Lawyer Volume 30, Number 5 | September 2017
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Contra Costa 2017 BOARD of DIRECTORS Philip Andersen President James Wu President-Elect Michelle Ferber Secretary Wendy McGuire Coats Treasurer Elva K. Harding Past President Mary Carey Steven Derby Mika Domingo Oliver Greenwood Renée Welze Livingston David Marchiano
Ericka McKenna Nicole Mills Craig Nevin Dorian Peters Laura Ramsey Summer Selleck
CCCBA EXECUTIVE DIRECTOR Theresa Hurley | 925.370.2548 | firstname.lastname@example.org CCCBA main office 925.686.6900 | www.cccba.org
Barbara Arsedo Carole Lucido
Lawyer Volume 30, Number 5| September 2017
The official publication of the
B A R A S S O C I A T I O N
features Settlement Agreements: Avoiding a Real Property Tax Reassessment, by J. Melissa Schmitt, Esq.. . . . . . . . . . . . . . . . . . . . . . . . . 5 Who Is Your Priority? by Leighton Burrey. . . . . . . . . . . . . . . . . . . . . . . . . . 11 Divorce and Taxes, Who Gets the Dependency Deduction and Why do We Care? by Rita A. Holder. . . . . . . . . . . . . . . . . . . . . . . . 13 The Spin on Corporate Spin-Offs, by J. Virginia Peiser. . . . . . . . . . . . .16
LRIS Coordinator Communications Coordinator
Jennifer Comages Anne K. Wolf
Membership Coordinator Education and Programs Coordinator
Systems Administrator and Fee Arbitration Coordinator
Contra Costa Lawyer CO-EDITORS EDITORIAL BOARD David Pearson David Arietta 925.287.0051 925.472.8000
Suzanne Boucher Marcus Brown 925.933.1500 925.482.8950
BOARD LIAISON Inga Miller Nicole Mills 925.402.2192 925.351.3171 Beth Mora
by Natasha S. Chee and Jeffrey T. Thayer. . . . . . . . . . . . . . . . . . . . . . . . . . 25
INSIDE: Creativity in Tax Law by Christina Weed, Guest Editor
9 From the President: Stress Management, by Philip Andersen 22 Spotlight: Interview with Tax Court Judge David Laro by Christina Weed
Civil Jury Verdicts, by Matt Guichard
Coffee Talk: Presidential Tax Returns
PRO BONO: Low Income Taxpayer Clinic, by Matthew Miller
Board of Directors – Did You Know?
DESIGN/ADVERTISING 925.287.3540 Carole Lucido Christina Weed 925.370.2542 PRINTING Modern Litho
MCLE Self Study: Hassell v. Bird What’s the Big Deal, Yelp?
COURT LIAISON Stephen Nash Perry Novak 925.957.5600
Structuring a User-Friendly “Close Corporation”
by Jonathan C. Watts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Contra Costa Lawyer (ISSN 1063-4444) is published 12 times a year – six times online-only – by the Contra Costa County Bar Association (CCCBA), 2300 Clayton Road, Suite 520, Concord, CA 94520. Annual subscription of $25 is included in the membership dues. Periodical postage paid at Concord, CA. POSTMASTER: send address change to the Contra Costa Lawyer, 2300 Clayton Road, Suite 520, Concord, CA 94520. The Lawyer welcomes and encourages articles and letters from readers. Please send them to contracostalawyer@ cccba.org. The CCCBA reserves the right to edit articles and letters sent in for publication. All editorial material, including editorial comment, appearing herein represents the views of the respective authors and does not necessarily carry the endorsement of the CCCBA or the Board of Directors. Likewise, the publication of any advertisement is not to be construed as an endorsement of the product or service offered unless it is specifically stated in the ad that there is such approval or endorsement.
NEWS & UPDATES 7
Moot Court Thank You
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Last Month’s Contra Costa Lawyer: August 2017 The Attorney Athletes Issue
34 photos: Inducting the Hon. Benjamin T. Reyes, All Section Mixer 35-37 Calendar 38
On the Cover: The Tax Evasion Bunch
Photo Credit: Wesley Snipes photo by Nicolas Genin from Paris, France (CC by SA 2.0) | Leona Helmsley | Nicolas Cage photo by Nicolas Genin from Paris France (CC by SA 2.0) | Willie Nelson photo by Larry Philpot, www.soundstagephotography.com (CC by 2.0)| Lindsey Vonn photo by Keith Hinkle and reworked by Regi51 (CC 2.0 generic license)| Pete Rose photo by Kjunstorm from Laguna Niguel, CA (CC 2.0 generic license) | Martha Stewart | Al Capone photo by FBI.gov | Robert De Niro photo by David Shankbone, (CC by-SA 3.0) | Al Pacino photo by Thomas Schulz from Vienna, Austria (CC by SA 2.0)
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
by Christina Weed, Guest Editor
Creativity in Ta x L aw The opportunity for creativity in the area of tax law has always kept me interested in the practice of tax law and business law. With every new presidential administration, there are often many changes to the tax laws or to tax policy. These changes concern everyone because they affect individuals, businesses, and families. The changes that occur are often reflective of current values and goals for society because they are a direct result of the current tax policy which considers the overall quantity of taxes to collect and how to fairly allocate those taxes among U.S. taxpayers. Currently, the U.S. continues to watch closely as we wait to see what will happen to the top corporate and individual tax rates, how small “pass through” businesses will be taxed and whether it will change, and the controversial border adjustment tax proposal. These issues and questions cause us all to stop and think about what our own opinions are about tax policy. Do we agree with the tax proposals? What is the best way to allocate taxes among individuals and businesses? What is fair? What is good tax policy and good tax law? I can think of no better time for a tax law and business law issue, since these subjects are at the forefront of many of our minds. Thankfully, we have some very talented tax 4
and business law attorneys who are members of the Contra Costa County Bar Association. J. Virginia Peiser at Archer Norris has written a very technical article on corporate spin-offs, but has masterfully applied this technical area to a real-world context that is very applicable to many tax and business lawyers. Jonathan Watts, Esq., has written an article about the benefits and some of the requirements of a close corporation, as well as discussed its application. This article provides great information for lawyers who work with small businesses. Rita Holder of Rita A. Holder Law submitted an article regarding tax issues in divorce; J. Melissa Schmitt at Temmerman, Cilley & Kohlmann, LLP, wrote an article on avoiding real property tax reassessment in a settlement agreement context; and Leighton A. Burrey at Hartog Baer Hand authored an article on the federal priority statute in the context of an estate administration, reminding us that the tax laws touch on aspects of almost every other area of law. Also, in this issue is an article on the recent case Hassell v. Bird, which is likely of particular interest to law firm owners who have ever had to deal with a bad Yelp review. This article was co-authored by Natasha
S. Chee at the Law Offices of Natasha S. Chee and Jeffrey Thayer at Hawkins Parnell Thackston and Young LLP, and has the added bonus of providing self-study MCLE credit. Matthew D. Miller, Director and Supervising Attorney at the Low Income Taxpayer Clinic of the Justice & Diversity Center of the Bar Association of San Francisco was gracious enough to provide us an article about pro bono opportunities for tax law assistance to low-income taxpayers. And finally, I had the honor of interviewing Judge David Laro, senior judge for the United States Tax Court. This is the first time a United States Tax Court Judge has been interviewed for the Contra Costa Lawyer, and I hope that you enjoy reading the interview as much as I enjoyed writing it and interviewing Judge Laro. It has been enjoyable coordinating efforts with so many brilliant tax and business lawyers in the county, and I hope the members and readers of the Contra Costa Lawyer enjoy this issue. Christina Weed, JD, LLM (Taxation) is the principal attorney at the Law Offices of Christina Weed, PC, which is located in Walnut Creek. She is the Chair of the Tax Section of the CCCBA. Christina Weed’s practice covers tax law, business law, and estate planning.
Settlement Agreements: Avoiding a Real Property Tax Reassessment By J. Melissa Schmitt, Esq. In California, the major assets of a trust are often real property. More commonly than not, children do not wish to jointly own property with their siblings, which can lead to litigation. However, if the disputes can be settled, practitioners drafting a settlement agreement involving real property must consider tax implications involving the transfer of real property. In this context, the attorney must be aware of the potential for reassessment and liability of the trustee stemming therefrom.
I. Property Tax Reassessment
In California, the property tax basis is determined by the purchase price, plus improvements and annual increases.1 In 1978, California adopted Proposition 13, which states that taxes on real property shall not exceed 1% of the full cash value of such property.2 Under Proposition 13, properties are reassessed only upon a change in ownership. A “change in ownership” occurs when any portion of the real property changes hands, which includes a sale, a gift, or a death.3 In the trust context, while alive, a trustor is the owner of the real property. However, upon the death of the trustor, at the point the revocable trust becomes irrevocable, the interest in the real property, which vests in persons other than
30 years experience in Probate & Trust Administration 3445 Golden Gate Way Lafayette, CA 94549 (925) 283-6998 email@example.com
the trustor, can trigger a reassessment.4 A reassessment event results in a reappraisal of the real property as of the date of the change in ownership and establishes a new base year value.5 As such, depending on the date the “change of ownership” occurs, similar properties can have substantially different assessed values. In 1986, California amended Proposition 13 to permit exclusions of transfers of real property between parent(s) and child(ren) from being reassessed.6 If a claim for reassessment exclusion is filed, the transfer of principal residence is exempted regardless of the current value of the real property. Additionally, a parent can transfer to his children property with an assessed value of $1,000,000 of real property without reassessment even though the aggregate fair market value may be substantially more than $1,000,000.7 A principal residence is defined as “a dwelling that is eligible for a homeowners’ exemption … as a result of the transferor’s ownership and occupation of the dwelling.”8 Basically, the principal residence is the real property that the trustor owned and used as his residence and has filed a homeowner’s exemption.9 As of 2016, Alameda County and Contra Costa County collected an average of $6,402 and $5,898 in property taxes, respectively.10 If the current value of the real property is more than the previously assessed value of the real property, when change of ownership occurs, the property taxes will increase.
II. Settlement Agreements & Non-Pro Rata Distribution
Non-pro rata distributions have an increased risk of reassessment, if not executed properly. A pro rata distribution is one where each beneficiary takes the same Continued on page 6 CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Continued from page 5
interest in each asset of the trust.11 Conversely, a non-pro rata distribution occurs when each child receives an equal proportion of the entire estate, but not necessarily an equal share of each asset.12 Due to the nature of litigation, settlement negotiations of trust litigation often result in one of the children’s interest in the principal residence being satisfied using the other assets of the trust or being bought out, resulting in a non-pro rata distribution. For the former option, the trustee may distribute the principal residence to one child and distribute the other real property and/or other assets to the other child of equal value.13 In order to qualify for the paren–-child transfer, the other assets in the trust must be sufficient to equal the child’s interest in the principal residence.14 If the value of the property exceeds the value of the remaining assets in the estate, all or part of the principal residence may still be subject to the reassessment. Any excess interest in the real property is considered to be coming from the sibling.15 The portion of the property resulting from the siblingto-sibling transfer may be subject to reassessment. With continuing increases in property values in California, the principal residence makes up the majority
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of the trust value, so a buyout may be the only option. In this context, to avoid reassessment in a buyout scenario, the trustee may secure a loan against the principal residence from a third party lender, which is distributed to the other child.16 Then, the encumbered real property is conveyed to the children who are to obtain ownership.17 It is critical that the loan not be obtained by any of the beneficiaries of the real property. This type of loan is considered payment for the interest in the real property and disqualifies the property from the parent-child exclusion.
III. Reducing the Trustee’s Liability
Practitioners must consider whether the trustee is authorized to make such a settlement and what steps to take to protect the trustee from future liability. The trustee has the duty to administer the trust according terms of the trust, and if not inconsistent, trust law.18 Courts also recognize that the trustee has implied powers, which allow the trustee to perform acts that are proper for making the trust effectual.19 Because the Probate Code permits the trustee to make non-pro rata distributions pursuant to any written agreement20 and to encumber or mortgage trust property,21 unless expressly prohibited by the trust, the trustee may perform the above-described actions. Any deviation from the terms of the trust may be considered a breach of trust.22 In the abundance of caution, prior to taking action, the trustee should seek the court’s approval of the settlement agreement. Although a trustee can obtain written consent of all beneficiaries of the trust,23 court approval provides the best protection. The court’s approval is based on whether it is for the best interest of the trust and its beneficiaries. 24 Absent fraud, conspiracy or material misrepresentation in its procurement, a final court order releases the trustee in connection with the action approved. 25 Moreover, the Board of Equalization has opined that a court order supersedes the will or trust and the above-described transfers will qualify for the parent-child exclusion under Section 63.1.26 This is not applicable to intestate succession.
Although this process is time consuming and delays distribution to the beneficiaries, it is beneficial in matters of high import like the proper transfer of real property. Because the estate tax exclusion amount increased to $5,450,000 in 2016, preserving the current assessed property tax value of real property may be the only tax consideration in executing the settlement agreement. Unlike the estate tax, which is a one-time payment, property tax is an annual payment for which any misstep could have implications for generations to come. J. Melissa Schmitt is a litigation associate at Temmerman, Cilley & Kohlmann, LLP. Ms. Schmitt provides representation in the areas of trust litigation, which includes will and trust contests, elder abuse actions, beneficiary actions, and related civil matters. See Revenue and Taxation Code § 51
Article XIII A of the California Constitution
See Revenue and Taxation Code § 60
Continued on page 30
Teaching Teenagers to Argue in court, that is!
13th Annual Moot Court Competition
SPONSORS Above the Law/Platinum Law Offices of Christina Weed PC Jarratt Martin Law, LLP
Supreme/Gold Law Offices of Cherie T. Davis M.S. Domingo Law
Appellate/Silver Law Offices of Matthew B. Talbot
Moot Court is an appellate argument activity and competition put on by the Center for Economic and Civic Education (CESQD) and CCCBA. On Saturday October 14, 2017 about 75 students will come to the Bray Courthouse and present their oral arguments on the USSC case Trinity Lutheran Church v. Comer (First Amendment, Religion Clauses). Three-judge panels of local attorneys and judges will listen and challenge them with questions. A good time will be had by all!
361 Financial Planning Inc. Anonymous Goodman and Associates Mark Shaw
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For more information, to volunteer or donate please contact CESQD at (925) 708-6527.
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MCLE Spectacular! Friday, November 17, 2017
8:00 am – 5:00 pm Walnut Creek Marriott | 2355 N. Main Street
ADR Services, Inc. Judicate West
Breakfast Kickoff Speaker
Cynthia McGuinn Rouda, Feder, Tietjen & McGuinn President-Elect American Board of Trial Advocates
Luncheon Keynote Speaker
U.S. Representative from California's 15th Congressional District
Afternoon Plenary Speaker
Author of The Anxious Lawyer, An 8-week Guide to a Satisfying Law Practice through Mindfulness and Meditation Author Signing Event! Jeena Cho will sign copies of her book immediately following the Plenary Session. All who sign up for the full day program will receive a complimentary copy. Additional copies of The Anxious Lawyer will be available for purchase.
Event Partners Certified Reporting Services Clio FINDLAW The Furstner Group John F. Kennedy University Mitchell & Mitchell Insurance The Yajnik Group Contact Anne K. Wolf for Sponsorship Opportunities (925) 370-2540, firstname.lastname@example.org
Plus 6 morning and 7 afternoon breakout sessions to choose from.
New this year –
Cocktail Party, 5:00 pm to 6:00 pm
Hosted by Kilpatrick, Townsend & Stockton, LLP and CCCBA's Employment Law Section
Earn up to 8 MCLE CrEdits IncludIng the hard-to-get ones!
President by Philip Andersen CCCBA President
Stress Management Law is a stressful occupation and it starts early.1 In law school we are thrown into the most stressful academic situation most of us have ever encountered. Once we are out of law school it gets worse. Maybe we got a job with a top tier firm and we are working crazy hours with no time for a personal life. Maybe we hung out our shingle and we are trying to support ourselves (and possibly a family) while still making our law school loan payments. Once we are established, we are gunning for partner or expanding our practices or trying to start a family (and probably STILL making our law school loan payments). It is not an easy profession and the question of “how do you deal with stress?” becomes increasingly important as the years go by. In our August issue, we spotlighted many of our members who are also athletes. Exercise is certainly one of the best ways to manage stress. However, not everyone is an athlete (or even likes working out), so what do they do? Some become anxious or depressed and unfortunately some turn to drugs and alcohol. If you are facing these problems you are not alone and there is help. Check out the California State Bar Lawyer Assistance Program found at: http://www.calbar.ca.gov/Attorneys/Member-Records/LawyerAssistance-Program. You could also try The Other Bar Association found at: http://otherbar.org/.
Many people, however, are simply stressed out. It can manifest as anxiety or anger toward those we love. It can make us question our dedication to our profession. So, how can we manage our stress so that we can be our best selves, and thus give our best work to our clients? We are pleased to announce that the upcoming MCLE Spectacular will feature Jeena Cho, co-author of “The Anxious Lawyer.” Ms. Cho will talk about the benefits of meditation and mindfulness for lawyers, and how she has utilized those tools not only to manage stress and be a happier person, but how doing so has made her a better lawyer. All who attend will receive a free copy of her book. You might recall that in our December issue, Board member Nicole Mills wrote a book review of The Anxious Lawyer, which can be found at: http://cclawyer. cccba.org/2016/12/book-reviewthe-anxious-lawyer/. With Nicole’s permission I am including a portion of her book review here: “This book, “The Anxious Lawyer”offers an alternative to the aggressive, winner-take-all approach that allows for a more open, even joyful mindset, but it is not “soft” or “hippy dippy.” Instead, it is a practical approach to mediation and mindfulness, directed at attorneys…. The Anxious Lawyer sets out an 8-week program
of mediation and mindfulness, but don’t be put off by that investment of time. It is not an hour a day and it is not “another thing to do.” It starts small and stays do-able, giving one step at a time in increments of the reader’s choosing. The authors point out that meditation is nothing more than mental training (something attorneys are usually pretty good at) – it is a means of “settling and focusing the mind.” (p. 11). It sounds very simple, but as lawyers, we are trained to keep thinking – continuously – so many lawyers resist this quieting of the mind. Like everything else, it takes practice to attain, but the benefits can be well worth it.” Ms. Cho points out that incorporating the practices of meditation and mindfulness not only benefits us, it benefits our clients. “For example, practicing mindfulness can help us to notice when our bodies and minds are reacting in a negative way, when we are starting to get angry or agitated and our minds start to close because we ‘already know how this is going to go.’ If we can notice when this is beginning, it creates a moment of choice. We don’t have to get angry or upset. We can choose to settle our bodies and quiet our minds. Doing so allows our minds to be open to receive the information coming at us and it allows us to see all of the opportunities before us. This could Continued on page 10
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Message from the President, Continued from page 9 mean that we see the important fact that is almost ‘thrown away” in a sea of words, or it could mean that we are open to the creative solution that comes when we show compassion or empathy for our opponents and try to understand their needs as well as our own. As the practice of law moves toward a more cooperative approach centered on problem solving, these are skills that will serve us – and our clients – well.” If this speaks to you, we hope that you attend Ms. Cho’s presentation at the MCLE Spectacular this year, but whether you choose to attend her presentation or not, remember these words – “Be kind to yourself. Being a lawyer is hard.” (p.144).
Member, Nicole Mills, for her significant contributions to this article. Nicole is a graduate of Cornell Law School and is the owner of Empower Mediation, www.empower-mediation.com.
New Members to the CCCBA!
Philip M. Andersen is the Managing Attorney of the State Farm Insurance Company In-House Litigation Department in Pleasanton. (Philip M. Andersen & Associates). He has extensive litigation and trial experience defending policy holders in personal injury lawsuits. He has been managing in-house insurance litigation offices since 1994. Contact Phil at (925) 225-6838 or philip.andersen.nx3z@ statefarm.com.
Paul Di Lella
The views expressed in this article are my own and do not necessarily reflect those of my employer State Farm.
*Special thanks to Contra Costa County Bar Association Board
Welcome Vanessa Efremsky Lauri Partin Michelle Fraser
Hon. Benjamin Reyes, II
Jason Howell Jerri Kay-Phillips Brianna Kohr Adrian Lambie Joel Mackey
Maureen Roberts Elizabeth Talbot Patrick Vanier Lawrence Weiss John Won
Estate Planning Administration Conservatorship Inheritance Litigation
Mark W. Frisbie Is Retiring Effective May 31, 2017 Acuña Regli Will Continue to Serve His Clients Mark entrusted his clients to the attorneys and staff at Acuña Regli. Our ﬁrm will provide notices of Mark’s retirement, maintain custody of his ﬁles, and respond to client inquiries and requests. This ensures that Mark’s clients will enjoy uninterrupted service after his retirement. Our practice is strictly limited to estate planning; probate and trust administration; conservatorship and special needs planning; and, inheritance litigation. Please call Frank R. Acuña or Tracy S. Regli at (925) 906-1880 if we can assist you with winding down your practice for retirement.
Frank R. Acuña, Partner Tracy S. Regli, Partner Alex Y. Chen, Associate Lisa M. Zaragoza, Associate
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Bruce Hahn, MAI, SRA, ASA Real Estate Appraisal 3093 Citrus Cir., Suite 160, Walnut Creek, CA
(925) 932-4044 www.landmarkvaluation.com
Who is Your Priority?
The Federal Priority Statute Copyright: www.123rf.com/profile_jgroup’>jgroup / 123RF Stock Photo
by Leighton Burrey A prospective client’s loved one just passed away. The IRS has claims against the decedent’s assets for unpaid income taxes which threaten insolvency. Fiduciaries, unaware of the intricacies of the Probate Code, often overlook the significance of debts owed to the United States. The IRS can use the Federal Priority Statute much like an ace of spades to trump the priority of all creditors who have claims against estate assets. A lawyer’s recommendation that a fiduciary take the step to administer an estate, threatened with insolvency from tax liabilities, can be a slippery slope. This article provides an overview of the Federal Priority Statute and some steps you can take to help your fiduciary clients avoid its pitfalls. The Federal Priority Statute (Priority Statute) provides the United States with a superior right to payment of taxes by an insolvent debtor’s estate. Stripped to its basics, a fiduciary that pays the debts of the estate’s creditors before discharging debts of the United States is exposed to personal liability to the extent of the payments. Personal liability extends to any person who exercises “complete control” over the order of payment of debts and has actual or constructive knowledge of the government’s claim. Knowledge is established if there are facts that would cause a reasonably prudent person to inquire into the existence of unpaid United States claims. This means that once a fiduciary is aware the United States has a claim for unpaid taxes, the fiduciary has a duty to discharge the claim first. The Priority Statute supports a federal policy to secure revenue for the U.S. Treasury that dates back at least as early as the 18th century. The first priority statute was enacted in a July 31, 1789 Act that concerned bonds posted by importers. The 1789 enactment provided that the “debt
due to the United States” must be discharged first “in all cases of insolvency, or where any estate in the hands of executors or administrators shall be insufficient to pay all the debts due from the deceased...” The Priority Statute, as presently enacted, is limited by its terms to the “representative of a person or an estate.” Under a previous version of the Priority Statute, personal liability extended beyond representatives of the person or estate to include executors, administrators, assignees or “any other persons” who paid a debt owed by the person or estate before paying debts due to the United States. The current version of the Priority Statute no longer requires that “any other persons” involved have control and possession of the debtor’s assets, but the case law still supports the requirement. A fiduciary that is indebted to the United States for unpaid taxes may use estate assets to pay certain classes of claims before the tax debt. The excepted classes include reasonable administrative expenses, funeral expenses, and homestead or family allowances. It is important for the practitioner to understand that the term “insolvency” depends on the context of the administration. In the context of an estate administration, insolvency means that the sum of an estate’s liabilities, regardless of their speculative nature, exceeds the sum of an estate’s known assets. The term “insolvency” in a trust administration, on the other hand, means that the trust’s assets are insufficient to pay its liabilities and the expenses of administration. Determining insolvency in the correct context early in the representation is important because the earlier the practitioner determines the estate will be insolvent, the earlier she or he can assess costs and benefits of a client Continued on page 12
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Who Is Your Priority?
Continued from page 11 accepting the appointment as a fiduciary. The risks to court-appointed fiduciaries are lessened because probate procedural rules restrict the distribution of estate assets. With a court-supervised probate proceeding, if a decedent’s estate is insolvent, the decedent’s debts must be prorated by the court. Nevertheless, the federal government may seek collection of taxes from transferees of distributed assets and fiduciaries as alternatives.
4. Determine if the tax return preparer that prepared the decedent’s returns before death is the best choice to prepare all returns still due. 5. After the tax return is filed, request a prompt assessment under Treas. Reg. 301.6501(d) using IRS Form 4810. Form 4810 can be filed with the IRS or FTB. 6. Notify the FTB if the IRS adjusts or corrects gross income or deductions. 7. Request release from personal liability for the personal representative using IRS Form 5495. 8. File IRS Form 56 with the IRS and FTB to revoke or terminate prior notices.
You can help reduce your client’s exposure to personal liability for unpaid income taxes by doing some of the following:
Leighton Burrey is an associate attorney with Hartog, Baer & Hand, APC, in Orinda. His practice includes estate planning and administration and tax planning. Burrey lectures on these topics for continuing legal education programs and contributes to publications by CEB and Matthew Bender. You can reach him at (925) 253-1717 or Lburrey@hbh.law.
Before Appointment as Fiduciary
1. Caution client against exercising control over the order in which the decedent’s debts are paid and transferring assets to pay debts or expenses. 2. Review the decedent’s asset and liability information to assess the solvency of the estate. 3. Determine if notifying the tax authorities of unpaid taxes will lead to insolvency. 4. Weigh the costs and benefits of the fiduciary initiating a formal probate proceeding. Negotiating the priority of payment of administrative expenses with the IRS and recovering executor fees may be the only benefit for the fiduciary.
The Federal Priority Statute is codified under 31 U.S.C. § 3713. Emphasis is given to the priority of claims for tax indebtedness under federal law, but the same principles apply to claims under the Probate Code. The priority of claims provisions in the Probate Code are set out in §§ 11420- 11429.
Also called the “Insolvency Statute.”
Taxes included within the scope of the rule include all taxes for which the estate, the decedent, or anyone for whom the fiduciary is acting. See 2-33 Rhoades & Langer, U.S. Int’l Tax’n & Tax Treaties § 33.04.
The Federal Priority Statute covers decedents’ estates and is codified under 31 U.S.C. § 3713.
See United States v. Whitney (9th Cir. 1981) 654 F.2d 607, 612.
See United States v. Marshall (5th Cir. 2014) 771 F.3d 854, 875.
See United States v. Fisher (1805) 6 U.S. 358, 385.
1 Stat. 29. (1789)
After Determining Fiduciary Will Accept Appointment
1. Complete IRS Form 2848, Power of Attorney and Declaration of Representative to represent the fiduciary before the IRS. Franchise Tax Board (FTB) Form 3520 is the equivalent California form, but you can also file Form 2848 with the FTB. 2. Get copies of previously filed returns by using IRS Form 4506, Request for Copy of Tax Return. Form 3516 is the equivalent California form. The IRS provides copies of tax returns for $50 each. The FTB charges $20 for each tax year. 3. Determine the decedent’s gross income by using IRS Form 4506-T, Request for Transcript of Tax Return. Form 4506-T will allow you to obtain the decedent’s W-2 transcript, filed tax return transcript, and 1099 transcript for the relevant tax years.
Id. at 42.
See King v. United States (1964) 379 U.S. 329, 333.
See United States v. Whitney (9th Cir. 1981) 654 F.2d 607, 612; also similar to IRC § 2203 which defines the term of
Continued on page 15
DIVORCE AND TAXES – Who Gets the Dependency Deduction and Why Do We Care? By Rita A. Holder Nothing is worse than a bitter divorce - except possibly tax problems coming to light years later. When the letter finally arrives from the Internal Revenue Service, the couple has probably already gotten their final judgment. Working through the tax issues means a possibly painful meeting about a subject no one wants to discuss anyway, whether divorced, single or married. This article provides information on only a few of the tax issues that occur during, or after, a divorce. Depending on the complexity of the problems, you may wish to consult with a tax professional.
Couples who are splitting up but not yet “officially” divorced by December 31, have the option of filing a joint return, so long as both parties agree.1 One party can unilaterally decide to file as married filing separately, even though substantial tax savings are generally produced by filing jointly. The court cannot order the parties to file a joint return.2
The parties must be legally married in order to file federal joint returns3. Unfortunately registered domestic partners (RDPs), whether same-sex or opposite-sex, are not treated as married for federal tax purposes.4 However same-sex married persons (SSMP) are treated as married persons by both the California Franchise Tax Board and the IRS.5 In the year the divorce decree becomes final, the parties lose the option to file a joint return. In other words, your marital status as of December 31 of each year controls your filing status for that entire year.6 If a court has entered a judgment of legal separation prior to year end, either party can file as single or head of household, if they otherwise qualify.7
Head of Household
If your client can’t file a joint return for the year because he or she got their final judgment on or before New Year’s Eve, the next best option is to see if they qualify to file as head of household. The client will get the benefit of a bigger standard deduction and lower tax brackets.
Who gets the deduction for the kids (and thereby head of household status) is often overlooked in a divorce agreement—until both parents claim the deduction and the IRS swoops in to investigate. Your client will qualify for head of household status if he or she was: 1) unmarried on the last day of the year and 2) had at least one dependent who was a “qualifying child.”8 There are four requirements to claim a “qualifying child:” 1) The client must have paid more than half of the cost of maintaining the home of the child for more than one-half of the year;9 2) the child must be a U.S. citizen or resident;10 3) the child must be under age 19 as of the close of the calendar year, be totally disabled (no age bar) or, if a student, under age 24 as of the close of the calendar year; and 4) the child must not be providing more than half of their own support.11 In short, only one of the parties to a divorce can continue to claim the child as a dependent on their tax return and be identified as the “custodial parent” for tax purposes. Continued on page 14
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Divorce & Taxes Continued from page 13
If both parents claim the child as a qualifying child and both claim the head of household status, the IRS splits the baby by using the “Tiebreaker Rules.” Rule No. 1: the IRS treats the child as the qualifying child of the parent with whom the child lived for the longer period of time during the year. So your client’s time share is important as are calendars and logs.12 Rule No. 2: The IRS says that the custodial parent is the parent with whom the child resides for the greater number of nights during the calendar year.13 Rule No. 3: If the child lived with each parent for the same amount of time, the IRS will treat the child as the qualifying child of the parent who had the higher adjusted gross income (AGI) for the year.14
The reason filing status should be a hot topic in a divorce is because only one parent is entitled to a dependency exemption for each child they support. A dependency exemption works just like a tax deduction: It reduces your taxable income so you end up paying less income tax. The exemption amount is adjusted each year for inflation. Each taxpayer is entitled to claim a personal exemption for himself or herself (two exemptions on a joint return) and another for each eligible dependent. The exemption is $4,050 per child or dependent for 2016. 15
Why is This Important?
As discussed, only one of the parties can treat the child as a qualifying child. The party that loses the tiebreaker tug of war becomes ineligible for many other tax benefits including: the child tax credit; head of household filing status; the credit for child and dependent care expenses; the exclusion for dependent care benefits; and the earned income credit.
One bright spot – either parent can still take the medical expense deduction for unreimbursed healthcare costs. Unfortunately, they can only deduct, on Schedule A (Form 1040), the amount of the child’s medical and dental expenses that are more than 10% of their adjusted gross income.16 Realistically, this means that healthcare expenses are not generally deductible, except in the case of a catastrophic illnesses.
Waiving or Alternating the Exemption
At times, divorcing couples may reach agreement to alternate the exemption between them. The non-custodial parent can claim the exemption for a dependent child if the custodial parent signs a Form 8332 waiver or its equivalent17. The IRS will not accept a dissolution judgment, marital settlement agreement or written separation agreement for this purpose.18 But beware. Giving a completed Form 8332 to the noncustodial parent gives up more than just an exemption. For example, as discussed above, additional tax-saving options are only available to the person who is able to claim the child as a dependent. However, the releasing custodial parent can still qualify for head of household filing status even though they aren’t claiming an exemption for the child, so long as they meet the head of household test.19 If the custodial parent releases his or her claim to the exemption for the child for any future year, the noncustodial parent must attach a copy of the signed Form 8332 to their tax return for each future year that they claim the exemption.20
Getting the Exemption Back
On the Form 8332, the custodial parent must release the exemption to the non-custodial parent for a speci-
fied number of tax years. Luckily, the custodial parent can unilaterally get the exemption back.21 If your custodial parent client is to start claiming the exemption again, after it having been released to the noncustodial parent, they can do so by completing part three of Form 8332, indicating whether the election is for the specific tax years, or for “all future years.” 22 Note that reclaiming the exemption isn’t effective until the tax year after the calendar year in which the client provided the noncustodial parent with Form 8332. So, if one party releases the exemption and signs the form in 2016, the earliest they can regain the exemption is on the 2017 tax return, which they will file in 2018.23 Rita A. Holder, JD, MS, LLM (taxation) practices family law, tax law, and wills, trusts and probate. Her office is in Walnut Creek. Contact her at 925-482-8910 or email@example.com 1 See Etesam v. Commr., TC Memo. 1998-73 2
See Moore v. United States (Ct. Cl. 1941) 37 F.Supp. 136, 139-140; IRS Pub. 17, p. 20
See IRC § 6013(a)
See Regs. § 301.7701-18(c)
See United States. v. Windsor (2013) 133 S.Ct. 2675, 2693-2695 (invalidating Defense of Marriage Act (DOMA, 1 USC § 7)
IRC §§ 1(d), 7703(a)
IRC §§ 1(d), 7703(a). To claim head of household: 1) you must be unmarried or considered unmarried on the last day of the year; 2) you must have paid more than half the cost of keeping up a home for the year; and 3) a qualifying person lived with you in the home for more than half the year.
IRC § 152(a)
IRC § 152(c)(1); Louis v. Commr., TC Memo. 2010-217; see Sergienko v. Commr., TC Memo. 2014-56
Divorce & Taxes
Who Is Your Priority?
Continued from page 14 See IRC § 152(b)(3)(A); Carlebach v. Commr. (2012) 139 TC 1
Continued from page 12
IRC § 152(c)(1)(C) & (3)(A); Louis v. Commr., supra
IRC § 152(c)(4)(B)(i); see also Bjelland v. Commr., TC Memo. 2009-297, aff’d Knochelmann v. Commr. (6th Cir. 2011) (Although father provided more than half of child’s support, exemption given to mother who clocked in at 173 hours every 2 weeks versus father at 163 hours).
Regs. § 1.152-4(e)(1)(ii)
https://www.irs.gov/help-resources/ tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/ filing-requirements-status-dependentsexemptions/filing-status/filing-status-3
See Probate Code § 11420(a) sets forth the priority of payment of debts except for the debts of the United States or California.
While it is true that in California the court can allocate the dependency deduction to the noncustodial parent, the order will be ineffective unless the court also orders the custodial parent to complete the Form 9332 or the custodial parent voluntarily does so. Monterey County v. Cornejo (1991) 53 C3d 1271, 1280.
See Estate of Anderson (1977) 68 Cal. App. 3d 1010.
Risks may not be lessened if there is pending litigation that could result in a fiduciary making a distribution to beneficiaries after the insolvent probate estate is closed.
26 U.S.C. § 6901(c).
Form 4810 shortens the federal assessment period from 3 years to 18 months. Form 4810 also shortens the California assessment period from 4 years to 18 months.
IRC § 152(c)(4)
Regs. § 1.152-4(e)(3)(iii)
IRC § 213(a)
Regs. § 1.152-4(e)(3)(i)
IRC § 151
See Rev. Rul. 80 – 112 and United States v. Weisburn (E.D.Pa. 1943) 48 F.Supp. 393, 397.
Regs. § 1.152-4(d)(1); see also Davis v. Commr., TC Memo. 2014-147
“executor” for estate tax purposes, but see Allen v. Commissioner (1999) Tax Ct. Memo LEXIS 438, at 27, applying the requirement of possession and control of debtors assets in income tax context.
see IRS Pub. 501, p. 22; IRS Pub. 504, p. 9
IRC § 152(e)(2)(A) & (B);
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The “SPIN” on Corporate Spin-Offs By J. Virginia Peiser Albert and Bertram have been business partners for decades. Their S Corporation, Celestial Builders, Inc., constructs homes and small commercial properties for its owneruser clients. Over a period of years, the corporation purchased several parcels of real property and built its own commercial properties to hold for rental income. At present, Celestial Builders continues to build for clients with its staff supervised by Albert, and Bertram oversees a staff that manages and leases the commercial properties. The value of the construction component of the corporation is approximately equal to its equity in its real properties.
More recently, Albert and Bertram have disagreed on the proper management of the two disparate components of Celestial Builders. Albert is not pleased with Bertram’s management of the commercial property, because he believes rents should be higher and management expenses lower. Bertram disagrees with Albert’s cost estimates on new construction jobs and believes the workers are not managed properly. Both want to apply Celestial Builders’ resources to their own areas of the business and phase out the area of the other owner. Each seeks a simple way to pass his share of the corporate assets to his next generation without involving the other’s family.
If one owner buys out the interest of the other in one of the businesses, he will incur substantial capital gains. The Internal Revenue Code1 may help their situation. IRC §368 provides for tax-free treatment of various corporation changes, such as a merger or consolidation of corporate entities,2 the acquisition of stock of one corporation by another in exchange for its stock,3 or a change in only the form (C or S Corporation), name or place of organization of a single corporation.4 So long as the corporate changes are not veiled efforts to distribute corporate earnings to shareholders, the IRC permits many tax-free corporate reorganizations.
A divisive corporate reorganization under IRC §368(a)(1)(D) involves a transfer by one corporation (the “transferring corporation”) of all or part of its assets to another corporation (the “acquiring corporation”), also known as a “D” reorganization or a “spin-off.” A corporate spin-off qualifies for non-tax treatment if: 1. Distribution of stock. A corporation distributes stock in a corporation it controls to its shareholders.5 2. Active conduct of a trade or business. Both the transferring and acquiring corporations are engaged, immediately after the distribution, in the active conduct of a trade or business that was actively conducted by the transferring corporation throughout the 5-year period ending on the date of distribution.6 If one line of business was acquired during the 5-year period in a taxable transaction, it will not qualify for non-recognition treatment.7 The ownership, operation and leasing of real property is not considered the active conduct of a trade or business, unless the owner performs significant services in the management of the property.8 If the owner secures tenants and manages the properties with its own employees, it is deemed engaged in the active conduct of a trade or business.9 If however it engages a management company to locate tenants, collect rents, manage repairs, and pay expenses, while the owner only collects its allocated portion of the rents, it likely is not deemed engaged in the active conduct of a trade or business.10 3. Not a disqualified investment corporation. Neither the transferring corporation nor the acquiring corporation can be a disqualified investment corporation with the fair market value of its investment assets being two-thirds or more of the value of all its assets.11
4. Not a device to distribute earnings and profits. If (a) substantial cash is distributed from one of the corporations to the shareholders on a pro-rata basis, or (b) assets are utilized that were not used in the trade or business, or (c) one of the shareholders sells his corporation soon after the transfer, the transaction likely will not qualify as a taxfree spin-off.12 Adjustments to the values of the respective corporate assets may be made through the assumption of loans.13 5. Business-purpose requirement. The spin-off must be carried out for one or more corporate business purposes.14 The purpose must be a real and substantial purpose that is relevant to the business of one of the corporations, such as: (a) separating a baby foods business from a pesticides manufacturing business because customers would not purchase baby foods from a pesticides company,15 (b) dividing a phar-
maceuticals business from a cosmetic business to facilitate financing for both companies,16 or (c) dividing a company with a software business and a paper products business to allocate management resources between the companies in a more efficient manner.17 A shareholder purpose, such as personal estate planning, is not a corporate business purpose.18 The reduction of federal income taxes also is not a corporate business purpose.19 6. Continuity-of-interest requirement. One or more persons who were, directly or indirectly, the owners of the distributing corporation prior to the transaction must own, in the aggregate, an amount of stock that continues their interest in the corporations20 after the division.21 A corporate spin-off may be a taxfree solution for Albert and Bertram. Continued on page 19
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Corporte Spin Offs Continued from page 17 Celestial Builders would form a subsidiary corporation, Diablo Holdings, Inc. that would also elect S Corporation status. All parcels of real property and the property management component of the company would be transferred to Diablo Holdings as a separate corporate entity, and real property loans would be assigned to it. Bertram would then exchange his one-half share in Celestial Builders for all the stock of Diablo Holdings. At the end of the transactions, Albert would be the sole owner of Celestial Builders with its construction business, and Bertram would be the sole owner of Diablo Holdings managing its commercial rental properties. Although we typically expect the IRC to tax every transaction, it includes numerous provisions that allow tax-free treatment when there is a mere change in the form of conducting business. Each transaction should be examined to determine whether there is a tax-free method to accomplish a corporate change. J. Virginia Peiser is Of Counsel with Archer Norris, PLC, based in Walnut Creek. She represents investors and owners of closely held businesses in tax, business and estate planning matters and is practice group leader of the Archer Norris Taxation and Estates Practice. Virginia is a Certified Specialist in Taxation Law, as well as Estate Planning, Trust and Probate Law, by the State Bar of California Board of Legal Specialization. She has been a member of the Board of Direc-
tors of the Contra Costa County Bar Association Taxation Section since 1988 and has served four separate terms as Chair of the Taxation Section. She was selected as a Northern California Super Lawyer for 2017. All references to the Internal Revenue Code or IRC are to the Internal Revenue Code of 1986, as amended.
IRC §368(a)(1)(A), also known as an “A” reorganization.
IRC §368(a)(1)(B), also known as a “B” reorganization.
King v. Comm’r of Internal Revenue, 458 F.2d 245 (6th Cir. 1972)
Rev. Rul. 1986-125; Rafferty v. Comm’r of Internal Revenue, 452 F.2d 767 (1st Cir. 1971).
Rev. Rul. 2003-110.
Rev. Rul. 2003-75; Rev. Rul. 2005-65.
Rev. Rul. 2003-74.
An S Corporation’s momentary ownership of all the single class of stock in another corporation in connection with a divisive reorganization does not terminate its S corporation election. Revenue Ruling (hereinafter “Rev. Rul.”) 72-320; Private Letter Ruling (hereinafter “PLR”) 200943019 (7/20/2009); PLR 9713020 (12/30/1996).
IRC §368(a)(1)(F), also known as an “F” reorganization.
IRC §355(b)(2)(C), (D); Athanasios v. Comm’r of Internal Revenue, T.C. Memo. 1995-72 (2/15/1995).
Internal Revenue Regulations (hereinafter “Reg.”) §1.355-3(b)(2)(iv) (B).
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Structuring a User-Friendly
“Close Corporation” by Jonathan C. Watts Introduction
As most of us remember from our law school corporations class, a typical corporation has three layers: (1) the shareholders, who own the corporation and meet annually to elect the board of directors; (2) the board of directors, who meet at least annually to decide corporate policy and oversee the corporation’s officers; and (3) the officers, who manage the day-to-day business of the corporation and report to the board of directors. All of this makes sense for a corporation with many shareholders. However, the owners of a small business often find this structure pointless and cumbersome. After all, “Why do we need all these annual meetings and minutes when we work together every day?” The answer, of course, is liability: if a corporation does not follow these formalities, it is easier for a creditor to pierce the “corporate veil” that protects business owners from some types of liability. Many business owners opt out of this problem by forming a limited liability company, or LLC, which allows for a simpler, more userfriendly governance structure. But, certain professionals are not authorized to use LLCs, and other business owners prefer corporations for tax reasons. The good news is that there is a workaround. A business owner who needs to use a corporation, but would prefer the simpler structure of an LLC, should consider a statutory close corporation.
Close Corporations in California Law
A California corporation may adopt a customized, streamlined governance structure if it meets the definition of a “close corporation” stated in Corporations Code section 158: • Its Articles of Incorporation must include the statement that “This corporation is a close corporation.” • Its Articles of Incorporation must limit the total number of shareholders to 35 or less. • The corporation may never actually acquire more than the authorized number of shareholders. Under Corporations Code section 300, the shareholders of a “close corporation” may jettison the usual corporate formalities in favor of a more streamlined structure by means of a shareholders’ agreement. For example, the shareholders’ agreement may: • Excuse a close corporation from the need to hold annual meetings of shareholders and directors. • Name the initial officers and directors of the corporation, and state the circumstances in which they can resign or be terminated. • Require a supermajority vote for an important decision such as whether to sell a major asset or terminate an officer.
• Provide that certain investors will be repaid before others. On the other hand, to the extent that the shareholders’ agreement controls the “discretion or powers of the board,” each shareholder will be liable as if he or she was a member of the board of directors. Corporations Code § 300(d).
Practical Applications A close corporation can be an excellent fit for a company that is owned by a handful of shareholders, all of whom are active in the business. This is particularly true for a company that is owned by a single person or by a married couple. By electing close corporation status, they can tailor the governance of the company to meet their needs. For example, a basic shareholders’ agreement will appoint the initial officers and board of directors, waive the requirement that the corporation hold annual meetings, and state that the bylaws of the corporation will control except as stated in the shareholders’ agreement. On the other hand, a close corporation may not be such a good idea for a company with passive investors. A passive investor, by definition, will not be involved in management and is unlikely to be intimately aware of the day-to-day workings of the
corporation. He or she will have no reason to assume the liability of a board member under Corporations Code § 300(d). And, a passive investor may appreciate the opportunity to hold the board of directors accountable and gather information at annual meetings.
dividend or a distribution on liquidation) must be distributed strictly by percentage ownership of shares. If Shareholder X holds 25% of the issued and outstanding shares, Shareholder X must receive 25% of each and every dividend or other shareholder distribution.
A Word of Caution About S Corporations
So, even though a close corporation shareholders’ agreement may customize the “division of [the corporation’s] profits or distribution of its assets on liquidation” as a matter of California law (Corporations Code § 300(b)), this should not be done for a close corporation that plans to be taxed as an S Corporation. Unlike an LLC or another entity taxed as a partnership, an S Corporation is not allowed to be creative in this area. Any preferential distributions, shifting allocations, or similar techniques will literally kill the corporation’s election to be
Many closely-held corporations elect to be taxed as “S Corporations” to take advantage of the tax benefits offered by Subchapter S of the Internal Revenue Code. In order to qualify as an S Corporation, a corporation must (among other things) have only a “single class of shares.” (See 26 U.S.C. section 1361(b)(1)(D).) The “single class of shares” requirement can be a trap for the unwary. In practice, it means that any shareholder distribution (including a
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taxed as an S Corporation, resulting in unintended tax consequences and vexed clients.
A close corporation is an attractive option for small business owners who dislike the traditional corporate formalities but cannot use an LLC. In my experience, these business owners tend to go years without holding formal meetings of the shareholders or directors. Choosing a close corporation can make it easier for these business owners to manage their businesses while avoiding a potential threat to the corporate veil. Jonathan C. Watts, Attorney at Law is a unique business and tax boutique law firm in the East Bay Area. Watts has an advanced LL.M. degree in tax law and has years of experience representing corporations, partnerships, individuals and trusts in connection with business and tax-sensitive transactions from around the San Francisco Bay Area. Watts currently serves on the Board of Directors of the San Ramon Valley Education Foundation and is a member of the San Ramon Valley Rotary Club and Danville Area Chamber of Commerce.
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Interview with Tax Court
Judge David Laro by Christina Weed I had the honor and privilege of having Judge David Laro as one of my professors for Tax Policy and Valuation courses during my LL.M. studies at the University of San Diego. When I learned that I would be the guest editor for the Contra Costa Lawyer’s tax and business issue, my immediate thought was that I would like to interview Judge Laro. To my extreme honor and delight, Judge Laro agreed to let me interview him. During my LL.M. studies I remembered that Judge Laro had traveled to other countries to discuss tax policy, to share knowledge and to learn. During my interview with Judge Laro, I learned that he does not shy away from using new strategies and techniques, even learning from other countries in some instances, in order to get to the right result in many of his cases. Judge Laro is often on the cutting edge when it comes to employing new techniques in his court room in order to be efficient and get to the heart of the issues. A U.S. Tax Court judge has never been interviewed for the Contra Costa Lawyer before, but Judge Laro is accustomed to being a pioneer. Weed: Thanks for agreeing to let me interview you. How are you doing today? Laro: I’m doing well. Thank you. It’s nice to talk to you. Weed: My first question is about when you were first appointed to be a Tax Court judge in 1992, what did 22
your appointment entail and what was the process? Laro: Let me explain what happened to me, and for the most part it’s applicable to others as well. In order to be appointed to the Tax Court, you need to be nominated by the President of the United States, and confirmed by the U.S. Senate. How do you come to the attention of the President of the United States if you don’t happen to know the President personally? Traditionally, what happens is that your name is known to or identified by the Senator who represents your state, and that Senator will bring it to the President’s attention, who in turn will decide whether or not he wants to go forward with you. That is a very common avenue, but in my case, that’s not the way it worked. I was practicing law in Michigan, and I received a phone call from somebody at the United States Treasury Department who told me that there was a vacancy on the Court and asked me whether I had any interest in that vacancy. But there are other ways as well. Very often the American Bar Association might be interested in a particular individual filling a vacancy, and they will offer up the name. In short, a name can come from various sources, but ultimately it has to go to the White House for approval. Weed: Is there a set number of tax judges who can serve at one time? Laro: The Tax Court presently consists of 19 presidentiallyappointed judges, and that’s set by statute. Historically the number at
times has been lower than 19, but today it’s 19. In addition to the 19 presidentially-appointed judges, there are also a few whom we call special trial judges, similar to magistrates in federal court. The special trial judges assist as well, but they’re not presidentially appointed; they’re appointed by the Court itself. Weed: Do you have any advice for someone who’s interested in becoming a Tax Court judge? Laro: First of all, being on the court is a wonderful position. It’s a wonderful professional opportunity for someone who’s interested in the law and tax law specifically. There are a couple avenues to get onto the court. One way is to practice tax law for a number of years and get some experience being a tax lawyer before you express an interest in being on the court. I think that is quite helpful. Many others have gotten on the Tax Court through government service. An individual may have been a staff member of the Senate Finance Committee or the House Committee on House Ways and Means or an attorney with the Justice Department’s Tax Division. Among our 19 judges on the court, about half come from private practice and half come from the government. I believe having a decade, or two, or three, of experience before coming to the court is vital. Weed: In your opinion, are there currently any challenges facing the Tax Court? Laro: There are all sorts. Some of the challenges are in finding ways to handle the 30,000-case docket that presents itself every year, making sure you have the right resources and the right people allocated to them and making sure that each judge has appropriate staffing, including clerks. The cases themselves are interesting. Some are international. Challenges with inter-
national cases occur where there are witnesses or evidence outside of the United States. One challenge we recently had was a case involving $3.5 B in adjustments. There were going to be over 100 witnesses, and the trial itself was going to last on-and-off for four months. The taxpayer wanted to discover some documents that the government argued were privileged. Traditionally, if the parties cannot work out how to handle privileged documents, they create what is called a privilege log, and the documents are turned over to the judge in chambers for review. When the documents are voluminous, however, that’s not practicable. In this particular case there were over 4,000 documents. We ended up using a procedure called “quick peek.” Quick peek follows FRE 502. Opposing counsel is permitted to look at your privileged documents under the court’s guidance. The privilege is not waived, but the documents are exchanged in the hope that counsel will be able to resolve their dispute as to all or most of the documents. When the parties in this case were done with quick peek, we were able to get the 4,200 documents down to 26. Weed: That’s great! That is such an interesting way to handle that challenge. I understand you have been able to use other methods to overcome certain challenges. Can you describe a little bit about what “hot tubbing” is? And what are some good practices or tactics for lawyers before the court? Laro: Anyone taking a case before any court, and the Tax Court especially, needs to be prepared. You prepare by not only fully understanding the law and the facts of your case, but you need to ready your witnesses, you need to prepare your presentation ahead of time,
...Since we have begun to use the procedure, the American Bar Association has had several national meetings in which they discussed hot tubbing. The AICPA, the American Institute of Certified Public Accountants, is beginning to train their CPAs to become experts in hot tubbing. Hot tubbing is hot right now.
Hon. David Laro you need to understand your evidence, and you need to be able to tell the court a story about your client’s case. Preparation is critical. Another important thing is collegiality and courtesy. Some people look upon going to court as a form of warfare and belligerency, but that’s not the way the Tax Court functions. Tax Court is a collegial environment, and we expect that you’ll not only be courteous to the Court but that you’ll be collegial to opposing counsel. Finally, you must know the rules. There are two sets of rules in the Tax Court. One is the Court’s Rules of Practice and Procedure, which parallel the Rules of Civil Procedure, albeit with some variations. The second set of rules that the litigant needs to know are the Federal Rules of Evidence. Now, in terms of hot tubbing [laughter], hot tubbing is a fairly new development that originated in Australia. It involves a technique where the court interacts with expert witnesses. Let’s look at the traditional utilization of an expert witness. Somebody will call an expert witness, ask that that witness be qualified, and directly examine the witness. Then opposing counsel will cross examine the witness. Good lawyers learn to cross examine an expert vigorously
because one of their objectives is to try to convince the court or the trier of fact that the witness is not an expert, is using weak theories, or is just not convincing. At the end of a trial, you can imagine that the court often is left with an expert who has been vigorously cross examined and disparaged, and the credibility of that witness is in question. The trier of fact is now left with a record where the witnesses have been weakened and their credibility assailed. Why was the expert called in the first place? Because the court needs the expert witness’s testimony to aid the trier of fact in resolving the case. Yet here we have a witness who has been soundly criticized and disparaged. I have employed hot tubbing in approximately eight or nine cases – and I believe I may have been the first federal judge in the United States to use it – as follows: after the witnesses have testified, I invite them to sit with me informally, but still on the record, in the middle of the courtroom without the attorneys’ involvement. We discuss the witnesses’ testimony. I invite them to talk to me directly without being asked formal questions and without having attorneys looking to trip them up and make them look bad. The witnesses are having Continued on page 24
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Judge David Laro
Continued from page 23 an informal discussion with me and, most importantly, with each other in front of me. Consider the difference. Suppose that you want to have a conversation with somebody, and the only way you can have a conversation is when they ask you questions, and they are asking you questions to make you look bad. Now, contrast that with a discussion where you’re sitting in a more relaxed environment, talking with a colleague and with a judge about your case. You might discuss why you did what you did, why you believe what you did is correct. You likely will talk to your adversary, the other expert, in a professional and collegial manner. That is the essence of hot tubbing. Another name for it, less sexy but nevertheless accurate, is “concurrent witness
testimony.” Since we have begun to use the procedure, the American Bar Association has had several national meetings in which they discussed hot tubbing. The AICPA, the American Institute of Certified Public Accountants, is beginning to train their CPAs to become experts in hot tubbing. Hot tubbing is hot right now. Weed: That sounds like a very useful technique, and so interesting. Thank you for explaining that to me. I do not want to take up too much of your time, but I wanted to ask are there any areas of tax law that are particularly interesting to you right now? Laro: There are a few kinds of cases that I enjoy especially, for instance those involving valuation. I teach valuation, as you recall from your time at the University of San Diego, and I have written a book
on the subject. There are about 20 different events and circumstances in the law involving valuation. Valuation issues arise in matters involving estate planning, gift planning, and mergers and acquisitions. And valuation touches many other areas: ESOPs, stock options, real property, condemnations. Beyond valuation, I also enjoy corporate and international tax and transfer pricing. Transfer pricing cases in particular can be enormous. They might involve billions of dollars and require significant factual development, sometimes taking weeks or months to try. Weed: Thank you so much for letting me interview you. I really appreciate this. I know you’re very busy and I was very excited when you said that you could let me interview you. Laro: I’m happy to do it, Christina. Thank you.
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MCLE Self Study
Self-Study To download the MCLE Self Study test form and instructions for this Self-Study article, visit www.contracostalawyer. org, and click on the “Self-Study MCLE” link at the top, then click on the article “Hassel v. Bird.” If you prefer to receive the test form via email, contact Anne Wolf at firstname.lastname@example.org or (925) 370-2540. Send your answers, along with payment ($30 for CCCBA members) to the address on the test form.
Hassell v. Bird: What’s the Big Hassle, Yelp? by Natasha S. Chee and Jeffrey T. Thayer It’s the fear every attorney has when a client relationship sours – a onestar Yelp review. Dawn Hassell, an attorney from Hassell Law Group of San Francisco, briefly represented Ava Bird in a personal injury matter. They had trouble communicating and Hassell withdrew after only 25 days. Bird subsequently published a negative one-star review about her experience with Hassell on Yelp. com. Hassell immediately contacted Bird and requested that she remove alleged defamatory remarks from her Yelp review. Bird refused and purportedly followed up with two additional negative reviews under different pseudonyms. Hassell then sued Bird under various theories including defamation, and requested relief, including injunctive relief in the form of a take-down of the review. Bird never responded to the complaint, and Hassell won a default judgment holding that Bird’s comments were defamatory. The trial court ordered Bird to remove the reviews, and ordered Yelp to take down all existing and any
Youngman Ericsson Scott, LLP 1981 North Broadway • Suite 300 Walnut Creek, CA 94596
Tax attorneys Youngman.com
future reviews by Bird or her agents. Yelp contested the ruling. How was Yelp able to get standing if they weren’t a party to the original action? Well, Yelp acquired standing by filing a nonstatutory motion to vacate a portion of the Bird judgment on the ground that it contains an allegedly void removal order. The trial court denied Yelp’s motion and Yelp subsequently appealed. The Court of Appeal upheld the trial court’s ruling that Yelp must remove the reviews. It further held that (1) Yelp’s due process rights were not violated through lack of notice of the underlying lawsuit; (2) the removal order did not violate Yelp’s First Amendment rights to the extent it required Yelp to remove the reviews; (3) the removal order was an unconstitutional prior restraint on speech to the extent it purported to cover future statements; and (4) Yelp’s immunity from suit under the Communications Decency Act, 47 U.S.C. §230 et seq. did not extend to the removal order. The case is now before the California Supreme Court. Yelp contends that: (1) trial courts may not enjoin nonparties, taking away their independent rights, without notice and a hearing; (2) Yelp has a First Amendment right to publish thirdparty speech; (3) Yelp has a due process right to challenge attempts to infringe its First Amendment right; (4) injunctions cannot bind non-parties without evidence that they aided and abetted the enjoined party; and (5) the review is necesContinued on page 26
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Hassell v . Bird
Continued from page 25 sary to make clear that plaintiffs cannot evade Section 230 by denying website publishers their due process rights.
Due Process & Non-Party Injunctions
Yelp was not a party to the underlying lawsuit and never received notice of it. Plaintiffs argue that, nevertheless, injunctions are proper against those “through whom the enjoined party may act.” Yelp contends, however, that pertinent case law uniformly holds that “an injunction cannot be applied to a nonparty unless evidence establishes the non-party aided and abetted the party in evading the injunction, or engaged in similar conduct.” Yelp believes its relationship to Bird to be too tenuous to constitute aiding and abetting by merely publishing Bird’s comment(s), as Bird is “one of millions who post on Yelp.” Yelp hopes that the Court will agree that the narrow exception to due process for aiders and abetters does not apply here, so that Hassell “does not become a weapon to deprive non-parties of their constitutional rights.” Several amicus briefs echo this concern. Avvo, Facebook, Microsoft and Twitter all point out that Hassell makes possible a “heckler’s veto” that could be used to silence online speech in a way that evades the protections of Section 230 and decades of U.S. Supreme Court case law on due process and First Amendment issues: (1) sue a content creator, but not the platform hosting his or her content; (2) obtain a default judgment based on a wholly one-sided presentation of the evidence, without any notice to the platform; and (3) serve the platform with a judgment ordering removal of the objectionable content, without having provided any opportunity to the platform to contest. 26
First Amendment & Prior Restraint
Plaintiffs argue Bird’s speech is defamatory and thus unprotected by the First Amendment. Yelp counters that because it was not a party to the original action, Yelp was never allowed a chance to defend its First Amendment rights, or to litigate whether Bird’s speech was in fact defamatory, and Bird never even defended her speech. Issue preclusion “can be asserted only against a party to the first lawsuit, or one in privity with a party.” Yelp argues since plaintiffs chose not to make Yelp a party to the original litigation, they cannot now enforce the defamation holding against Yelp. Yelp cites to Balboa Island, where the Court reversed a prior restraint against defendant to the extent it applied to non-parties because there was no evidence that anyone other than the defendant defamed or was likely to induce others to defame plaintiffs. Moreover, Yelp argues the First Amendment protects not only those who created the speech, but those who have published the speech as well.
Yelp argues the trial court’s order should fail based on a Section 230 argument because “[n] o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” The Court of Appeal opined, however, that pertinent Section 230 cases involved only “allegations of defamatory conduct by a third party” and not actual defamation, as is the case here. The Court also agreed with plaintiffs’ argument that no actual “liability” was imposed on Yelp. Several amici argue that plaintiffs and the Court of Appeal fail to acknowledge that in enacting Section 230, Congress made a policy
judgment that commandeering Internet service providers would impose too great a cost to free speech, and that therefore providers like Yelp should be afforded broad immunity, not just to liability but to lawsuits themselves based on thirdparty speech This case shows that our courts should not allow due process, First Amendment protections, and Section 230 to be eroded without extreme scrutiny. Natasha S. Chee is the principal at the Law Offices of Natasha S. Chee. Her practice focuses on Intellectual Property and Entertainment Law, and Criminal defense. To learn more: www.natashachee.com. Jeffrey T. Thayer is a Partner at Hawkins Parnell Thackston & Young LLP. His practice focuses on Complex Litigation, Automotive Liability and Intellectual Property. To learn more: www.hptylaw.com/attorneys-jeffreythayer.html Hassell v. Bird (2016) 247 Cal.App.4th 1336, 1341.
Brief for Plaintiffs and Respondents Dawn L. Hassell and the Hassell Law Group, P.C., Hassell v. Yelp, Inc., S235968 (“Hassell Brief”), p. 11.
Reply Brief for Non-Party Appellant Yelp, Inc., Hassell v. Bird, S235968 (“Yelp Brief”), p. 10.
Id., p. 13. Id.
DKN Holdings LLC v. Faerber (2015) 61 Cal. 4th 813, 824. Continued on page 30 6
Civil Jury Verdicts by Matt Guichard There was a time I prepared a Civil Jury Verdicts Column every month. And in almost all cases, the reports came right out of our Superior Court in Martinez. Back then the Court statistics showed somewhere in the neighborhood of 50 or so civil cases to verdict in Martinez Superior Courts. As the years have passed, that number dwindled to 15 or so each year. Now of course I know the mention of those statistics always causes heartburn for the PJ, but there is a good reason for the decline.
an easy framework by which to report on the respective cases. And although only about half the attorneys responded, I still had many verdicts to report. Keep in mind also at the time we were not reporting on cases in the Municipal Courts,
Elder Law is
I have been told that the Civil Jury Verdicts column is a very popular column. Sad to say I write only a couple of columns a year at this time. And as you have heard me say too many times: “I cannot write about a trial if no one reports it to me.” Let’s start with a little history to get a perspective. When I was first asked some years ago to take over writing the column, the Court sent to me monthly reports on civil trials. The reports included both civil jury trials and civil bench trials. The report listed the parties, the attorneys, the judge and the result. From those reports I was able to send a form out to all the attorneys which included
but only Superior Court Martinez. At some point due to the “Budget” the Court stopped preparing those reports for me. At that point I was left with no viable means of getting case information other than to plead, cajole, whine, snivel and cry. Or, go to trial myself and report on my own case. I have been singularly unsuccessful in my quest to get attorneys to report verdicts to me on a regular basis. As you know we have expanded the column to include out-of-county cases, and interesting settlements and arbitrations. I must say I was a bit distressed to read in this very magazine a while back about a verdict in which a local firm obtained a defense verdict in a case in which the plaintiff requested an award of $8 million. There was no mention of the venue or the pre-trial offer, but it was not reported to me. Continued on page 28
The average survival rate is eight years after being diagnosed with Alzheimer’s — some live as few as three years after diagnosis, while others live as long as 20. Most people with Alzheimer’s don’t die from the disease itself, but from pneumonia, a urinary tract infection or complications from a fall. Until there’s a cure, people with the disease will need caregiving and legal advice. According to the Alzheimer’s Association, approximately one in ten families has a relative with this disease. Of the four million people living in the U.S. with Alzheimer’s disease, the majority live at home — often receiving care from family members.
If the diagnosis is Alzheimer’s, call elder law attorney
Michael J. Young
Estate Planning, Disability, Medi-Cal, Long-term Care & VA Planning Protect your loved ones, home and independence.
925.256.0298 www.YoungElderLaw.com 1931 San Miguel Drive, Suite 220 Walnut Creek, California 94596
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Civil Jury Verdicts
Continued from page 27 Getting back to the issue of the decline in actual verdicts, the reasons are many and have been debated for years. In my view the advent of serious ADR, not the non-binding arbitrations of old is a big reason. The tremendous cost of going to trial now is another big reason for the decline. The cost of experts is a huge reason as well. And the liberal use of “Settlement mentors” on the day of trial certainly contributes in a very good way to resolving cases. Recently I was set for trial in Judge Craddick’s department. The matter was contentious and I certainly had no confidence the case would settle. However an excellent settlement mentor spent the entire day working with us, and around 5 pm
that first day of trial we settled the matter. Keep in mind the first few hours are free and then the parties must pay for the services of the settlement mentor. Absolutely well worth the cost if a case can be resolved. I would like to mention that attorneys now regularly take the depositions of medical providers (Doctors) and with proper notice use the deposition transcript or videotape in lieu of live testimony. We have found it to be very effective, a huge cost savings and jurors don’t mind a bit. In a recent trial before Judge Craddick, we presented two doctors by videotaped testimony and it was a huge benefit. Recall those cases in which you schedule your doctor, you get charged a huge sum for the day and you are unable to present the doctor as scheduled. So another big sum charged, to say nothing of the stress. As we all know one of the
most stressful parts of a trial is the work trying to arrange the schedule of witnesses. I will report on my recent jury verdict but please excuse me for not reporting the case name and the name of opposing counsel. Although nothing about the matter is confidential I will not gloat about the verdict. At any rate, I can say it was a jury trial before Judge Craddick. Factually the case involved a vehicle which accidently drove over the curb and into a store, striking and seriously injuring the store owner. The spouse of the injured party witnessed the whole incident and injured herself attempting to pull her husband from beneath the vehicle with the engine still running. By CCP 998 we demand the policy limit of the defendant’s insurance. No response to the demand was made. The case did not resolve at mediation, nor on the first day of
trial with the settlement mentor. The jury returned a verdict in excess of the policy limits. A successful costs bill was filed. After a failed motion for new trial and the start of the appeal process, the case resolved with payment of the full verdict and the full costs. Finally, letâ&#x20AC;&#x2122;s think about finding a new columnist for the Civil Jury Verdicts column. I say that, not because I have any plans to retire soon, but rather because we just might need to find someone who has new ideas on how to obtain information about our civil jury verdicts. In fact I will continue to write the column if that new someone works with me to get the case information. Folks, let me know your thoughts.
IRS Statistics Individuals, including non-attorneys and non-tax professionals are often interested in statistics related to the number of tax cases that are pursued as either a civil matter or criminal prosecution. The first chart indicates the status or disposition of criminal investigations that were initiated. The second chart indicates the source of the crimes for which investigations were completed. The third chart indicates the number of investigations initiated, the number completed, and the number referred for prosecution. Itâ&#x20AC;&#x2122;s interesting to note that 73.74% of the completed investigations are referred for prosecution; 79.9% of those sentenced were also incarcerated; and 96.78% of those who were received indictments or informations were also convicted. Approximately 20% of completed investigations pertain to identity theft.
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Continued from page 6
RobeRt b. Jacobs Mediator • arbitrator
5 Title 18, section 462.001 of the California Code of Regulations
Revenue and Taxation Code § 63.1.
Revenue and Taxation Code § 63.1, subd, (b)(2). 7
Mediator | Arbitrator for Claims Involving: Business Law
ReaL estate Law
Purchase or Sale of Business Breach of Contract Fraud • Nondisclosure Nonpayment Nonperformance Credit Sales Loans • Franchises Family-Owned Business Shareholder, Member or Partnership Disputes
Purchase or Sale of Real Estate Broker • Agent Nuisance • Trespass Undisclosed Defects Leases • Title Defects Partition • Boundaries Family Owned Properties Loans • Deeds of Trust Foreclosure • CC&Rs Encroachments
Contract Issues Construction Defects Early Termination Nonpayment Mechanic’s Liens Change Orders/Extras Progress Payment Disputes Delay Claims Scope of Work Construction Bonds Construction Loans
email Bob7@RBJLaw.com • tel 925-847-8680 www.RBJLaw.com
8 Revenue and Taxation Code § 63.1, subd, (b)(1).
Revenue and Taxation Code § 218
Probate Code § 16246.
State Board letter to County Assessors dated February 29, 2008. 13
Probate Code § 16000
Wood v. American Nat. Bank (1932) 125 Cal.App. 2d 248. 19
Probate Code § 16246.
Probate Code § 16228.
Estate of Gilmaker (1964) 226 Cal. App. 2d 658, 663. 22
Probate Code § 16463.
Weil and Brown, California Practice Guide: Probate, 14:284 (The Rutter Group 2016) 24
Probate Code § 7250
State Board letter to County Assessors dated March 27, 2013. 26
Hassell v . Bird
Continued from page 26 Balboa Island Village Inn, Inc. v. Lemen (2007) 40 Cal.4th 1141.
47 U.S.C. §230(c)(1).
Hassell, supra, 247 Cal.App.4th at 1365.
Id. at 1363.
Coffee Talk Coffee Talk is a regular feature of the Contra Costa Lawyer magazine. We ask a short question related to an upcoming theme and responses are then published in the Contra Costa Lawyer magazine. This month we ask,
What is the benefit the public receives when presidential candidates make their tax returns public?
“Any benefit the public receives “By having to make public one’s “There are various benefits the when a presidential candidate
public receives when a presidential candidate releases his/her tax returns. Specifically, it assists the public to understand where a candidate has vested financial interests. If this is understood, a candidate’s statements during a campaign can be assessed accordingly, and the public can determine if the candidate’s financial interests are potentially the actual basis for some of their statements or positions on policy. Sadly, much of the public is not willing to do such research and relies on the media to relay the information as they prefer it is communicated.
Lisa J. Mendes, Esq. Mendes Law PC
makes their tax returns public is unknown until such returns are reviewed. Everyone is entitled to confidentiality of their tax returns, even presidential candidates. No matter what Donald Trump’s tax returns would disclose, I would not have voted for him, because I don’t believe he is qualified for the office (and I’m a Democrat), but I do not fault him for non-disclosure of his tax returns. As it turns out, there appears to be much more serious stuff with which to fault him. His lies, conflicts of interest, disrespect of others, and his efforts to undo all the good things accomplished by Obama. Let’s all be sure to go see Al Gore’s new movie and keep America safe and beautiful.
Joel Zebrack, Attorney / Mediator
Bankruptcy Law • • • •
Chapters 7/11/13 Individual and Business Bankruptcies Debtor and Creditor Representation Complex Bankruptcy Matters
L A W O F F I C E S O F
David A. Arietta Certified Specialist Bankruptcy Law State Bar of California Board of Legal Specialization
David A. Arietta 700 Ygnacio Valley Rd. Ste. 150, Walnut Creek email@example.com
tax returns, a public official makes further known to what extent he/ she acts out of self-interest. As to the office-holder in question, the extreme degree of his self-interest already has been revealed in myriad other ways. However, seeing the slim percentage (if any) of his gross income which actually is paid in taxes should be useful to lawmakers when implementing “tax reform” and “closing loopholes” as long as those legislators follow their mandates to serve their constituents rather than exercise blind loyalty to the aforesaid office-holder.
Susan L. Aglietti
Three big benefits come to mind. First, when we understand the president’s sources of income and financial entanglements, we illuminate potential conflicts of interest. Second, we better understand his self-interest in policy changes he may pursue. For the third reason I will defer to Richard Nixon who said, ‘People have got to know whether or not their president is a crook.’
Michael F. Peri Attorney at Law
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Low Income Taxpayer Clinic by Matthew Miller Every day tax attorneys are making a difference in the lives of low-income people struggling to live in the Bay Area by volunteering with the Justice & Diversity Center (JDC) of the Bar Association of San Francisco’s Low Income Taxpayer Clinic. Whom are they helping? A monolingual Spanish speaker who receives an IRS letter threatening to seize her assets who cannot read or comprehend the letter; A woman suffering from Early Onset Alzheimer’s Disease, whose only source of income is Social Security Disability Insurance, and who receives an IRS notice proposing to assess $4,000 for unreported income ; A single parent working a minimum-wage job in the Bay Area, struggling to pay rent, whose $5,000 tax refund is withheld by the IRS due to an audit of her tax return. Each of those people was assisted by a volunteer attorney from JDC’s Low Income Taxpayer Clinic (LITC). Thanks to those attorneys, one settled her liability for $100, and the other two received refunds. The JDC’s LITC is one of 140 LITCs in 49 states and the District of Columbia, but one of only six clinics that primarily relies on a volunteer panel of tax professionals to represent its clients. LITCs are independent from the IRS but receive some of their funding from the IRS through the LITC grant program. Each clinic screens prospective clients to confirm that they meet income guidelines and other criteria before agreeing to represent them. In 2015 LITCs throughout the country represented 18,751 taxpayers, obtained $4.3 million dollars in cash refunds, and eliminated $65.4 million in tax liabilities. Additionally, LITC’s held over 3,000 events to educate more than 78,000 low-income and ESL taxpayers.1 It is not just taxpayers with complex financial profiles such as business owners or higher net worth individuals who worry about IRS audits. As a household’s adjusted gross income approaches zero, its likelihood of an audit actually increases. Low-income households are often eligible for the Earned Income Tax Credit (EITC). Due to the high frequency of fraud associated with the EITC, those households are subject to an audit rate of 1.7% versus 32
0.6% for all other households.2 Low-income taxpayers’ abilities to access assistance are compounded by persistent cuts to the IRS’s budget. Congress has slashed the IRS’s budget by 17% -since 2010 (adjusting for inflation), resulting in a 14% reduction in its workforce.3 These cuts affect low-income taxpayers disproportionately as they are more likely to need personal assistance to comply with their tax obligations. Also, the issues most commonly audited on low-income taxpayers’ returns are likely to be conducted through correspondence audits. The IRS has consistently failed to respond in a timely matter to significant amounts of correspondence in recent years due to inadequate funding.4 If taxpayers are unable to resolve their issues administratively, often their only option is to file a petition in the United States Tax Court. Petitions filed by self-represented petitioners account for more than 70% of all U.S. Tax Court petitions.5 The need for qualified legal representation for lowincome taxpayers in the Bay Area is only growing as budget cuts hamstring the IRS and the cost of living in California skyrockets. The JDC LITC provides pro bono legal representation to low-income taxpayers in controversy with the IRS throughout Northern California. Its panel of volunteer attorneys, certified public accounts and enrolled agents provides full-scope representation to its clients in collection matters, exams, and other controversy actions, and represents petitioners in the United States Tax Court. The JDC pre-screens all matters and cases, and provides malpractice insurance to all volunteers. Additionally, its volunteers assist at all United States Tax Court calendar calls in San Francisco, providing limited-scope advice and assistance to selfrepresented petitioners. Volunteering with the JDC LITC is a great opportunity to gain pro bono experience, become more involved in individual cases and represent clients. For experienced professionals, the Clinic provides a way to help someone in need. For more information please email probono@ sfbar.org.
Matthew Miller is the Director and Supervising Attorney at the Low Income Taxpayer Clinic at the Justice & Diversity Center of the Bar Association of San Francisco. He has a decade of experience in tax controversy in both private practice and in legal services, from complex disputes with the Internal Revenue Service to matters involving state and local taxing jurisdictions. He serves on the Executive Committee of the Bay Area Young Tax Lawyers, a standing committee of the Taxation Section of the State Bar of California. Publication 5066, Program Report, January 2017, https://www.irs.gov/pub/ irs-pdf/p5066.pdf, Accessed 2 August 2017.
Greenberg, Scott. The IRS Audited 1.2 Million Households in 2015. Tax Foundation, 31 March 2016, https:// taxfoundation.org/irs-audited-12-million-households-2015/. Accessed 2 August 2017.
Marr, Chuck & Murray, Cecile. IRS Funding Cuts Compromise Taxpayer Service and Weaken Enforcement. Center on Budget and Policy Priorities. 6 April 2016, https://www.cbpp. org/research/federal-tax/irs-fundingcuts-compromise-taxpayer-serviceand-weaken-enforcement#_ftnref13, Accessed 2 August 2017.
Marr, 6 April 2016 (citing “Internal Revenue Service: Observations on IRS’s Operations, Planning, and Resources,” February 27, 2015, http:// www.gao.gov/assets/670/668769.pdf), Accessed 2 August 2017.
Publication 5066, Program Report, January 2017, https://www.irs.gov/ pub/irs-pdf/p5066.pdf, (citing The United States Tax Court and Calendar Call Programs, Panuthos, Hon. Peter J. 68 Tax Law, 439, 440 (Spring 2015), Accessed 2 August 2017.
The August Issue of Contra Costa Lawyer
– Here’s What You Missed The Attorney Athletes Issue
Wally Hesseltine, Contra Costa Ultra Runner by David Pearson Hon. Ed Weil, The Sky Diving Judge by Stephen Nash Margaret Grover, Rowing, Cycling by Inga Miller Fly Casting for Sanity and Excellence by Luis Montes Araceli Ramirez, USTA National Champion by Marcus Brown Chelsea Dunton, Boston Marathon Runner by Christina Weed Adam Carlson, Attorney and Triathlete by Nick Casper Ericka McKenna, National Race Walking Record Holder by Theresa Hurley Six Tips for Workplace Health by Neal Varghis, MD Assumption of Risk Doctrine by Adam Carlson Interview with Rebecca Thompson, Special Counsel for Special Olympics by Samantha Sepehr
Find it online at www.contracostalawyer.cccba.org
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Inducting the Honorable Benjamin T. Reyes II On July 21, the legal community of Contra Costa County came together to welcome the County’s first Filipino American judge, the Honorable Benjamin T. Reyes II. Clockwise from top left, CCCBA Board President, Philip M. Andersen chats with Judge Reyes parents, Benjamin P. Reyes, Sr., and Edita Toledo Reyes. Master of Ceremonies Hon. Joni Hiramoto with Hon. Julian Recana of the Los Angeles County Superior Court. Presiding Judge Jill Fannin administered the Oath of Office. Judge Reyes with his family.
All Section Mixer
On June 21, the Barristers Section hosted CCCBA’s All Section Summer mixer. Pictured upper left, Ken Strongman; Indy Colbath, Mujdah Rahim, and Vanessa Candelaria, Dan Horowitz and Aracelli Ramirez; Kate DiFerrari and Paul Graves; Jeremy Seymour, Katie Chase, Sasha Gibbons, and Kyle Junginger. 34
Upcoming Events | Overview September 14 | Intellectual Property Section Mix, Mingle & MCLE with the Intellectual Property Section Consulting Agreements - Who Owns the IP? more details on page 36
September 15 | Immigration Section Update on Immigration Laws and the Issue of Unaccompanied Minors with Judge Carol A. King (Ret.) more details on page 36
September 28 | Alternate Dispute Resolution Section Mediating with Self-Represented Litigants - 2017 more details on page 37
September 28 | CCCBA BAR FUND BENEFIT in Support of the Social Justice Collaborative more details on page 36
September 30 | Barristers/ Young Lawyers Section Climate Change Hike – Lafayette
October 16 | CCCBA Member Information Program Back By Popular Demand
Maximizing Your Social Security Benefits
more details on page 37
October 17 | CCCBA Membership & Education Committee Practice Management Marketing Workshop: Perfecting Your Pitch more details on page 37
October 19 | CCCBA CCCBA Happy Hour Gathering (Walnut Creek) more details on page 37
October 26 | Alternative Dispute Resolution Section ADR Section Annual Meeting and Luncheon - SAVE THE DATE more details on page 37
November 17 | CCCBA 23rd Annual MCLE Spectacular more details on pages 8 and 39
more details on page 36
October 11 | Women’s Section Women’s Section Annual Scholarship Awards Dinner “The American Bias Towards Explicit “No.”
The Contra Costa County Bar Association certifies that the MCLE activities listed on pages 35-37 have been approved for the specific MCLE credit indicated, by the State Bar of California, Provider #393.
more details on page 36
Did you know? Do you ever wonder what, exactly, the Board of Directors does or what they are discussing at their monthly Board meetings? If so, then good news! Your Board of Directors encourages you to be informed about what it is working on at any given time. All of the regular Board Meetings are open to any of our members, unless the Board is in closed session (and even then the Board conducts everything it can in a public forum). The Board meets every month (except August and December) on the first Wednesday of the month at 5:30 p.m. in the large conference room next to the CCCBA offices. If that is not convenient for you, the Board also keeps archives of each meeting’s agenda and minutes of each meeting on the CCCBA website. http://www.cccba.org/attorney/ about/board-agendas.php
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Sept. 14 | Intellectual Property Section
Mix, Mingle and MCLE with the Intellectual Property Section Consulting Agreements - Who Owns the IP? Speaker: Dr. Alan E. Dow This presentation covers practical aspects of hiring consultants and protecting the intellectual property that they produce for a company, including common pitfalls and how to avoid them.
Sept. 15 | Immigration Section Update on Immigration Laws, the Courts and the Issue of Unaccompanied Minors with Judge Carol A. King (Ret.) Please join the Immigration Section as Judge King presents an overview of the current issues in Immigration Law and discusses how the courts are handling unaccompanied minors in the Immigration, Family and Juvenile courts. Thanks to the ABA for a grant for this program.
After the 5:00 pm presentation, you are invited to attend a hosted cocktail mixer so you can do some mingling as well.
Time: 12 Noon - 1:30 pm
Time: 5:00 pm – 7:00 pm
(Entrance on Court St.)
Location: Kilpatrick Townsend & Stockton LLP, 2175 North California, Suite 600, Walnut Creek, CA
Location: CCC District Attorney’s Office Community Room, 900 Ward St., Martinez MCLE: 1 hour General credit
Sept. 28 | Alternative Dispute Resolution Section
Mediating with Self-Represented Litigants - 2017 Speakers: Hon. Barry Goode Ron Mullin, Esq. Malcolm Sher, Esq. This program is required for mediators wishing to mediate under the Superior Court sponsored ADR program and will be offered once in 2017 by CCCBA. The speakers will discuss the unique challenges of mediating a dispute with one or more self-represented litigants. Bring your own brown bag lunch. Time: 11:45 am – 1:30 pm Location: Wakefield Taylor Courthouse, 725 Court St., Dept. 17, Martinez, CA MCLE: 1 hour General, 0.5 hour Legal Ethics credit
MCLE: 0.5 hour General credit
Cost: Free for Immigration Section members and Judges, $10 CCCBA members, $5 for law students
Register: Online at www.cccba.org/attorney/calendar
Register: Online at www.cccba.org/attorney/calendar
Register: Online at www.cccba.org/attorney/calendar
Sept. 28 | CCCBA
Sept. 30 | Barristers/ Young Lawyers
Oct. 11 | Women’s Section
BAR FUND BENEFIT In Support of the Social Justice Collaborative
Climate Change Hike – Lafayette
Annual Scholarship Awards Dinner The American Bias Towards Explicit “No.”
For the past 29 years, Contra Costa County Bar Association’s BAR FUND has been proudly raising awareness of the need for pro bono legal services for low income members of our community. Each year, CCCBA members come together to learn about and support a worthy group. Time: 5:30 pm – 8:00 pm Location: Lafayette Veteran’s Memorial Center, 3780 Mt. Diablo Blvd., Lafayette, CA Cost: $85 general or $60 for law students; Those who purchase two or more tickets at $125 each will be listed as individual sponsors in the program. Purchase Tickets: Online www.cccba.org/attorney/calendar
Speakers: Jeffrey T. Thayer, Esq. Natasha S. Chee, Esq. Sara Shen—Strategic Earth Consulting Steve Richards—Sustainable Lafayette We will be hiking to the beautiful Russell Peak (1357’) in the Briones Regional Park in Lafayette. The hike is approximately 3 hours long, an easy to moderate, 3.4-mile loop that starts at the Happy Valley Elementary School entrance area. Please bring sufficient water for the hike!
Cost: $10 for ADR Section members, Barristers and Law Students, $15 CCCBA members
Please join us as we honor the 2017 recipients of the Honorable Patricia Herron and the Honorable Ellen James Scholarship and swear in the 2018 Women’s Section Board. Speaker: Suzanne Wertheim—CEO/ Founder Worthwhile Research & Consulting A good number of legal cases require a well-crafted response to the question, “Why didn’t they just say no?” This talk uses the science of linguistic anthropology to demonstrate and explain why.
Time: 9:00 am – 12 Noon
Time: 6:00 pm – 8:30 pm
Location: Meet at Happy Valley Elementary School, 3855 Happy Valley Road, Lafayette, CA
Location: Scott’s Seafood Restaurant, 1333 N. California St., Walnut Creek CA
MCLE: 0.5 hrs. General credit
MCLE: 1 hr. Elimination of Bias credit
Register: Online at www.cccba.org/attorney/calendar
Cost: $60 Women’s Section members & Judges, $55 law students, $65 CCCBA members, $75 non-members. Prices Increase after Sept. 21 Register: Online at www.cccba.org/attorney/calendar
Oct. 16 | CCCBA Member Information
Oct. 17 | CCCBA Membership &
Back By Popular Demand Maximizing Your Social Security Benefits
Practice Management Marketing Workshop: Perfecting Your Pitch
Speakers: John Burns – FSA, CFP, Principal BOS Michelle Soto – CFP, CDFA, Director BOS
Did you ever have the opportunity to introduce yourself, and thought, “I could have done that better?” In this interactive workshop we will work on different ways to strategically introduce yourself for a variety of business and other networking opportunities. You’ll leave this workshop prepared to share your business in the perfect way to let people get to know you, trust you, and like you. Lunch will be served.
Most of us are paying into Social Security but know little about how to maximize our benefits, which can be worth over $1 million for a couple retiring today. The most commonly used strategy of starting benefits at age 62 may not be optimal. Yet, the misperceptions about the program often lead people to make that choice. Lunch included. Time: 12 Noon – 1:30 pm Cost: $15 CCCBA members; $20 non-members
Speaker: Maile Collmer
Time: 12:00 pm – 1:30 pm
Cost: $10 Barristers and Law Student Section members, $15 CCCBA members $15, $30 non-members
RSVP: Online at www.cccba.org/attorney/calendar
Register: Online at www.cccba.org/attorney/calendar
Oct. 26 | Alternative Dispute
Nov. 17 | CCCBA
ADR Section Annual Meeting and Luncheon - SAVE THE DATE Time: 11:00 am - 1:30 pm 11:00 am - Board Meeting 12 Noon - Luncheon and Speaker Miki Kashtan co-founder of Bay Area Nonviolent Communication (BayNVC) Location: To be determined
CCCBA Happy Hour Gathering Corners Tavern, Walnut Creek Join your CCCBA friends for a casual, no-host event, where CCCBA Board Members and Section Leaders gather together with CCCBA members in a relaxed happy hour setting to socialize. Don’t expect anything formal like name tags or check-in tables. Instead come when you can, grab a beverage, and find us on the patio or in the bar area. A gathering of the CCCBA big or small, is typically hard to miss. Time: 4:30 pm – 7:00 pm Location: Corners Tavern 1342 Broadway Plaza, Walnut Creek, CA
Location: CCCBA Conference Rm., 2300 Clayton Road, Suite 510, Concord CA
Location: CCCBA Conference Rm., 2300 Clayton Rd., Suite 510, Concord, CA
Oct. 19 | CCCBA
23rd Annual MCLE Spectacular Time: 8:00 am – 5:30 pm Location: Walnut Creek Marriott Hotel 2355 N. Main St., Walnut Creek, CA MCLE: Up to 8 credits Registration form available in September at www.cccba.org More info: See page 8
MCLE: 1 hr. General MCLE credit Cost: TBD Register: Online at www.cccba.org/attorney/calendar
these Events? Call Anne K. Wolf CCCBA Education and Program Coordinator (925) 370-2540 firstname.lastname@example.org
The MCLE Spectacular is a great way to get the MCLE credits you need for the year. With three general sessions and 13 break out sessions you are sure to find the credits you need.
CONTRA COSTA COUNTY BAR ASSOCIATION CONTRA COSTA LAWYER
Office Suite in Downtown Lafayette
has gone full color! Color Ads at black and white rates through 2017 only: Display Ad Print MEMBER Rates: Full page: 2/3 page: 1/2 page: 1/3 page: 1/6 page: Business card: 1/12 page:
$ 550 $ 500 $ 415 $ 350 $ 215 $ 165 $ 125
Office suite available on ground floor of a prominent legal firm (since 1955) in Lafayette. Two adjoining office rooms, lots of light. Free parking. Access to common kitchen area, conference room, law library, copy & postage machine. Beautiful Creekside setting $1,800/mo. Possible to divide space into 2 offices and rent separately, your choice. To view, ask for Janelle (925) 283-6816.
BEAUTIFUL WALNUT CREEK OFFICE SPACE AVAILABLE
Call Carole Lucido at (925) 370-2542 or email email@example.com.
Beautiful offices w/ 7 solos. Networking poss. Single story converted house w/ pillars, built in’s, FP, molding, kit., conf rm, lg treed rear deck, etc. Corner w/ skylight & built-ins. Perfect for working hard and relaxing at end of long day! Very congenial. No smoking. Call Paul at (925) 938-8990.
Probate paralegal to attorneys Joanne C. McCarthy. 2204 Concord Blvd. Concord, CA 94520. Call (925) 689-9244.
CONFERENCE ROOM AVAILABLE
advertisers index Acuna Regli . . . . . . . . . . . . . . . . . . . . . 10
Mitchell & Mitchell Insurance . . . . . . . . 7
ADR Services . . . . . . . . . . . . . . . . . . . 28
Morrill Law Firm . . . . . . . . . . . . . . . . . 24
David A. Arietta . . . . . . . . . . . . . . . . . 30
Novak Wealth Management . . . . . . . . . 2
Barr & Young Attorneys . . . . . . . . . . . 29
David B. Pastor . . . . . . . . . . . . . . . . . 310
Bray & Greenwood . . . . . . . . . . . . . . . 21
Pedder, Hesseltine, Walker & Toth, LLP . . . . . . . . . . . . . . . . . . . 6, 21
Diablo Valley Reporting Services . . . . 40 First Republic Bank . . . . . . . . . . . . . . . 18 Robert B. Jacobs . . . . . . . . . . . . . . . . . 30 JAMS ADR . . . . . . . . . . . . . . . . . . . . . . 16 Landmark Valuation . . . . . . . . . . . . . . 10 Lenczowski Law Offices . . . . . . . . . . . 19
CCCBA members receive a discount on renting the conference room at the CCCBA office in Concord. Rent by the hour or by the day for client meetings, negotiations or other small group sessions. Convenient location near Concord BART. For information contact Barbara Arsedo at the Contra Costa County Bar Association at (925) 370-2544 or firstname.lastname@example.org.
Candice Stoddard . . . . . . . . . . . . . . . . 19
Trustcare Fiduciary Services . . . . . . . . 17
CCCBA members are eligible for free notary service at the CCCBA office in Concord. Contact Carole Lucido at (925) 370-2542 or email@example.com or Barbara Arsedo at (925) 370-2544 or firstname.lastname@example.org for an appointment.
Lisa M. West . . . . . . . . . . . . . . . . . . . . . 5 Michael J. Young . . . . . . . . . . . . . . . . . 27 Youngman Ericsson Scott . . . . . . . . . . 25 Zandonella Reporting Service . . . . . . 15
Bar Fund Benefit Thursday, September 28, 29017
Lafayette Veteran’s Memorial Center | 5:30 - 8 pm 3780 Mt. Diablo Blvd., Lafayerte Thank you to our sponsors
in support of
Archer Norris CCCBA Estate Planning & Probate Section
GOLD Acuña Regli Buchman Provine Brothers Smith LLP Casper Meadows Schwartz & Cook CEB silver Bramson, Plutzik, Mahler & Birkhaeuser LLP Ferber Law Kathleen Hunt, Unique Law JAMS Littler Mendelson PC McNamara, Ney, Beatty, Slattery, Borges & Ambacher
Funds raised at the BAR FUND BENEFIT will support the Social Justice Collaborative, assisting non-citizens who are unaccompanied minors, refugees, seeking asylum or victims of crime
Master of Ceremonies
Single Ticket Price: $85 Law Students: $60 Individual Sponsor: $125*
by September 25, 2017
Use the RSVP Card (right) or Buy Online at www.cccba.org/calendar
or scan this with your smart phone
*Support the BAR FUND as an Individual Sponsor when you purchase two or more tickets at $125 each
In Kind Sponsors Bundts and Crumpets Specialty Tea Leoni Law Calicraft Brewing Company
Mr. | Mrs. | Ms.:
Michelle Griego, News Anchor KPIX CBS5
Miller Starr Regalia The Mullin Law Firm Robert Half Legal The Law Office of Alexander G. van Broek Whiting, Fallon, Ross & Abel LLP
Will Attend. Please reserve (number of) tickets at $85 per person; $60 for Law Student Members. (Please list additional guest names on the back of this card.) Will Attend as an Individual Sponsor. Please reserve (number of) tickets at $125 per person. (Purchase two or more to be listed on the program.) Would like to Contribute $
to Social Justice Collaborative (SJC)
Please charge to my:
Check Enclosed (made payable to “SJC”) Your contributions are tax-deductible | Tax ID #45-5556421 Social Justice Collaborative
Deposition Reporting in Contra Costa County since 1986
Trusted with the Bay Area’s most complex cases, Diablo Valley Reporting Services has been part of the legal landscape for more than 30 years. Contra Costa County attorneys have come to rely on DVRS as a firm that is large enough to handle the most challenging cases, but small enough to provide the utmost in personal and professional service. • • • • • •
Proud to Partner with Some of the Area’s Best Certified Shorthand Reporters Leading Technology Personal Service and Delivery Deposition Suites and Conference Rooms Available Centrally Located in Downtown Walnut Creek, near BART A Loyal Supporter of the Contra Costa County Bar Association for Three Decades
2121 N. California Blvd., Suite 290, Walnut Creek, CA 94596 • email@example.com
DIABLO VALLEY REPORTING SERVICES