[Tax & Business Update] MAY 16, 2010 UPDATE
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Gutter Chaves Josepher Rubin Forman Fleisher Law Firm
May 16, 2010, 10:38:10 AM5/16/10
to Tax & Business Update
May 10, 2010
An Electronic Newsletter of Gutter Chaves Josepher Rubin Forman
Fleisher P.A.
Charles (Chuck) Rubin, Editor/Author (except as otherwise noted) ©
******************************
CONTENTS OF THIS NEWSLETTER:
1. TRUSTEE FEES
2. ANOTHER CHINK IN THE ASSET PROTECTION ARMOR?
3. TURNABOUT [FLORIDA]
4. TIDAL WAVE OF EXEMPT ORGANIZATION STATUS REVOCATIONS LOOMS
5. MORE ON EXEMPT ORGANIZATION STATUS REVOCATIONS
6. ABOUT OUR FIRM
******************************
1. TRUSTEE FEES
We are often asked what a reasonable trustee fee is. Like many states,
Florida does not provide a statutory schedule as to what is a
reasonable fee.
One way to get a feel for an appropriate fee is to see what
professional trustees charge. A recent blog posted its survey results
as to current rates being charged by various trustees. The results can
be viewed here.
Near as we can tell, these fees relate to fees charged when the
investment of the trust assets is being handled by someone other than
the trust company. Such investment advisory services can add
materially to the fees being charged.
******************************
2. ANOTHER CHINK IN THE ASSET PROTECTION ARMOR?
A recent federal case involving Florida's creditor protection law is
generating a significant amount of commentary and criticism. While
this case involves Florida creditor protections, the larger question
of federal interests overriding state creditor protections has
relevancy in all states.
In SEC v. Solow, 2010 WL 303959 (S.D. Fla 2010), a federal court
imposed a contempt order on Mr. Solow. Mr. Solow was the subject of a
significant disgorgement order by the SEC. Prior to the imposition of
the order, but clearly in contemplation of SEC and other sanctions,
Mr. Solow engaged in various structuring transactions to move assets
beyond the reach of creditors, including mortgage and transfers of
Florida property owned jointly with his spouse and an offshore trust.
There is little doubt that such transactions were undertaken by Mr.
Solow with the purpose of using creditor protection laws to move
assets beyond the reach of the SEC. However, Mr. Solow made the
argument that he should not be held in contempt for undertaking such
actions, because the SEC could not reach the value of the jointly held
residence under Florida law even before he undertook any of his
transfers since the assets were protected as property held as joint
tenants by the entirety. Generally speaking, property held by a
husband and wife as joint tenants by the entirety cannot be reached by
the creditor of one spouse alone.
The overarching question arising from this case is whether the SEC,
and indeed other federal agencies, have the ability to override state
creditor exemptions, in the same plenary fashion that the IRS has.
There is plenty of language in the opinion to suggest that a federal
court has the equitable power to so override state exemptions, at
least in favor of the SEC. However, there are a number of facts and
circumstances involved in this case that make it unclear whether such
a general rule can be extracted. As I see it, some of these are as
follows:
-This case involves whether a contempt order should be imposed on Mr.
Solow. It does not address the question whether the SEC can get its
hands on the assets themselves which are now presently controlled by
Mrs. Solow and/or an offshore trust. Therefore, while the case may be
precedent for the ability of the court to put Mr. Solow behind bars,
it is questionable whether the case is precedent for the ability of
the federal agency to actually reach the assets in satisfaction of its
disgorgement order.
-The case involves a "disgorgement order." The opinion notes that a
disgorgement order is something different from a creditor judgment.
Therefore, perhaps, the holding of the case is limited to disgorgement
order situations.
-The case involves the SEC. It is unknown whether the law and theory
of the opinion can be extended to other federal agencies, but of
course one could expect those other agencies to try.
-The case involves transfers conducted after Mr. Solow was in hot
water. The court cites heavily to its "equitable" powers in exercising
its contempt powers. An asserted principle of asset protection is that
transfers undertaken before a creditor shows up on the scene are
entitled to significantly more respect under state creditor protection
laws than transfers undertaken to provide specific protection against
a known creditor. This principle is typically applied pursuant to the
concept of "fraudulent conveyance." Thus, the precedential value of
the opinion may be limited to egregious transfers of assets undertaken
in regard to a known creditor, and may not apply towards general
transfers undertaken well in advance of any creditor problems.
-Interestingly, the case makes no reference to the Supremacy Clause of
the US Constitution. Presumably, such a clause would impact greatly on
any actual attempt to collect assets that are otherwise protected
under state law by a federal agency. Its absence here is not
problematic because this again, is not a recovery of assets case but a
contempt case.
To the dismay of the asset protection bar, these type of cases with
bad facts often encourage courts to find a way to reach the right
result. What ends up happening, however, is that case law that arises
in such egregious cases ends up becoming the law for everyone,
including persons not engaging in such egregious conduct. The creation
of such exceptions to statutory and common law creditor protections
tips the balance in favor of creditors and sacrifices the policy
protections in the statutory and common law protections.
SEC v. Solow, 2010 WL 303959 (S.D. Fla 2010)
******************************
3. TURNABOUT [FLORIDA]
Florida attorneys often help their clients use Florida’s homestead
protection to protect assets from claims of creditors pursuant to
Article X, Section 4 of the Florida Constitution. In a recent case,
the client used the homestead protection to stiff his law firm in
regard to their fee.
In the case, a law firm took on a matter to collect homeowners’
insurance proceeds from an insurer on the client’s homestead that
related to hurricane damage. The law firm was successful and was due a
contingent fee from the client. The client terminated the contingent
fee arrangement without payment, so the law firm asserted a charging
lien against the insurance proceeds for its fee.
Under Florida law, if a homestead is damaged through fire, wind or
flood, the proceeds of any insurance recovery are also treated as
homestead property. Since the client could not, through an unsecured
agreement, enter into an enforceable contract to divest himself of his
constitutional homestead protections, the trial court held, and the
appellate court affirmed, that the law firm could not claim a lien in
the insurance proceeds.
This does not mean that the law firm cannot seek to collect its fee
from other assets of the client. But if there are no other assets, the
law firm lost out on its fee even though the client gets to enjoy the
fruits of its labor.
Interestingly, the client was represented by an attorney on this fee
dispute. We hope the attorney got his fee paid in advance or received
a sufficient retainer to cover his fees!
Quiroga v. Citizens Property Insurance Corporation, 3rd DCA, Case No.
3D0-2942
******************************
4. TIDAL WAVE OF EXEMPT ORGANIZATION STATUS REVOCATIONS LOOMS
Most organizations that are exempt from Federal income tax are
required to file a Form 990 or some variation thereof on an annual
basis. Previously, smaller organizations were exempt from the filing
requirements. Smaller organizations can often still file with a short-
form filing on an e-postcard Form 990-N.
The Pension Protection Act of 2006 requires that non-profit
organizations that do not file a required information form for three
consecutive years automatically lose their Federal tax-exempt status.
This requirement has been in effect since the beginning of 2007. See
IR-2010-10, Jan. 21, 2010.
These returns are generally due by May 15 of the year following the
year for which reporting is due for those organizations that are on a
calendar year reporting cycle. This means that a lot of returns are
due soon.
The problem is that there are a tremendous number of non-profits with
exempt status that have not been filing the required Forms 990. If
they do not file (or extend and later timely file) by May 15, this
will be the third year of nonfiling and will likely result in loss of
exempt status. The New York Times, in an April 22, 2010 article,
estimates that the number of organizations that are at risk of losing
their exemptions is over 400,000.
Most larger organizations know of, and comply with, their filing
obligations. Therefore, it is likely that most of the threatened
organizations are smaller organizations. By reason of their small
size, these are the organizations that can least afford the cost of
preparing and submitting new applications to reinstate their exempt
status.
The New York Times article opines that Congress should have only
mandated that the exempt status of these organizations been suspended,
and not revoked. This would make it easier to reinstate them.
Arguably, however, the IRS should have regulatory authority for
providing an expedited method of reinstating the status of these
organizations short of a full application process.
******************************
5. MORE ON EXEMPT ORGANIZATION STATUS REVOCATIONS
Subsequent to the distribution of the above article, the IRS released
a FAQ discusing the issue.
The FAQ did not bring any real relief to taxpayers, but did answer
some questions. Some of the highlights included:
-confirmation that revocation is automatic – that is, the IRS has no
discretion not to revoke.
-confirmation that if revoked, the entity will have to begin filing
regular tax returns, pay applicable federal taxes, and transfers to it
will lose whatever applicable contribution deductions would have been
allowed.
-the revocation is effective as of the filing due date of the third
year (and thus not at the later date when the IRS takes official
action).
-an extension of time to file the applicable Form 990 will stave off
the revocation if the 3rd required return is filed within the allowed
extension.
-a full application process will be needed to reinstate status,
including payment of applicable user fees. If reinstated, the
effective date will be the date of the application, so there may be a
gap “taxable” period between revocation and reinstatement. The
organization can request an effective date back to the date of
revocation, but the request will be granted only if the IRS finds the
organization had “reasonable cause” for not filing the return for the
three consecutive ears.
While not mentioned in the FAQ, note that the revocation of exemption
will also probably affect state and local exemptions that are based on
federal exempt status.
Automatic Revocation of Tax-Exempt Status for Failure to File Annual
Return or Notice – Frequently Asked Questions and Answers, April 27,
2010
******************************
6. ABOUT OUR FIRM
Our firm seeks to preserve and enhance the individual, family and
business wealth of our clients in the following principal practice
areas: Planning to Minimize Taxes (U.S. & International) • Probate &
Trust Litigation • Estate Planning, Charitable, Marital & Succession
Planning • Business Structuring & Transactions • Trusts & Estates
Administration • Tax Controversies • Creditor Protection.
Please visit our website at http://www.floridatax.com for information
about the firm, our attorneys, articles from recent monthly
newsletters, interesting articles and tax guides, and federal and
Florida tax rates and information. The firm and its attorneys have
been recognized in numerous peer rating guides, such as Best Lawyers,
Martindale-Hubbell, Chambers, Who's Who in American Law, Florida
Trend's Legal Elite, Superlawyers, and South Florida Legal Guide Top
Lawyers.
******************************
DAILY TAX AND BUSINESS UPDATES AVAILABLE. View prior articles, updates
that we didn't have room for in this newsletter, or read the above
postings when they are first published, by visiting http://www.rubinontax.blogspot.com.
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Having problems receiving this newsletter? Make sure that the E-mail
address "cru...@floridatax.com" is marked as a friend or otherwise set
to clear your spam filters! Subscribe and unsubscribe instructions
should be located at the end of this message - if not, send subscribe
and unsubscribe instructions to cru...@floridatax.com. To be properly
processed, unsubscribe instructions need to come from the applicable
email address or send instructions to cru...@floridatax.com with the
specific address being unsubscribed.
Feel free to forward this newsletter on to anyone who you think may be
interested.
-----------------------------------------------
The Usual Disclaimer: This newsletter summarizes for informational
purposes only information of interest to the clients and friends of
Gutter Chaves Josepher Rubin Forman Fleisher P.A. The information is
condensed from, and a general summary of, legislation, court
decisions, administrative rulings and other information, and should
not be construed as legal advice or opinion, and is not a substitute
for the advice of counsel.
Gutter Chaves Josepher Rubin Forman Fleisher P.A.
Boca Corporate Center
2101 Corporate Blvd., Suite 107
Boca Raton, Florida 33431
561.998.7847
www.floridatax.com
--
You received this message because you are subscribed to the Google Groups "Tax & Business Update" group, the firm newsletter of Gutter Chaves Josepher Rubin Forman Fleisher P.A.
To unsubscribe from this group, send email to Tax-Business-Up...@googlegroups.com.
To subscribe to this group, send an email to cru...@floridatax.com with the words "Subscribe Newsletter" in the subject line (and optionally, let us know your name and location in the body of the email), OR go to http://groups.google.com/group/Tax-Business-Update and click "Join this Group" and follow the instructions to sign up for the group. Your name and email address will remain confidential.
Comments: Send comments to cru...@floridatax.com
An Electronic Newsletter of Gutter Chaves Josepher Rubin Forman
Fleisher P.A.
Charles (Chuck) Rubin, Editor/Author (except as otherwise noted) ©
******************************
CONTENTS OF THIS NEWSLETTER:
1. TRUSTEE FEES
2. ANOTHER CHINK IN THE ASSET PROTECTION ARMOR?
3. TURNABOUT [FLORIDA]
4. TIDAL WAVE OF EXEMPT ORGANIZATION STATUS REVOCATIONS LOOMS
5. MORE ON EXEMPT ORGANIZATION STATUS REVOCATIONS
6. ABOUT OUR FIRM
******************************
1. TRUSTEE FEES
We are often asked what a reasonable trustee fee is. Like many states,
Florida does not provide a statutory schedule as to what is a
reasonable fee.
One way to get a feel for an appropriate fee is to see what
professional trustees charge. A recent blog posted its survey results
as to current rates being charged by various trustees. The results can
be viewed here.
Near as we can tell, these fees relate to fees charged when the
investment of the trust assets is being handled by someone other than
the trust company. Such investment advisory services can add
materially to the fees being charged.
******************************
2. ANOTHER CHINK IN THE ASSET PROTECTION ARMOR?
A recent federal case involving Florida's creditor protection law is
generating a significant amount of commentary and criticism. While
this case involves Florida creditor protections, the larger question
of federal interests overriding state creditor protections has
relevancy in all states.
In SEC v. Solow, 2010 WL 303959 (S.D. Fla 2010), a federal court
imposed a contempt order on Mr. Solow. Mr. Solow was the subject of a
significant disgorgement order by the SEC. Prior to the imposition of
the order, but clearly in contemplation of SEC and other sanctions,
Mr. Solow engaged in various structuring transactions to move assets
beyond the reach of creditors, including mortgage and transfers of
Florida property owned jointly with his spouse and an offshore trust.
There is little doubt that such transactions were undertaken by Mr.
Solow with the purpose of using creditor protection laws to move
assets beyond the reach of the SEC. However, Mr. Solow made the
argument that he should not be held in contempt for undertaking such
actions, because the SEC could not reach the value of the jointly held
residence under Florida law even before he undertook any of his
transfers since the assets were protected as property held as joint
tenants by the entirety. Generally speaking, property held by a
husband and wife as joint tenants by the entirety cannot be reached by
the creditor of one spouse alone.
The overarching question arising from this case is whether the SEC,
and indeed other federal agencies, have the ability to override state
creditor exemptions, in the same plenary fashion that the IRS has.
There is plenty of language in the opinion to suggest that a federal
court has the equitable power to so override state exemptions, at
least in favor of the SEC. However, there are a number of facts and
circumstances involved in this case that make it unclear whether such
a general rule can be extracted. As I see it, some of these are as
follows:
-This case involves whether a contempt order should be imposed on Mr.
Solow. It does not address the question whether the SEC can get its
hands on the assets themselves which are now presently controlled by
Mrs. Solow and/or an offshore trust. Therefore, while the case may be
precedent for the ability of the court to put Mr. Solow behind bars,
it is questionable whether the case is precedent for the ability of
the federal agency to actually reach the assets in satisfaction of its
disgorgement order.
-The case involves a "disgorgement order." The opinion notes that a
disgorgement order is something different from a creditor judgment.
Therefore, perhaps, the holding of the case is limited to disgorgement
order situations.
-The case involves the SEC. It is unknown whether the law and theory
of the opinion can be extended to other federal agencies, but of
course one could expect those other agencies to try.
-The case involves transfers conducted after Mr. Solow was in hot
water. The court cites heavily to its "equitable" powers in exercising
its contempt powers. An asserted principle of asset protection is that
transfers undertaken before a creditor shows up on the scene are
entitled to significantly more respect under state creditor protection
laws than transfers undertaken to provide specific protection against
a known creditor. This principle is typically applied pursuant to the
concept of "fraudulent conveyance." Thus, the precedential value of
the opinion may be limited to egregious transfers of assets undertaken
in regard to a known creditor, and may not apply towards general
transfers undertaken well in advance of any creditor problems.
-Interestingly, the case makes no reference to the Supremacy Clause of
the US Constitution. Presumably, such a clause would impact greatly on
any actual attempt to collect assets that are otherwise protected
under state law by a federal agency. Its absence here is not
problematic because this again, is not a recovery of assets case but a
contempt case.
To the dismay of the asset protection bar, these type of cases with
bad facts often encourage courts to find a way to reach the right
result. What ends up happening, however, is that case law that arises
in such egregious cases ends up becoming the law for everyone,
including persons not engaging in such egregious conduct. The creation
of such exceptions to statutory and common law creditor protections
tips the balance in favor of creditors and sacrifices the policy
protections in the statutory and common law protections.
SEC v. Solow, 2010 WL 303959 (S.D. Fla 2010)
******************************
3. TURNABOUT [FLORIDA]
Florida attorneys often help their clients use Florida’s homestead
protection to protect assets from claims of creditors pursuant to
Article X, Section 4 of the Florida Constitution. In a recent case,
the client used the homestead protection to stiff his law firm in
regard to their fee.
In the case, a law firm took on a matter to collect homeowners’
insurance proceeds from an insurer on the client’s homestead that
related to hurricane damage. The law firm was successful and was due a
contingent fee from the client. The client terminated the contingent
fee arrangement without payment, so the law firm asserted a charging
lien against the insurance proceeds for its fee.
Under Florida law, if a homestead is damaged through fire, wind or
flood, the proceeds of any insurance recovery are also treated as
homestead property. Since the client could not, through an unsecured
agreement, enter into an enforceable contract to divest himself of his
constitutional homestead protections, the trial court held, and the
appellate court affirmed, that the law firm could not claim a lien in
the insurance proceeds.
This does not mean that the law firm cannot seek to collect its fee
from other assets of the client. But if there are no other assets, the
law firm lost out on its fee even though the client gets to enjoy the
fruits of its labor.
Interestingly, the client was represented by an attorney on this fee
dispute. We hope the attorney got his fee paid in advance or received
a sufficient retainer to cover his fees!
Quiroga v. Citizens Property Insurance Corporation, 3rd DCA, Case No.
3D0-2942
******************************
4. TIDAL WAVE OF EXEMPT ORGANIZATION STATUS REVOCATIONS LOOMS
Most organizations that are exempt from Federal income tax are
required to file a Form 990 or some variation thereof on an annual
basis. Previously, smaller organizations were exempt from the filing
requirements. Smaller organizations can often still file with a short-
form filing on an e-postcard Form 990-N.
The Pension Protection Act of 2006 requires that non-profit
organizations that do not file a required information form for three
consecutive years automatically lose their Federal tax-exempt status.
This requirement has been in effect since the beginning of 2007. See
IR-2010-10, Jan. 21, 2010.
These returns are generally due by May 15 of the year following the
year for which reporting is due for those organizations that are on a
calendar year reporting cycle. This means that a lot of returns are
due soon.
The problem is that there are a tremendous number of non-profits with
exempt status that have not been filing the required Forms 990. If
they do not file (or extend and later timely file) by May 15, this
will be the third year of nonfiling and will likely result in loss of
exempt status. The New York Times, in an April 22, 2010 article,
estimates that the number of organizations that are at risk of losing
their exemptions is over 400,000.
Most larger organizations know of, and comply with, their filing
obligations. Therefore, it is likely that most of the threatened
organizations are smaller organizations. By reason of their small
size, these are the organizations that can least afford the cost of
preparing and submitting new applications to reinstate their exempt
status.
The New York Times article opines that Congress should have only
mandated that the exempt status of these organizations been suspended,
and not revoked. This would make it easier to reinstate them.
Arguably, however, the IRS should have regulatory authority for
providing an expedited method of reinstating the status of these
organizations short of a full application process.
******************************
5. MORE ON EXEMPT ORGANIZATION STATUS REVOCATIONS
Subsequent to the distribution of the above article, the IRS released
a FAQ discusing the issue.
The FAQ did not bring any real relief to taxpayers, but did answer
some questions. Some of the highlights included:
-confirmation that revocation is automatic – that is, the IRS has no
discretion not to revoke.
-confirmation that if revoked, the entity will have to begin filing
regular tax returns, pay applicable federal taxes, and transfers to it
will lose whatever applicable contribution deductions would have been
allowed.
-the revocation is effective as of the filing due date of the third
year (and thus not at the later date when the IRS takes official
action).
-an extension of time to file the applicable Form 990 will stave off
the revocation if the 3rd required return is filed within the allowed
extension.
-a full application process will be needed to reinstate status,
including payment of applicable user fees. If reinstated, the
effective date will be the date of the application, so there may be a
gap “taxable” period between revocation and reinstatement. The
organization can request an effective date back to the date of
revocation, but the request will be granted only if the IRS finds the
organization had “reasonable cause” for not filing the return for the
three consecutive ears.
While not mentioned in the FAQ, note that the revocation of exemption
will also probably affect state and local exemptions that are based on
federal exempt status.
Automatic Revocation of Tax-Exempt Status for Failure to File Annual
Return or Notice – Frequently Asked Questions and Answers, April 27,
2010
******************************
6. ABOUT OUR FIRM
Our firm seeks to preserve and enhance the individual, family and
business wealth of our clients in the following principal practice
areas: Planning to Minimize Taxes (U.S. & International) • Probate &
Trust Litigation • Estate Planning, Charitable, Marital & Succession
Planning • Business Structuring & Transactions • Trusts & Estates
Administration • Tax Controversies • Creditor Protection.
Please visit our website at http://www.floridatax.com for information
about the firm, our attorneys, articles from recent monthly
newsletters, interesting articles and tax guides, and federal and
Florida tax rates and information. The firm and its attorneys have
been recognized in numerous peer rating guides, such as Best Lawyers,
Martindale-Hubbell, Chambers, Who's Who in American Law, Florida
Trend's Legal Elite, Superlawyers, and South Florida Legal Guide Top
Lawyers.
******************************
DAILY TAX AND BUSINESS UPDATES AVAILABLE. View prior articles, updates
that we didn't have room for in this newsletter, or read the above
postings when they are first published, by visiting http://www.rubinontax.blogspot.com.
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Having problems receiving this newsletter? Make sure that the E-mail
address "cru...@floridatax.com" is marked as a friend or otherwise set
to clear your spam filters! Subscribe and unsubscribe instructions
should be located at the end of this message - if not, send subscribe
and unsubscribe instructions to cru...@floridatax.com. To be properly
processed, unsubscribe instructions need to come from the applicable
email address or send instructions to cru...@floridatax.com with the
specific address being unsubscribed.
Feel free to forward this newsletter on to anyone who you think may be
interested.
-----------------------------------------------
The Usual Disclaimer: This newsletter summarizes for informational
purposes only information of interest to the clients and friends of
Gutter Chaves Josepher Rubin Forman Fleisher P.A. The information is
condensed from, and a general summary of, legislation, court
decisions, administrative rulings and other information, and should
not be construed as legal advice or opinion, and is not a substitute
for the advice of counsel.
Gutter Chaves Josepher Rubin Forman Fleisher P.A.
Boca Corporate Center
2101 Corporate Blvd., Suite 107
Boca Raton, Florida 33431
561.998.7847
www.floridatax.com
--
You received this message because you are subscribed to the Google Groups "Tax & Business Update" group, the firm newsletter of Gutter Chaves Josepher Rubin Forman Fleisher P.A.
To unsubscribe from this group, send email to Tax-Business-Up...@googlegroups.com.
To subscribe to this group, send an email to cru...@floridatax.com with the words "Subscribe Newsletter" in the subject line (and optionally, let us know your name and location in the body of the email), OR go to http://groups.google.com/group/Tax-Business-Update and click "Join this Group" and follow the instructions to sign up for the group. Your name and email address will remain confidential.
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