Category: Uncategorized

Justice (and Lunch) is Served: Second Circuit Holds that Food Truck Branded with Ethnic Slurs is Entitled to First Amendment Protection

In a recently issued decision, the Second Circuit held that a food truck could not be excluded from a New York State lunch program solely because the truck and the food it sells was branded using ethnic slurs.  Wandering Dago, Inc. v. Destito et al, 2018 WL 265383 (2d Cir. 2018).  This case is an early example of how the Supreme Court’s 2017 decision in Matal v. Tam (which involved an Asian-American band’s trademark application for “The Slants”) may impact advertisers who wish to engage in controversial branding in connection with a government-related activity or event.

The “Wandering Dago” food truck (“WD”) offers sandwiches with names such as “Dago,” “Goombah,” “Guido” and “Polack.”  According to its owners, WD’s ethnic slur branding is a nod to their heritage, “signaling an irreverent, blue collar solidarity with its customers” and “signal[ing] to . . . immigrant groups that this food truck is for them.”  WD contended that using the slurs in a mocking way would “weaken [their] derogatory force.”  In 2013 and 2014, WD applied to participate in New York’s annual “Summer Outdoor Lunch Program,” which was organized by New York’s Office of General Services (“New York” or “OGS”) and took place in Albany’s Empire State Plaza.  Those applications were denied.

It was undisputed that the sole basis for denial was OGS’s view that WD’s branding was offensive.  WD alleged that this amounted to a violation of its free speech and equal protection rights under the United States Constitution and the New York State Constitution.  The district court disagreed, holding that the First Amendment did not apply to WD’s speech because WD’s speech must be considered either (1) government speech, (2) speech by a government contractor, or (3) private speech in a government-owned forum.  The district court also rejected WD’s federal equal protection claim and its state law claims.  New York was awarded summary judgment on all of WD’s claims.

A unanimous Second Circuit panel reversed on all counts.  As an initial matter, the Second Circuit rejected the district court’s forum analysis as legally irrelevant, holding that “we would apply the same level of scrutiny whether WD sought to speak in a public forum (as WD contends) or a nonpublic forum (as defendants contend).”  Applying Matal, the Second Circuit concluded that WD’s use of ethnic slurs reflected a viewpoint “about when and how such language should be used,” and that New York engaged in viewpoint discrimination by denying WD’s applications based solely on this viewpoint.  The Court further held that whether New York denied WD’s applications because of how consumers might react to the slurs—as opposed to because of WD’s intended message—was inconsequential to its decision.

The Second Circuit also disagreed that New York’s denial of WD’s application could be construed as government speech.  The Court “[found] it implausible that OGS, by permitting WD’s full participation in the Lunch Program, would be viewed by the public as having adopted WD’s speech as its own.”  Although the Court did not doubt that New York wanted to make the lunch program family friendly, the record did not reflect any effort to communicate a particular message through the program.  On these facts, the Court “[was] unable to conclude that OGS was aiding the transmission of a government message by denying WD’s Lunch Program applications.”

Nor were New York’s actions justified as a condition on a prospective government contractor’s speech.  OGS merely provided access to a forum for food trucks.  In exchange for this access, the food trucks paid OGS.  Accordingly, WD and other food vendors were not government contractors, but rather were “private entities that pay to access public benefits and, in using those benefits to their economic advantage, secondarily satisfy a government purpose.”

Having concluded that WD’s food truck branding was private speech and that New York engaged in viewpoint discrimination by denying WD’s applications, the Court then considered whether that discrimination was narrowly tailored to achieve a compelling government interest.  The Second Circuit found that no compelling government interest existed in the record for New York to deny WD’s applications to participate in the lunch program.  Thus, not only did the Second Circuit reverse the district court’s grant of summary judgment to New York, it also awarded WD summary judgment on its First Amendment claim.  The Second Circuit also reversed on WD’s federal equal protection claim and state law claims and awarded WD summary judgment on those claims too.

WD’s complete victory before the Second Circuit suggests that advertisers taking part in a government program have substantial leeway to brand their products—and may even engage in speech that many would consider to be offensive—so long as the government lacks a compelling interest that justifies limiting the advertiser’s speech.

© 2018 Proskauer Rose LLP.
This article was written by Alexander Kaplan and Jeffrey H Warshafsky of Proskauer Rose LLP

Workplace Discrimination in America – What’s Next?

Although sexual harassment apparently has long been a part of American life, the pervasiveness and long-term impact on women in particular became apparent in 2017, the year of #MeToo.

The Golden Globe Awards in January solidified that this movement is creating change. The stirring speech of Oprah Winfrey at this awards show watched by some 20 million people around the world left no doubt about that – “What I know for sure is that speaking your truth is the most powerful tool we all have. And I’m especially proud and inspired by all of the women who have felt strong enough and empowered enough to speak up and share their personal stories. …This year we became the story. But its not just a story affecting the entertainment industry. It’s one that transcends any culture, geography, race, religion, politics or workplace.”

In what started as a few women telling their painful stories of being groped, feeling backed into a corner at their place of employment with an insensitive boss, being exposed to unwanted and uninvited sexual behavior has now grown into a movement that became the front page of Time magazine’s cover story – naming the brave women who have spoken out as Persons of the Year. And it’s not just the Taylor Swifts, Alyssa Milanos, Megyn Kellys or Ashley Judds of the world. So many women – from those in the corporate world trying to achieve their professional goals, to those trying to earn money in a much-needed job for their families – came forward to tell their stories in what they described as a crude world that could later lead to disbelief or shame. Many started to bring lawsuits to air the details and further legitimize and memorialize what happened to them in an effort to make the workplace safer for everyone.

And that is what it takes for many to stop the harassment and to help put some sort of closure on what could be a single incident or a series of unacceptable, illegal behaviors. Many people in high places already have lost their jobs following serious accusations – NBC anchorman Matt Lauer, Hollywood mogul Harvey Weinstein, celebrity chef Mario Batali and actor Kevin Spacey, to name a few. Even three U.S. Senators were forced to step down from office amid allegations of sexual harassment either on the job or prior to taking office, leading even the most senior members of Congress scrambling to figure out how to handle this nationwide problem. Former U.S. Attorney Eric Holder helped to lead an internal investigation into the corporate culture at Uber following sexual harassment accusations of an engineer in a male-dominated environment. That led to many changes at the company including the ouster of its CEO and more than 20 other employees. It appears that people in some high places may have taken  on a feeling of entitlement, and that may include taking advantage of their position to act out sexual deviancies.

The attention given to this issue of discrimination at the workplace apparently has triggered companies to enforce more than mere lip service to sexual harassment. Mandated anti-harassment training programs on proper language and conduct is being conducted with sincerity, and rules are being enforced instead of being ignored. Specific guidelines for dealing with complaints are being drafted. Most importantly, those in authority have decided that there must be accountability for the actions of their employees while in the workplace, and a zero tolerance rule must be enforced. The tragedy of it is that it apparently took decades to realize that this conduct has always been wrong because thousands of lives have been ruined in the meantime. Countless promotions or more efficient work productivity by harassed individuals has been lost. The worst is the impact on the harassed individual herself in what Time magazine described as “the emotional and psychological fallout from those advances. Almost everybody described wrestling with a palpable sense of shame.” This illegal conduct cannot go unnoticed any longer. Society needs to be cleansed of these unacceptable actions so everyone can feel safer.

The time for ethics committees is over. Now is the time for action. As the Time magazine story put it, “Indeed, the biggest test of this movement will be the extent to which it changes the realities of people for whom telling the truth simply threatens too much” – or “these people “now have a voice.”

The challenge for some who wish to be vindicated in a court of law is the lack of financial resources to bring a lawsuit. A Go Fund Me effort called the Time’s Up Legal Defense Fund has raised more than $15 million as of this writing to help those who require such assistance. Some law firms are handling certain of these matters on a contingency fee basis – the equalizer for those “Davids” of the world who need to fight the “Goliath” corporations.

As Winfrey put it so well: “[W]e all know that it is the insatiable dedication to uncovering the absolute truth that keeps us from turning a blind eye to corruption and to injustice.” That is where the civil justice system shines and will help right these wrongs.

Clifford Law Offices
This article was written by Shannon M. McNulty of Clifford Law Offices

Preparing C-Level Employees for Risk

As risks associated with technology and cybersecurity have increased in the last decade, it is more imperative than ever that corporations undertake the proper protocols to protect themselves.

When it comes to implementing risk management processes, many assume C-level executives head up these efforts, involving key departments throughout their organizations. According to a recent study conducted by NC State’s Poole College of Management, however, 80% of organizations surveyed from all over the world have no formal risk training for executives.

A quick look at recent headlines shows how quickly a cybersecurity incident can damage a corporate brand. Many companies that have recently experienced data breaches also have been exposed by the media because of ineffective or nonexistent integrated risk management strategies. This can be for a variety of reasons, from executives trying to hide the breach to the belief that they can resolve the issue before it grows into something larger or, possibly the worst of the options, they are not aware that the breach is even occurring.

So how do we make risk a priority for executives? In my opinion, it comes down to properly re-framing the mindset of executives around risk through effective education and training.

Educate executives on risk types

When it comes to business, the term “risk” generally produces negative connotations, causing many to avoid addressing the phrase—and the issues—altogether. From workplace injuries, data breaches and even social media nightmares, risks tend to mean trouble for executive teams. The reality, however, is that not all risk is bad. Thus, executive teams must be able to distinguish good risk from bad risk.

What constitutes good risk? Simply put; proactive risk choices that benefit the company. These can include exploring emerging markets and growth opportunities, expanding operations into new product areas and even partnering with new vendors. While these risks can produce negative results, given that they are actively pursued by leadership teams shows that they are intended to better the company and its employees.

Executive teams need to understand the differences in positive and negative risks and their larger impact to their organizations. Specifically, understanding multiple risk types exist can change the approaches your management team takes to recognize and address risks, which will echo throughout your organization.

Train executives on how to address negative risks

Executives must realize negative risks are unavoidable. Because negative incidents will happen, executive teams must learn how to bring proactive approaches to managing these speedbumps in daily operations. Thus, formal training programs should be implanted to educate executives on proper risk management.

Training programs should include internal and external communications strategies, both with positive and negative risks, remediation strategies for negative risks and provide tips on how leadership teams can be risk thought leaders throughout the organization.

Remember, an executive team that places value on proper risk management planning and training will produce a similar culture, enterprise wide.

This will allow organizations to more proactively manage risks before they snowball into larger issues, ensuring long-term success.

Consider creating risk committees

Since all C-level executives are crunched for time, risk management often falls to the back burner. In many situations, I’ve found it beneficial for the C-suite to create corporate risk committees. Designed to reduce the burden on corporate executives by providing an advisory board to report on risks, corporations can benefit from dedicated professionals examining risks throughout the organization in areas including IT and operations.

These committees serve as an extension of the C-suite and can create better transparency, while providing informed insights to help leadership teams make better, more educated decisions.

Remember the importance of a top-down approach

No matter what approach you take to educate your executive team and get them more involved in risk management, corporations must remember enterprise risk management requires working from the top down. As risk professionals, we must do our best to gain leadership buy-in and conduct enterprise-wide training to stay ahead of risk. If NC State’s study has taught us anything, it’s that we still have a lot to learn.

Quin Rodriguez contributed to this post.

Risk Management Magazine and Risk Management Monitor. Copyright 2018 Risk and Insurance Management Society, Inc. All rights reserved.

The Encryption Battle Will Continue in 2018

While they may disagree in other areas, one thing that former FBI Director James Comey, current Deputy Attorney General Rod Rosenstein, and current FBI Director Christopher Wray all have in common is their distaste for strong encryption that prevents the government from accessing information. In 2016, Comey and the Justice Department went to court to try to force Apple to help the government decrypt messages sent by the San Bernardino terrorist attackers. A few months ago, Rosenstein picked up that torch, discussing the need for government access to encrypted information in two separate speeches in October, then repeating his views in the wake of November’s mass shooting at a church in Texas. On January 10, Wray raised the subject in a speech, referring to it as “an urgent public safety issue.” At the same time, as tech companies are quick to point out, the rising tide of information snooping by foreign governments and private actors makes the need for strong encryption greater than ever. The Trump Administration’s strong law-and-order stance, and relative lack of sympathy for tech companies and civil libertarians, mean that 2018 could lead to new developments in this area.

Putting It Into Practice: Keep an eye on the federal government’s actions in this area; they could affect the future of encrypted communications, including the cybersecurity tools your company relies on.

Copyright © 2018, Sheppard Mullin Richter & Hampton LLP.

Overview of the Tax Cuts and Jobs Act

On December 27th, 2017 President Trump signed into law what is the most consequential tax reform in thirty years, by signing the Tax Cuts and Jobs Act (the “Act”). Most business changes took effect after December 31, 2017, some changes were effective immediately and others, like expensing of capital expenditures, had specialized retroactive effective dates. The following is an overview of the Act:

Individual Income and Transfer Taxes

For individuals, the new law reduces tax brackets, curbs the effect of the Alternative Minimum Tax, alters some tax credits, simplifies many returns by increasing the standard deduction, and increases the amount of property that can pass free of the estate, gift and generation skipping transfer tax. One area untouched by the new law is the adjustment to tax basis for capital assets upon death, allowing for “step-up” or “step-down” depending upon the cost basis vs. the value at date of death. Please see the following summary explanations:

  • Rates. Beginning in 2018, the highest individual income tax rate was reduced from 39.6% to 37%. Other rate adjustments are illustrated in this table:

Rate

Unmarried Individuals, Taxable Income Over

Married Individuals Filing Jointly, Taxable Income Over

Heads of Households, Taxable Income Over

10%

$0

$0

$0

12%

$9,525

$19,050

$13,600

22%

$38,700

$77,400

$51,800

24%

$82,500

$165,000

$82,500

32%

$157,500

$315,000

$157,500

35%

$200,000

$400,000

$200,000

37%

$500,000

$600,000

$500,000

  • Standard Deduction and Personal Exemptions. Beginning in 2018, the doubling of the standard deduction and curtailment of state and local taxes and mortgage interest deductions have the effect of simplifying many returns by eliminating the complexity associated with the preparation of Schedule A. Elimination of personal exemptions and limits on deductions for those who itemize will dramatically change the benefit to individuals of the deductions for mortgage interest, state income and property taxes and charitable contributions.

  • Credits. The new legislation creates a patch-work quilt of how many tax credits are treated. For example, the American Opportunities Tax Credit for education remained untouched, but other credits were modified.

  • Alternative Minimum Tax. Fewer individual taxpayers will be subject to this tax as a result of the increase of the exemption to just over $109,000 (indexed).

  • Estate, Gift and Generation Skipping Tax Exemptions. Beginning in 2018 and through 2025, these exemptions have been doubled to $11.2 million per person, and indexed to inflation.

Basis Adjustment at Death. This adjustment, often mistakenly referred to as “step-up basis”, remains unchanged. Property owned at death will be afforded a new basis equal to the value of such property at date of death. Adjusting the basis at date of death may mean the basis is increased, but can also result in a decrease in basis as happened for some deaths occurring during our last recession.

Provisions of Tax Cuts and Jobs Act Affecting Businesses

In addition to the changes impacting individual taxpayers, the Act included a substantial revision to the tax laws governing businesses. These changes begin with a reduction of the corporate tax rate to a flat 21% (down from a maximum of 35%) and permit unlimited expensing of capital expenditures, repeal the corporate Alternative Minimum Tax and change the deductions available to businesses. A substantial difference between the individual and business tax law changes is that some of the business changes are permanent (i.e. corporate tax rate), while others are temporary (immediate expense treatment for capital expenditures).

  • Tax Rate. The new law creates a flat 21% income tax rate for C Corporations to replace the marginal rate bracket system which had imposed tax rates between 15% and 35%.

  • Corporate Dividends. The dividends received deduction which allowed a C corporation to deduct 70 or 80 percent of dividends received from another C corporation has been reduced to a deduction of either 50 or 65 percent (the higher rate is available where the stock of the dividend paying corporation is owned at least 20% by the corporation receiving the dividend).

  • AMT. The corporate Alternative Minimum Tax has been repealed for tax years beginning after December 31, 2017.

  • Section 179 Expensing Business Capital Assets. Internal Revenue Code Section 179 allows a business to deduct the cost of certain “qualifying property” in the year of purchase in lieu of depreciating the expense over time. The Act allows a year of purchase deduction of up to an inflation indexed $1 million (increased from $500,000) with a total capital investment limitation of $2.5 million. While these changes provide businesses with increased deductions, they have little meaning given the new 100% year of purchase deduction for capital expenditures available under amended Code Section 168(k).

  • Section 168(k) Accelerated Depreciation. The Act allows a 100% deduction of the basis of “qualifying property” acquired and placed in service after September 27, 2017 and before January 1, 2023. Qualifying property generally includes depreciable tangible property with a cost recovery period of 20 years or less, computer software not acquired upon purchase of a business and nonresidential leasehold improvements.

    The bonus depreciation deduction is then reduced to 80% in 2023 and drops by an additional 20% after each subsequent two year period until disappearing entirely for periods beginning January 1, 2027. The allowed deduction percentages are applied on a slightly extended time frame for certain property with longer production periods. In addition to increasing the available deduction, the Act also allows used property to qualify for the deduction. After a phase-out beginning in 2023, this provision lapses after December 31, 2026.

  • Business Interest. Net business interest will not be deductible in excess of 30% of the “adjusted taxable income” of a business. For 2018 through 2021, adjusted taxable income will be determined without consideration of depreciation, amortization, depletion or the 20% qualified business income deductions. In 2022 and thereafter, the 30% limit will be applied to taxable income after deductions for depreciation and amortization. An exemption from the 30% limitation exists for taxpayers with annual gross receipts (determined by reference to the three preceding years) of $25 million or less. Disallowed business interest can be carried forward indefinitely. If a taxpayer’s full 30% adjusted taxable income limit is not met with respect to one business, the unused limitation amount can be applied to another business of the taxpayer which otherwise would have excess interest that is nondeductible after application of the 30% adjusted taxable income limit to that business.

  • Net Operating Losses. Generally, the two year NOL carryback has been repealed. While the losses can be carried forward indefinitely, the deduction will generally be limited to 80% of taxable income.

  • Other.

    • Domestic Production Activities Deduction has been repealed.

    • Like Kind Exchanges are limited to real property.

    • Fringe Benefits. Entertainment expenses and transportation fringe benefits (including parking) are no longer deductible. The 50% meals expense deduction is expanded to include on premises cafeterias of employers.

    • Penalties and Fines. Certain specifically identified restitution payments may be deductible.

    • Sexual Harassment Payments. No deduction will be allowed for amounts paid for or in connection with settlement of sexual harassment or abuse claims if such payments are subject to nondisclosure agreements.

Provisions of Tax Cuts and Jobs Act Affecting Pass-Through Entities and Sole Proprietorships

Before the Act passed, the pass-through of business income from a partnership or S corporation meant a lower overall tax rate would be paid on company income (compared to C corporations) as such income was not subject to double taxation and a lower overall income tax rate generally applied. However, with the reduction of the corporate income tax rate to a flat 21%, and individual rates that reach up to 37%, pass-through entities and sole proprietorships could face a higher tax burden than their C corporation counterparts.

To address the disparate effects of the flat 21% C corporation income tax rate, the Act allows owners of pass-through entities and sole proprietorships a deduction equal to 20% of their “qualified business income” subject to certain limitations. The calculation of what constitutes the qualified business income deduction amount is complex as are the applicable limitations. For example, upon sale of substantially all of the assets of a business, it is likely the 20% qualified business deduction will be significantly limited. Going forward, an analysis of the comparative tax savings as a C corporation or a pass-through entity will be appropriate for all businesses looking to maximize tax savings.

One further complication of the 20% qualified business deduction is that it is currently not applicable in calculating the state tax liability of most businesses. For example, the 20% deduction is currently inapplicable to the state income tax liabilities of Wisconsin businesses.

Family Owned Businesses

With the higher estate and gift tax exemptions and retention of the basis adjustment at death provisions of the tax law, the transfer of family owned businesses will need to re-focus, as follows:

  • Entrepreneurial families may prioritize family governance issues over estate tax issues for many businesses in transition. The changes to the valuation rules from August of 2016 have now been neutralized, and higher exemptions allow more effective estate tax freeze types of transactions.

  • Changes to how pass-through entities are taxed will re-position family businesses to place more emphasis on leasing entities, intellectual property licensing and real estate rental arrangements.

  • With corporate income tax rates reduced, the resurgence of a “management company” or “family office” may take center stage to house key employees who desire different classes of equity and debt ownership, unique compensation arrangements and generous employee benefits. However, IRS rules regarding how management agreements are negotiated and operate will need to be addressed before venturing into this area.

Buying and Selling Businesses

For those clients engaged in buying or selling businesses, the most powerful aspects of the bill have to do with changes to how capital expenditures are taxed, the loss of state and local tax deductions (individuals) and the lower corporate tax rates. We are making the following general observations on the effect of the new law on business sale transactions:

  • Even after the so-called “double tax” stigma associated with the regular corporate tax regime, when all aspects are considered, pass through entities are less attractive for many buyers and sellers. For example, a C corporation can deduct state and local taxes, while shareholders of S corporations, non-corporate owners of LLCs and individual sole proprietors cannot. This negative consequence is amplified by the fact that the 20% qualified business income deduction will not be available for state income tax purposes in most states, including Wisconsin.

  • Because many business valuations are based on income streams that do not consider taxes, those valuations do not reflect the effect of the now lower income tax rates for those businesses. However, lower tax rates should result in more cash flow to the buyers of those businesses, thereby increasing their internal rate of return on invested capital. The result will be that higher valuations will apply in the future because of the tax benefits of the new tax law.

  • Under the new law, buyers of tangible business assets, certain software and leasehold improvements can deduct their cost, in full, in the year of purchase. This means capital intensive businesses will enjoy significantly reduced effective tax rates and, therefore, higher values than previously applicable. More important, however, is that the buyer of a business can fully deduct the cost of all tangible assets in the year of purchase. The result will be that buyers of substantially all of the assets of a business will likely have little taxable income (and therefore less tax liability) for several years after the purchase of the business.

  • As a result of the 100% deduction of tangible assets purchased on the sale of a business and the lack of any changes to the capital gain and qualifying dividend tax rates, we believe that asset purchases will become more beneficial than stock purchases to buyers who seek to minimize transactional taxes, while stock sales will be more beneficial to sellers.

  • The new tax law limits the deductibility of business interest to 30% of adjusted taxable income. This means buyers using debt financing may not be able to fully deduct interest on the debt used to purchase a business. As a rule of thumb, the interest limitation will become applicable whenever the debt to cash flow ratio is higher than the ratio of the effective interest rate to 30%. Note that starting in 2022, the 30% limitation is applied to adjusted taxable income after deducting depreciation and amortization. Therefore, if you are going to buy a business, the time to do it is before the 30% limit becomes more stringent in 2022.

Compensation and Benefits Changes in the Tax Cuts and Jobs Act

  • Section 162(m). Internal Revenue Code Section 162(m) imposes a $1 million cap on the deduction for compensation paid to certain officers of public companies. Before the Act, there was an exception to the deduction limit for compensation that was “performance-based” if certain conditions were met. The Act eliminates the exception for performance-based compensation. Performance-based compensation paid pursuant to a written binding contract in effect on November 2, 2017 will continue to be outside of the $1 million deductibility cap, if the contract is not materially modified on or after that date.

  • Excise Tax on Excess Compensation for Executives of Tax-Exempt Organizations. The Act imposes a new excise tax on “excessive” compensation paid to certain employees of certain tax-exempt organizations. The excise tax is 21% of the sum of:

    • any excess parachute payment paid to a covered employee; and

    • remuneration (other than an excess parachute payment) in excess of $1 million paid to a covered employee for a taxable year (remuneration is treated as paid when there is no longer a substantial risk of forfeiture).

Covered employees are the five highest compensated employees for the year, and any other person who was a covered employee for any prior tax year beginning after 2016. Certain payments to licensed nurses, doctors and veterinarians are excluded.

A “parachute payment” is a payment that is contingent on the employee’s separation from service, the present value of which is at least three times the “base amount” (i.e., average annual compensation includible in the employee’s gross income for five years ending before the employee’s separation from employment). If a parachute payment is paid, the excise tax applies to the amount of the payment that exceeds the base amount.

  • Extended Rollover Deadline for “Qualified Plan Loan Offsets.” Prior to the Act, a participant in a qualified retirement plan who wanted to roll over a “plan loan offset” (an offset to his or her plan account due to a default on a loan taken from the account) to another plan or IRA had only 60 days to do so. The Act gives a longer period of time to roll over a “qualified plan loan offset,” which is a plan loan offset that occurs solely because of the termination of the plan or failure to make payments due to severance from employment. Participants will have until the due date of the tax return for the year in which the qualified plan loan offset occurs.

  • Reduction of Individual Mandate Penalty. The Affordable Care Act generally imposes a penalty (the “individual shared responsibility payment”) on all individuals who can afford health insurance but who do not have coverage. The Act reduces the amount of the individual shared responsibility payment to $0, effective January 1, 2019.

  • Section 83(i) – Taxation of Qualified Stock. The Act adds a new Section 83(i) to allow certain employees of non-publicly traded companies to defer the tax that would otherwise apply with respect to “qualified stock.” Qualified stock is stock issued in connection with the exercise of an option or in settlement of a Restricted Stock Unit (“RSU”), if the options or RSUs were granted during a calendar year in which the corporation was an “eligible corporation.” An eligible corporation is a non-publicly traded company with a written plan under which at least 80% of its U.S. employees are granted options or RSUs with the same rights and privileges. Certain employees, including any current or former CEO or CFO, and anyone who is (or was in the prior 10 years) a 1% owner or one of the four highest paid officers of the company, are excluded from the ability to elect a Section 83(i) deferral.

©2018 von Briesen & Roper, s.c.

Impact of final Tax Reform Legislation on the Historic Tax Credit, New Markets Tax Credit, Low-Income Housing Tax Credit and Renewable Energy Tax Credits

On Dec. 22, 2017, President Donald Trump signed into law “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” – widely referred to as the Tax Cuts and Jobs Act, or simply, the Tax Reform Legislation. As has been widely reported, the Tax Reform Legislation makes sweeping and extensive changes to federal tax law on a scale not seen since 1986. Here, we will focus on the impact of the Tax Reform Legislation on certain federal project-based income tax credits, including the Low-Income Housing Tax Credit (LIHTC), the New Markets Tax Credit (NMTC), the Historic Tax Credit (HTC), and the Production Tax Credit (PTC) and Investment Tax Credit (ITC) for renewable energy projects.

Unlike the tax reform bill passed by the House of Representatives, which would have significantly altered many of these project-based tax credits, the final Tax Reform Legislation generally leaves the credits in place, although with some modifications.

The HTC endured the most adjustment under the Tax Reform Legislation. Prior to the enactment of that legislation, the HTC provided a taxpayer who rehabilitated a historic structure with a tax credit equal to 20% of the taxpayer’s “qualified rehabilitation expenditures” if the structure was listed on the National Register or was otherwise certified by the Secretary of the Interior as being historically significant, or 10% of the taxpayer’s qualified rehabilitation expenditures if the structure did not meet those criteria but was originally placed in service prior to 1936; the tax credit was claimed in its entirety in the year the building was placed in service, subject to a five-year recapture period. The newly revised law eliminates the 10% credit for pre-1936 buildings not listed on the National Register or otherwise certified by the Secretary of the Interior and restructures the 20% credit so that it is claimed ratably over a five-year period beginning in the year the building is placed in service. (A transition rule allows taxpayers who own historic buildings as of Dec. 31, 2017, to take advantage of the pre-amendment version of the HTC for a period of time.)

While the other project-based tax credits were left in place unchanged, the shift, under the Tax Reform Legislation, in how multi-national corporations are taxed will likely impact their relative value. These credits are rarely of value to the developers of the projects to which they apply, as those developers typically do not have sufficient tax liability to fully utilize the credits. Instead, developers will typically shift the benefit of these tax credits to investors, in exchange for cash infusions into the underlying projects. Historically, these investors have been banks and other large corporations with significant tax liability; in many cases, these investors have significant overseas operations. One of the more significant changes the Tax Reform Legislation makes to the taxation of corporations is the imposition of a Base Erosion and Anti-Abuse Tax (BEAT), which is designed to counteract efforts by multi-national corporations to shift income from the United States to lower-tax jurisdictions. In calculating their BEAT liability, corporations may claim none of their HTCs and NMTCs, and only 80% of their LIHTCs and PTCs and ITCs for renewable energy projects, reducing the value of those credits to those corporations and presumably reducing the amount investors will be willing to contribute to projects in exchange for them (either due to investors’ BEAT liability, or due to the decreased demand for the credits among investors). Moreover, beginning in 2026, LIHTCs and PTCs and ITCs for renewable energy projects will be treated like HTCs and NMTCs, and corporations will not be able to use any portion of these credits against their BEAT liability, effectively eliminating the value of those credits to investors subject to the BEAT.

Similarly, the change to the HTC – which is also generally shifted from developers of historic projects to investors in them – from a credit claimed all at once to a credit claimed ratably over five years will likely reduce the value of that credit to investors and/or impact the timing of investors’ cash infusions into the underlying projects, potentially amplifying the need for bridge financing and increasing developers’ borrowing costs.

Further, the reduction, under the Tax Reform Legislation, in the top corporate tax rate from 35% to 21% will reduce the value of depreciation deductions that are sometimes allocated to investors in low-income, historic and renewable energy projects, further reducing the tax benefits available to investors in those projects and likely further reducing the amount that investors are willing to deploy into those projects in exchange for those tax benefits.

While the actual impact of the Tax Reform Legislation on the market for these project-based tax credits will only become clear over time, it is safe to assume that the Tax Reform Legislation will negatively impact the sources of funds available to developers of low-income housing, historic rehabilitation and renewable energy projects, and projects located in disadvantaged areas eligible for the NMTC.

 

Copyright © 2018 Godfrey & Kahn S.C.
This post was written by Jed A. Roher of Godfrey & Kahn S.C.
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New Jersey Extends EDA Loan Program to Minority or Women Owned Businesses

Governor Christie signed A1451 into law this week making EDA loans through the Urban Plus Program available to small, minority or women owned businesses located in designated New Jersey regional centers or metropolitan planning areas as if such businesses were located in urban centers.   Minority or woman owned business enterprises (MWBE) must be certified through the Department of Treasury.  As a qualification, MWBE applicants must demonstrate that the business is operated and controlled by a management team of women or minorities and such company is owned by a majority of minorities or women. The business must be involved with a commercially useful function and the minority or female ownership and management must be real, substantial, and continuing and not merely in name only.

 

© 2018 Giordano, Halleran & Ciesla, P.C. All Rights Reserved.
This post was written by Melissa V. Skrocki of Giordano, Halleran & Ciesla, P.C. 

CDC expands use of Whole Genome Sequencing in Foodborne Illness

Whole genome sequencing (WGS) provides insight into the genetic fingerprint of a pathogen by sequencing the chemical building blocks that make up its DNA and is increasingly being employed in food safety efforts. Since 2012, the U.S. Food and Drug Administration (FDA) has regularly turned to WGS to better understand foodborne pathogens, including identifying the nature and source of microbes that contaminate food and cause outbreaks of foodborne illness.

This week, the Centers for Disease Control and Prevention (CDC) announced that the use of whole genome sequencing to monitor for outbreaks of Listeria, Salmonella, Campylobacter and coli that are commonly transmitted through food and animal contact has expanded to 38 states and two cities. This data is reported in the CDC’s Antibiotic Resistance (AR) Investment Map, which shows early progress by states to combat antibiotic resistance. This year’s Antibiotic Resistance Investment Map features more than 170 state-reported successes, including rapidly identifying and containing rare and concerning resistant germs to protect communities. Each state reported multiple successes.

You can learn more about CDC’s AR Solutions Initiative and ongoing work to combat antibiotic resistance at cdc.gov/DrugResistance.

 

© 2018 Keller and Heckman LLP.

Keep Rollin’ Rollin’ Rollin’: DOL Reissues 17 Opinion Letters That Had Been Withdrawn Under the Obama Administration

In late June 2017, the United States Department of Labor (DOL) announced it would be reinstating Opinion Letters issued by its Wage and Hour Division, which was a practice that had ceased back in 2010. This announcement is significant from both the procedural and substantive basis. From 2010 to July 2017, Opinion Letters were replaced by Administrator Interpretations, which set forth a more general interpretation of the law and regulations as they pertained to a particular industry or set of employees. Opinion Letters, on the other hand, are official written opinions that set forth how wage and hour laws apply in very specific circumstances as presented to the DOL Wage and Hour Division via specific employer questions asking for a formal opinion to guide the employer as to how to proceed. In other words, employers submit questions based on their specific factual circumstances and policies and the DOL issues a written opinion as to the legality of the employer’s policies.

With Opinion Letters back, businesses have been waiting to see what the DOL would do with them. In the first week of 2018, the DOL answered that question by re-instating 17 Opinion Letters that were issued in January 2009 but withdrawn during the Obama administration. The DOL also reissued over a dozen advisory Opinion Letters that had been published during former President Bush’s administration, but were also later rescinded.

Because Opinion Letters answer specific business questions related to wage and hour issues in various business segments, the 17 reinstated Opinion Letters and the dozen plus reissued advisory Opinion Letters may provide businesses specific and tailored guidance on various wage/hour issues under the Fair Labor Standards Act (FLSA).

The reinstated letters cover a wide variety of topics including, appropriate inclusions in an employee’s regular pay rate, types of employment that qualify for the FLSA’s minimum wage and overtime exemptions, and how ambulance service workers’ “on-call” time should be treated for purposes of “hours worked” under the FLSA. Here is the full list of reinstated Opinion Letters (all dated January 5, 2018) and links:

Number

Letter Subject

FLSA2018-1

Construction supervisors employed by homebuilders and section 13(a)(1)

FLSA2018-2

Plumbing sales/service technicians and section 7(i)

FLSA2018-3

Helicopter pilots and section 13(a)(1)

FLSA2018-4

Commercial construction project superintendents and section 13(a)(1)

FLSA2018-5

Regular rate calculation for fire fighters and alarm operators

FLSA2018-6

Coaches and the teacher exemption under section 13(a)(1)

FLSA2018-7

Salary deductions for full-day absences based on hours missed and section 13(a)(1) salary basis

FLSA2018-8

Client service managers and section 13(a)(1)

FLSA2018-9

Year-end non-discretionary bonus and section 7(e)

FLSA2018-10

Residential construction project supervisor and section 13(a)(1)

FLSA2018-11

Job bonuses and section 7(e)

FLSA2018-12

Consultants, clinical coordinators, coordinators, and business development managers under section 13(a)(1)

FLSA2018-13

Fraud/theft analysts and agents under section 13(a)(1)

FLSA2018-14

Calculation of salary deductions and section 13(a)(1) salary basis

FLSA2018-15

Product demonstration coordinators and section 13(a)(1)

FLSA2018-16

Volunteer fire company contracting for paid EMTs – joint employment and volunteer status

FLSA2018-17

Construction supervisors employed by homebuilders and section 13(a)(1)

As demonstrated by the list above, there are a number of broad topics covered, i.e., Section 13(a)(1) of the FLSA, which exempts employees employed in a bona fide administrative function, and a number of extremely narrow ones, e.g., those dealing with helicopter pilots, coaches, construction supervisors employed by homebuilders.

Here is a summary of some of the noteworthy findings in the reinstated Opinion Letters:

Bonus Compensation

The DOL reviewed the issue of whether certain bonuses (or other payments) should be included in an employee’s regular rate of pay under the FLSA. See FLSA2018-5, FLSA2018-9, and FLSA2018-11.

Exempt Employee Deductions

The DOL reviewed the issue of whether a salary deduction is permissible when an exempt employee is absent for a full day, but does not have enough leave time in the employee’s leave bank to cover the entire absence. The DOL concluded that, “if the absence is one full day in duration, the employer may deduct one full day’s pay or less. Therefore, in answer to your first question, if an employee is absent for one or more full days, but does not have enough time in his or her leave bank to cover the entire absence, the employer may make a deduction from the employee’s pay for any portion of the full-day absences that is not accounted for by the leave bank.” SeeFLSA2018-7.

Administrative Exemption

In reviewing whether client service managers at an insurance company qualified as exempt administrative employees, the DOL focused on the “independent judgment” factor in determining that their primary duty was to use independent judgment over matters of business significance when issuing advice and, generally, without first seeking upper-level management approval.

On-Call Hours

The DOL concluded that on-call hours of ambulance service personnel are not compensable time under the FLSA for purposes of the regular rate and overtime calculations. The issue arose from an ambulance service’s unwritten policy that required on-call employees to arrive for service at the ambulance garage within five minutes of being notified. The DOL determined the five-minute requirement was “not a significant hindrance” to the employees that would require the employer to convert their on-call time to compensable hours worked. Notably, the scope was an ambulance company servicing a small city of approximately 4,000 individuals.

Takeaways:

  1. Nothing New as the DOL Returns to the Prior Opinion Letter Process. The important news is the return to the more focused, less-sweeping means to establishing DOL-interpretation policy. Otherwise the information provided in the reinstated Opinion Letters is not new; it has been available to businesses for years and, as such, most businesses with issues relevant to the topics in the reinstated Opinion Letters are likely already complying. The reinstated Opinion Letters do not take on any topics that had been severely altered during the Obama administration. We addressed this rolling-back issue in our All Things HR in a post titled “The Way We Were: The NLRB’s Time Machine Resets the Clock on Employer Work Rules and Joint Employer Status” demonstrating this is not just a NLRB mantra, it looks to be the DOL’s too.

  2. Ranging Applicability. As the ambulance-employer DOL Opinion Letter demonstrates, some of the reinstated Opinion Letters will have very limited applicability as Opinion Letters are only as good as the overlapping facts in the circumstances presented in them and the business seeking to use them as guidance. Nevertheless, while many Opinion Letters focus on specific legal issues specific to certain employers/businesses/industries, they are still valuable resources and may provide answers or guidance in many areas in wage and hour law.

  3. More Defenses Available to Businesses. Opinion Letters were and continue to be another tool businesses have in their arsenal to help ensure compliance with the FLSA, and another tool in their defense arsenal. Specifically, Section 10 of the Portal-to-Portal provides businesses an affirmative defense to all monetary liability if the business can demonstrate it acted “in good faith and in conformity with and in reliance on any written administrative regulation, order, ruling, approval, or interpretation” of the DOL Wage and Hour Division. See 29 U.S.C. § 259 and 29 C.F.R. Part 790.

In addition, Opinion Letters can be used to prove the “good faith” defense against the double liquidated damages penalty available under the FLSA, and the third-year of damages in the case of willful violations, of which the bar is extremely low. See 29 U.S.C. § 260. The availability of newly-issued Opinion Letters means that a business can request and obtain an Opinion Letter addressing a specific practice, policy, and/or factual circumstance for guidance and rely on a favorable Opinion Letter in response to a charge or lawsuit on the same issue.

  1. This is a Good Thing. This is good news for businesses because it demonstrates two things: (1) businesses will be able to have and rely on additional resources to meet their statutory and regulatory wage and hour obligations; and (2) the Trump administration seems intent on turning back the clock to a time pre-Obama administration, but not necessarily instituting new guidance or interpretations (not in the labor and employment context at least). This means that businesses are likely already familiar with what they should be doing and have been doing it.

© Copyright 2018 Dickinson Wright PLLC
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ICE Raids on 7-Eleven Franchise Stores Result in 21 Arrests

On January 10, U.S. Immigration and Customs Enforcement (ICE) agents commenced employment audits at nearly 100 7-Eleven franchises across the U.S., signaling the biggest crackdown on suspected illegal workers since President Trump took office. The raids resulted in 21 administrative arrests. Following the raids, ICE Deputy Director Thomas Homan said in a statement: “Today’s actions send a strong message to U.S. businesses that hire and employ an illegal workforce: ICE will enforce the law, and if you are found to be breaking the law, you will be held accountable.”

ICE gave no reason why 7-Eleven, famous for the Slurpee, was targeted. The notices of inspection, also known as  I-9 audit notices, were served on stores in Washington, D.C., and in California, Colorado, Delaware, Florida, Illinois, Indiana, Maryland, Michigan, Missouri, Nevada, New Jersey, New York, North Carolina, Oregon, Pennsylvania, Texas, and Washington. The franchise owners have three days to provide the agency with the immigration status of their workers.

The recent raids stem from a 2013 ICE investigation that resulted in charges against nine 7-Eleven franchise owners and managers. All of those individuals have now been arrested as of November 2017, and eight out of the nine pleaded guilty and were ordered to pay more than $2.6 million in restitution for back wages.

In its own statement, 7-Eleven said it is aware of the raids and its franchisees are “independent business owners” who are “solely responsible for their employees including deciding who to hire and verifying their eligibility to work in the United States.” 7-Eleven says it has terminated the franchise agreements of franchisees convicted of violating immigration laws.

President Trump ran on a campaign promise to prevent U.S. business from employing undocumented workers. ICE’s actions against 7-Eleven are a clear indicator of keeping that promise. Expect ICE to move forward with similar enforcement actions, as one top ICE official stated the 7-Eleven raids were “a harbinger of what’s to come” for employers.

 

© 2018 Barnes & Thornburg LLP.
This post was written by Joseph D. Hess from Barnes & Thornburg LLP.
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