KOSTELANETZ LLP 2022 PRO BONO REPORT

KOSTELANETZ LLP

2022 PRO BONO REPORT

Kostelanetz LLP has a deep-rooted history of helping the underserved through pro bono legal work. We are passionate in our belief that pro bono service is a vital commitment for all law firms. During 2022, our boutique law firm contributed over $2 million in pro bono work.

The New York State Bar Association’s New York Code of Professional Responsibility and the District of Columbia Bar’s Rules of Professional Conduct both encourage attorneys, regardless of their professional workload, to devote at least 50 hours of their time each year to pro bono service. As a firm, we have more than doubled the bar’s aspirations. In 2022, we devoted 125 pro bono hours per lawyer who billed over 1,000 hours. Our partners averaged over 100 hours of their own pro bono service. And well over 20% of our current full-time lawyers exceeded the bar’s goal by over 300% in 2022.

We devote much more than these professional codes’ recommendations for pro bono service because we take to heart, and strive to alleviate to the very best of our ability, the acute need for pro bono services in both New York and Washington, D.C., as well as in other areas of the country.

Some law firms allocate a limited number of hours to a pro bono matter, after which they cease work, abandoning a client mid-matter. Kostelanetz, by contrast, has represented pro bono clients through completion of their cases, even when this required us to undertake appellate work.

By the Numbers

Total pro bono hours: 3,316

Total pro bono dollar value: $2,085,373

92%

During 2022, our boutique law firm contributed over $2 million in pro bono work of Kostelanetz attorneys* devoted time to pro bono matters:

Attorney pro bono hours: $1,860,370 2,634 $84,562

Attorney pro bono work dollar value: Average amount of work dollar value per current full-time attorney:

21 paralegals** devoted time to pro bono matters:

Paralegal pro bono hours: 682

Paralegal pro bono dollar work value: $225,003

*Number of attorneys with pro bono time in 2022 divided by number of our partners, counsel, and associates. **All 21 paralegals who rotated through the two-year Kostelanetz Pre-Law Paralegal Program in 2022 participated. Some paralegals who participated have matriculated to law school.

TAX CONTROVERSY

KOSTELANETZ’S

COMPREHENSIVE PRO BONO SERVICE

REPRESENTING INDIGENT

TAXPAYERS IN CIVIL TAX CONTROVERSIES

To give back to the tax community, our firm helps indigent taxpayers involved in tax controversies with the IRS through our involvement in numerous programs organized for this purpose. We also represent clients who come to us individually, and we provide pro bono tax planning advice to charitable organizations.

Pro Bono Tax Programs New York County Lawyers Association Tax Court Calendar Call Program

An astonishing approximately 86% of cases petitioned to the Tax Court involve pro se taxpayers. These self-represented taxpayers are disadvantaged because they are unfamiliar with the Tax Court’s Rules of Practice and Procedure, the Federal Rules of Evidence, and the nuances of negotiating with the IRS. Our attorneys volunteered throughout the year at Tax Court calendar calls, the first days of Tax Court trial sessions, to help these pro se petitioners navigate the unfamiliar process of calendar calls, help them assess the merits of their cases, and assist them in evaluating any settlement proposals from the IRS. We also mediated between the parties in an effort to resolve particular cases. In addition, our attorneys provided procedural advice to pro se petitioners who ultimately decided to proceed to trial, and we sometimes took on a case for trial or briefing. Kostelanetz sponsored the calendar call program in December 2022, providing breakfast and lunch for all the volunteer attorneys. Four Kostelanetz attorneys and two paralegals participated in that particular calendar call.

After Innocence Exoneree Tax Relief Act Project

Our firm supports this organization’s efforts to assist exonerated federal defendants who mistakenly paid taxes on awards of money in recompense for their wrongful incarceration. In 2015, Congress clarified that compensation paid to an exoneree for wrongful incarceration was not taxable, but many exonerees had previously paid taxes on their awards. Congress provided only for a one-time chance to claim a refund of taxes mistakenly paid, only if an exoneree filed the claim within the following year. The majority of exonerees had no notice of this opportunity, but After Innocence’s efforts led Congress in 2018 to re-open the refund filing deadline for exonerees.

An example of a client whom we continued to represent after the calendar call was a retiree living on a fixed income. We challenged an IRS proposed assessment of taxes against him, and successfully resolved the case, significantly reducing this assessment and negotiating an abatement of all penalties.

In 2015, Congress clarified that compensation paid to an exoneree for wrongful incarceration was not taxable, but many exonerees had previously paid taxes on their awards.

Through After Innocence, Kostelanetz lawyers in 2022 helped assist members of the largely forgotten population of military service-member exonerees. In one case, Kostelanetz represented a former member of the military convicted of a sexual assault offense that was overturned on appeal in 2017. In 2018, he was awarded a settlement for his wrongful imprisonment, but the military wrongly withheld taxes as if this settlement constituted wages. The taxpayer then made mistakes in filing an amended 2018 return trying to rectify this IRS error, but without any professional advice. Kostelanetz worked in 2022,

and continues to work, to correct these cumulative errors and have the IRS issue a refund of taxes.

Kostelanetz represented another wrongfully incarcerated exoneree who was still seeking a tax refund on non-taxable compensation she received in 2016. The case was complicated because the IRS had issued a refund check to the exoneree’s ex-husband, although this was not cashed.

Kostelanetz attorneys sought help from the IRS Taxpayer Advocate Service to have the refund check reissued in the taxpayer’s name only.

Through After Innocence, Kostelanetz lawyers in 2022 helped assist members of the largely forgotten population of military service-member exonerees.

The IRS Volunteer Income Tax Assistance (VITA) program

Kostelanetz attorneys participated in this program, which offers free tax help to people with low incomes, people with disabilities, the elderly, limited English speaking taxpayers, and members of the military who need assistance in preparing their own tax returns. Kostelanetz attorneys worked to update VITA’s State Tax Guide specifically addressing military issues to ensure that volunteer tax return preparers are giving current advice to military taxpayers who need assistance.

Individual Pro Bono Tax Clients

Kostelanetz represented, and continues to represent, a taxpayer claiming that she was an innocent spouse not subject to IRS tax and penalties because she was abused by her spouse. Kostelanetz assisted her in extensive briefing requested by the U.S. Tax Court about an issue of first impression in that court on whether new provisions in the Taxpayer First Act allow the IRS to admit evidence at trial that was not in the administrative record available at the time the IRS denied the client’s claim. We argued that this evidence should not be admitted. The Tax Court is still considering this issue. If the court rules against our client’s position, we will explore settling the case, or prepare a post-trial memorandum organizing the evidence and advocating for relief. We will follow the case to its completion, ultimately helping the client with IRS collection issues if that becomes necessary.

Our attorneys represented the founder of a nonprofit that offers community-based services to families living in public housing below the federal poverty level. This individual was the subject of a criminal investigation by the New York County District Attorney’s Office into personal tax matters. We negotiated a non-prosecution agreement between the D.A.’s office, the client, and the nonprofit, and we are continuing to help the client and the nonprofit fulfill the conditions of that agreement.

Kostelanetz attorneys represented an individual in the Maryland Tax Court, challenging on due process grounds the State of Maryland’s refusal to recognize the foreign earned income exclusion that applies in federal cases in calculating adjusted gross income subject to state tax. We are still involved in this matter, which is currently on appeal to the Maryland Circuit Court.

Pro Bono Tax Planning

Our attorneys not only represented clients involved in active tax controversies, but also offered free tax planning advice to nonprofit entities.

New York Yearly Meeting of the Religious Society of Friends

Kostelanetz attorneys assisted the New York Yearly Meeting of the Religious Society of Friends (or Quakers), a nonprofit charitable organization, with administration of a trust originating from an individual’s will dating from 1821, as well as with classifying their various philanthropic funds as trusts, endowments, or quasi-endowments and addressing the legal implications of those classifications.

The Poetry Society of America

Kostelanetz attorneys advised another pro bono tax planning client, the Poetry Society of America, in connection with establishing a policy regarding appropriation of longstanding, small endowments to use as expenditures, and seeking donor approval wherever possible.

Our attorneys not only represented clients involved in active tax controversies, but also offered free tax planning advice to nonprofit entities.

NON-TAX PRO BONO WORK

Civil Litigation

Human Services Council of New York

Kostelanetz lawyers represented in 2022, and continue to represent, the Human Services Council of New York (HSC) in a lawsuit pending in federal district court in Manhattan. HSC’s members are 170 nonprofit organizations that receive City funding through contracts to provide social services to New York City residents. HSC is challenging New York City Local Law 87 of 2021, a labor relations law that undermines the City’s critical social services safety net by requiring union leaders’ signatures on forms that these nonprofits must file with the City. Failure to obtain those signatures could result in a nonprofit losing its contract with the City. While HSC generally supports unions, Local Law 87 gives unions unwonted and almost complete control over which organizations will provide social services to the City; union leaders can refuse to sign the forms without giving any reason for their refusal.

The law was touted by former mayor Bill de Blasio as promoting union organizing, but, in reality, it jeopardizes jobs and the City’s safety net. Nonprofits that provide social services to New York City’s needy are at risk because union leaders can unilaterally place nonprofits in violation of the requirements for contracts if a union leader refuses to sign them.

HSC’s principal claim is that the Law is preempted by federal labor law. In response to the court’s concerns about whether HSC itself has standing to challenge the Law, we filed an amended complaint containing additional allegations confirming HSC’s interest in the matter, and adding ten individual nonprofits as plaintiffs, nine of which are HSC members. We are confident that, with the addition of these ten aggrieved organizations, the issues raised about HSC’s standing will be put aside, and the case will proceed to the merits. The City’s motion to dismiss the amended complaint, which we opposed in papers filed in 2022, is pending before the court.

Kostelanetz lawyers represented in 2022, and continue to represent, the Human Services Council of New York (HSC) in a lawsuit pending in federal district court in Manhattan.

“HSC is proud to recognize Claude Millman and Kostelanetz LLP’s immense contribution to the human services sector through their work with us on Local Law 87.”

HSC’s Public Recognition of Partner Claude M. Millman’s Service

Kostelanetz partner Claude M. Millman, HSC’s primary counsel in its lawsuit against the City, was one of two “Changemakers of New York” honorees at the Human Services Council Annual Gala on December 7, 2022.

In the HSC’s words:

Each year, HSC’s Changemakers of New York Benefit honors exceptional New Yorkers and New York-based institutions who have truly made a difference for our city’s nonprofits. HSC is proud to recognize Claude Millman and Kostelanetz LLP’s immense contribution to the human services sector through their work with us on Local Law 87. The human services sector was greatly concerned with the way this law might impact their ability to provide their critical services to New Yorkers every day.

The work Claude and the team at Kostelanetz LLP have done to represent HSC and our members on this issue is something the sector greatly appreciates. HSC believes in a vibrant and financially sound system for delivering human services that allows nonprofits the flexibility to be innovative and offers room to take related financial risk is necessary to improve nonprofit effectiveness and this work on Local Law 87 helps us continue to ensure this becomes a reality.

AMICUS BRIEF FILED WITH THE UNITED STATES SUPREME COURT

American College of Tax Counsel

Kostelanetz lawyers drafted and filed an amicus brief with the United States Supreme Court on behalf of the American College of Tax Counsel, supporting the petitioner’s request that the Supreme Court reverse a decision by the Fifth Circuit Court of Appeals that applied multiple penalties per year for the non-willful failure to file a Report of Foreign Bank and Financial Accounts (“FBAR”).

The issue in the case is whether the FBAR Bank Secrecy Act subjects a U.S. person to a single penalty for the non-willful failure to file an annual FBAR (the per form approach), or imposes separate non-willful penalties for each account that was not reported on the FBAR (the per account approach). The College’s brief explains how the IRS has taken inconsistent positions over the years on this issue in its publications and administrative guidance. Kostelanetz partner Caroline Ciraolo, primary counsel for the College on the amicus brief, explained: “U.S. persons are entitled to clear, unambiguous, and reasonable interpretations of penalty statutes.” But the Fifth Circuit opinion is in direct conflict with an opinion from the Ninth Circuit Court of Appeals and decisions from other

lower courts, creating uncertainty for U.S. persons about penalties that could be assessed against them. The College’s brief asks the Supreme Court to adopt the per form approach. According to the College’s President, Armando Gomez: “Reason dictates that a non-willful ‘violation’ refers to a failure to timely file an accurate FBAR, not to each separate failure on a single FBAR. When the Ninth Circuit Court of Appeals issued its opinion adopting the per form approach, the Court of Appeals cited favorably an amicus brief filed by the College in that case that pointed out the conflicting guidance from the IRS.” Kostelanetz drafted and filed that earlier brief. Caroline Ciraolo explained how unreasonable the result of the per account approach can be: “The per account approach to non-willful FBAR penalties adopted by the Fifth Circuit results in penalties that can grossly exceed the penalties applied to taxpayers who willfully and intentionally violated their legal duty to file an accurate FBAR.”

“U.S. persons are entitled to clear, unambiguous, and reasonable interpretations of penalty statutes.”

PRO BONO GENERAL COUNSEL

Public Agenda

Kostelanetz assisted Public Agenda, a nonprofit organization that strives to strengthen democracy in the U.S. through nonpartisan research and public engagement, by striving to give a democratic voice to communities across the country, as well as to engage diverse constituents, including government agencies. Kostelanetz partner Claude M. Millman serves on Public Agenda’s board of directors.

CIVIL PRO BONO WORK THROUGH LEGAL ORGANIZATIONS

Law Firm Anti-Racism Alliance

Kostelanetz is proud to have joined forces with other law firms across the country to combat systemic racism as a member of the Law Firm Anti-Racism Alliance (LFAA), which provides pro bono counsel in concert with legal services organizations focused on identifying and combating systemic racism.

As the LFAA states: “Through the collaborative effort of more than 300 law firms, Alliance Firms have access to the LFAA Bulletin Board, a virtual community allowing them to identify and volunteer for pro bono opportunities that target racial injustice in the law. Together we learn from and support legal service organizations and community leaders who are on the frontlines challenging racial inequity and, most important, we strive to amplify the voices of Black, Indigenous and People of Color communities who are at the center of our work.”

In keeping with this aim, the Alliance is an opportunity for Kostelanetz to continue our firm’s long history of pro bono work by contributing our attorneys’ litigation and tax skills to help break the cycle of racism that causes profound inequality and injustice throughout our society, including in the tax system. Kostelanetz is a member of the LFAA’s Tax System Working Group, and one of our attorneys, as an LFAA liaison, has been working on a report to be published in 2023 on how to increase diversity and inclusion in the tax bar.

In 2022, that same Kostelanetz attorney supervised our summer associates on an LFAA project for which we wrote a report for an organization, the “Movement for Family Power,” whose mission is to curtail foster systems’ inflexible policies that result in unnecessary forced family separations. The report analyzed current caselaw regarding qualified immunity for employees of government child protective services who engage in wrongful or even criminal acts.

Advisory Board to the Archdiocese of New York

A Kostelanetz partner serves on an advisory board that investigates allegations of clergy sexual abuse of minors, and advises the Archbishop of New York in his assessment of these claims.

Kostelanetz is proud to have joined forces with other law firms across the country to combat systemic racism.

CRIMINAL OR QUASI-CRIMINAL MATTERS

National Association of Criminal Defense Lawyers Virginia Redemption Project

The Virginia Redemption Project recruits pro bono counsel to help inmates serving overly harsh sentences in Virginia’s prisons. Kostelanetz lawyers represented, and continue to represent, an inmate who is serving 34 years for drug distribution, but the length of this sentence may be because of the client’s prior convictions for non-violent drug offenses. Our attorneys are assisting the client in preparing a petition to the governor of Virginia for a conditional pardon, which permits the governor to reduce an inmate’s sentence when the governor is persuaded that the sentence is overly harsh.

Maryland Federal Public Defender’s Office

Kostelanetz attorneys assisted the Federal Public Defender in Maryland to address a novel criminal tax charge based on the receipt of life insurance proceeds.

Compassionate Release under the First Step Act

Working with the National Association of Criminal Defense Lawyers and the New York Federal Defenders, Kostelanetz attorneys sought compassionate release in the District of Nebraska and the Southern District of New York for prison inmates facing COVID-19 risks.