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    The Lawletter Blog

    TAX: Free Like-Kind Exchanges of Property

    Posted by D. Bradley Pettit on Thu, Dec 27, 2018 @ 10:12 AM

    The Lawletter Vol 43 No 8

    Brad Pettit—Senior Attorney, National Legal Research Group

                The Internal Revenue Code provides generally that "[n]o gain or loss shall be recognized on the exchange of real property held for productive use in a trade or business or for investment if such real property is exchanged solely for real property of like kind which is to be held either for productive use in a trade or business or for investment," as long as the transaction does not involve an "exchange of real property held primarily for sale." 26 U.S.C. § 1031(a) (also includes Pub. L. Nos. 115-233 to 115-253, 115-255 to 115-269; Title 26 current through Pub. L No. 115-270). "As used in section 1031(a), the words 'like kind' have reference to the nature or character of the property and not to its grade or quality." 26 C.F.R. § 1.1031(a)-1(b). Thus, "[o]ne kind or class of property may not, under that section, be exchanged for property of a different kind or class." Id. For example, "[t]he fact that any real estate involved is improved or unimproved is not material, for that fact relates only to the grade or quality of the property and not to its kind or class." Id.

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    Topics: Internal Revenue Code, exchange of like kind property, nature and character of property, personal residence, Brad Pettit

    EMPLOYMENT: Age Discrimination—Public Employers

    Posted by Nadine Roddy on Thu, Dec 27, 2018 @ 09:12 AM

    The Lawletter Vol 43 No 8

     

    Nadine Roddy—Senior Attorney, National Legal Research Group

     

                The Age Discrimination in Employment Act ("ADEA") applies to all public employers, including those with fewer than 20 employees, a unanimous Supreme Court held in its first merits decision of the October 2018 term. Thus, the 20-employee minimum that applies to private employers does not apply to a state or its subdivisions. The 8-0 decision, Mount Lemmon Fire Dist. v. Guido, ___ S. Ct. ___, 202 L. Ed. 2d 262 (2018), resolves a split of authority between the Ninth Circuit on one hand and the Sixth, Seventh, Eighth, and Tenth Circuits on the other.

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    Topics: Age Discrimination in Employment Act, public employer, less than 20 employees, application to state and local governments, Nadine Roddy

    FAMILY LAW: Role of Assets in Determining Amount of Alimony

    Posted by Brett R. Turner on Thu, Dec 27, 2018 @ 09:12 AM

    The Lawletter Vol 43 No 8

     

    Brett Turner—Senior Attorney, National Legal Research Group

                Permanent alimony awards are still alive and well in many states, especially when the marriage is long and there is substantial income disparity between the spouses.  When the court determines the amount of alimony, what effect do the receiving spouse's assets have upon the award?

     

                A good example of a modern permanent alimony case is Sweeney v. Sweeney, 420 S.C. 69, 75, 800 S.E.2d 148, 151 (Ct. App. 2017). The marriage there lasted for 28 years from marriage to filing of the divorce action. The husband had gross income of $34,100 per month, or $409,200 per year.  The wife's gross income was very limited. Sweeney was clearly a permanent alimony case.

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    Topics: family law, permanent alimony, amount, receiving spouse's assets, Brett R. Turner

    CONTRACTS: Investigating and Defending Against Student Loan Claims

    Posted by Lee P. Dunham on Thu, Dec 27, 2018 @ 09:12 AM

    The Lawletter Vol 43 No 8

    Lee Dunham—Senior Attorney, National Legal Research Group

     

                Student debt is the second-largest source of U.S. household debt, at nearly $1.4 trillion. Federal Reserve Bank of New York, Quarterly Report on Household Debt and Credit (accessed on Nov. 10, 2018). It is projected that nearly 40% of student loan borrowers will default by 2023. Judith Scott-Clayton, The Looming Student Loan Default Crisis is Worse than we Thought (accessed on Nov. 10, 2018). Many attorneys have seen increased requests for student loan advice.

                Because students are often young and legally unsophisticated at the time they borrow, many understand little about their contracts, or have lost—or never obtained—copies of the essential documents. The first step in such circumstances is to have the client contact the servicer to request copies of the promissory note and related documents, payment history, name and address of the current lender, and documentation of any transfers.

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    Topics: contracts, student debt, default on loan, obtaining essential documents, Lee Dunham

    PRODUCTS LIABILITY: No Due Process Violation in Application of Collateral Estoppel

    Posted by Jeremy Y. Taylor on Thu, Nov 29, 2018 @ 10:11 AM

    The Lawletter Vol 43 No 7

    Jeremy Taylor—Senior Attorney, National Legal Research Group

                In a decision dated September 5, 2018, the U.S. Court of Appeals for the Eleventh Circuit held that the due process rights of the defendant tobacco manufacturers were not violated by the district court’s application of collateral estoppel based on a jury’s findings in a previous class action against the defendants. See Searcy v. R.J. Reynolds Tobacco Co., 902 F.3d 1342 (11th Cir. 2018). Searcy was an action by the daughter of a cigarette smoker against tobacco companies for negligence, strict liability, concealment, and conspiracy to conceal arising from the death of her mother. The plaintiff alleged that her mother’s illnesses were caused by her addiction to cigarettes manufactured by the defendants. Following trial, the district court entered judgment in favor of the plaintiff for $1 million in compensatory damages and $1.67 million in punitive damages. 

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    Topics: Jeremy Taylor, products liability, collateral estoppel, preclusive effect, prior jury findings, due process challenge

    ESTATE PLANNING: Lifetime Gifts of Closely Held Business Stock to Family Members

    Posted by D. Bradley Pettit on Thu, Nov 29, 2018 @ 10:11 AM

    The Lawletter Vol 43 No 7

    Brad Pettit—Senior Attorney, National Legal Research Group

                "Rather than disposing of stock in a closely held business (by sale or corporate reorganization) at retirement the retiree may decide to transfer all or a portion of the stock by gifts to various family members." Streng & Davis, Tax Planning for Retirement ¶ 7.05[1] (Thomson Reuters Tax & Acct'g 2018).  Three important objectives can be achieved by making gifts of closely held business stock to family members:

    It eliminates the stock's dividend income from the gross income and the estate of the retiree/donor

    It removes the value of the stock from the retiree/donor's estate for federal estate tax purposes upon the retiree's death

    It solidifies the interests of the family members receiving the stock as officers of the closely held corporation, enabling them access to corporate executive compensation arrangements and other benefits.

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    Topics: Brad Pettit, estate planning, lifetime gifts, closely held business stock, gift and estate tax

    EMPLOYMENT LAW: EPA Prohibits Using Prior Salary in Establishing Initial Pay

    Posted by Suzanne L. Bailey on Thu, Nov 29, 2018 @ 10:11 AM

    The Lawletter Vol 43 No 7

    Suzanne Bailey—Senior Attorney, National Legal Research Group

                The Equal Pay Act ("EPA") provides as follows:

                No employer having employees subject to any provisions of this section shall discriminate, within any establishment in which such employees are employed, between employees on the basis of sex by paying wages to employees in such establishment at a rate less than the rate at which he pays wages to employees of the opposite sex in such establishment for equal work on jobs the performance of which requires equal skill, effort, and responsibility, and which are performed under similar working conditions, except where such payment is made pursuant to . . . (iv) a differential based on any other factor other than sex[ .]

    29 U.S.C. § 206(d)(1) (emphasis added). 

                The Ninth Circuit Court of Appeals has stated that "[t]he [EPA] stands for a principle as simple as it is just: men and women should receive equal pay for equal work regardless of sex." Rizo v. Yovino, 887 F.3d 453, 456 (9th Cir. 2018) (en banc), pet. for cert. filed (Aug. 30, 2018), pet. for cert. docketed (Sept. 4, 2018).  The Act "'creates a type of strict liability' for employers who pay men and women different wages for the same work: once a plaintiff demonstrates a wage disparity, she is not required to prove discriminatory intent." Id. at 459 (citation omitted). The employer can avoid liability, however, by establishing one of the four affirmative defenses enumerated in the Act. In Rizo, the Ninth Circuit considered, en banc, whether prior salary was "a differential based on any other factor other than sex" within the meaning of the EPA that would permit an employer to escape liability for paying disparate wages to a female employee.

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    Topics: Suzanne Bailey, employment law, Equal Pay Act, prior salary use, wage disparity

    CREDITOR’S RIGHTS: IRS Form 1099-C—Reporting Requirement or Debt Extinguishment Trap?

    Posted by Charlene J. Hicks on Thu, Nov 29, 2018 @ 09:11 AM

    The Lawletter Vol 43 No 7

    Charlene Hicks—Senior Attorney, National Legal Research Group        

                To date, no consensus has been reached among courts throughout the United States on the question as to whether a creditor’s issuance of an IRS Form1099-C results in the extinguishment of the reported debt in favor of the debtor. Form 1099-C bears the title “Cancellation of Debt,” and, according to the IRS, a creditor should issue this form to the debtor for any year in which a debt is cancelled. Depending on the state in which the debtor resides, a creditor’s issuance of a Form 1099-C may have the effect of barring further collection efforts and of completely discharging the reported debt.

                The two divergent approaches taken by courts on this issue result in opposite outcomes. The majority approach is illustrated by the Fourth Circuit’s opinion in FDIC v. Cashion, 720 F.3d 169 (4th Cir. 2013). 

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    Topics: Charlene Hicks, creditor's rights, debt extinguishment, Form 1099-C

    BANKRUPTCY: Reluctant Judicial Enforcement of Prepetition Automatic Stay Waivers

    Posted by Anne B. Hemenway on Thu, Nov 29, 2018 @ 08:11 AM

    The Lawletter Vol 43 No 7

    Anne B. Hemenway—Senior Attorney, National Legal Research Group

         Courts are reluctant to enforce prepetition automatic stay waivers, but will not rule out the possibility of enforcement. Often found as a clause in a forbearance agreement, a prepetition automatic stay waiver is therefore not per se unenforceable, notwithstanding the fact that its close relative, a prepetition waiver of a bankruptcy filing, is per se unenforceable. See In re Simpson, Case No. 17-10442, 2018 WL 1940378 (Bankr. D. Vt. Apr. 23, 2018). Generally, courts will hold that the debtor must carry the burden of proving that such contractual waiver should not be enforced. In re A. Hirsch Realty, LLC, 583 B.R. 583 (Bankr. D. Mass. 2018). 

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    Topics: bankruptcy, Anne B. Hemenway, prepetition automatic stay waivers, enforceability

    INSURANCE: Automatic Revocation of Beneficiary upon Divorce

    Posted by Amy Gore on Mon, Nov 12, 2018 @ 10:11 AM

    The Lawletter Vol 43 No 6

    Amy Gore—Senior Attorney, National Legal Research Group

                The area of presumed intent in the designation of life insurance policies has long been a source of dispute and litigation. When a state legislature enacts statutes that address an automatic revocation of insurance beneficiary status under particular circumstances, additional litigation is likely to result. Such was the case in Sveen v. Melin, 138 S. Ct. 1815, 1817 (2018). There, a couple were married in 1997 and the following year the named insured designated his wife as the primary beneficiary under his life insurance policy, and his two children from a prior marriage as contingent beneficiaries. The couple divorced in 2007, and the divorce decree never addressed the disposition of the life insurance policy or the rights of the contingent beneficiaries. Upon the named insured's death in 2011, both the wife and the two children made competing claims for the entire proceeds.

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    Topics: insurance policy, designation of beneficiary, revocation after divorce, right to contract, legislative presumption, presumed intent

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