a computer engineer position have been issued recently.

Since the policy memorandum took effect immediately, all H-1B petitions subject to the 2018 fiscal cap will be adjudicated under its provisions, even though no advance notice of its publication was provided.

USCIS Announces ‘More Targeted’ H-1B Site Visits

In a separate announcement issued April 4, USCIS stated that, effective immediately, it will embark upon a “more targeted” campaign of site visits to the worksites where H-1B beneficiaries are employed. Such site visits have been conducted by officers of the USCIS Office of Fraud Detection and National Security since 2009. Under the new initiative, H-1B site visits will focus on three categories of employers:

  • H-1B dependent employers (generally, employers with 51 or more employees with at least 15% of their workforce composed of H-1B beneficiaries)
  • Employers filing petitions for employees who will be assigned to work at the worksites of different companies
  • Employers whose business information cannot be verified through commercially available data (including, primarily, the Validation Instrument for Business Enterprises (VIBE) tool, which is based on a Dun & Bradstreet database

In addition, the announcement notes that “random” site visits will continue to occur.

The practical effect of this announcement may be that site visits to the workplaces of employers that do not fall into one of these categories will diminish, while site visits to employers that do fall into one of these categories will spike sharply and possibly be all but certain. All employers of H-1B beneficiaries are encouraged to adequately prepare for such site visits by ensuring that

  • information contained in H-1B petitions is at all times accurate and up to date, and
  • thorough site visit protocols that govern in detail how such visits will be handled are in place.

The announcement notes that the targeted site visit program is intended to identify employers engaging in fraud and abuse of the H-1B category, not to punish individual H-1B employees. To serve this purpose, USCIS has established an email address,, that will allow both American and H-1B workers to notify the agency, presumably anonymously, of instances of such fraud and abuse.

What Do These Changes Mean?

On January 24, 2017, a draft executive order titled “Executive Order on Protecting American Jobs and Workers by Strengthening the Integrity of Foreign Worker Visa Programs” was publicly circulated. This draft executive order essentially mandates a top-to-bottom review of all foreign worker visa programs to make certain that such programs are not administered in a way that creates a disadvantage to US workers. Although the order has not been finalized to date, it would appear that the presidential administration has started the process of reviewing certain visa classifications, and it is likely that DHS will issue further guidance on other visa classifications in the near future.

Copyright © 2017 by Morgan, Lewis & Bockius LLP. All Rights Reserved.

EEOC Orientation-Bias Guidance Stirs Controversy among Commentators

EEOC Supreme CourtThe public comment period for the U.S. Equal Employment Opportunity Commission’s (EEOC) proposed workplace harassment guidance closed last week. The EEOC’s broad definition of sexual orientation bias drew attention from practitioners and advocacy groups alike. Amidst the uncertain legal landscape surrounding harassment based on sex, the EEOC’s proposed guidance takes a progressive stance on the scope of what constitutes sex-based harassment. Under the proposed guidance, the EEOC’s definition of harassment based on sex, protected by Title VII, includes an “individual’s transgender status or the individual’s intent to transition,” “gender identity,” and “sexual orientation.” The guidance went further, stating that “using a name or pronoun inconsistent with the individual’s gender identity in a persistent or offensive manner” is sex-based harassment.

The proposed guidance follows a June 2016 report issued by the EEOC’s Task Force on Workplace Harassment, describing strategies to prevent harassment at work. According to the report, almost one-third of claims filed with the EEOC are harassment-based, with sexual harassment constituting over 40% of the claims in the private sector. Issued this past January, the EEOC’s proposed guidance’s purpose is to guide practitioners, employers, and employees alike on the agency’s position toward different types of harassment protected by Title VII. The new guidance updates nearly three-decades-old EEOC direction on workplace harassment and expands the scope of harassment in several areas, including sexual orientation and gender identity. The public comment period, which ended this past week, drew 154 comments. The wide array of those comments highlights the controversial nature of what is and is not be protected under Title VII when it comes to sex-based harassment.

Most critics of the proposed guidance called the EEOC’s definition of sex-based harassment premature and unsupported by case law. Three federal appellate courts are currently deciding cases based on whether sexual orientation is protected under Title VII, but no appellate court to date has found that it is indeed protected. Opponents of the guidance argued that, without certainty at the Congressional or Supreme Court level, the EEOC is improperly “legislating from below” and is in danger of diminishing its credibility.

On the other hand, supporters of the guidance commended the EEOC for its broad definition of sex-based harassment, and some even urged the EEOC to further broaden the definition to include those who do not identify with the gender binary or who are unable or choose not to transition fully. There was also some concern among proponents that the current phrase “intent to transition” would encourage the court to draft intent-based tests that would exclude certain individuals from protection under Title VII.

Commentators took particular notice of the improper pronoun usage example, which states that using a pronoun inconsistent with an individual’s gender can constitute Title VII-prohibited harassment. Some criticized this as an improper classification of hate speech that went beyond the scope of Title VII protection. Others lobbied for an adjustment period for employees and employers to adopt the new standard or, alternatively, add an intent element to the act. Proponents applauded the example’s inclusion as a type of harassment often experienced by employees.

As the government agencies and courts grapple with what is protected under Title VII, it would be prudent for all employers (including those who are not in states or localities that have explicitly broadened these protections) to include both sexual orientation and gender identity in their policies and trainings. The EEOC’s guidance may signal what is to come in the ever-changing area of sex-based harassment as courts and agencies trend toward a more inclusive definition of sex-based harassment. In addition to the possible legal ramifications, getting ahead of the curve and creating a harassment-free workplace promotes a healthier and happier work environment for all and, in the end, makes good business sense.

EPA Proposes to Delay Effective Date of RMP Rule Amendments to 2019

EPA RMP Risk Management ProgramOn April 3, 2017, the U.S. Environmental Protection Agency (EPA) published a proposed rule that would delay the effective date of the recent Risk Management Program (RMP) rule amendments to February 19, 2019. 82 Fed. Reg. 16146 (Apr. 3, 2019).

EPA published amendments to the 40 C.F.R. Part 68 RMP rule in the final days of the Obama administration. 82 Fed. Reg. 4594 (Jan. 13, 2017). Those amendments changed a number of RMP program elements, including compliance audits, the process hazard analysis (PHA) process, emergency response drills and preparedness activities, and information sharing with the public and local emergency responders. While the compliance date for most of the substantive RMP changes is four years after the effective date of the amendments, implementation of the changes would require action well in advance of the compliance date, and other requirements – most notably an expansion in scope of compliance audits – will affect sources after the amendments become effective.

The RMP rule amendments have been the subject of significant scrutiny and several regulatory developments since the final rule was published in the Federal Register. Petitions for reconsideration have been filed by two industry groups and a coalition of states, and in response, EPA has extended the effective date of the amendments twice: pushing the original effective date (March 14, 2017) back to March 21, 2017, and further to June 19, 2017. See 82 Fed. Reg. 13,968 (Mar. 16, 2017). In addition, both houses of Congress have filed resolutions seeking to repeal the RMP amendments under the Congressional Review Act (CRA).

The proposed rule published on April 3 would delay the effective date of the RMP rule amendments again by nearly two years, to February 19, 2019. EPA explains in the proposal that the delay would allow the agency to evaluate the issues raised in the petitions for reconsideration. EPA plans to issue, in the near future, a notice of proposed rulemaking that will provide the public an opportunity to comment on the issues raised in the petitions and “any other matter” that EPA believes will benefit from additional public input.

EPA will take comment on the proposed delay in the effective date of the RMP rule amendments until May 19, 2017, giving it 30 days after the close of the comment period to take action prior to the amendments’ current effective date.

© 2017 Bracewell LLP

NLRB Will Not Hack Into Prior Decision Regarding Employee Email Use During Non-Work Time

NLRB employee email national labor relations boardNetwork security and protection of confidential information are among the reasons many companies place limits on how and when employees may use company-provided email.  However, the National Labor Relations Board (NLRB or Board) has largely ignored if not outright rejected these legitimate concerns, finding that under certain circumstances, they are outweighed by employees’ right to use email as a means to engage in concerted activity protected by Section 7 of the National Labor Relations Act (NLRA), which includes union organizing.  The NLRB’s March 24, 2017 decision in Purple Communications, Inc.reconfirmed the Board’s position, first announced in an earlier 2014 decision, that an employer that provides its employees with access to company email systems must presumptively allow employees to use those systems during non-work time to engage in NLRA-protected activity.  Accordingly, under this standard, an employer who maintains a policy prohibiting employees from all use of company email during non-work time presumptively violates the NLRA.

It was precisely this type of non-work time email restriction that landed Purple Communications, Inc. in hot water with the NLRB.  At the initial hearing in this case, an administrative law judge (ALJ) found that Purple’s total ban on non-work time use of company email did not violate the NLRA, relying on the NLRB’s decision from 2007 in Register Guard, which held that employees have no statutory right to use employer-provided email systems for Section 7 purposes, and thus allowed employers to prohibit non-work time use of company email systems, so long as the policy or practice did not discriminate against NLRA-protected activity.  The parties on both sides in the Purple matter appealed the ALJ’s decision on this and other grounds, and the matter was taken up for consideration by the Board. After review of the record, a Board majority (in a three-to-two member decision) promulgated a new standard under the NLRA for employer regulation of its own email systems during non-work time (Purple I).  The Board majority expressly overruled Register Guard, and held that under its new standard, employees are presumptively entitled to use their employers’ email systems during non-work time in order to engage in statutorily-protected communications.  The Board announced that this presumption can only be overcome in rare cases where “special circumstances” exist to allow employers to maintain “production or discipline.”  Notably, special circumstances cannot be established through the ordinary (yet entirely legitimate) concerns that affect all employers, such as those mentioned above concerning security or confidentiality of information.  In its order setting forth this standard, the Board also remanded the matter back to the ALJ to enter an order consistent with the new standard.  On remand, the ALJ predictably found Purple’s policy violated the NLRA under the Purple I standard.  Purple once again appealed, asking the Board to reconsider the standard it announced in the Purple I decision.

On March 24, 2017, a majority of the three-member Board panel assigned to review the matter confirmed the standard announced in Purple I, without significant comment except to refer back to the original 2014 majority decision.  Acting Board Chairman Philip Miscimarra dissented from the majority’s Purple II decision, as he did in Purple I, calling the standard it set forth “incorrect and unworkable,” and pointing out many of its practical flaws.  Among them, Acting Chairman Miscimarra explained that the Purple standard fails to properly balance an employer’s right to control its technology resources, which are a significant expense to employers to maintain and secure, with employees’ NLRA rights.  The dissent also pointed out that the decision limits employers’ ability to control work-time behavior, because an email sent by one employee during his or her non-work time often will be received and read by another employee during his or her own work time.  In addition, the dissent noted the tension created by the majority’s decision between an employer’s legitimate right to monitor use of its technology, including email (allowing it to appropriately intercept improper communications, such as harassing or discriminatory communications for which it could be liable under other laws), with the NLRA’s prohibition of employer surveillance of NLRA protected activity. These and other concerns are likely now once again going through many employers’ minds when considering the Purple standard.

There is a silver lining for employers, at least for now.  First, the Purple standard does not apply to employer regulation of email during working time, only non-work time.  Second, the Purple standard only applies to employers who already grant employees access to company email systems in the course of their work; employers are not required to provide employees with email access they do not otherwise have.  Third, the Purple decision only applies to company email, and not other forms of company technology.  However, the latter restriction may only be temporary.  Although the composition of the NLRB is expected to become more employer-friendly with the change in presidential administration, it is possible that the NLRB could use the same or similar reasoning from Purple to broaden the non-work time use requirement to other forms of company technology (cell phones and social network platforms, to name a couple).

Because of this, employers would be well-served to review their technology policies.  Absent truly unique circumstances, employers generally should avoid policies that state a total ban on non-work time use of company-provided email.  Bolstering other company policies, such as those that relate to confidentiality and time keeping, may help alleviate some of the problems meant to be addressed by a broad non-work time email ban. And, to avoid becoming the next name on a new NLRB standard, consider whether any non-work time use restrictions on other forms of technology might be overbroad under the reasoning in Purple.

© Copyright 2017 Squire Patton Boggs (US) LLP