You are getting on in years, are the founder of a successful business, and are starting to think about the next phase of your life and retiring.  Maybe you are just getting tired of the daily grind and would like to travel or spend more leisure time with grandchildren. Or perhaps you or your business partner has had a recent, serious health issue, or an unsolicited offer to buy the business has been made, or worse yet, you have lost a partner or a key employee who you always expected would take over and buy you out when you were ready.  Up to now, you haven’t had the inclination or the time to give any serious thought to planning this transition.  But now that events beyond your control have intervened and forced the issue, you feel unprepared and ill-equipped to address this pressing situation.  If this is you, you are not alone.

The fact is that over ninety percent of business owners do not engage in any advance planning at all for the succession of their businesses.  Rather, some external event like those listed above typically triggers a hastily executed plan resulting in unexpected, immediate and significant change that too often precludes the ability to transition the business in an optimal manner to the benefit of the business and you and your family, both from a personal and a financial perspective.  A fire sale is never for fair market value.

The good news is that this scenario is completely avoidable with the assistance of a competent business attorney with the experience and skill needed to develop a succession plan that is tailored to your business and your needs so that you have peace of mind and a plan in place that will be ready for execution when the time arises – for whatever reason.

A team approach to the planning process is best, with the business attorney acting as the quarterback, assembling the working group consisting of your accountant, estate planning counsel, investment advisor, banker, insurance agent and other trusted advisors as required for your particular situation.

The first order of business is to understand your vision for your future and that of the business, and to value the business.  Part of this process also will be to identify and address any deficiencies in the business’s organizational structure and management team so that you and your business are optimally positioned for transition, whether by a sale of your interest to a family member, a key employee or management group, to all employees in an ESOP transaction or to an unrelated third party down the road.

The planning process includes an unbiased review of all aspects of the business to position it for transition, including its operations, finances and management, including identifying and fixing, well in advance of the intended transition date, all impediments to an optimal buy out for you as owner.  In a family owned business, this process usually also includes identifying family members who are likely successors and providing experiential training and promotion strategies for them to assure that they will have the necessary skill set to take over when the time comes.  The sooner this analysis is undertaken and implemented, the better – to make certain that you have the time to take advantage of existing tax planning opportunities to transfer ownership to your heirs at an affordable cost.

So take heart – you still have time.  With proper succession planning, you can maximize your financial return for your life’s work by positioning your business properly for an orderly transfer with the least disruption possible at the proper time; you can then leave the world of work secure in the knowledge that your business will continue to grow and flourish.

Carol Maue is a partner and chair of the Business Law Group at Boylan Code LLP, concentrating her practice in business and finance, intellectual property and employment law matters. She can be reached by email at cmaue@boylancode.com. Boylan Code offices are located in Canandaigua, Newark and Rochester. This article is not legal advice.

To read the published article in the Daily Messenger, click here.

Is Your Business Ready for Your Departure?

On Thursday, November 2, 2017, the House Ways and Means Committee revealed its 429-page “simplification” of the Internal Revenue Code (“Code”). This article will attempt to summarize the proposed bill and we will follow up from time to time to as the bill winds its way through Congress.

First a warning:  If history is any guide, there will be numerous changes and compromises along the way, so one should be careful about making any major moves based on these proposals.  History dictates that it’s better to watch and wait to see how the dust settles, but keeping up on the basic changes is good preparation for that day.

On the individual front, the proposal eliminates itemized personal deductions, except for charitable donations, property taxes (though limited, as discussed below) and the residential mortgage interest deduction.  Only the interest on mortgages of up to $500,000 (down from $1,000,000) will be deductible and it will be available only for primary residences. The proposal nearly doubles the standard deduction to $12,000 ($24,000 for married couples) and eliminates personal exemptions as well as itemized deductions. The elimination of itemized deductions will hit residents of certain states like NY very hard because it will eliminate deductions for state and local taxes. However, the plan does add increase the family tax credit from $1,000 to $1,600 for a qualifying child and a $300 tax credit for any other dependent who is not a qualifying child. Oddly, the $300 tax credit would be eliminated in five years.

Initially, Trump’s proposal eliminated the deduction for local property taxes. However, this new plan caps property tax deductions to $10,000. It is also important to note that the plan completely proposes eliminating medical expense deduction. Currently, to deduct medical expenses, the expenses must be in excess of 10% of adjusted gross income. This proposal would eliminate all medical expense deductions, including those substantial expense deductions for older taxpayers who are in nursing homes or similar facilities. Gone are also deductions for student loan interest. Currently, there exists $1.3 trillion in student loan debt. The elimination of the interest on that debt would disproportionately affect the middle class.

The plan also reduces the current seven income tax brackets to four: 12%, 25%, 35% and 39.6%. This plan increases the lowest tax bracket by 2% and while the highest bracket stays the same, the threshold is increased from $470,700 to $1,000,000. Due to the condensing of the brackets, some taxpayers could actually be pushed into a higher bracket as well as losing the benefit of lower marginal tax rates, effectively increasing taxes for some.

Additionally, the plan contains the elimination of certain taxes.  The most sweeping of those changes would be the repeal of the Alternative Minimum Tax (“AMT”), and elimination of the Federal Estate Tax. The AMT, a “shadow” income tax, has only been indexed to inflation since 2013; a tax that initially only affected 155 households now is paid by millions. The Federal Estate Tax, while it affects only 0.2% of U.S. households, contributes a substantial amount to the treasury. The current exemption amount for a married couple is $10.9 million, meaning that only estates worth in excess of that amount trigger the Federal Estate Tax.  This plan would increase the exemption to $10,000,000 for single persons, and presumably $20,000,000 for married couples. The plan then proposes to eliminate the Federal Estate Tax completely after six years. You can expect much political infighting over both proposals.

The corporate tax rate, currently at 35%, is cut to 20% under this plan. While it is true that the US has one of the highest marginal rates in the world, virtually no corporation actually pays that rate. The average effective tax rate of corporations is 27.1% compared to the average tax rate of 27.7% from 30 other countries within the Organization for Economic Cooperation and Development (“OECD”). When looking at top US companies, the average effective tax rate is just 19.4%. It’s noteworthy that many top companies pay higher effective taxes in foreign countries than they do in the United States. It’s also worth mentioning that approximately 35% of all stocks are owned by foreign investors and according to Steven Rosenthal, a senior fellow at the Urban-Brookings Tax Policy Center, the 15% cut would cause approximately $70 billion per year to flow out of the United States and into the hands of these foreign investors.

In addition to all of this, one other provision with substantial consequences to the investment community is a proposal of a one-time “repatriation” tax of 12%, payable over eight years.  Many large U.S. companies (think Microsoft, Apple, Google, many pharmaceutical companies, etc.) earn substantial revenue overseas, where it is held untaxed by the U.S. until the money is brought back, “repatriated,” to the U.S. Currently, there is over $2 trillion held overseas by US companies.  Instead of repatriating the money now and paying a 35% tax, companies would now pay just 12% to repatriate the money. However, the plan does propose a substantial, and rather unexpected, change in that companies would be subjected to a 10% tax on their future worldwide income, whether or not the money is kept overseas.

The plan also calls for the elimination of most business deductions and credits, except the research and development credit; this includes an elimination of the interest deduction for businesses. However, it appears that companies with revenue less than $5 million will still be able to deduct interest on loans. Companies will also be allowed to immediately expense “qualified property” meaning that a company will no longer be required to depreciate an asset over a prescribed number of years; qualified property does not include buildings. Therefore, a business will not be able to buy a building and take a deduction for the full value of the building. However, this immediate expensing proposal has a five-year sunset provision, meaning it would end in 2023.

In Trump’s proposal, many questions arise as to how “pass-through” entities would be treated. Examples of pass-through entities are Limited Liability Companies (“LLCs”), “S” Corps, sole proprietorships and partnerships. What they have in common is that the entity bears no separate (corporate) tax, but rather the income is “passed through” and taxed on the owners individual income tax returns. Trump had proposed cutting the rates on pass through “business income” to as low as 15%. However, numerous complications arise with this plan and we don’t believe that any substantial planning should be done with this proposal in mind until the outlines become a great deal clearer.

A rather troubling provision is a proposal that implicitly repeals the Johnson Amendment to the Code which prohibited all tax-exempt entities from endorsing and opposing political candidates and engaging in political speech. The new plan removes the restrictions of the Johnson Amendment for only religious institutions. Thus, religious institutions, under this bill would be allowed to engage in political speech without risking their tax-exempt status. However, non-religious tax-exempt entities would risk losing their tax-exempt status if they were to engage in political speech.

Cutting across all of this is – no surprise – politics.  Many economists, from both major political parties, have taken quick note that the proposal is clearly not “revenue neutral,” and that there is not even any general proposal as to how the reduction in Federal revenue collections would be offset. Initial calculations show that this plan will add approximately $1.5 trillion to the federal debt over ten years. To put that into perspective, this plan increases the federal debt by approximately $1 million every three and a half minutes.

Given the recent failure to repeal and replace the Affordable Care Act (“Obamacare” or “ACA”), even the most optimistic observers (except the President) do not believe that it will be possible to pass a new tax bill by the end of 2017. More likely, if tax reform does happen, it will likely not pass until 2018, just in time for midterm elections.  We’ll attempt to follow the tortured path and keep you posted on some changes that may have impact on your business and personal tax planning.

Written by: Sherman F. Levey, Esq. and Jason W. Klimek, Esq., Boylan Code LLP

To read the published article in the Rochester Business Journal, click here. For the Daily Record column, click here.

The Revenue Act of 2017? 2018?

On what began as a regular Sunday afternoon on October 15th, Rochester experienced another one of its famous spontaneous whirlwind rain storms. One second, sunshine and blue skies, the next, a wind storm that pulled trees out of the ground and sent branches flying. Its terrible force even caused my home and many others to lose electricity for multiple hours. Driving to work early Monday morning I saw the power lines down due to fallen trees, and that was not the only place trees fell. All over the area property owners had everything from entire trees to little branches littered on their land.

In the wake of this destructive act of Mother Nature many landowners may notice that the tree or branch that was thrown onto their property came from their neighbor’s property. A structure like a fence or barn may have even been damaged as a result. Lucky landowners will have homeowner’s insurance cover the damage, but many less fortunate will not. As these storms are regular in the Rochester area, the common questions posed by property owners are who is going to pay for the damage? What if it had been worse? What can I do to protect my property?

New York State courts have discussed many different areas of law in relation to neighbor disputes about trees. An action in trespass is analyzed by courts as a preliminary matter. The Court of Appeals decided early on in 1985 that a neighbor who allows a healthy tree to grow naturally and cross over into the adjoining owner’s property airspace, “cannot be viewed as an intentional act so as to constitute trespass because overhanging tree branches are not an intentional invasion of adjoining property.” Ivancic v. Olmstead, 66 N.Y.2d 349, 352-353 (1985). This rationale centers on the landowner’s lack of intentional invasion. In other words, because the tree owner has done nothing to actively cause the tree to encroach on another’s property, they have not trespassed on their property.

However, the idea that liability can be escaped as long as no action is taken to invade another’s property only extends so far. Under a negligence action, the same Court in Ivancic held that liability will attach to a landowner whose tree falls outside of his premises causing damage if there exists “actual or constructive knowledge of the defective condition of the tree.” Ivancic, 66 N.Y.2d at 350-351. There are two elements to prove for this type of action: (1) the tree has to be in a defective condition; and (2) the landowners needs to have actual or constructive knowledge of this condition. Therefore, if a perfectly healthy tree is torn from the ground by a windstorm, the landowner is not responsible. Similarly, if a decrepit tree falls during a storm, but the landowner never had constructive or actual knowledge that the tree was decaying, they cannot be held liable.

The Ivancic decision and its offspring of cases are important assets for concerned landowners seeking to protect their homes and those they care about from all types of dangerous conditions. First, as a concerned landowner, it is important to put the neighbor who is harboring a dilapidated tree or other dangerous condition on notice of the condition. Actual knowledge is established when it can be shown that the landowner had literal knowledge of the defective condition. Constructive knowledge can be found where a landowner is presumed to have such knowledge since it is obtainable by the exercise of reasonable care.

This is where attorneys can make a critical difference at minimal cost. If litigation is eventually pursued, any neighbor facing potential liability is going to deny having knowledge of the dangerous condition. Not only can a well drafted letter by an attorney put a difficult neighbor on legal notice, but it may even prompt them to be proactive about liability and remedy the condition. A legal letter is often the best spur to action for a non-responsive neighbor.

Sometimes even protecting your residence in case of future injury is not enough. Concerned property owners may feel that something needs to be done about a condition before the worst happens. In that case, the action to be pursued is one founded in nuisance law. A private nuisance is found by courts when a condition interferes with “the use and enjoyment of land amounting to an injury in relation to a right of ownership in that land.” Turner v. Coppola, 102 Misc. 2d 1043, 1045 (N.Y. Sup. Ct. 1980); citing Kavanagh v. Barber, 131 N.Y. 211 (1892).

In terms of trees, New York law has established that although trees ordinarily are not nuisances, they can be if decayed or otherwise dangerously unsound. Turner, 102 Misc. 2d at 1045; citing Gibson v Denton, 4 App Div 198 (1896). In order to determine this, experts may be required to report on the condition of the tree. Additionally, in a rare case, a nuisance per se can be found when a tree is poisonous or noxious in its nature. Turner, 102 Misc. 2d at 1045. If a strongly worded demand letter is not sufficient, a suit against the offender in an action founded in nuisance can result in an order from the Court that the offending landowner remove the condition immediately.

For those “do-it-yourself” concerned landowners, sometimes self-help is a valid and sufficient remedy. However, I would strongly urge individuals to exercise care before destroying another’s property, even if it is something many would consider valueless.

It has been held that a property owner may resort to self-help in the removal of overhanging tree branches that encroach onto one’s property. Coffey v Gerelli, 2017 N.Y. Misc. LEXIS 2372, *3 (2d Dept. 2017). In a recent case from June of 2017 that went all the way to the Appellate Court in the Second Department, it was held that although a landowner has a right to ordinary trimming and clipping of the overhanging branches onto their property from an adjoining landowner, this right does not extend to destruction or injury to the main support systems of the tree. Coffey, 2017 N.Y. Misc. LEXIS at *3. Further, other cases have found that a property owner may not go beyond the property line to cut or destroy part or all of a tree on the adjoining land unless the tree becomes a private nuisance, due to its rotted and diseased condition. Childers v New York Power & Light Corp., 275 App Div. 133 (3d Dept. 1949).

In fact, some courts have even gone so far as to say that if the facts demonstrate that the landowner “has failed to afford himself of the right to protect his own property by removing the encroaching branches and roots[,] there is no need to have his action proceed in a separate, expensive civil action.” In Re Black, 2002 N.Y. Misc. LEXIS 1442, *9 (NY Sup. Ct.). Language such as this suggests that some judges may require parties to engage in limited and reasonable self-help measures before proceeding to court.

Despite the apparent authority from courts for landowners to take matters into their own hands, the rights and obligations of parties in these situations is often unclear. Often the law depends on very fact specific questions and even determining the property line is not always easy. As a final word of caution, remember to consult a lawyer before pulling out your handy chainsaw.

Robert Marks is a Law Clerk in the Litigation Department at Boylan Code LLP and a recent graduate of the Syracuse College of Law.

To read the published article in the Daily Record, click here.

Timber! Rights and Obligations of Landowners and their Trees

Despite the Fifth Amendment’s protections for private property, no one has free reign to do whatever they want on their property. We live in a civilized society, a nation of laws.  The use of private property is subject to the rights of neighboring landowners and the police power of local government.

Every village, town, and city in the State of New York has the right to adopt a zoning code to regulate the use of private property. Zoning codes divide a municipality into districts in which certain property uses are prohibited, and they may also regulate the look and feel of the property in each district through a variety of regulations, including setbacks, lot coverage, location of accessory structures, and building and fence heights.

If you own property there is a good chance you will end up wanting to do something on your property that is prohibited by your local zoning code. If that happens, you can apply for a variance from the zoning code. Your variance application will be reviewed and decided by your local zoning board of appeals (ZBA).

The process of applying for a variance can be challenging.  As a lawyer and the chairperson of my local ZBA, here are ten tips you can use to successfully navigate your ZBA:

  1. Talk with your planning office: Most municipalities have a planning office. Find yours and start there. Share the plan for your property with them and they will help you determine whether you need a variance.
  2. Identify the kind of variance you need: Variances are divided into two general categories: use variances and area variances. You will need a use variance if you want to use your property in a way that is not permitted in your district. You will need an area variance if your use is permitted, but your project goes beyond the scale of what is permitted. Understanding the differences between the two is essential. Use variances are subject to a much higher legal standard and are much harder to get. The type of variance you need will dictate your strategy before the ZBA.
  3. Consider hiring a lawyer: A lawyer is not required, but use variances are rarely obtained without the help of a lawyer. Area variances are frequently granted to applicants who do not hire a lawyer, but even with area variances a lawyer may still be needed if the project is complex or located within a sensitive district that will be subject to heightened scrutiny, like a major commercial thoroughfare, sensitive steep slope, or lakeshore district.
  4. Know your ZBA: Every ZBA is different. Its members are volunteers appointed by your village or town board, or city council. You owe it to yourself to learn about them. All of their hearings are open to the public. Go and watch a few before your hearing so you can learn how they function.
  5. Know your neighborhood: Even though you may live or operate a business in the neighborhood, spend some time getting to know it from a zoning perspective. Ask your planning office whether similar variances have been granted in the neighborhood. If they have, review the approvals and the minutes from the hearings so you can understand the similarities or differences between the prior applications and yours.
  6. Talk to your neighbors: While the support or opposition of neighbors is not determinative, it is considered. Letters in support of your project, particularly from your nearest neighbors, can be very helpful and may push you over the edge if the ZBA sees it as a close call.
  7. Prepare for your hearing: Every variance application is decided after a public hearing. The ZBA will expect you to succinctly and accurately describe your project, and explain why you need a variance. Be prepared to answer questions. Never assume the hearing is a mere formality or that you are entitled to a variance. Know the law that applies to your specific variance.
  8. Don’t rush the ZBA: The members of your ZBA are dedicated to applying the law and doing what is right for your community. They may have questions or concerns you aren’t prepared to answer, but could with some additional time. Don’t be afraid to ask for an adjournment so you can get additional information. It is better to delay your project for a month than have your application denied.
  9. Show respect: It should go without saying, but show respect to the ZBA and others who may come to comment on your application. Dress appropriately (business casual), stand when you speak, and use appropriate titles when addressing the ZBA (Mr. Smith or Ms. Jones). A little respect goes a long way.
  10. Learn when to revise your project: It is much easier to revise a project before the ZBA denies your variance. If you get a denial, you’ll be facing a long wait before you can reapply. I’ve seen many applicants ask for variances that are well-beyond reasonable and then become upset when their application is denied. If it becomes obvious you have miscalculated and asked for too much, consider asking for more time so you can revise the project and scale back your variance request. Don’t let the perfect become the enemy of the good.

Terence Robinson is a Partner at Boylan Code LLP, a full service law firm with more than fifty legal professionals focused on serving you, the client. Offices are conveniently located in Canandaigua, Newark, and Rochester. This article is not legal advice.

Email: trobinson@boylancode.com

To read the published article in the Daily Messenger, click here.

Navigating Your Local Zoning Board of Appeals

Google processes over 3.5 billion search requests each day. I discovered this information by typing into the Google search bar “How many people use google search?” If I had typed in a question related to a business, I would find myself looking at the search results .75 seconds later. On the right hand side of my screen I would also see the star value of that business’s Google Reviews. With the amount of users that use Google search every day that star value can be the difference between a thriving business and one struggling to survive.

Unfortunately, these Google Reviews can be written by a disgruntled customer or even an anonymous individual who can create a “fake review” about an awful experience that never occurred. Written in a moment of anger or with malice on the mind, these reviews can contain defamatory statements. (more…)

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Most employees in the U.S. are “W-2” workers, who are paid an hourly wage and are covered by the Fair Labor Standards Act, a federal law enacted in 1938. Because of its broad coverage, the Fair Labor Standards Act applies virtually to all hourly employees and all employers.

The FLSA sets minimum standards for minimum wages, overtime pay, record keeping and child labor.  Violations of the FLSA are investigated and enforced by the Department of Labor.  From 2007 to 2011, the DOL conducted 68,644 enforcement actions, found violations in 73% of its investigations and collected back wages for employees from employers totaling $681,151,513.00 or about $13,524.57 per case.  These numbers do not include statutory damages or awards for reimbursement of attorney’s fees. (more…)

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