Let The Games Begin: Trump’s Proposal For Tax Reform

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I have been a tax lawyer long enough to see a number of major tax overhaul plans come to Congress. This one feels a lot like the original Ronald Reagan plan. President Reagan proposed reducing the number of income tax brackets to three and lowering rates of taxation. He also planned to pay for the tax reductions by eliminating a number of popular deductions. But even Ronald Reagan, who was very popular and a successful communicator, was unable to get all that he wanted. President Trump would be lucky to get half of what he has proposed, but he probably already knows that. Here is a rough outline of the major provisions of Trump’s proposal along with observations on each.

INDIVIDUAL TAX PROVISIONS

  1. Increase Standard Deduction. The standard deduction will be roughly doubled to $24,000 for married taxpayers filing jointly and to $12,000 for single filers. The head of household and married filing separate categories will be eliminated. The personal exemption, which in 2017 reduces taxable income by $4,050 for each dependent, will be eliminated.

Observation. While this simplifies the tax structure, it will adversely affect those claiming multiple exemptions, such as persons with numerous dependents. It will generally reduce tax for those who do not itemize their deductions.

  1. Individual Rate Structure and Child Tax Credit. The proposal calls for reducing the number of tax brackets from seven (10%, 15%, 25%, 28%, 33%, 35% and 39.6%) to three (12%, 15% and 35%). The Administration’s proposal makes no mention of changing the current taxation rate for long-term capital gains. The tax proposal also states that the child tax credit will be significantly increased. It is currently at $1,000 and phases out as one’s income level rises.

Observation. While the Administration’s proposal shrinks the number of brackets and lowers the highest tax rate, it does not say what the dollar figure will be for each bracket. It also does not say how much the child tax credit will be.

  1. Itemized Deductions. The Administration’s proposal eliminates most deductions but states that tax incentives for home mortgage interest and charitable contributions will be retained.

Observation. This suggests that three significant deductions–the medical expenses deduction, the state and local tax deduction, and miscellaneous deductions–may be eliminated. It is also possible that investment interest deductions will be eliminated or scaled back. The biggest deduction of these is for state and local taxes. Defenders are already lining up to protect that deduction. I would also suggest that after three major hurricanes, it might not sit very well for congressional representatives to deny the casualty loss deduction, which is now classified as a miscellaneous deduction. Finally, the medical deduction, used by the most vulnerable people with large medical expenses, might be very difficult to eliminate.

  1. Alternative Minimum Tax (AMT). The Administration proposes that the AMT be repealed. The AMT is designed to limit deductions so that a person cannot use itemized deductions to reduce their tax to too low a figure.

Observation. The Administration’s theory is that if most deductions are eliminated, there will be no need for the AMT. This, of course, presumes that most deductions are eliminated, which is extremely unlikely.

  1. Estate and Generation Transfer Tax (GST). These taxes are eliminated under the Trump plan.

Observation. Under current law, there is a $5.49 million exclusion from federal estate tax, and a married couple can combine the exclusions to result in almost $11 million passing to heirs free of estate tax. Consequently, the only persons who would benefit from repeal are families of the very rich. What is potentially troubling is that the repeal of the federal estate tax could be coupled with a change in the current step-up in basis provision, which revalues assets at death. The repeal of the step-up rule could result in many more people paying income tax on inherited property than under current law.

BUSINESS TAX PROVISIONS

  1. Corporate Tax Rate. The proposal reduces the highest corporate tax rate from 35% to 20%.

Observation. This provision has a high likelihood of passage. Both parties have expressed concern that the high corporate tax rate impedes domestic business growth. You can expect a compromise rate of perhaps 25% to be implemented.

  1. Lower Pass-Through Rate.  Owners of pass-through business organizations (sole proprietorships, partnerships and “S” corporations) that qualify as small and family-owned would be afforded the benefit of a maximum 25% tax rate on net income. Professional organizations, such as those for lawyers, doctors, and other professionals, would probably not be eligible.

Observation. The criteria of who should qualify for this benefit are unclear. Why should a wage earner be taxed at a maximum of 35% and a business owner at 25%? The provision could be complicated to administer.

  1. Expensing Capital Investments. The proposal allows capital investments, with the exception of structures, to be immediately expensed versus depreciated over a period of years.

Observation.  This could be an enormous incentive for business investment but also costly in terms of loss of tax revenue.

  1. Tax Credits and Specialized Deductions.  The proposal limits the net interest expense deduction for regular “C” corporations and may limit interest deductions for non-corporate taxpayers. Other deductions for specialized industries such as oil production will be scrutinized and possibly eliminated.

Observation. Limiting deductions and eliminating corporate benefits is one way to help offset the loss of revenue from tax reductions, but industry lobbyists will push hard to keep them.

  1. International Businesses. The proposed law targets the current provisions that enable U.S. corporations to park foreign earned income offshore without current taxation. It will require the repatriation of accumulated foreign earnings subjecting it to tax. Payment of the tax will be spread over several years.

Observation. Requiring U.S. corporations to repatriate income held overseas could produce an enormous amount of tax revenue during the repatriation period that could help offset some of the other reductions in the tax bill. Similar efforts to encourage repatriation of foreign earned income have been made before with significant production of revenue.

PLANNING FOR TAX LAW CHANGES

At this point, it is enormously difficult to plan for possible changes in the tax code based on the Administration’s proposals. I would compare the forecasting of this legislation to tracking a hurricane in the far reaches of the Atlantic. The storm could develop and be harmful to certain individuals and businesses or it could go out to sea. I think it is highly unlikely it could be enacted with an effective date in 2017. Parts of it could be implemented to go into effect in 2018. Certain provisions may be phased in over a number of years. I would therefore advise taking the deductions that are targeted for repeal so long as you can realize the benefit from them this year. Consider the present impact of the Alternative Minimum Tax. Whenever feasible keep your options open as long as possible with regard to business decisions. It may be prudent for businesses, especially “C” corporations, to put off the recognition of income until 2018, when tax benefits could be greater. Stay tuned for last minute Congressional Committee changes.

If you have questions about the potential tax reform and how it may affect your business, please contact Kenneth Ahl at (215) 246-3132 or kahl@archerlaw.com or  any member of Archer’s Tax Group  in Haddonfield, N.J., at (856) 795-2121, in Princeton, N.J., at (609) 580-3700, in Hackensack, N.J., at (201) 342-6000, in Philadelphia, Pa., at (215) 963-3300, or in Wilmington, Del., at (302) 777-4350.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

Trump Administration Issues Third Version of Travel Ban Rules

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On Sunday September 24, 2017, the Trump Administration issued a third version of a Travel Ban restricting travel to the United States by visitors of now eight countries. The new Travel Ban rules, which will go into effect on October 18, represent an expansion over previously issued Travel Bans.

More specifically, three new countries whose citizens will face potential restrictions have been added to the list of affected countries being Chad, North Korea and Venezuela. However, Sudan, which was included under both of the two prior versions of the Travel Ban, has not been included in this latest version.

The original version of the Travel Ban issued in January, restricted citizens from Iraq, Iran, Sudan, Somalia, Libya, Yemen and Syria, as well as refugees from around the world from entering the United States. Blocked in the Courts, a second and revised Executive Order removed Iraq and made further modification to the Travel Ban barring the issuance of visas to citizens of the six affected countries. This second Travel Ban was blocked but permitted by the Supreme Court in June to go into limited affect for 90 days for those citizens with no “bona fide” connection to the United States.

Reasons cited for the new Travel Ban included the results of the President’s recently ordered global review of information sharing among nations in support of immigration screening and vetting protocols. Further citing the President’s concerns for protecting the security and interests of the United States, this third version of the Travel Ban contains restrictions tailored differently for each country affected.

For example, as concerns North Korea, the Travel Ban requires a broad suspension of both immigrants (those seeking Permanent Residence) and all nonimmigrants (those seeking a Visa to visit the United States). Contrasting, the Travel Ban as concerns citizens of Libya suspends entry of immigrants and those nonimmigrants seeking to visit the United States under a Tourist (B-2) or Business (B-1) Visa. Entry under other Visa classes appears permitted.

Concerning the scope and further limitations on this latest version of the Travel Ban, it contemplates an immediate extension of the Supreme Court’s 90 day permissible ban for those with no discernible connection to the United States and further marks October 18, 2017 as the effective date for those deemed excluded under the terms of this latest version. While this latest version of the Travel Ban states that those nationals already in the United States with a valid Visa and Permanent Residents of the United States should not be affected, practical working application of these new requirements is not yet known. Additionally, legal challenges to this ban are anticipated.

If you or your business have any questions about how these travel bans may affect your business or employees, please contact Robert C. Seiger at (215) 246-3104 or Gregory J. Palakow at (609) 580-3700 in our Immigration Department.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

Social Media Mayhem Continues – Invitation to Connect on LinkedIn Held Not Violative of Non-Solicitation Agreement

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Courts continue to grapple with the use of social media as a networking platform in the context of compliance with non-compete and non-solicitation agreements. Last month we alerted you to the Pennsylvania Superior Court Case of [Joseph v. O’Laughlin, No. 1706 WDA 2015]. In that case of first impression in Pennsylvania, the Court held that a seemingly innocuous Facebook posting by the seller of a veterinary practice of his undefined future plans to open another practice violated the non-solicitation agreement in an asset purchase agreement. At about the same time the Pennsylvania Superior Court reached that conclusion, an Appellate Court in Bankers Life and Casualty Company v. American Senior Benefits, LLC, N.E.3d–, No. 1-16-0687, 2017 IL App (1st) 160687 (Ill. App. Ct. Aug. 7, 2017), held that an employee’s invitations to connect with former colleagues on LinkedIn after his termination did NOT violate the restrictive covenant in his employment agreement.

During his employment with Bankers Life and Casualty Company (“Bankers Life”), Gregory Gelineau signed an employment agreement forbidding him from inducing or attempting to induce any employee to curtail, resign, or sever employment. When Gelineau’s employment with Bankers Life ended, he went to work for a competitor and while working for the competitor, Gelineau sent requests on LinkedIn to connect with at least three Bankers Life employees. According to Bankers Life, when those employees clicked on Gelineau’s profile, they would see a job posting for his new employer.

Bankers Life filed suit against Gelineau, his new employer, and various individuals, alleging breach of Gelineau’s employment agreement. The Trial Court granted summary judgment for Gelineau and his new employer triggering this appeal. The Illinois Appellate Court considered whether social media communications were improper solicitations. The Court ultimately concluded that the invitations Gelineau sent the employees were merely “request[s] to form a professional networking connection” and they “did not contain any discussion of Bankers Life, no mention of [the new employer], no suggestion that the recipient view a job description on Gelineau’s profile page, and no solicitation to leave their place of employment and join [the new employer].” The Court further commented that any further steps involving views of Gelineau’s profile page or job postings on this profile page “were all actions for which Gelineau could not be held responsible.” As a result, the Court affirmed the grant of summary judgment against Bankers Life.

Bankers Life is noteworthy because it joins a growing number of Court decisions to consider whether an invitation to connect via social media constitutes a solicitation in violation of a non-compete/non-solicitation agreement. The Bankers Life Court seemed to rely upon the substance of the message more than the media used to transmit the message. This seemingly simple logic, however, is at odds with other decisions including the recent Pennsylvania case we noted above, as well as commentators who have emphasized that social media is “revolutionizing modern marketing” and can be “a powerful tool to build…professional networks.” Since this continues to be an evolving area of law, we will monitor these decisions closely and urge you to consult with counsel before you hit send. In the meantime, be careful out there social media mavens!

For more information, or if you have any questions regarding restrictive covenants, or trade secret protection issues in New Jersey, please contact Robert T. Egan or Thomas A. Muccifori, the chairs of Archer’s Trade Secret Protection and Non-Compete Practice Group at 856-795-2121.  In Pennsylvania, contact Jonathan P. Rardin at (215) 963-3300 or any member of the Trade Secret and Non-Compete Practice Group, in Princeton, NJ (609) 580-3700, Hackensack, NJ (201) 342-6000, or Wilmington, DE (302) 777-4350.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

New Delaware Statute Expands Duties to Prevent and Report Data Breaches and Applies to Anyone Who Conducts Business in Delaware

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Anyone who conducts business in Delaware – even if they are located outside that state – has until April 14, 2018 to comply with new requirements to protect “personal information” of Delaware residents from data breaches and to meet expanding duties to give notice of those breaches under an Act recently signed into law by Gov. John Carney.

Consistent with recent trends in cybersecurity law, the Act requires persons who maintain certain types of personal and confidential information to take proactive measures to prevent data breaches.  It requires persons who conduct business in Delaware to “implement and maintain reasonable procedures and practices to prevent the unauthorized acquisition, use, modification, disclosure, or destruction of personal information collected or maintained in the regular course of business.”  The Act does not specify the measures that would qualify as “reasonable procedures and practices,” presumably leaving it to be determined on a case-by-case basis if and as breaches occur. However, there are cybersecurity laws and regulations that impose more specific requirements in other contexts and jurisdictions, as well as evolving technical standards and practices, to which the courts and regulators may look for guidance to delineate the measures required to comply with this aspect of the Act.

The Act also expands the types of information that constitute “personal information” that is subject to protection under Delaware law.  Maintaining the current requirement that “personal information” be associated with an individual’s last name combined with their first name or first initial, the Act then provides a longer list than the current statutes of  the types of non-public data that qualifies as “personal information.”  In addition to social security numbers, account numbers (such as payment card numbers) in combination with passwords or codes that permit access to the accounts, and driver’s license numbers, the Act adds to the list passport numbers; state or federal ID cards; certain medical information and health insurance information; certain biometric and DNA data; tax ID numbers; and usernames or email addresses in combination with a password or security question and answer that would permit access to information that would give access to online accounts.

The Act encourages persons who maintain personal information to encrypt it.  But, it also provides that the unauthorized acquisition of encrypted personal information is a breach of security triggering certain notice obligations if the unauthorized acquisition includes, or is reasonably believed to include, the encryption key.

The Act also tweaks aspects of the requirements that a person who suffered a data breach give notice to Delaware residents whose personal information is involved.  Among other things, the new statute requires a person suffering the breach to provide notice within 60 days unless he investigates and reasonably determines that the breach is unlikely to result in harm.  It also requires a vendor to whom personal information is disclosed to immediately notify its customers (commonly other businesses who collect personal information about their customers or employees) of a breach regardless of whether the vendor determines that the disclosure of the information created a risk of harm.

Finally, the Act requires persons who suffer a data breach to offer one year of free credit monitoring services to Delaware residents if the breach includes Social Security numbers.

In light of these new requirements, businesses who do business in Delaware and who collect “personal information” of Delaware residents and who have questions concerning compliance with the Act should consider consulting legal counsel and/or data security technology professionals.

If you have any questions about the Act or cybersecurity issues in general, please contact Archer’s Privacy and Cybersecurity Group members Robert T. Egan at 856-354-3079 or regan@archerlaw.com or  Mark J. Sever, Jr. at 856-354-3079 or msever@archerlaw.com or any other member of the group in our Delaware office at (302) 777-4350.


DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

Social Media Mavens Beware: Innocent Posts Can Violate Restrictive Covenants

It’s now official! According to the Superior Court of Pennsylvania–Facebook can be the basis for violation of a non-solicitation agreement.  Parties need to be aware that even seemingly innocuous posts about future undefined plans on a Facebook page may violate a non-competition/non-solicitation agreement.

On August 22, 2017, the Superior Court of Pennsylvania issued an Opinion in Joseph v. O’Laughlin, No. 1706 WDA 2015.  In that case, the parties entered into an asset purchase agreement (“Agreement”) related to a veterinary clinic (“Clinic”).  Pursuant to that Agreement, for five years after the sale of the Clinic, the defendant was prohibited from “engag[ing] or participat[ing] in any business or practice [within fifty miles of the Clinic] that is in competition in any manner whatsoever with [buyer].  Further, [seller] shall not contact, solicit, or engage in any activity to contact or solicit, indirectly or directly, any client, past, present, or future, during that five (5) year period.”

Without opening a competing business, the seller purchased a property, applied for a zoning variance to permit a veterinary clinic, and used a Facebook page to advertise a new veterinary clinic within the restricted area to open at an undisclosed future date.  The Appellate Court upheld the injunction issued against seller, despite the fact that no actual competing business had commenced.

The Facebook page specifically was found to have violated the non-solicitation provision of the Agreement.  Facebook offers unique problems in this context.  There was no evidence that the seller himself actually initiated any contact with any past, present or future clients.  Rather, the seller established a new Facebook page indicating that the business would open at some undefined future date and gave the location of that future business.  The Court noted that former clients sought out and posted on the Facebook page.  The Court stated that “the resounding purpose of the Facebook page, and the attendant communication therein, was to inform the followers of the page, including former clients, that [the seller] intended to open a new clinic and to keep them apprised of his progress.”

This Opinion is surprising given the fact that there was not yet a competing veterinary clinic for those former clients to which they could take their business.

If you are the beneficiary of a restrictive covenant, you need to monitor the social media accounts of your counterpart.  If you are restricted by such a covenant, you need to be incredibly careful how you use social media.  For more information, or if you have any questions regarding restrictive covenants in Pennsylvania, please contact Archer at (215) 963-3300 and ask to speak to Patrick J. Doran, Esquire, Jonathan P. Rardin, Esquire or one of our other Trade Secret Protection and Non-Compete Practice Group members in Haddonfield, N.J., at (856) 795-2121, in Princeton, N.J., at (609) 580-3700, in Hackensack, N.J., at (201) 342-6000, or in Wilmington, Del., at (302) 777-4350.
DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

Continued Employment May Not Be Enough for Your Arbitration Policy to Be Enforceable With Employees

On August 11, 2017, the New Jersey Superior Court, Appellate Division held, in Kevin Dugan and Roman Zielonka v. Best Buy Co. Inc., and Garrett Hetrick, Docket No. A-1897-16T4, that when it comes to employers implementing new arbitration policies for any disputes with its employees, continued employment alone may not be explicit affirmative assent to arbitrate claims.

Like all contracts, arbitration policies require mutual agreement and consideration between employer and employee.  While New Jersey courts have held continued employment is sufficient consideration for some employment-related agreements, the Appellate Division was clear that consideration is a concept and element of contract formation which is different from mutual assent, which was the concept at issue in Dugan v. Best Buy. Consideration requires each party give something up to the other to bind them to the agreement while mutual assent requires each party agree.

Arbitration agreements have been held to higher legal scrutiny recently, especially with the advent of Atalese v. U.S. Legal Servs., Grp., 219 N.J. 430 (2014), certif. denied, 135 S. Ct. 2804 (2015).  The Appellate Division, relying on New Jersey Supreme Court precedent, explained that an employee’s waiver of his or her right to sue in a court of law requires that he or she has a complete understanding of the agreement terms and rights being waived as well as must indicate an explicit, affirmative, and unmistakable assent.

Clearly, a signature is the best evidence of explicit, affirmative, and unmistakable assent.  Without one though, the question is what is sufficient as another explicit indication of assent.

In Dugan v. Best Buy, Best Buy introduced  its new arbitration policy with current employees through electronic prompts, which at the end of the pages of explanation of the policy, contained a box indicating “I acknowledge.”  The plaintiff, a current employee at the time of the policy being implemented, and manager at Best Buy, went through the electronic pages, but did not read the policy.  Thereafter, he clicked the “I acknowledge” box and was in charge of making sure employees subordinate to him also reviewed the electronic arbitration policy.  He remained employed for three (3) weeks after the arbitration policy went into effect.

New Jersey Supreme Court precedent has been clear that mere acknowledgement pages are insufficient for assent.  The Appellate Division indicated that revised language next to the box, perhaps including “and agree to the terms of the policy” would have “firmly established” the plaintiff’s assent.

Moreover, Best Buy’s arbitration policy stated even employees who did not click the “I acknowledge” box were bound by the policy, “by remaining employees.”  Therefore, the Appellate Division examined whether continued employment was sufficient in these circumstances to constitute explicit assent to the arbitration policy.  The Appellate Division found that the plaintiff’s knowledge of the policy’s existence and his status as a manger were factors related to his understanding of the waiver of his right to sue in court, but were not factors related to his assent.

In a similar context, the Appellate Division, in Jaworski v. Ernst & Young, U.S., 441 N.J. Super. 464 (App. Div.), certif. denied, 223 N.J. 406 (2015), held that continued employment for five years after the effective date of a similar employment arbitration policy was sufficient explicit assent to the arbitration policy.

However, the Appellate Division, here, held that three weeks of continued employment after the arbitration policy went into effect was insufficient explicit assent to the policy.  The Appellate Division expressly took issue with how brief the period of continued employment was in comparison to the high standard required to uphold arbitration provisions.  The Appellate Division found that there was not enough time permitted for an employee who disagreed with the arbitration policy to find other employment if he or she took issue with the policy.  The Court determined that since there was no negotiation of this arbitration provision, the take it or leave it approach was really no choice at all for this specific plaintiff who worked for the Company for almost sixteen years.

In summary, Dugan v. Best Buy means that for employers to have enforceable arbitration provisions for its current employees, there must be some other means of ascertaining assent from the employees.  Acknowledgment pages and in certain circumstances, continued employment are simply not enough.

If you have questions about whether your arbitration policy is enforceable or whether your employees have provided explicit assent to arbitrate any employment disputes with you, please contact any member of Archer’s Labor & Employment Group in Haddonfield, N.J., at (856) 795-2121, in Princeton, N.J., at (609) 580-3700, in Hackensack, N.J., at (201) 342-6000, in Philadelphia, Pa., at (215) 963-3300, or in Wilmington, Del., at (302) 777-4350.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

NJ Statute Restricting Retailers’ Collection and Use of Personal Information Signed Into Law

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New Jersey retail establishments who collect electronic data by scanning personal identification cards must comply with the “Personal Information and Privacy Information Act” that Governor Chris Christie signed into law on July 21, 2017.

The Act, which goes into effect three months after enactment, places restrictions on the collection, storage and use of personal information that is obtained by scanning cards such as a person’s driver’s license or other government issued identification card.  The Act:

  • limits the information collected by scanning a person’s identification card  to “the person’s name, address, date of birth, the State issuing the identification card, and identification card number”;
  • allows retailers’ to scan identification cards for one or more of the following eight permitted purposes, and no others:
    • to verify the authenticity of the identification card or to verify the identity of the person if the person pays for goods or services with a method other than cash, returns an item, or requests a refund or an exchange;
    • to verify the person’s age when providing age-restricted goods or services to the person;
    • to prevent fraud or other criminal activity if the person returns an item or requests a refund or an exchange and the business uses a fraud prevention service company or system;
    • to prevent fraud or other criminal activity related to a credit transaction to open or manage a credit account;
    • to establish or maintain a contractual relationship;
    • to record, retain, or transmit information as required by State or federal law;
    • to transmit information to a consumer reporting agency, financial institution, or debt collector to be used as permitted by three federal statutes; or
    • to record, retain, or transmit information by a covered entity governed by the “Health Insurance Portability and Accountability Act of 1996” (HIPAA) and certain regulations;
  • prohibits retailers from retaining information obtained only to:
    • verify the authenticity of the identification card or to verify the identity of the person if the person pays for goods or services with a method other than cash, returns an item, or requests a refund or an exchange; or
    • to verify the person’s age when providing age-restricted goods or services to the person;
  • requires any information obtained by scanning identification cards to be “securely stored”, and requires any breach of the security of such information to be reported to the State Police and any affected person in accordance with NJ statutes on data breaches involving personal information;
  • prohibits retailers from selling or disseminating any information obtained by scanning identification cards, except in one very narrow circumstance; and
  • imposes penalties on retailers who violate the Act and allows aggrieved persons to bring a suit for damages caused by a violation of the Act.

The Act does not specify the practices that are required to “securely store” the information, leaving that to be determined on a case-by-case basis if and as breaches occur.  However, retailers should be aware that there are cybersecurity laws and regulations that impose more specific requirements in other contexts and jurisdictions, as well as evolving technical standards and practices, to which the courts and regulators may look for guidance to delineate the measures required to comply with this aspect of the Act.

If you have any questions about the Act or cybersecurity issues in general, please contact Archer’s Privacy and Cybersecurity Group members Robert T. Egan at 856-354-3079 or regan@archerlaw.com or Daniel DeFiglio at 856-616-2611 or ddefiglio@archerlaw.com.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

ESOPs are an Excellent Succession Tool

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An employee stock ownership plan (“ESOP”) is a qualified retirement plan that can serve as a tremendous business succession tool for business owners of privately held corporations.

Imagine the scenario in which a business owner spends 30+ years of his working life creating and growing a successful privately held business.  After a successful run, this owner whose children have little interest in taking over the business decides to cash out and sell his stock in the business to a private equity firm.  Before inking the deal, the business owner who wants to stay active in the business negotiates a two year employment agreement for himself and tries to protect the employees by including a provision in the purchase agreement that states the company must remain in the same facility for the next three years.  As you might imagine, two years after the business owner sold the business, the private equity firm (the now owners of the company) decided not to renew the business owner’s employment agreement – forcing him to retire at the age of 62.  A year after forcing the business owner out of the company, the private equity firm decided to consolidate business operations and move the company some 300 miles away – causing most of the employees to lose their jobs with the company.

Had this business owner sold his company stock to an ESOP, the above result would never have occurred.

A business owner can monetize his or her capital investment in their business by selling some or all of their company stock to an ESOP and still maintain an active role in the business that he or she created.  Moreover, the business owner can maintain and protect the job security of the employees and provide them with a supplemental retirement benefit.  In fact, empirical data proves that ESOP owned companies are more profitable and have lower turnover rates than non-ESOP companies.

The best way to demonstrate how a leveraged ESOP transaction occurs is by example.  Let us assume a business owner (“John”) is looking to sell 40% of his company (a subchapter C corporation) to an ESOP for $5 million.  Once the Company, John and the ESOP negotiate the terms of the deal, the Company will lend $5 million (the Company obtains this money from either a commercial bank, company cash, seller notes or a combination thereof) to an ESOP for a note.  The ESOP, in turn, uses the $5 million loan proceeds to purchase the 40% interest in company stock from John.  John (under certain circumstances) may be able to avoid having to pay capital gains tax on the $5 million in sale proceeds (the mechanics of this 1042 Code Section tax deferral election is beyond the scope of this article).  In addition to monetizing a portion of his capital investment in the Company, John still remains the majority owner of the business – something a private equity firm would never permit.

Each year the Company will make a tax deductible contribution to the ESOP so that the ESOP can pay its annual debt service requirement back to the Company (remember the ESOP borrowed the $5 million from the Company for a note).  The net cash flow from Company to ESOP and then from ESOP back to Company is cash neutral.  In other words, the Company is not out of pocket any dollars once the ESOP effectuates its debt service payment back to the Company.  However, this circular flow of funds generates a sizable tax deduction for the Company which means that the Company can pay back outside bank financing (the Company probably borrowed a portion of the $5 million from a bank) with pre-tax dollars.  This results in tax-advantaged financing for the Company.

As for the employees and as the $5 million note is paid off (let us assume it is a 10 year note), each employee / participant in the ESOP will receive an allocation of company stock in his or her account.  Here, 10% of the company stock that was purchased by the ESOP is allocated each year to the participants (in the aggregate).  After 10 years, all of the Company stock that was purchased by the ESOP will be allocated to the participant accounts.  Over the years, each participant’s account balance will grow in size and will prove to be a real supplemental retirement benefit for such participants.  This ESOP benefit is completely employer paid.  There is no cost to the participant.

There are about 10,000 ESOPs in the United States, covering over 10 million employees which equate to about 10% of the private sector workplace.  There are certain macro factors that support ESOPs in today’s economy.  Several of these factors include:  (a) baby boomer business owners are approaching retirement age and need an exit strategy; (b) stock market multiples are at a near or multi-year highs; (c) borrowing rates on loans are low; and (d) bank’s lending parameters have generally loosened in the last few years.

The following link is to an article of a new ESOP owned company.  The team at Archer orchestrated this transaction and helped the company reach it goals of becoming employee owned.

http://www.capegazette.com/article/trinity-logistics-announces-employee-ownership-plan/137941 

If you have questions about ESOPs, please contact Mark R. KossowTerence J. FoxDeborah A. Hays, Brian M. McGovern or any member of Archer & Greiner’s Corporate or Tax Law Groups in Haddonfield, N.J., at (856) 795-2121, in Philadelphia, Pa., at (215) 963-3300, in Princeton, N.J., at (609) 580-3700, in Hackensack, N.J., at (201) 342-6000, or in Wilmington, Del., at (302) 777-4350.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

 

Important Changes For Employers: New I-9 Form and Procedures

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Whether employers are hiring United States citizens or foreign nationals with visa needs, onboarding is governed in part by immigration Form I-9. As a general basis, every employee must fill out a Form I-9 to prove both identity and eligibility to work in the United States. Immigration, more specifically ICE, is authorized and active in enforcing employers’ compliance with I-9 protocols.  Restated, this innocuous form can create a lot of employer headaches if not completed and maintained correctly. Fortunately, Archer attorneys have a “deep bench” of experience in assisting clients with the nuances of I-9 compliance.

As an update, the United States Citizenship and Immigration Services (USCIS) recently released another revised version of Form I-9, with subtle changes to the form’s instructions and list of acceptable documents. The new edition is dated 7/17/17.

Employers can continue to use the November 2016 edition of Form I-9 until September 17, 2017. However, starting on September 18, 2017, only the 07/17/17 edition can be used.

A key change on the new Form I-9 that employers should be aware of is revised instructions in reference to how Section 1 of Form I-9 should be completed.

Prior Forms I-9 required that Section 1 had to be completed by “the end of the first day of employment.” By removing “the end of” from the phrase “the first day of employment,” USCIS emphasizes that the employee should “complete Section 1 at the time of hire (by the first day of their employment for pay).”

While we await specific guidance from USCIS concerning this change, employers should consider revisiting their onboarding practices to ensure that Section 1 of Form I-9 is completed no later than when the employee starts work for pay rather than by the end of the first day of employment.

If you have any questions about the Form I-9 or your onboarding procedures, please contact Robert C. Seiger at 856-816-0331 or rseiger@archerlaw.com or Deborah A. Hays at 856-354-3089 or dhays@archerlaw.com or any member of the Business Counseling Group.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

Pennsylvania Supreme Court Rules Selective Reverse Appeals are Unconstitutional

The Pennsylvania Supreme Court has ruled in favor of taxpayers, finding a valid claim that Upper Merion Area School District real estate assessment appeal policy violates the Uniformity Clause of the Pennsylvania Constitution. Valley Forge Towers Apartments et al. v. Upper Merion Area School District, No. 49 MAP 2016.

The Valley Forge Towers appeal raises the question of whether the Uniformity Clause of the Pennsylvania Constitution permits taxing districts from selectively appealing the assessments of commercial properties, while choosing not to appeal the assessments of other types of property – most notably, single-family residential homes – many of which are under-assessed by a greater percentage. The Supreme Court ruled that such appeals violate the Uniformity Clause and are not permitted. It reversed lower court dismissals of the taxpayer’s complaint and remanded the matter for further proceedings.

The Pennsylvania Supreme Court’s Valley Forge Towers decision provides much needed guidance on enforcing constitutional boundaries where taxing districts employ discriminatory and unfair appeal policy.

Taxing district “spot” appeals can significantly impact your property taxes. Taxpayers in Pennsylvania should take the necessary steps to protect their rights to uniformity in assessment, and equality and fairness in taxation.

David Schneider is a partner in Archer’s Real Estate Tax Appeal Group. His primary practice is Pennsylvania property tax appeals where he has significant experience defending against taxing district reverse appeals state-wide. Please feel free to contact David at 215.246.3172 or dschneider@archerlaw.com to discuss how spot appeals can impact your real estate taxes. He can help you review your assessment and evaluate your case. There is no fee for a preliminary analysis of your property tax assessment.

DISCLAIMER: This client advisory is for general information purposes only. It does not constitute legal or tax advice, and may not be used and relied upon as a substitute for legal or tax advice regarding a specific issue or problem. Advice should be obtained from a qualified attorney or tax practitioner licensed to practice in the jurisdiction where that advice is sought.

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