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Friday
Aug122016

Game Changer? Succession Planning Targeted by IRS

by Michael Hackman and Kira S. Masteller

Tax Attorney EncinoCertified Tax Law Specialist Trusts & Estate Planning

The Department of the Treasury wants to place limitations on valuation discounts that are currently commonly used to reduce asset values in family-owned and closely-held businesses, in an effort to increase tax revenue. The Treasury released proposed new regulations to that effect last week. If approved, the Regulations would revise Internal Revenue Code Section 2704.

Under current rules, through estate planning, individuals can transfer significant assets to the next generation at discounted values – primarily by transferring fractional interests in real property and businesses. Generally, family relationships are disregarded when determining the fair market value of an asset at the time of transfer.

The fractional interests – let’s say 10 percent limited partner interests in a Family Limited Partnership (FLP) with a net value of $4 million are transferred to each of four children – the interests are characterized as having lack of control and lack of marketability. Such characterizations have allowed appraisers to justify significant, so called minority discounts regarding the fair market value of the  minority interest in a business.

For example, if the FLP interest is appraised at a 25 percent discount, each of these gifts with an underlying value of $400,000 would be valued for estate or gift tax purposes at $300,000.

If the Treasury Department’s proposals are enacted, and this could happen by year end, key trust and estate planning tax-saving vehicles will be less effective, or curtailed altogether. The new Regulations could also affect the terms of an entity’s operating or partnership agreement. 

There is no doubt that if these regulations go into effect, they will be vigorously challenged by estate planning attorneys. While these challenges will be based on a variety of technical arguments, there is no assurance that they will prevent the IRS from taking the proposed action. 

There also is no way to predict how these regulations might affect discount appraisals. The key to obtaining a significant discount is to obtain a proper appraisal that has an additional discount analysis. Appraisers may be less willing to confirm aggressive discount appraisals in light of the proposed regulations. 

In any case, family business and property owners who intend sometime to give or leave their business or property to family members should strongly consider taking advantage of the presently available discounts before the new roadblocks are placed in their way.

 

Michael Hackman is a Certified Specialist in Tax Law, and Chair of our Tax and Trusts & Estate Planning Practice Groups. Kira S. Masteller is a Shareholder in our Trust & Estate Planning Practice Group. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Aug102016

Pokemon Go Away: Monsters Creating Nuisance Problems

Business LitigationReal Estate Litigation Attorney

 

by Nicholas Kanter
818-907-3289

 

This game has been all the rage since July. Engadget reports over 100 million downloads of Pokemon Go, racking up $10 million each day in revenue for game makers Niantic, The Pokemon Company and Nintendo. It’s a beast. And pretty profitable, despite the legal questions that keep popping up in, for example:

  1. Employment

  2. Pokemon Go Nuisance Law
  3. Family Law

  4. Privacy

  5. Personal Injury

Most players will attempt a bit of care when hunting monsters, and won’t usually play at work, abandon their children or cross streets blindly to net an Augmented Reality (or AR, a real-world environment that has been digitally augmented or enhanced) creature. We hope.

However, there’s a growing legal concern surrounding this game even for people who haven’t downloaded Pokemon Go yet – that of nuisance issues.

The game works using a cell phone’s camera, GPS and gyroscope technology. Game developers programmed “Pokestops” and “Pokemon gyms” into geographical locations – a player who downloaded the app will be able to detect these locations and then be lured into attempting to capture AR monsters and monster-catching weaponry by swiping at their mobile screens at these Pokestops, or take on other players at the gyms.

A homeowner in New Jersey recently filed a class action lawsuit in California against the game’s developers. In the lawsuit, Jeffrey Marder claims Pokemon Go developers

  1. Programmed many of the stops and gyms on or near private property;  

  2. These stops and gyms were created without the property owner’s permission; and that

  3. Trespassers are inhibiting the owners’ enjoyment and use of their properties, constituting nuisances.

Marder cites several other property owners facing nuisance problems because of the game, including a Massachusetts homeowner who tweeted his experiences of living at an unauthorized Pokemon gym. Three days after the games release, Boon Sheridan counted over 30 people approaching his property on foot, not to mention a marked increase in vehicular traffic – all in the name of the game.

The actual number of members of the class action is as yet unknown. But what are the chances of Marder succeeding?

Monsters in the Yard: Pokemon Go Spawning Nightmares for Homeowners, Businesses

Property owners may bring common law trespassing suits against individuals who set foot on private property without permission, or they may file public nuisance claims similar to Marder’s suit above. 

Another example of a public nuisance claim would be the City of Irwindale’s lawsuit (now dropped) against the makers of Sriracha hot sauce, Huy Fong Foods Inc. The city claimed the sauce’s odor irritated residents’ eyes, noses and throats. One Irwindale family claimed a need to move a birthday party indoors because of fumes –affecting that family’s enjoyment and use of property.

In any case, private and commercial property owners have the right to protect their holdings, and their enjoyment of such holdings.

For business owners and governments that own or manage properties, whether they be coffee shops or landmarks like the Washington D.C. Holocaust Museum, there is a duty to keep environments safe for visitors. Businesses and tourist sites may be covered by a commercial general liability policy – but that doesn’t mean property owners or managers should turn a blind eye to potentially escalating problems caused by AR games like Pokemon Go.

Homeowners can always pursue individual trespassers, but that could become costly and time-consuming when so many encroach on a property. And neighbors close to a Pokestop or gym may have their own beefs because of increased vehicular and foot traffic.

Whether a private or commercial property owner, there are some alternatives to suing the game makers or Pokemon Go players: 

  1. Submit a Pokemon Go request form. The form can be used whether you want to add a stop or gym to a property, or remove one. No word yet on how effective this method may be, but if things do come to a litigation phase, proof of a request, or repeated requests, may help your case.


  2. Post signage. No trespassing signs may deter many players, and liability may be greater for a trespasser that ignores an explicit warning.


  3. Enlist help from local governments. Increased traffic of any kind can congest roads and hinder access for emergency and utility services. Convincing city officials to help could carry more leverage.

 

Nicholas Kanter is a Real Estate and Business Litigation attorney. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Aug012016

Employers' Guide to Los Angeles' Sick Leave & Minimum Wage Ordinance

Employment Defense

by Tal Burnovski Yeyni

818-907-3224

 

Most Los Angeles employers know the City Council implemented a new sick leave ordinance for employees working within the City of L.A. on June 2016.

However, as the Sick Time Benefits section was added to an existing Minimum Wage Ordinance, there has been some confusion over definitions and compliance dates.

Last week the City published revised FAQs and updated Regulations which shed some light over unanswered questions. Here is what we know about the City of Los Angeles Sick Leave Ordinance as of now: 

  • “Employee”: Section 187.04(A) of the Ordinance states that “every employee ... is entitled to paid sick leave”. The FAQs clarify that an Employee is: 

1. “any individual who performs at least two hours of work in a particular week within the geographic boundaries of the City of Los Angeles”; and

2. “... entitled to payment of a minimum wage from any Employer under the California minimum wage law...”

Accordingly, exempt employees are excluded from the definition of Employee under the Minimum Wage and Sick Leave Ordinance and not entitled to sick leave benefits under the Ordinance. Note, however, that exempt employees working within the City of Los Angeles are entitled to sick leave benefits under the California Healthy Workplace Healthy Family Act of 2014. Employees outside the City of Los Angeles might also be covered under another local ordinance (e.g., San Diego, Santa Monica, San Francisco, etc.) 

  • Los Angeles Sick Pay“Particular Week”: The Regulations explain that Particular Week “means any seven (7) consecutive days, starting with the same calendar day each week. “Week” for the purpose of the [Ordinance] ... shall be a fixed and regularly occurring period of seven (7) consecutive 24-hour periods which is equivalent to a period of 168 hours.

  • “30 Days Requirement”: To be eligible for sick leave under the Ordinance, an Employee [as defined above -- i.e., works two (2) hours within the City and entitled to minimum wage] must work within the City for the same Employer for 30 days or more within a year from the start of employment.

  • Employees Working in L.A. Sporadically:  As explained above, to be eligible for paid sick leave under L.A. Ordinance, an individual must meet the definition of Employee and work within the City of the same employer for 30 days or more within a year from the start of employment. But what happens when an Employee works in-and-out of the City?

    The Regulations offer the following explanation: “If an Employee continuously works for an Employer with only sporadic work time within the geographical boundaries of Los Angeles, ‘commencement of employment’ means the initial start date by the Employee for the Employer. The ‘year’ or 12 month period begins [on] the first ‘day’ the Employee works in the City. If the Employee has not worked a total of 30 days within that 12 month period, the Employee does not qualify for Sick Time Benefits".

    Accordingly, to determine whether Employers have to start complying with the Ordinance, Employers must track employees’ work within the City. Note that even as little as 10 minutes of work within the City is considered a work day. Once an Employee has 30 days of work for an Employer within the City, the Employee is eligible for sick leave benefits.

  • Compliance Date Based on Employer’s Size:  Section 187.04(A) of the Ordinance states that “Every employee who, on or after July 1, 2016, works it the City ... is entitled to paid sick leave.

    This was interpreted to mean that all Employers, regardless of size, must start complying with the Sick Leave Ordinance as of July 1, 2016. Wrong. The FAQs state there is a deferral schedule based on the size of the employer: “Paid sick leave applies on July 1, 2016 for Employers with 26 or more Employees, including Non-Profit Corporations with or without the minimum wage rate deferral. Paid sick leave applies on July 1, 2017 for Employers with 25 or fewer Employees.

  • Determining Size: The size of an Employer’s business shall be determined by the average number of Employees employed during the previous calendar year rounded up to the next whole number of Employees.  The Office of Wage Standards (OWS) recommends small businesses to complete the MW-2 Small Business Deferral Eligibility Worksheet, which can assist Employers in determining eligibility.

    An Employer should not submit MW-2 to the OWS, but instead retain it with supporting documents in the Employer’s records. Supporting documents may include, but are not limited to: Payroll records; Timesheets and/or attendance records; Quarterly Contribution Return and Report of Wage (DE9 and DE9Cs); Report of New Employees (DE 34).

  • Hours per Year: An eligible Employee is entitled to take up to 48 hours of paid sick leave annually. However, as with California Law, an Employee may use sick leave on or after 90 days of the first day of employment or July 1, 2016, whichever is later.

  • Calculating Methods:
    Front Loading Method: An Employer who chooses to provide sick leave based on the front-loading method must select one type of anniversary, either at the beginning of each year of employment, calendar year, or 12-month period. At each anniversary date, an Employer shall provide all 48 hours to an Employee.

    An Employer who uses the front-load method on a calendar year basis (January through January) may on July 1, 2016 (and only for the calendar year of 2016) provide 24 hours of sick leave for the period covering July 1, 2016 to December 31, 2016. On January 1, 2017, the Employer must front-load the full 48 hours.

    Accrual Method: An Employer who chooses to provide sick leave based on the accrual method must provide the Employee one (1) hour of sick leave per every thirty (30) hours worked. An Employee’s hours worked within L.A. must be tracked. The Regulations provide the following example for accrual: “a full-time Employee working a 40-hour work week within City boundaries (160-hours a month) will accrue 5.33 hours which must be available for use no later than 90 days after the first day of employment.

    Employers may select either the front-loading method or accrual method and may switch between the front-loading method or the accrual method only on an annual basis.

  • 72 Hour Cap: Unused sick leave, either accrued or front-loaded, must be carried over to the following year, but the Employer may cap carry-over (and accrual) at 72 hours. This is where the L.A. city ordinance substantially differs from California law, which does not require carry-over when sick leave time is front-loaded.

  • Permissible Uses: The Sick Leave Ordinance allows employees to take paid sick leave for all permissible uses under the Healthy Workplace Healthy Family Act of 2014, and to care for “any individual related by blood or affinity whose close association with the Employee is the equivalent of a family relationship.” However, it is unclear what an “individual related by blood or affinity” means.

  • Doctor’s Note: While California Law is silent on whether Employers can require Employees to provide documentation, the FAQs state that documentation is allowed only after an Employee has used more than three (3) consecutive days of sick leave. A demand to provide description or explanation of the illness or condition necessitating the Employee’s leave is prohibited.

  • Geographic Boundaries:  The FAQs also refer to a new map which could help determine if a specific address/workplace, is within the City of L.A. (http://neighborhoodinfo.lacity.org/). “If an address is located within the boundaries of the City of Los Angeles and is correctly entered, then the search will locate the address on the map with detailed address information.” 

The FAQs and Regulations also contain helpful and important information concerning the Minimum Wage section of the Ordinance.

For example, the Regulations state any changes in the number of Employees shall not impact the Employer’s status as a small business for purposes of the Minimum Wage deferral schedule. If an Employer’s average number of Employees from the previous calendar year was twenty five (25) or fewer, it shall pay based on the deferral schedule regardless of the changes in number of Employees for duration of the minimum wage schedule.

There is also valuable information concerning tracking of Employees’ time for work performed within the City and recommendations concerning required documentation regarding Employees’ hours.  

Employers can also visit http://wagesla.lacity.org/ for additional information, relevant notices,  posters and helpful charts.

Changes to Federal Employment Postings

Last week the U.S. Department of Labor announced changes to two mandatory posters, which go into effect immediately. As of August 1, 2016, employers must post the revised versions of the Federal Minimum Wage notice and the Employee Polygraph Protection Act notice. You can find revised notices here and here.

If you have questions concerning compliance with the Minimum Wage and Sick Leave Ordinance or other local ordinances and California Laws, contact employment defense counsel as soon as possible.

 

Tal Burnovski Yeyni is an attorney in our Employment Practice Group

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Monday
Aug012016

Craft Brewers Scrap Over Catchy Names

Business LitigationFranchise, Distribution & Litigation Attorney

by Samuel C. Wolf

818-907-3218

 

The craft-beer industry is running low on names. There are more than 4,600 craft breweries in the U.S. – California leading the nation with over 500, according to the Brewer’s Association.

Microbrew Attorney

Each microbrewery generally produces many individual beers and brewers are increasingly finding themselves at odds with others across the country. The legal battles to protect beer brands and corporate names from trademark theft are increasing quickly.

The U.S. Patent & Trademark Office (USPTO) has seen at least 25,000 active registrations and applications related to beer, according to a recent article published by The Wall Street Journal.   

Microbrew: What’s in the Name Just as Important as What’s In the Bottle

Most naming disputes get resolved in quasi-judicial USPTO proceedings. Others go further.

Last fall the Brooklyn Brewery sued a tiny unknown brewery in the San Joaquin Valley called Black Ops Brewing, claiming its name violated the trademark it had for a seasonal $30 imperial stout the New York brewery produces called Brooklyn Black Ops. Several months of litigation and one preliminary injunction later, and the Fresno operation is now called Tactical Ops Brewing Inc.  

Alcohol Distribution AttorneyBeer-namers also have to consider wine and spirits trademarks. Fireball Cinnamon whiskey maker Sazerac Co. recently opposed Martha’s Vineyard-based Bad Martha Brewing Company’s attempt to trademark “Fireball Beer,” leading the Massachusetts brewery to abandon the mark. 

It’s always cheaper to obtain a trademark registration than trying to prevent competitors from passing off a brand without statutory trademark rights – and much easier to enforce registered rights than rights under any common law principle. This is because federal registration provides constructive notice of the registrant’s claims of ownership and is prima facie evidence of the validity of the registered trademark and of the registrant’s right to use the trademark in commerce nationwide.

As the beer market gets congested, new brewers must proceed cautiously to avoid run-ins. Microbrewers should: 

  • Explore registrations early.

  • Conduct trademark availability searches using the USPTO’s Trademark Electronic Search System before investing in production.

  • Conduct Internet searches to assess common law usages of the proposed mark.

  • Assess any conflicting or similar marks prior to filing for a registration or adopting the mark.

These preliminary steps can help avoid costly disputes later on.  

Samuel C. Wolf is an attorney in our Franchise & Distribution, and Business Litigation Practice Groups. 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

Wednesday
Jul132016

Terminated: A Marriage’s End Should Not Lead to Employment’s End

Divorce Attorney
Discrimination Defense Attorney

by Vanessa Soto Nellis
& Nicole Kamm

 

Last month, the New Jersey Supreme Court ruled in Robert Smith v. Millville Rescue Squad (MRS) that an employer cannot terminate an employee for separating or divorcing – the processes of which apparently falls under the protected category of marital status under New Jersey’s Law Against Discrimination (LAD).

 

Operations director and paramedic Robert Smith and his wife both worked for MRS and decided to separate when he began an affair with a squad volunteer. When Smith asked about continued employment, the squad’s CEO, John Redden, said it “All depends on how it shakes down.”

Redden also allegedly told Smith at a later meeting that the CEO would not take the case to the squad’s board if there had been the slightest chance of Smith and his wife reconciling; and that Smith “had eight months to make things right” with his wife. He also warned Smith the divorce would be “ugly”.

The board decided to terminate Smith based on corporate restructuring, poor work performance, and failure to improve work performance.

Smith sued MRS, alleging wrongful discrimination and wrongful discharge under New Jersey’s LAD. Smith testified that he was never subject to formal discipline, received annual raises, and was promoted twice.

The trial court ruled Smith failed to show he was discriminated against. An appellate court reversed, and the New Jersey Supreme Court unanimously upheld the appellate decision, stating the LAD prohibits employers from discriminating against job candidates and employees because they are single, married or “transitioning from one state to another”. The court considered the CEO’s comments to be biased against people seeking divorce.

Marital status is one of the extensive list of protected categories under California’s Fair Employment and Housing Act. Under Government Code §12940(a), employers are prohibited from refusing to hire, employ, or train; discriminate in compensation, employment conditions or privileges; or terminate an individual because that person is married, single, separated or divorced.

These protections for divorcing employees may raise some issues for business owners and management. Consider the following: 

  • Spouses of partners and employees with complex compensation packages may have a financial interest relating to spousal and child support, which means a company may have to undergo a valuation process.

  • A valuation could mean a disruption in operations as employees gather and provide information for forensic accountants who may need to review the books, inventory, etc.

  • A business’s human resources department may be subpoenaed to provide information. 

So unless a business qualifies for a rather narrow ministerial exception, an employer can’t fire an employee for divorcing. 

An Ounce of Prevention: Protecting Business Interests

From a family law perspective though, there are some things a business owner may do to minimize damage from an employee or business partner’s divorce:  

  • Business partners and highly compensated executives should draw up prenuptial or postnuptial agreements, and have a buy-sell agreement in place.

  • Business owners should compensate themselves and their partners with actual salaries, rather than stock or other interests in the business. An ex-spouse may in certain cases, wind up with ownership interests.

  • Partners and major shareholders going through a divorce should consider hiring a joint forensics accountant to represent both parties, to hopefully reduce disruptions to business operations.

  • Get a valuation of the business at the date of marriage.

  • Management should limit exposure of private records like confidentiality agreements and redactions to agreements. Trade secrets, employee files, and private financial records for the business and individuals may be at stake here. An attorney can provide counsel as to what records need to be provided, to whom, and how to keep them all out of the public record.

  • Client information may need to be protected, particularly under the Health Insurance Portability and Accountability Act.  

Employers should also be aware of the various protected categories and take steps not to discriminate, harass or retaliate against an employee on such bases.

 

Vanessa Soto Nellis and Nicole Kamm are Shareholders at our firm.  

 

Disclaimer:
This Blog/Web Site is made available by the lawyer or law firm publisher for educational purposes only, to provide general information and a general understanding of the law, not to provide specific legal advice. By using this blog site you understand there is no attorney client relationship between you and the Blog/Web Site publisher. The Blog/Web Site should not be used as a substitute for obtaining legal advice from a licensed professional attorney in your state.

LEWITT HACKMAN | 16633 Ventura Boulevard, Eleventh Floor, Encino, California 91436-1865 | 818.990.2120