Trump’s First Hundred Days and Cybersecurity

calendar hundred days Executive Order Delay Trumps Administration Policy Development

President Trump’s first hundred days did not produce the event that most people in the cybersecurity community expected – a Presidential Executive Order supplanting or supplementing the Obama administration’s cyber policy – but that doesn’t mean that this period has been uneventful, particularly for those in the health care space.

The events of the period have cautioned us not to look for an imminent Executive Order. While White House cybersecurity coordinator Robert Joyce recently stated that a forthcoming executive order will reflect the Trump administration’s focus on improving the security of federal networks, protecting critical infrastructure, and establishing a global cyber strategy based on international law and deterrence, other policy demands have intruded. Indeed as the 100-day mark approached, President Trump announced that he has charged his son-in-law, Jared Kushner, with developing a strategy for “innovation” and modernizing the government’s information technology networks. This is further complicating an already arduous process for drafting the long-awaited executive order on cybersecurity, sources and administration officials say.

The Importance of NIST Has Been Manifested Throughout the Hundred Days

The expected cyber order likely will direct federal agencies to assess risks to the government and critical infrastructure by using the framework of cybersecurity standards issued by the National Institute of Standards and Technology, a component of the Department of Commerce.

The NIST framework, which was developed with heavy industry input and released in 2014, was intended as a voluntary process for organizations to manage cybersecurity risks. It is not unlikely that regulatory agencies, including the Office of Civil Rights of the Department of Health and Human Services, the enforcement agency for HIPAA, will mandate the NIST framework, either overtly or by implication, as a compliance hallmark and possible defense against sanctions.

NIST has posted online the extensive public comments on its proposed update to the federal framework of cybersecurity standards that includes new provisions on metrics and supply chain risk management. The comments are part of an ongoing effort to further revise the cybersecurity framework. NIST will host a public workshop on May 16-17, 2017

Health Industry Groups Are Urging NIST to Set up a ‘Common’ Framework for Cybersecurity Compliance

Various health care industry organizations including the College of Healthcare Information Management Executives and the Association for Executives in Healthcare Information Security have asked NIST to help the industry develop a “common” approach for determining compliance with numerous requirements for protecting patient data. Looking for a common security standard for compliance purposes, commenters also argue that the multiplicity of requirements for handling patient data is driving up healthcare costs. Thus, the groups urge NIST to work with the Department of Health and Human Services and the Food and Drug Administration “to push for a consistent standard” on cybersecurity. One expects this effort, given strong voice in the First Hundred Days, to succeed.

The Federal Trade Commission is Emerging as the Pre-eminent Enforcement Agency for Data Security and Privacy

With administration approval, the Federal Communications Commission is about to release today a regulatory proposal to reverse Obama-era rules for the internet that is intended to re-establish the Federal Trade Commission as the pre-eminent regulatory agency for consumer data security and privacy. In repealing the Obama’s “net neutrality” order, ending common carrier treatment for ISP and their concomitant consumer privacy and security rules adopted by the FCC, the result would be, according to FCC Chairman Pai, to “restore FTC to police privacy practices” on the internet in the same way that it did prior to 2015. Federal Trade Commission authority, especially with regard to health care, is not without question, especially considering that the FTC’s enforcement action against LabMD is still pending decision in the 9th Circuit. However, the FTC has settled an increasing number of the largest data breach cases The Federal Trade Commission’s acting bureau chief for consumer protection, Thomas Pahl, this week warned telecom companies against trying to take advantage of any perceived regulatory gap if Congress rolls back the Federal Communications Commission’s recently approved privacy and security rules for internet providers.

OCR Isn’t Abandoning the Field; Neither is DoJ

While there have been no signal actions during the First Hundred Days in either agency. The career leadership of both has signaled their intentions not to make any major changes in enforcement policy.  OCR is considering expanding its policies with respect to overseeing compliance programs and extending that oversight to the conduct off Boards of Directors.

The Supreme Court Reaches Nine

Many would argue that the most important, or at least most durable, accomplishment of the Trump Administration to date is the nomination and confirmation of Neil Gorsuch to the Supreme Court. Justice Gorsuch is a conservative in the Scalia mold and is expected to case a critical eye on agency regulatory actions. There is no cybersecurity matter currently on the Supreme Court’s docket, but there will be as the actions and regulations of agencies like the FTC, FCC and DHHS are challenged.

©2017 Epstein Becker & Green, P.C. All rights reserved.

President Trump Will Welcome Palestinian President to White House, Meet with Australian Prime Minister in New York City

White HouseCongress Will Hold Hearings on Human Trafficking, Remittances and International Development, While Also Focusing on a Longer-Term Funding Measure for the Remainder of Fiscal Year 2017

President Donald Trump welcomed Argentine President Mauricio Macri to the White House last Thursday. In a joint statement, the two leaders committed to expanding bilateral trade and investments; strengthening cooperation to counter narco-trafficking, terrorist financing, money laundering, corruption and other illicit finance activities; and increasing cooperation on cyber policy. President Trump will welcome Palestinian President Mahmoud Abbas to the White House on Wednesday. The President will travel to New York City on Thursday for an event and will also meet with Australian Prime Minister Malcolm Turnbull.

President Trump signed multiple executive documents last week, including a Memorandum on aluminum and national security interests, as well as Executive Orders (E.O.) on veterans affairs, energy, agriculture, land management, and education. President Trump marked his 100th day in office with a Make America Great Again rally in Harrisburg, Pennsylvania, after signing two more E.O.s related to trade on Saturday.

On Friday, Secretary of Defense Jim Mattis honored two U.S. Army Rangers who died Thursday in Afghanistan. He said: “They carried out their operation against [the Islamic State of Iraq and Syria-Khorasan] in Afghanistan before making the ultimate sacrifice to defend our nation and our freedoms.”

Congress passed a short-term measure on Friday to fund the Federal Government for another week, allowing both chambers additional time to negotiate a longer-term measure that will fund the Government through the end of Fiscal Year 2017.  The Senate also approved the nomination of Sonny Perdue to serve as Secretary of the U.S. Department of Agriculture last Monday. Congress is in session this week.

North Korea – U.S. Continues Pressure on the International Community

Secretary of State Rex Tillerson chaired the U.N. Security Council on Friday, where he focused on North Korea’s illegal nuclear program and its continued provocative activities. He sought to get the Council to act and leverage additional pressure on North Korea, saying:

“For too long, the international community has been reactive in addressing North Korea. Those days must come to an end.”

He outlined steps that the international community could undertake to leverage North Korea into abandoning its nuclear program. The White House released a brief statement on Friday afternoon acknowledging President Trump was briefed on North Korea’s failed missile test that day.

On Wednesday, after a briefing to the Senators at the White House, Secretary Tillerson, Defense Secretary Mattis, and Director of National Intelligence Dan Coats issued a joint statement on North Korea’s unlawful weapons programs and nuclear and ballistic missile tests, saying each provocation jeopardizes stability in Northeast Asia and poses a growing threat to U.S. allies and the U.S. homeland. The officials noted: “We are engaging responsible members of the international community to increase pressure on the D.P.R.K. in order to convince the regime to de-escalate and return to the path of dialogue. We will maintain our close coordination and cooperation with our Allies, especially the Republic of Korea and Japan, as we work together to preserve stability and prosperity in the region. The United States seeks stability and the peaceful denuclearization of the Korean peninsula. We remain open to negotiations towards that goal. However, we remain prepared to defend ourselves and our Allies.”

Chairman of the Joint Chiefs of Staff Joseph Dunford also participated in the Senate briefing.  In a summary, the Defense Department recapped North Korea as an urgent national security threat and a top foreign policy priority for the U.S. Government.

On 27 April, the head of U.S. Pacific Command recommended that the U.S. military develop capabilities that can directly defend against North Korean artillery. Testifying at a Senate Armed Services Committee hearing last week, Adm. Harry Harris shared that the U.S. currently cannot counter an artillery barrage from North Korea. He explained the missile defense system that the United States is deploying to South Korea, is only designed to intercept ballistic missiles. North Korea currently possesses roughly 4,000 artillery pieces positioned near the demilitarized zone. Committee Chairman John McCain (R-Arizona) noted that these pieces had the potential to target the South Korean capital, Seoul, and its metropolitan area of 26 million people.

South Korea – McMaster Affirms Missile Defense

On 30 April, National Security Adviser Lt. Gen. H.R. McMaster confirmed that the United States would adhere to its agreement with South Korea for a new missile defense system, but indicated that payment for the system might be renegotiated. The Terminal High Altitude Area Defense system, also known as THAAD, is being rolled out in response to military provocations from North Korea.

In an interview with “Fox News Sunday,” McMaster shared that he told his South Korean counterpart that “until any renegotiation, that the deal’s in place,” but explained that, “what the president’s asked us to do is to look across all of our alliances and to have appropriate burden-sharing, responsibility-sharing.” President Donald Trump said in a recent interview that he “informed South Korea it would be appropriate if they paid” for the missile defense system.

Syria, Iraq – Combating ISIS

The Pentagon gave an update last Friday on the U.S. and Coalition military forces’ efforts to combat the Islamic State of Iraq and Syria (ISIS). Coalition forces conducted 24 strikes consisting of 30 engagements against ISIS targets in Syria. In Iraq, Coalition forces conducted eight strikes consisting of 24 engagements against ISIS targets, coordinated with and in support of the Iraqi government. The destruction of ISIS targets in both countries also further limits the group’s ability to project terror and conduct external operations throughout the region and the rest of the world, according to task force officials.

U.S. Ambassador to the United Nations Nikki Haley said on Thursday at a U.N. Security Council session she chaired on the humanitarian crisis in Syria:

“All eyes and all pressure now need to go to Russia because they are the ones that could stop this if they wanted to…the images don’t lie. The humanitarian workers don’t lie. The fact that they can’t get the assistance they need – that’s not lying. What is, is to continue to give Russia a pass for allowing this terrible situation to occur. I will continue to press the Security Council to act, to do something, regardless of if the Russians continue to veto it, because it is our voice that needs to be heard.”

The Department of State designated Mubarak Mohammed A Alotaibi as a Specially Designated Global Terrorist (SDGT) under Executive Order E.O. 13224 on 27 April.  Alotaibi is the Syria-based deputy leader of Islamic State of Iraq and Syria’s (ISIS) affiliate in Saudi Arabia, which was designated by the U.S. Department of State as a SDGT under E.O. 13224 on 19 May 2016.

On 24 April, the Department of the Treasury’s Office of Foreign Assets Control (OFAC) announced new sanctions targeting 271 Syrian individuals in response to the 4 April sarin gas attack in Syria. According to an accompanying press release, the action – one of the largest OFAC has ever taken – targets employees of Syria’s Scientific Studies and Research Center (SSRC). They have been added to OFAC’s list of Specially Designated Nationals (also known as the SDN List) pursuant to Executive Order 13582, “Blocking Property of the Government of Syria and Prohibiting Certain Transactions With Respect to Syria.” The full list of newly-designated individuals can be found here.

Afghanistan – Review of U.S. Policy

Defense Secretary Mattis added another stop to his Middle East trip last week that focused on a theme of combatting ISIS. The Secretary was in Kabul, Afghanistan, last Monday. At a press conference Secretary Mattis said of the 21 April Taliban attack on an Afghan military base and mosque that killed more than 100 people: “As if we needed a reminder of the type of enemy we’re up against, the killing of Afghan citizens and soldiers — protectors of the people — just as they were coming out of a mosque, a house of worship, it certainly characterizes this fight for exactly what it is. These people have no religious foundation. They are not devout anything, and it shows why we stand with the people of this country against such heinous acts perpetrated by this barbaric enemy and what they do.”

Regarding President Trump’s directive to review of U.S. policy in Afghanistan, Secretary Mattis said: “This dictates an ongoing dialogue with Afghanistan’s leadership, and that’s why I came here: to get with President Ghani and his ministers and hear directly and at length from … General Nicholson to provide my best assessment and advice as we go forward.”

NAFTA – U.S. Withdrawal Averted

President Trump considered signing an order last week that would have withdrawn the United States from the North American Free Trade Agreement (NAFTA). After news of the possible action emerged, the leaders of Mexico and Canada, interested stakeholders, and Members of Congress rallied to call the White House and urge against such action. President Trump said in an interview on Thursday: “I was all set to terminate [NAFTA]. I looked forward to terminating. I was going to do it.” Later in the interview, the President added he reserves the right to change his mind – “I can always terminate.”

Nominations – Update

The Senate has yet to schedule a final vote on Amb. Robert Lighthizer’s nomination to serve as U.S. Trade Representative.  A vote is expected to happen in the next couple of weeks.

Last week, President Trump announced his intent to nominate the following individuals: (1) Kari A. Bingen to serve as Principal Deputy Under Secretary of Defense for Intelligence.  Ms. Bingen currently serves as the policy director for the House Armed Services Committee. (2) Robert Story Karem to serve as Assistant Secretary of Defense for International Security Affairs.  Mr. Karem most recently served on the Presidential Transition Team as an advisor to Central Intelligence Agency Director, Mike Pompeo, during his confirmation process.  He previously served in the White House as a Middle East policy advisor to former Vice President Richard B. Cheney.

Congressional Hearings This Week

  • On Tuesday, 2 May, the House Foreign Affairs Subcommittee on Global Human Rights is scheduled to hold a hearing titled “Wining the Fight Against Human Trafficking: The Frederick Douglass Reauthorization Act.”

  • On Tuesday, 2 May, the Senate Banking, Housing, and Urban Affairs Committee is scheduled to hold a hearing titled “Examining the U.S. – E.U. Covered Agreements.”

  • On Tuesday, 2 May, the Senate Foreign Relations Committee has scheduled a hearing to consider the nomination of the Honorable Terry Brandstad, to serve as U.S. Ambassador to China.

  • On Wednesday, 3 May, the House Foreign Affairs Committee is scheduled to hold a hearing to consider the following bills:

    • R. 1625 – To amend the State Department Basic Authorities Act of 1956 to include severe forms of trafficking in persons within the definition of transnational organized crime for purposes of the rewards program of the Department of State, and for other purposes.

    • R. 1677 – To halt the wholesale slaughter of the Syrian people, encourage a negotiated political settlement, and hold Syrian human rights abusers accountable for their crimes.

    • R. 2200 – To reauthorize the Trafficking Victims Protection Act of 2000, and for other purposes.

  • On Wednesday, 3 May, the Senate Foreign Relations Subcommittee on International Economic, Energy, and Environmental Policy is scheduled to hold a hearing titled “Global Philanthropy and Remittances and International Development.”

  • On Thursday, 4 May, the Senate Foreign Relations Committee is scheduled to hold a hearing titled “International Development: Value Added Through Private Sector Engagement.”

Looking Ahead

Washington is expected to focus on the following upcoming events:

  • 3 May: President Trump will welcome Palestinian President Mahmoud Abbas

  • 4 May: President Trump travels to New York City, where he will hold a bilateral meeting with Australian Prime Minister Malcolm Turnbull

  • May: Formal notification to Congress of intent to renegotiate NAFTA expected

  • 25 May: President Trump to attend the NATO Leaders Meeting in Belgium

  • 26-28 May: President Trump to attend the G-7 Leaders’ Summit in Taormina, Sicily

  • 18-20 June: SelectUSA Investment Summit in National Harbor, Maryland

ARTICLE BY Stacy A. Swanson and Pooja Virkar of Squire Patton Boggs (US) LLP

© Copyright 2017 Squire Patton Boggs (US) LLP

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:


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.


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.


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.


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.


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.


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.


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.


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.


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:


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.


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.


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.