The post Sharing Religious Property With Other Not-for-Profits: Benefits, Considerations, and Challenges appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>In New York’s dynamic landscape, religious buildings serve not only as sacred houses of worship and community centers, but also as venues for mission-related activities. However, despite the importance of these buildings in their communities, these spaces often remain underutilized for significant portions of the week. By sharing or leasing spaces to other not-for-profit entities, religious organizations can unlock benefits that extend beyond financial gains — such as developing stronger community connections, enabling vital services, and broadening their organizational reach2. This arrangement can vary depending on the needs of each organization, ranging from leasing an entire building or a portion of it to one or multiple not-for-profits, to sharing the same spaces in the building but at different times. However, space sharing comes with a set of considerations and challenges that necessitate careful planning and foresight.
1. Financial Advantages:
Opening religious buildings to other not-for-profit users can generate new revenue streams. This additional income can help cover operating expenses, fund capital improvements, and support broader mission goals. Additionally, sharing expenses like utilities, security, and cleaning services reduces the financial strain on the religious organization.
2. Community Service and Engagement:
not-for-profit users often provide essential community services such as schools, daycare centers, counseling, and social services. Hosting these services transforms religious properties into community hubs that comprehensively serve the needs of local residents.
3. Promotional and Partnership Opportunities:
Shared spaces frequently lead to joint events and initiatives, fostering community and collaboration. These activities not only enhance the visibility of the hosting religious organization but also integrate it more deeply into local community networks.
Identifying underutilized spaces within the building is crucial. Many religious buildings are primarily active on weekends and serve various functions during weekdays (often at night). Therefore, these spaces can be used by other not-for-profit organizations during regular business hours. This adaptive use of space ensures that facilities are maximized without interfering with the religious practices traditionally held.
Understanding and adhering to zoning laws (such as the type of activities that can be used in the space, for example, community facility use), occupancy classifications and requirements, and fire/life safety codes, is essential to ensure that the shared spaces meet the legal requirements. Proper compliance helps avoid potential legal complications and ensures that facility usage is safe and lawful. Religious organizations should consult with an architect or attorney to navigate these regulations.
Under New York Law, to receive a property tax exemption, a religious organization must own and solely utilize the property for its own exempt purpose. However, there is an exception to the law which provides that if a religious organization leases or shares space with another not-for-profit entity, as long as maintenance, depreciation, and carrying costs of the building exceed or are equal to the rental income, the religious organization is still eligible for a real property tax exemption (i.e., the religious organization is not making a “profit” on the sharing or leasing of space). The nuances of the tax laws are beyond the scope of this article, but the religious organization must understand and discuss with an attorney and/or financial advisor the potential implications of the real property tax exemptions and Unrelated Business Income Tax prior to opening their building to other users.
Religious organizations are subject to specific statutory regulations under the New York Not-For-Profit Corporation Law and the Religious Corporations Law. Consequently, except where exemptions apply, these entities must secure approval from the Attorney General and/or the Supreme Court for any leases that extend for five years or longer. This requirement introduces an additional expense and procedural steps that must be clearly understood and discussed with all parties from the beginning of any contract negotiation.
Beyond just holding proper insurance coverage, space sharing increases liability exposure that must be proactively managed. Below are a few examples to help mitigate the risk: Include clear facility use policies and security protocols.
Require tenants to indemnify, name the religious organization (including its members, agents, invitees, etc.) as an additional insured, and provide evidence of insurance prior to entry. Inform the religious organization’s insurance broker that other entities are utilizing the space and confirm the existing insurance extends to uses within the building or purchase additional insurance or endorsements if necessary.
Before embarking on a space-sharing arrangement, religious leadership must carefully select and vet prospective users. The ideal users are those that are mission aligned and have similar values and community objectives. This synergy is crucial for minimizing potential conflicts and ensuring that the shared space is used in ways that complement the organization’s mission.
Sharing a building involves logistical considerations, particularly when it comes to scheduling and managing spaces that are traditionally used sporadically throughout the week. Religious leadership must understand the needs of its own organization and the services already provided in the building so that space is not leased that is needed for hosting the organization’s ministry. Effective coordination and clear communication are essential to ensure that all activities are seamlessly integrated without disrupting religious practices and mission related events.
Hosting external entities can lead to increased security needs, additional storage requirements, and more frequent maintenance and repairs. Scheduling can also become a complex issue, requiring robust management to prevent conflicts. Religious organizations must take these costs into account when determining the rent or donation requested from users.
Sharing space often means ceding some level of control over the property, which can pose a challenge for many organizations. Religious organizations should prepare for potential pushback from the congregation and discuss this with their members.
Being a landlord extends beyond merely providing space to users. Depending on the terms of the legal arrangement, the responsibilities often include prompt maintenance and having the financial wherewithal to address issues as they arise. For larger congregations with multiple users, a dedicated building manager is often prudent.
It is imperative for the religious organization to engage an attorney at the initial stages to draft an agreement that delineates the relationship between the parties involved and safeguards the religious organization and its property. While this requires an upfront financial investment, it is a judicious measure that can save significant time, money, and prevent potential conflicts in the future.
Depending on the duration and nature of usage, different agreements will be appropriate. Such types of agreements include a Facility Use Agreement for one-off events (such as weddings, or conferences), License Agreement for shorter-term usage (such as an after-school program held once a week) or a Lease for a longer-term arrangement (such as leasing an entire portion of the building). These agreements must outline the permitted uses of the space, length of term, financial arrangements (rent/donation, payment of utilities, and operational expenses), maintenance obligations, insurance and indemnity requirements, etc. Clarity and detail in these areas are key to preventing misunderstandings and future disputes between the parties.
While sharing or leasing space offers numerous benefits, both financial and mission-oriented, it also necessitates a thorough understanding of legal, financial and operational considerations. Religious organizations should approach these opportunities with strategic planning and establish clear agreements to ensure that the advantages are fully realized without compromising their mission or the safety of their organization and buildings.
Jodi Warren, Esq. is a partner at Capell Barnett Matalon & Schoenfeld LLP, a New York City law firm, where she specializes in Real Estate, Corporate and Commercial Transactions, and Religious and Charitable Organizations. Jodi represents and advises clients in all aspects of property development, construction, finance, acquisition, and sale. Jodi routinely represents religious and not-for-profit corporations on complex real estate transactions including long-term leases, purchase and sales of properties, joint ventures and development projects. She serves as counsel to numerous denominational governing bodies as well as individual congregations and not-for-profit organizations.
2 This article specifically addresses the sharing and leasing of property from a religious organization to other not-for-profit entities. It does not explore arrangements with for-profit organizations. The analysis and tax implications for engagements with for-profit entities are significantly different and warrant a detailed, separate analysis.
The post Sharing Religious Property With Other Not-for-Profits: Benefits, Considerations, and Challenges appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Can An Attorney Threaten A Civil Lawsuit To Get An Unresponsive Opponent’s Attention? appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>When does the threat of litigating a matter need something more than “just a letter”? Here, we will explore the use and justification for attaching a draft of a Complaint to a demand letter to let your adversary know you mean business.
The New York State Bar Association issued an opinion on the subject (Opinion No. 1228 (08/30/2021), based on a hypothetical case in which an attorney represents a client with a potential civil claim against a business. Previous demand letters sent to the company generated no response. Nor did phone calls to the owner. Hoping to provoke a reply, the attorney proposes drafting a Complaint and sending it to the company and business owner along with a deadline by which they must settle or face the attached lawsuit. The attorney does not file the Complaint but intimates that failure to settle will prompt its filing—so becoming public record.
May an attorney threaten to sue as a negotiating tactic? According to the Bar Association, sending a demand letter prior to filing a civil claim in court is commonplace. Demand letters, the most common first step in resolving a claim, typically detail the allegations, frame the issues, and start the dispute resolution process—often without escalating to litigation.
While one cannot threaten to present criminal charges solely to gain an advantage in a civil matter (Rule 3.4(e)), one can threaten to file a civil suit in some cases, so long as there are no falsehoods or deceptions (see Rule 4.1 and 8.4(c)).
May an attorney threaten to sue even if their client has indicated that they do not intend to ultimately authorize litigation? At issue is potential misrepresentation that creates an impression of falsehood or deception. Sometimes a client authorizes an attorney to file only if the adversary does not respond in an acceptable manner. In other instances, a client will authorize a lawsuit only as a last resort once all other possible avenues to avoid litigation have been explored.
If your client has absolutely no intention of ever filing a lawsuit regardless of the nature of the response or any lack of receptiveness to the threat, and you still send the adversary a demand letter with a copy of the proposed suit or even the unsupported threat of a suit, that can rise to the level of a false statement of fact.
Are ‘lawyer letters’ even worth it? We routinely discourage clients from sending the often requested “just a letter” offering a pre-litigation settlement. Why? It rarely if ever has the desired effect, and it eliminates the potential advantages of surprise and showing that you really mean business. It may even telegraph your client’s disinclination to pursue their claims vigorously.
The acute awareness evoked by the service of the Summons and Complaint, along with the recognition of the need to engage counsel and expend resources before the deadline for an Answer, creates fertile ground to explore settlement. It creates a short window of opportunity before the defendant must commit substantial time and finances to submitting a formal defense. The pressure of that limited time frame presents an advantage for the plaintiff. The recipient, once merely party to an informal dispute, suddenly obtains the unenviable title of Defendant.
Letters, even from an attorney, don’t present the same level of threat. Sending “just a letter” outlining a proposed settlement previews your bottom line and may implicitly reveal a reluctance to fund litigation. For a party that has voluntarily not met its obligations to your client, thus leading to the dispute and your engagement in the first place, such a letter is often merely seen as a further sign that they can continue to ignore your client with impunity.
Last year, we settled a case for 100% of the relief demanded in a Complaint for Declaratory Judgment. We spent nearly a year trying the get the attention of the defendant corporation and its attorney with everything short of a lawsuit and were largely ignored. We ultimately persuaded our client to forgo further attempts to avoid litigation and authorize us to file the threatened Complaint. It worked! Having been served with a Summons & Complaint, the defendant and their formerly sleepy counsel quickly realized that our client meant business and was willing to put its money where its mouth was. Before the defendant’s time to file an Answer expired their attorney offered to concede our claims and, with minimal negotiation, stipulated to all of the relief we had requested in our Complaint. Our client was thrilled.
In that instance, we did not send the defendant the draft Complaint or even consider doing so, although in hindsight that may have been a possible option. The declaratory judgment action itself was our pre-emptive strike in a contract dispute where the defendants claimed our client owed them money, and that due to the nature of the contract, with a personal guarantee, the liability would increase monthly. To secure the best possible outcome for our client, we had two options:
(1) We could try to wait out the six-year statute of limitations at the risk of our adversary filing suit against our client, potentially as late as the month before it lapsed. However, that strategy would risk the accrual of 5+ years of mounting debt claims. That would weaken our negotiating position, should an action ultimately be filed, as well as create years of anxiety for our client in awaiting the possibility of such a suit; or
(2) We could take the offensive and preemptively seek declaratory judgment that their threatened claims were invalid.
Being “above the v” gave us and our client greater control over the vicissitudes inherent in any litigation. In pursuing this strategy, we demonstrated both our commitment to prosecute and the strength of our claims by reducing them to detailed allegations in a Complaint. Boilerplate conclusory Complaints don’t serve that purpose well. A fully framed and thoughtfully drafted pleading clarifies, for the drafting attorney and their client as well as their adversary, the strength of a client’s claims. It does so more effectively than general conclusory threats, whether in a letter or a boilerplate Complaint. It forces the opposition to consider whether the shot you’ve fired is a dummy warhead—or live ammo. A well drafted pleading reveals that it’s live.
So, should an attorney include a draft of a Complaint to get an opponent’s attention? It’s a question that one must traverse with care. Certain circumstances might warrant the threat and inherent time and expense. The attorney’s letter, or a phone call, relies on the hope that such efforts and expenditure of resources will be unnecessary. But how often does that actually bear fruit? And at what cost to the settlement value? Without a concrete threat, the up-front elimination of the costs associated with litigation are often baked into the terms of settlement, thereby reducing the return. A low investment, avoiding litigation costs, may result in a low yield. There is the danger, of course, either with “just a letter” or even one with a draft Complaint attached, that you may lose the first strike advantage. The defendant may potentially take protective measures or countermeasures, such as filing their own Complaint first or avoiding service of yours, or the costs of drafting a Complaint may have been incurred unnecessarily. But these possibilities all exist at any stage of litigation or with any strategy. The draft Complaint is one additional weapon to consider in a litigator’s arsenal.
Evaluate each ‘just a letter’ on its merits. Recently, the same client discussed the possibility of “just a(nother) letter” with me. While the conventional course of action is not to send “just a letter,” as we reviewed the situation, the new matter seemed to present another rare condition where such a draft Complaint may be considered an improvement over another “lawyer letter.”
In that case, the client had a solid claim. He was willing to accept a reasonable offer if it meant avoiding extensive litigation. Drafting a Complaint is not an insignificant investment—often too great to not actually serve it once drafted. However, in this instance, the investment was warranted. It signaled that the client was willing to fund the litigation and has shown a commitment to doing so. That can be a powerful bargaining tool.
Ultimately, in civil court, as in war, once you’ve demonstrated a successful test of a weapon, the odds of having to use it are greatly reduced. A draft Complaint can be a powerful tool.
The post Can An Attorney Threaten A Civil Lawsuit To Get An Unresponsive Opponent’s Attention? appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Are More SMB Tax Audits Coming? appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>Could the IRS’ new $79.6 billion in funding result in more small and midsize business audits? Experts discuss whether or not this concern is founded.
You might assume that a bill with a name like “Inflation Reduction Act” would only bring relief to the small business community, especially in a midterm election year. However, when the bill was signed into law, one provision had many small and midsize businesses (SMBs) worrying – and not about inflation. Some are concerned that the bill’s new round of IRS funding could lead to more SMB tax audits.
Is the notion of increased SMB tax audits founded or unfounded? And if it is founded, what can small businesses do to stay compliant and meet tax obligations? How should they handle an audit if they are subject to one? Below is an in-depth exploration of all these questions, with input from tax experts.
The Inflation Reduction Act, which went into effect on August 16, 2022, will funnel $79.6 billion into the IRS over the next decade. This is a significant cash infusion for the IRS, as the agency has often had its budget slashed over the past decade. The IRS has also experienced high employee turnover, with 23,000 employees leaving its employ since 2010.
According to Sarah York, an accountant with Keeper Tax and an enrolled agent with the IRS, the cash infusion is much needed. The hope is that this new cash infusion reverses the trend of budget cuts and brings stability to the agency.
“It’s revamping their phone systems, improving their computer systems, and hiring new and younger staff to kind of manage the problem,” York said of the new funding’s potential effects. “Right now, what most CPAs have been dealing with, especially in the last three years, is the staffing shortage at the IRS.”
The notion that extra IRS funding could make SMB tax audits more common stems from the agency’s recent history. Many of the employees who have left the agency are highly experienced auditors, leaving behind a staff less able to handle complex audits. Typically, the higher an entity’s income, the more complicated their audit will be. That means a thinned-out IRS could primarily target lower-income entities, including SMBs.
“You’ll hear people say [the IRS is] just auditing poor people,” said Eric Green, a tax attorney and partner with Green & Sklarz. “There’s a little truth to that because those folks are easier to audit through correspondence and office audits. But I don’t think any [IRS] commissioner … ever sat around and said, ‘let’s go after poor people.’”
Data from Syracuse University backs the notion that lower-income earners are audited more often. According to this data, in tax year 2021, the IRS audited 13 out of every 1,000 taxpayers with low annual revenue. The corresponding rate for all other taxpayers was 2.6 out of 1,000, meaning low-income taxpayers experienced five times as many audits.
Key takeaway: When the IRS lacks funding and employees, it may also lack the resources to conduct anything other than low-income taxpayer audits.
The tax experts we spoke with said that the annual amount of SMB audits will likely increase in future years. However, these experts gave varying answers on the potential extent of this increase. We’ve broken down their opinions below.
According to Yvonne Cort, a tax attorney and partner at Capell Barnett Matalon & Schoenfeld LLP, the increase in SMB tax audits is already here.
“I’m already seeing an uptick in audits,” Cort said. “It’s there, they started, the letters are going out, and people are being audited.” Cort said that the IRS is auditing SMB owners to close the “tax gap,” which comprises “people who have not been paying, either through not filing [a return, or] they didn’t put down the right amount of tax owed.”
Keith Jones, a CPA who operates under the name TheCPATaxProblemSolver, agrees. “There’s probably going to be more audits and less help to taxpayers,” Jones said. He added that the new funding would likely go toward “revenue-generating spots and not customer service spots. The revenue generated would be [through] auditors.”
Logan Allec, a CPA and owner of tax relief company Choice Tax Relief, said he firmly believes that more SMB audits will result from the new funding since much of it is directed toward the IRS’s “civil enforcement” division.
“$45.6 billion, is going towards civil enforcement,” Allec said. Civil enforcement, he added, encompasses “auditing and collecting taxes from certain groups that the IRS believes contributes to the tax gap,” including SMB owners.
Green told Business News Daily that concerns about a surge in SMB tax audits may be overstated, though a slight uptick should be expected.
“Do I think that the [new funding] will lead to more audits? Yes,” Green said. “Do I think that they’re gonna have 87,000 auditors breaking people’s doors down, grabbing stuff? No. That’s nonsense. The audit rate now is 1.3% … The percentage will go up, but not meaningfully.”
York agreed with Green’s assessment, adding that U.S. secretary of the treasury Janet Yellen has directed the IRS not to disproportionately target those with incomes of under $400,000. Still, York expects improved IRS operations will result in slightly more audits than years past.
“We shouldn’t see that big of a shift in the current audit rates for small business owners,” York said. “With the influx of resources, and as [the IRS] modernizes their computer systems, we could see more audits just because the technology is going to be more precise at picking up errors,” she said.
Andrew Griffith, proprietor of Andrew Griffith CPA, shared similar views. “I think much of this speculation is unfounded and unfortunate,” Griffith said. However, Griffith also said he “would not be surprised” if more audits did happen, “because that is part of … enforcing compliance with the tax code, and also [improving] the IRS’ own system issues.”
Tip: Even tax experts who think that SMB tax audit worries are exaggerated say that audits will indeed become more frequent. These experts believe the increase will be small, if not unnoticeable, but opinions vary. Other experts think the increase will be significant.
The tax experts we spoke with gave the following advice for keeping SMB taxes compliant to minimize audit risks.
1. Use the right software.
Whether you have employees or you only pay yourself from your business’s earnings, payroll software can help you remain compliant with tax regulations. The best payroll software platforms are regularly updated to reflect regulatory changes, which inherently keeps your business compliant. So too are many of the best accounting software platforms, which represent another type of technology that’s key to remaining compliant.
Did you know?: Some payroll services, such as Gusto, come with added HR services to further assist you with compliance. Read our Gusto payroll review to learn more.
You may want to consider using tax software alongside your payroll service. The best tax software, though not always superior to hiring an accountant depending on your business needs, can automate your tax filing process and streamline your compliance. TurboTax might be the first name that comes to mind when thinking about this software – and it’s our top tax software pick overall. Read our TurboTax review to find out why.
2. Keep your paperwork organized and substantiate your expenses.
Green said that organized paperwork is key to tax compliance, so pay attention to your recordkeeping practices.
“When you’re doing your tax return, all your documentation should be in one place,” Green said. “You set the groundwork [for a successful audit] when you get everything together for the return and keep it in one place.”
Green also said that when SMB owners get audited, it usually occurs long after filing their taxes. An audit can occur up to 18 months later, he said, so preemptively getting organized is always a smart move.
“Keep good records,” Cort said, adding that any paperwork for tax deductions should include justification for the expense. “I see a lot of people who don’t have adequate substantiation, especially for things like office supplies [or] stuff they’re buying [that] could just as easily be used at home as at the office.”
SMB owners should keep notes about their expenses, she added. For example, if you’re writing off a lunch meeting, it’s important to note who you’ve met with and what you discussed, so you can make it clear to the IRS why the lunch was indeed a business expense.
Griffith had similar advice. “[If] transactions are properly disclosed on the appropriate tax returns, that taxpayer has no real concerns about being audited.”
3. Separate your business and personal finances.
Here’s a piece of advice most SMB owners have probably heard before and could always stand to hear again: Open separate personal and business bank accounts.
“Don’t co-mingle your personal funds with your company funds,” Jones said. “You want two separate checking accounts. I’ve seen it so many times: [SMB owners] run everything through a personal account, so they have business and personal expenses coming from the same account. That’s a recipe for disaster.”
Allec gave similar advice. “If you give the IRS … all [your] bank statements and it’s a mix of personal bank statements that you ran your business through … it shows disorganization.”
That can make your audit more difficult, he said. Separating business and personal finances can solve this problem.
Below are some steps that can make a business tax audit more bearable.
1. Go over your audit letter with a fine-toothed comb.
If the IRS decides to audit you, it will send you a letter via USPS. You should open this letter immediately and read it closely. You should also note that the IRS will only send you an audit letter via USPS – other communications may be coming from scammers. As you read your audit letter, note everything that the IRS is asking you to provide.
“Usually, you’ll get something called an information document request,” Allec said. “That’ll tell you what the IRS is looking at.” Allec recommended reading this letter thoroughly, then sending the IRS all those records at once.
“If you make the auditor’s life easy, hopefully they’ll just move on to the next file,” he said. But it doesn’t always go that smoothly.
2. Hire a professional.
Most experts we spoke with stressed the importance of hiring a certified public accountant (CPA) to represent you during an audit. This makes sense: Tax audits are obviously anxiety-inducing, and it’s easy to make poor decisions under this mountain of stress. Tax professionals, on the other hand, deal with audits all the time, so they know how to approach audits rationally. They can – and should – be present with you and speak on your behalf in all audit affairs.
“You want to have professional representation,” Green said. “Do not try to handle this yourself.”
Jones agreed: “When you get audit letters, contact somebody and get representation.”
“When you get [an IRS] notice, that’s a good time to involve a tax professional,” York said.
However, York acknowledged that for some SMB owners, this may not be possible. In that case, she said, “Have your bank statements ready and recognize that, IRS auditors, they’re people and they want to help you. They want to make sure that you’re claiming what you’re allowed to claim. They’re gonna go in and look for things. If you work with them, they’ll work with you.”
3. Cooperate with auditors while being careful with their questions.
Remain professional when interacting with the IRS. No matter how frustrated you feel about being audited, any negativity can cause the IRS to think you’re hiding something. You’re better off being as kind and level-headed as possible, even if you’re upset on the inside. Keeping your cool might not feel great in the moment, but your kindness could bring your audit to a close sooner than later.
“People tend to be surprised at how understanding IRS auditors typically are when they go in and examine records,” York said. “They know small business owners don’t have the same accounting systems in place as big corporations. They’re willing to give grace and allowance for things if you approach it with the attitude, ‘We want to work with you.’”
That said, you should only answer auditor questions with the exact information the auditor is seeking. Anything more you say could open new doors for the IRS to pursue you through and add to your troubles. Green gave an insightful example.
“I have a taxpayer that shut down their consulting practice,” Green said. “The auditor noticed that, for the last two years, they had no income. The client said, ‘I wasn’t working at it.’ What the auditor heard is, ‘You’re not working at it, so it’s a hobby. You don’t get the deductions.’”
The auditor thus disallowed all the deductions.
“What a professional would’ve said is, ‘The taxpayer had ceased operations and was in their wind-down period, pursuant to regulations,’” Green said.
Green said he took this case to appeals and reversed the auditor’s elimination of the client’s deductions. This is just one of many examples where a tax professional can more expertly navigate an audit than a non-expert SMB owner.
Key takeaway: Reviewing your audit letter, working with a tax professional, and cooperating with auditors can make a tax audit less stressful.
More SMB audits might be coming, but you can be prepared
An increase in SMB audits doesn’t necessarily spell doom for your company. If you do get audited, sometimes simply sending the requested documentation to the IRS with professional help can quickly solve the problem. If the audit does continue thereafter, the advice in this article should help you come out on the other side unscathed.
Max Freedman is a content writer who has written hundreds of articles about small business strategy and operations, with a focus on finance and HR topics. He’s also published articles on payroll, small business funding, and content marketing. In addition to covering these business fundamentals, Max also writes about improving company culture, optimizing business social media pages, and choosing appropriate organizational structures for small businesses.
The post Are More SMB Tax Audits Coming? appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Partner Yvonne Cort Interviewed on Recent NYS Residency Decision appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>A new court decision is welcome news for Hamptons real estate owners who work in New York but have their full-time residence in another state. It could mean they will no longer be subject to paying New York State income taxes on their worldwide income.
Nelson Obus, a hedge fund manager who lives in New Jersey and works in New York, brought the case, which was decided last month. The court held that his ownership of a vacation home in Fulton County, New York, did not justify New York State considering him a resident for income tax purposes.
Tax attorney Yvonne Cort, a partner at Capell Barnett Matalon & Schoenfeld LLP in Jericho, watched the case and finds the court’s decision to be major for taxpayers. She explained that New York State law provides two ways to define individuals as residents of the state: One, they are domiciled in New York, “which means this is really your home. This is where you live, it’s where your heart is.” Two, they are considered “statutory residents” because they have…
The post Partner Yvonne Cort Interviewed on Recent NYS Residency Decision appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Estate Planning Opportunities in a Volatile Market appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>Volatility in the stock market may provide additional estate planning opportunities. Depressed stock prices and the potential for future growth are key factors that contribute to the success of certain estate planning strategies. Two of such strategies to consider are: (1) gifting assets to a Grantor Retained Annuity Trust; and (2) converting some portion or all of your traditional IRA to a Roth IRA.
What is a Grantor Retained Annuity Trust?
A Grantor Retained Annuity Trust (GRAT) is an estate planning tool that allows the Grantor of an irrevocable trust to shift the appreciation on contributed assets to the Grantor’s children while efficiently using the Grantor’s federal gift tax exemption. Creating and funding a GRAT during a market downturn and when applicable interest rates are low can help reduce the value of the Grantor’s estate. When the market rebounds, the appreciation on the contributed assets inures to the GRAT beneficiaries and is removed from the Grantor’s taxable estate.
A GRAT functions as follows:
The Grantor gifts assets to a GRAT for the benefit of one or more beneficiaries while retaining a fixed annuity over a period of years (GRAT Term). Upon the termination of the GRAT Term, the appreciation (in excess of Internal Revenue Code Section 7520 rate) passes to the GRAT beneficiaries. The Grantor can fund a GRAT with marketable securities and receive the annuity in-kind, over the GRAT Term.
For example, with a ten-year GRAT, slightly more than 10% of the Grantor’s securities will be returned to him/her each year and the remaining appreciation will pass to the Grantor’s children at the end of the GRAT Term. If a GRAT is funded with cryptocurrency, the value of which may spike during the GRAT Term, the trustee may sell or exchange the cryptocurrency at its highest value for cash (or other stable assets of equivalent value), thereby locking in the gain for the benefit of the Grantor’s children. If the value of the assets declines, the GRAT principal will be paid back to the Grantor; there is no penalty for the GRAT failing to appreciate and outperform the Internal Revenue Code Section 7520 rate.
The gift to a GRAT can be structured to use very little of Grantor’s federal gift tax exemption. Future tax law changes may limit the benefits and design of a GRAT.
Should You Convert Your Traditional IRA to a Roth IRA?
Converting a traditional IRA to a Roth IRA might make sense for those individuals who have watched their account values dip as a result of the current economic climate. Upon conversion, income tax will be due on the amount converted. Paying the income tax now will reduce the value of the individual’s estate, thereby reducing potential estate tax due on death. In addition, the payment of income tax will be made at the current income tax rates, which are scheduled to rise on January 1, 2026 (pursuant to the Tax Cuts and Jobs Act of 2017).
Further, due to the passage of The SECURE Act of 2019, Roth IRA conversions may be an even more attractive option for individuals who want to reduce the future tax liability for their children, who may be in higher income tax brackets.
The SECURE Act eliminated the lifetime “stretch IRA” for many beneficiaries. The lifetime stretch allowed a beneficiary to withdraw funds from a traditional IRA over the beneficiary’s lifetime. Instead, the SECURE Act now requires many beneficiaries to withdraw the full value of a traditional IRA within ten years after the account owner’s death. This means that beneficiaries are required to report income received from the IRA in a short period of time, possibly placing them in a higher income tax bracket and triggering substantial income tax. By converting to a Roth IRA, the beneficiaries can avoid such future tax implications.
Individuals should review their estate plans and consider current income and estate tax opportunities. Creating and funding a GRAT and/or converting some portion or all of a traditional IRA to a Roth IRA are just two opportunities to consider during this period of financial market uncertainty.
If you have questions about the appropriate estate planning strategy for you and your family, the attorneys at Capell Barnett Matalon & Schoenfeld, LLP routinely assist clients seeking to implement various estate planning strategies.
The post Estate Planning Opportunities in a Volatile Market appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Small Law Can Be Just The Right Size For You appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The Jabot podcast is an offshoot of the Above the Law brand focused on the challenges women, people of color, LGBTQIA, and other diverse populations face in the legal industry. Our name comes from none other than the Notorious Ruth Bader Ginsburg and the jabot (decorative collar) she wore when delivering dissents from the bench. It’s a reminder that even when we aren’t winning, we’re still a powerful force to be reckoned with.
Happy listening!
The post Small Law Can Be Just The Right Size For You appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Utilizing Current High Gift Tax Exemptions Before 2026 (or Sooner) appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The reasons are many—but begin with the passage of the Tax Cuts and Jobs Act of 2017 (TCJA). When the TCJA passed, the federal exemptions doubled, increasing the 2017 federal exemptions from $5,490,000 (the then $5,000,000 exemption, as indexed for inflation) to $11,180,000 in 2018. As of 2021, the federal estate and lifetime gift tax exemption is $11,700,000 per individual ($23,400,000 for a married couple, with portability). However, the TCJA will sunset on Dec. 31, 2025: on Jan. 1, 2026, the federal exemptions will reduce to $5,000,000, as indexed for inflation.
Please view or download the latest article of Greg Matalon.
The post Utilizing Current High Gift Tax Exemptions Before 2026 (or Sooner) appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post My Dad Is Dead. His Landlord Just Evicted Him. appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>A jumble of complicated and unexpected logistical tasks can fall into your lap after a loved one dies.
By Stephanie H. Murray, featuring Gregory Matalon, Partner
When my father’s heart stopped, I had no choice but to keep moving. He had lived alone, and I understood that managing the logistics of his death—planning his funeral, settling his debts, divvying up his belongings—would be an enormous task. Those looming practical matters infuriated me; I hated that my world-shattering news had not, in fact, shattered the world. It kept spinning along, so I did too. I got the news on a Thursday; flew from my home in the United Kingdom to his home in Savannah, Georgia, on Saturday; and headed to his apartment with my sister on Monday to begin tying up the loose ends of his life. We didn’t have a key to his apartment, but my sister knew the building receptionist and was sure she’d let us in under the circumstances.
Instead, she turned us away. I began to panic: How would we get his suit for the funeral? How would we figure out if he had life insurance that we could use to pay for the funeral? When would we be allowed to empty his apartment, and would I still be in the country by then?
I had never been to my father’s apartment before—I moved overseas in the fall of 2019, two months before my dad moved to Savannah and six months before the coronavirus pandemic thwarted my plans to visit family—but it hurt to be treated like a stranger there. I wanted to rifle through the artifacts of his life and sink into the happier memories their presence conjured. To sit with whatever remnants of my dad lingered among his belongings. To reclaim what little I could of the visit that COVID had denied me. And I resented the receptionist standing guard at the door to ensure that I didn’t.
I felt certain that there was some misunderstanding, but the only error was mine. Any permission I’d had to rummage through my father’s things had died with him. Successfully navigating the process, referred to as probate, for getting that permission back can be tricky and usually requires the help of a lawyer. Even then, things don’t always go as expected—which is how I ended up collecting my father’s belongings from the sidewalk when he was evicted almost three months after he died.
My circumstances felt bizarre, but it’s not unusual for a jumble of complicated and unexpected logistical tasks to fall into a person’s lap after a loved one dies. Stephanie Handel, a grief and trauma psychotherapist at the Wendt Center for Loss and Healing, in Washington, D.C., told me about pamphlets that the center used to provide recently bereaved people, detailing the enormous list of things they’d need to do in the following weeks and months: contact Social Security, find burial assistance (if they were eligible for it), publish an obituary, order death certificates, contact employers and banks, shut down social-media accounts, cancel subscriptions, handle medical paperwork, hire an attorney, pay taxes. “It’s an intellectually and psychologically challenging task. And it’s a task that you have to undertake when you’re not at your best,” R. Benyamin Cirlin, the executive director of the Center for Loss and Renewal, in New York City, told me.
What I learned after losing my father was that the laws protecting a dead person’s property are surprisingly robust. If he’s made prior arrangements, the ownership of some of his things will transfer automatically. Banks, for example, allow clients to name a “payable on death” beneficiary on some accounts. In almost all cases, practically everything else—even clothing and silverware—must go through probate before anyone can legally claim it. The fact that my father had a will that named me as his executor did not allow my sister and me to sidestep this process. “The will is just a piece of paper until the probate court has verified it,” Gerry W. Beyer, an estate attorney and a professor at Texas Tech University’s School of Law, told me.
The probate process varies by state and even by county, but it generally involves tracking down an original will and getting any “heirs-at-law”—usually the spouse and children—to acknowledge it. If all goes smoothly, probating a will might take a couple of weeks. But any hiccups—say the original will can’t be found, or a pandemic overwhelms the probate-court system—can slow the process down. And if an eligible heir contests the will, probate can take years, Gregory Matalon, an estate attorney with Capell Barnett Matalon & Schoenfeld based in New York, told me. In the meantime, the deceased person’s things are in a kind of legal limbo and, except in rare circumstances, no one’s supposed to touch them.
Of course, in many cases, people touch them anyway. Family members take what they want of their relative’s heirlooms and donate the rest. Landlords may pressure a deceased tenant’s family to clear out his apartment. When it comes to items of little personal or monetary value, jumping the gun on probate is rarely a problem, the Ohio-based attorney Joan Burda told me, but prematurely making off with cherished or expensive items can lead to legal trouble down the road. For that reason, some landlords won’t allow anyone into a deceased tenant’s apartment without court approval. Our lawyer advised us to halt my father’s rent payments in the hopes that his building would relax this requirement. If my father was evicted, our lawyer reasoned, we could take his things when his apartment was being emptied.
There are some good reasons to protect a dead person’s belongings—you wouldn’t want the wrong person walking away with their prized possessions—but the rigidity of the process can create nightmares for loved ones with good intentions. One woman I spoke with had to take nine months off work to help her elderly father manage his late wife’s estate—he was the official executor but was unable to manage the task on his own.
These logistical headaches can shape the experience of grief in a variety of ways, Cirlin told me. Sometimes, the people saddled with the practical matters sideline their emotions for a while, which can seem strange to outside observers and can be unsettling for the bereaved themselves. People can feel like “Why am I not crying right now?” Handel explained. “But there are things that need to be done, which means that your ability to be present for your own feelings in some ways needs to be halted.” For others, these responsibilities can heighten grief. Filling out paperwork or donating clothing can serve as “another window into the fact that your whole reality has changed,” as Cirlin put it. Someone may feel they’ve found their footing in the aftermath of loss only for one of these innocuous tasks to pull them back into grief. Especially when the process doesn’t go smoothly—if a loved one’s paperwork is poorly organized, for example, or probate unveils unpleasant information about them—the ugliness of these chores can complicate the fond memories and rosy narratives we want to walk away with. “It’s hard to sit with resentment when you’re missing someone,” Cirlin said.
My father’s apartment building never relented, but with the help of our attorney, we did arrange a supervised visit to search for the will and pick up my dad’s suit. (An assistant property manager for the building declined to comment on specifics of the case, but noted, “Generally we are not allowed to provide individuals who are not on the lease with access to an apartment even if they are related to the resident. We try to work with family members of a deceased resident to allow them to obtain their loved one’s belongings. Our actions were taken with direction from, and in coordination with, the family’s attorney.”)
We couldn’t find his original will, but we printed a copy from his computer and then folded the lone suit hanging in his closet into a grocery bag, along with a pair of black sneakers. My sister slipped a plastic rosary from his bedside into the pocket of his jacket, and as she glanced over her shoulder to make sure the receptionist wasn’t watching, we both began to laugh, quietly and tearfully, at the absurdity of the circumstances. If his estate had anything of value, it wasn’t in that apartment. American property law stood between us and a crusty baseball cap sitting crumpled on the counter, a poem I’d written for him on his birthday that he’d printed and tacked to the wall in his office, a hundred worn books that his excessive underlining had rendered worthless to anyone but us.
On our way out, the receptionist gingerly peeked into our bag to ensure that we hadn’t taken anything we shouldn’t have and then escorted us to our car, where she reminded us that we’d be welcome back once we had the proper documentation.
He was evicted before we got it. Mercifully, the assistant property manager let us know the date and time in advance, so we hired movers to collect my father’s things and put them in storage. But when we arrived to get his belongings off the sidewalk, some of them had been damaged. An open bottle of Drano had soaked the contents of one bag. The praying hands of a statue of Our Lady of Fátima that my parents had gotten on their honeymoon had cracked off her arms. And there was nothing I could do about it, because the laws designed to ensure that my father’s things ended up safely in my possession had exhausted their reach.
“I think, very sadly, what you’re learning is that grief is very messy,” Handel said. It’s inextricably bound up with the tedium and absurdity of human existence. It may be triggered by death, but grief is a province of the living. And life goes on.
The post My Dad Is Dead. His Landlord Just Evicted Him. appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post A Step-By-Step Guide To Selling Church Property appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The property or properties being sold might be the church’s primary location or additional property that no longer serves the organization’s purpose or long-term goals.
Before executing a sale contract — which can be a difficult decision, especially when the property has been owned and used by the organization for decades — the church leadership needs to do its due diligence. These steps will place the church in an advantageous position to successfully negotiate and sell its property.
View or download Jodi Warren’s latest article.
The post A Step-By-Step Guide To Selling Church Property appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The post Paycheck Protection Program Second Draw Loans appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>The Economic Aid to Hard-Hit Small Businesses, not-for-profits, and Venues Act (the “Economic Aid Act”) was signed into law on December 27, 2020 as part of the Coronavirus Response and Relief Supplemental Appropriations Act, 2021 (“2021 Appropriations Act”). The Economic Aid Act authorizes the Small Business Administration (“SBA”) to disburse an additional $284 billion of funds through the second temporary loan program called the Paycheck Protection Program Second Draw Loans (“PPP Second Draw Program”). Specifically, the PPP Second Draw Program allows borrowers that previously received a loan through the Paycheck Protection Program (“PPP First Draw Program”) (see here for an article dated April 4, 2020 for information on the PPP First Draw Program), to apply for a second loan (“Second Draw PPP Loans”). The intent of the PPP Second Draw Program is to provide additional relief to hard-hit small businesses, including qualified not-for-profit organizations.
The below will provide a high-level understanding of the PPP Second Draw Program.
The post Paycheck Protection Program Second Draw Loans appeared first on Capell Barnett Matalon and Schoenfeld LLP.
]]>