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Can Your Practice Afford to Pay $1,500,000 for HIPPA Violations?

Kathleen Quiroz and Jerry B. Cohen — Wed, 20 Jan 2010 17:00:43 GMT

If you have not recently performed an audit of your compliance with the HIPAA Privacy and Security Rules, now would be the time to do so. Several changes to HIPAA made by the Health Information Technology for Economic and Clinical Health Act (the “HITECH Act”) in February, 2009, now have been conformed by federal regulations issued by the Department of Health and Human Services (“HHS”) on October 30, 2009. Certain of these changes merit close scrutiny, especially those impacting HIPAA enforcement, fines and defenses.

HIPAA Enforcement Provisions
On October 30, 2009, HHS issued an Interim Final Rule to conform the enforcement regulations promulgated under HIPAA to the statutory revisions made by the HITECH Act. These changes strengthen the civil money penalty authority of HHS by (i) establishing categories of violations that reflect increasing levels of culpability; (ii) significantly increasing the civil money penalties that may be assessed by HHS; and (iii) abolishing or modifying affirmative defenses available to physicians and other covered entities.

New Civil Money Penalties Scheme
Prior to the HITECH Act, a medical practice that violated HIPAA was subject to a maximum civil money penalty of $100 per violation, with an annual cap of $25,000 for identical violations occurring during the same calendar year. HIPAA, as amended by the HITECH Act and conformed by the Interim Final Rule, now provides for a four-tiered civil money penalties scheme. Under the new penalties scheme, the maximum civil money penalties for violations occurring on or after February 18, 2009, range from a minimum penalty of $100 per violation to a maximum penalty at least $50,000 per violation based upon the level of culpability associated with such violations, with an annual cap of $1,500,000 for identical violations occurring during the same calendar year.

Tier One
Under this new scheme, a medical practice is subject to a minimum penalty of $100 per violation if it violates a provision of HIPAA and (i) did not know of its violation and (ii) would not have discovered its violation even if it had exercised “reasonable diligence.” These violations remain subject to a maximum penalty of $50,000 per violation and are subject to the cap of $1,500,000 for violations of the identical provision of HIPAA in the same calendar year. For purposes of the HIPAA enforcement rules, reasonable diligence means that the medical practice undertook the business care and prudence expected from a person seeking to satisfy a legal requirement under similar circumstances.

Tier Two
Also under the new penalties scheme, if a medical practice violates a provision of HIPAA and that violation is due to circumstances that would make it unreasonable for the practice, despite the exercise of ordinary business care and prudence, to comply (defined in the HITECH Act as “reasonable cause”), the practice will be subject to a minimum penalty of $1,000 per violation. Again, these violations remain subject to a maximum penalty of $50,000 per violation and the cap of $1,500,000 for violations of the identical provision of HIPAA in the same calendar year.

Tiers Three and Four
If a medical practice violates a provision of HIPAA and that violation is shown to have arisen from a conscious, intentional failure or reckless indifference to the obligation to comply (defined in the HITECH Act as “willful neglect”), the penalties that may be assessed against the practice will vary depending on whether the practice corrected the violation within a prescribed 30 day period. The 30 day period begins on the first date the practice knew, or would have known by exercising reasonable diligence, that the violation occurred. If a practice corrects a violation due to willful neglect within this 30-day period, it will face a minimum penalty of $10,000 per violation, again up to a maximum penalty of $50,000 per violation. If the practice does not correct the violation within the 30-day period, it will face a minimum penalty of at least $50,000 per violation. In either case, the cap of $1,500,000 for violations of the identical provision of HIPAA in the same calendar year applies.

Affirmative Defenses
Recent changes to HIPAA have not only significantly increased the civil money penalties that may be assessed by HHS, they also have abolished or modified the affirmative defenses available to covered entities. One such important change involves the affirmative defense of “lack of knowledge.” Prior to the HITECH Act, HHS could not impose civil money penalties on a medical practice if the practice could establish that it did not know (and, by exercising “reasonable diligence,” would not have known) that it violated HIPAA. For violations occurring on or after February 18, 2009, this affirmative defense is no longer available to medical practices. Therefore, a violation that once may have been shielded from penalty by this defense now may be the subject of a tier one penalty as previously described.

Effective Date of Changes to HIPAA Enforcement Rules
The new four-tiered civil money penalties scheme applies to violations that occur on or after February 18, 2009. The Interim Final Rule issued by HHS on October 30, 2009, “grandfathers” violations that occurred prior to February 18, 2009. Those violations will continue to be subject to a maximum penalty of $100 per violation, subject to a cap of $25,000 for identical violations occurring in the same calendar year. For violations that occur both prior to and after February 18, 2009, HHS will treat the violations that occurred before February 18 under the old penalty scheme and will treat the violations that occurred after February 18 under the new penalty scheme. The same treatment will apply to the abolition and modification of the affirmative defenses available under HIPPA. Those changes will apply only to violations occurring on or after February 18, 2009.

HIPAA Compliance Audit
The changes discussed in this article are but a few of the numerous changes made to HIPAA by the HITECH Act. If you have not recently performed an audit of your compliance with the HIPAA Privacy and Security Rules, as amended by the HITECH Act, it is extremely important that you do so, especially in light of the significant penalties that may now be assessed against medical practices for violations of HIPAA.

Jerry B. Cohen and Kathleen Quiroz are Shareholders with Oppenheimer, Blend, Harrison and Tate, Inc. - a top ranked Health Care law firm in San Antonio and Kerrville. Collectively, they have served Corporate and Health Care clients for 39 years and have been recognized by their peers in the legal industry as leading attorneys at both the local and national level. You can reach the Health Care Practice of Oppenheimer, Blend, Harrison and Tate, Inc. at 210.224.2000.

Will vs Revocable Living Trust - Which is Right for You?

Martin I. Roos — Wed, 20 Jan 2010 16:45:00 GMT

As an estate planning attorney I often get asked the difference between a Will and a revocable living trust. A Will is a testamentary document that takes effect at your death. A Will must be probated. Probate is the process of submitting your Will to a court for recognition as a valid instrument and appointing a party (normally an Executor) to carry out the terms of the Will. A revocable trust is created during your lifetime. Assets that are transferred to the revocable trust during your lifetime do not go through probate, but rather the trust instrument itself controls their disposition. A corollary question is whether probate should be avoided.

Texas is one of the easiest and least costly states to probate a Will. Texas has a probate procedure called “independent administration,” which means your Executor (the person you name in your Will to administer and distribute your estate upon your death) only has to file the original Will for probate and file an inventory with the Probate Court detailing your probate assets as of date of death. Creating a living trust merely to avoid probate should not be the motivating factor in deciding between a Will and a revocable trust as your primary estate planning instrument. One or the other does not allow you to avoid any greater amount of the estate tax. A revocable trust also does not provide you any asset protection during your lifetime. If it did, we would all create such a trust and never worry about paying debts again (falls in the adage if it sounds too good to be true, then it is).

In my practice I use the revocable trust as opposed to a Will if a person has out-of-state property that would be subject to probate in the non-Texas state, if a person is concerned about privacy (assets in a revocable trust are not subject to probate so do not become part of the public record), or if a person is concerned about future incapacitation (it is much easier to administer the property of an incapacitated person as the trustee of a trust than as an agent under a statutory power of attorney). The passing of a celebrity like Michael Jackson and the problems facing his estate highlight the need for each of us to have a properly, well-thought out, estate plan.

The first step is creating proper estate planning documents. These documents include a Will (or revocable living trust), and the various lifetime instruments (statutory powers of attorney, medical power of attorney, and living will) that allows you to name agents to make financial and medical decisions for you should you become unable to do so for yourself during your lifetime. Additional planning may be needed given the size of a person’s potential estate and classification of assets.

Marty Roos is a shareholder with Oppenheimer, Blend, Harrison and Tate, Inc. He also serves as the firm’s Chief Operating Office and Practice Group Leader for Estate Planning & Probate. Marty is Board Certified in Estate Planning & Probate by the Texas Board of Legal Specialization. He has also been recognized, for the past six years, as a Texas Super Lawyer. Marty can be reached at 210.224.2000 or mroos@obht.com

Finding Solutions to the Credit Crunch

Lindsay A. Martin — Fri, 15 Jan 2010 22:46:00 GMT

As the credit crunch puts the squeeze on lenders, lenders look for more capital – a search that sometimes puts borrowers’ businesses and estate plans at risk.

Businesses and entrepreneurs need cash to be successful, but in times of a credit crunch, it is hard to get. Current economic conditions force lenders to tighten credit requirements, and borrowers face stricter underwriting requirements. As a result, lenders increasingly look to secure loans with any property a borrower might have ownership in, whether that property is the subject of the loan or not. Limited partnerships, family ranches, and other assets, are being used as collateral for wholly unrelated loans. But having a partnership pledge property for an unrelated loan can potentially break the entity for both tax-planning and business purposes. With no way to provide collateral without compromising the integrity of their entities, some borrowers just don’t go forward with otherwise sound transactions. Attorneys at Oppenheimer, Blend, Harrison and Tate, Inc. have been working with lenders and borrowers to find solutions to the liquidity crisis.

“The effect of the current lending climate is to chill deals and reduce business transactions,” says Marty Roos, the Estate Planning Practice Group Leader at Oppenheimer Blend.

Roos says that in recent months clients have come to him to review transactions in which lending institutions have requested pledges of collateral for unrelated loans. For example, one client was asked to put up a multi-million dollar ranch for an existing revolving line of credit used to operate a business. But that ranch was in a family limited partnership, and the partnership was not a party to the loan agreement. The question, says Roos, is “How does a business entity effectively get used as collateral for a personal loan to start another venture?”

Under both Texas law and the Internal Revenue Code, loans to an entity should be used to further the interests of that entity. So, if a client owns an interest in an investment partnership, pledging the partnership for a personal loan risks invalidating the partnership for both federal tax purposes and state business law. “When both the lender and the borrower are unaware that such a transaction jeopardizes a tax-planning business structure, it’s a lose-lose situation”, says Laura Mason, a shareholder in the Corporate division of Oppenheimer Blend.

Awareness, she says, is the first part of developing a solution that both satisfies the underwriter and retains the legitimacy of the borrower’s business and estate planning. Mason went on to say “From there, it takes careful planning to structure the transaction to preserve the integrity of the borrower’s entity, and provide collateral to the lender.”

In recent months, Mason and Roos have worked with national lenders and mutual clients to develop a way out of this maze of competing needs and requirements. By having the borrower pay a fee to the entity for the right to encumber particular property as collateral, he or she can use the property of an entity for a personal loan. Moreover, Mason says that if done properly, the pledge of a specific asset in a partnership for a fee may only have a negligible effect on the fair market value of the entity. The fee agreement strategy can work between entities, too, she says, allowing one business to use the property of another to get liquidity.

The end result is liquidity for the client, adequate security for the lender, and preservation of a business or estate plan. “The last thing we want to see is for planning to come undone because a client or the lender was unaware that there was a problem,” says Roos. “People need cash for deals. You just need to know there’s a right way to get it, and a wrong way.”

___________________________________________________________________________________________________

Lindsay A. Martin is an Associate in the Estate Planning & Probate practice of Oppenheimer, Blend, Harrison and Tate, Inc. He has been recognized as a Texas Rising Star and one of San Antonio's Best Lawyers. Lindsay can be reached at 210.224.2000 or lmartin@obht.com

Planning to Leave Your Group Practice or Terminate a Physician Employee? Then Plan on Issuing the Patient Notices Required by the Texas Medical Board

Kathleen Quiroz and Jerry B. Cohen — Mon, 02 Nov 2009 16:42:00 GMT

Most physicians know that they are required to notify their patients and the Texas Medical Board if they retire or sell their medical practice. Often, however, our clients are surprised when we inform them of the notices a physician must give to patients and the Medical Board if the physician is terminated or chooses to leave his or her medical practice.

Notices to Patients
When a physician leaves a medical practice, Rule 165.5 of the Medical Board Rules requires the physician to ensure that their patients receive reasonable notification and are given the opportunity to obtain copies of their medical records or arrange for the transfer of their records to another physician. More specifically, the Medical Board Rules require the departing physician to:

Publish notice in the newspaper of greatest general circulation in each county in which the physician practices or practiced and in a local newspaper that serves the immediate practice area;
Place written notice in the physician’s office; and
Send letters to patients seen by the physician in the last two years.

The notice posted in the physician’s office must be placed in a conspicuous location in or on the façade of the physician’s office. Such notices must be posted at least 30 days prior to the physician’s departure and must remain until the date of the physician’s departure.

If the departing physician’s Employment Agreement includes a non-competition covenant, the agreement should include a provision which requires the employer to provide the physician with a list of the patients seen by the physician in the last year. Notwithstanding such a provision, unless the employer has contractually agreed to provide the notices required by Rule 165.5, the employer must give the departing physician a list of the patients seen by the physician in the last two years.

The Medical Board Rules do not specify the exact language that must be included in any of the notices required by the Rules; however, at a minimum, Rule 165.5 requires that such notices (i) inform patients of the date on which the physician intends to leave the practice and (ii) offer patients the opportunity to obtain a copy of their medical records or have their records transferred.

If the departing physician’s Employment Agreement includes a non-solicitation covenant which prevents the physician from soliciting his or her patients, notices given by the physician pursuant to Rule 165.5 must be carefully drafted to comply with the requirements mandated by the Rule165.5 without violating the physician’s non-solicitation covenant. The same applies with respect to any other restrictive covenant included in the Employment Agreement.

The Medical Board Rules do not require the employer of a departing physician to give patients any of the notices required by Rule 165.5. Often, however, physician groups that want control over the content of such notices will include a provision in their Employment Agreements which gives them the right to send the notices. If a physician’s Employment Agreement includes such a provision, the agreement should require the employer to provide the notices required by Rule 165.5 by the deadline established by that Rule. The agreement should also specify which of the parties will bear the financial responsibility for publishing notices in the required newspaper(s) and mailing the patient notification letters. Typically, if the employer has control over the content of such notices, the employer bears the associated expenses.

Notices to Medical Board
When a physician leaves a medical practice, the Medical Board Rules require the physician to notify the Medical Board within 30 days of his or her change of address. This notice should be faxed to the Customer Information Center of the Medical Board at 512.463.9416. Although a physician has up to 30 days to notify the Board of a change of address, we recommend that the departing physician notify the Board as soon as possible.

The Medical Board Rules also require a physician to submit to the Board within 30 days from the date of his or her departure a copy of the notices given by the physician pursuant to Rule 165.5. To satisfy this requirement, a physician should send a letter to the Board enclosing a copy of the notice published in the required newspaper(s), the sign posted in the physician’s office, and the letter mailed to his or her patients. The letter should specify who has custodianship of the medical records and how such records may be obtained. The letter should be faxed to the Investigations Section of the Medical Board at 512.305.7123.

If a physician’s Employment Agreement includes a provision which gives his or her employer the right to send the patient notices required by Rule 165.5, the physician will still need to submit samples of those notices to the Medical Board within 30 days of his or her departure. A departing physician should obtain a copy of such notices from his or her employer before the physician leaves the practice.

Prohibition of Interference
Rule 165.5 of the Medical Board Rules prohibits the physicians remaining in the practice from preventing the departing physician from posting in his or her office the notice required by Rule 165.5. The remaining physicians and the physician group are also prohibited from withholding information from a departing physician that is necessary for the physician to provide the notices required by Rule 165.5 (e.g., the physician’s patient list).

Sanctions
A person who violates Rule 165.5 is subject to criminal penalties under the Medical Practice Act. Violations of Rule 165.5 may also result in the imposition of sanctions by the Medical Board. The failure to provide the required notices may also result in a claim of patient abandonment.

Jerry B. Cohen and Kathleen Quiroz are Shareholders with Oppenheimer, Blend, Harrison and Tate, Inc. - a top ranked Health Care law firm in San Antonio and Kerrville. Collectively, they have served Corporate and Health Care clients for 39 years and have been recognized by their peers in the legal industry as leading attorneys at both the local and national level. You can reach the Health Care Practice of Oppenheimer, Blend, Harrison and Tate, Inc. at 210.224.2000.

Physician Ranking by Health Plans

Kathleen Quiroz and Jerry B. Cohen — Tue, 01 Sep 2009 20:37:00 GMT

More commonly, health benefit plans and other organizations are seeking to measure treatment, outcomes and other indicia of quality in an effort to rank or otherwise measure physician performance for the benefit of patients, payors and other consumers. This prospect has caused some degree of concern within the physician community as questions have been raised regarding what might be the nature of these measurements and how they might be used.

As of September 1, 2009, a new Texas law will go into effect that addresses physician rankings by health benefit plan issuers. Under this law, by January 1, 2010, all programs that provide ratings or rankings of physician performance must comply with new statutory guidelines that aim to ensure the fairness, consistency, and efficiency of these programs. The new statute is fairly straightforward and easy to understand. It separates the duties owed by health plan benefit issuers, by physicians, and by the Texas Department of Insurance and specifies how the new rule applies to each of them.

HEALTH BENEFIT PLAN
A health benefit plan issuer (a “health plan”) is defined as anyone authorized to provide health insurance or health benefits in Texas. The new law prohibits health plans from rankings physicians, classifying physicians into tiers based on performance, or publishing physician-specific information that includes rankings or tiers of a physician’s performance unless the health plan follows the statutory guidelines. There are three basic requirements that any ranking program must satisfy.

First, the standards used must conform to nationally recognized standards and guidelines, such as those proscribed by the National Quality Forum and the AQA Alliance. If an acceptable standard is unavailable from such an organization, the health plan may look to other sources, such as the National Committee on Quality Assurance and other similar organizations. The Texas Department of Insurance is responsible for adopting rules to ensure that health plans comply with these standards and guidelines as set out by the national organizations.

Second, the standards and measurements that the health plan chooses to use must be disclosed to every affected physician before the evaluation period begins.

Finally, each affected physician must be given, before publication, an opportunity to dispute the ranking or classification through a proceeding that has due process protections. Specifically, the health plan must notify the physician of the proposed ranking or classification in writing at least forty-five days before the rank is made public. The health plan also must disclose to the physician the information and methods it used to reach its final decision.

If the physician properly requests a reconsideration proceeding, within thirty days of the request notice, the health plan must provide a fair reconsideration hearing either by telephone or in person. At the hearing, the physician can provide additional information to the decision-maker, have a representative present, and submit a written statement. Finally, the health plan must provide the physician with a written communication of the outcome of the reconsideration proceeding prior to publication of the rating or rank. Again, the written decision must give specific reasons outlining how the final conclusion was reached.

PHYSICIANS
Physicians also have a duty under the new statute. The duty can best be described as a duty to not interfere. Physicians are prohibited from forcing patients to agree not to rank the physician or participate in surveys regarding the physician. A violation by a physician is grounds for disciplinary action by the Texas Medical Board.

WHY DOES THIS MATTER?
The new law should be good for health plans, physicians and consumers. Previously, there was no standardization of ratings and rankings criteria, physicians did not know when or how they would be evaluated and, when rankings were published, there was no clear protections provided for physicians to dispute the rank. The new statute should provide better protection for physicians throughout this process.

The statute also should benefit health plans as it provides guidelines for any rating or ranking program they may implement and it prohibits physicians from intentionally interfering with these programs.

The new statute also should help the consumer. Without uniform standards, rankings and ratings can be meaningless. With clearer and more uniform standards, consumers should be able to better understand and use the resulting data in making healthcare decisions.

SO EVERYTHING IS FIXED . . . RIGHT?
While perhaps a dramatic improvement from before, the new statute leaves some unanswered questions. For example, the statute permits health plans to draw standards from multiple national resources and, if none provide adequate guidelines, the Insurance Commissioner is to decide the validity of a guideline or standard. Thus, the statute leaves a lot of flexibility for a health plan to choose its source for guidelines, resulting in standards that may not be as uniform as hoped. Further, the statute does not specify who or what organization is to be the decision making authority in the reconsideration hearing proceeding.

Despite these potential problems, the statute provides a useful starting point for changing the way physicians-ranking programs are conducted. For physicians and health plans alike, the most important thing is to start educating themselves on the requirements, how they apply, and what rights are afforded under the statute should a problem arise.

Medical Office Leases - Negotiating Key Issues

Shelley P. Morkovsky, Kathleen Quiroz and Jerry B. Cohen — Wed, 01 Jul 2009 20:41:00 GMT

“An ounce of prevention is worth a pound of cure” – a phrase applicable in the practice of medicine and also in the practice of commercial real estate law. Having a commercial lease that properly suits your business is a key factor in the “health” of your medical practice. Therefore, before you enter into a lease for medical office space, you should carefully review and evaluate the terms of the lease and negotiate key deal points. If the broker or your prospective landlord tells you that the terms of the lease are not negotiable, do not be dissuaded. In the current real estate recession, you may have more leverage to negotiate desirable concessions or at least those that are deal breakers for you or your practice.

Limitations on Personal Liability
To limit personal liability, it is preferable that the tenant under a lease be a business entity (such as a professional association, limited partnership or limited liability company) rather than an individual. Leases typically identify the landlord and tenant on the front page and/or the introductory paragraph of the lease. If your professional association or other business entity will be the tenant under a proposed lease, make sure that each such provision properly identifies your entity as the tenant. Also, check the tenant’s signature block at the end of the lease. That signature block should include the name of the entity which will serve as the tenant and should designate the title (e.g., president) of the individual who will sign the lease on behalf of that entity. A defective signature block may give your landlord an opportunity to argue that the physician who signed the lease intended to incur personal liability.

If the named tenant is a business entity, the landlord will often require a personal guaranty from the physician or physicians who own that entity. If your prospective landlord demands such personal guarantees, you should consider negotiating limitations to those guarantees. For example, you may want to ask that each guaranty be limited to the guarantor’s percentage of ownership interest in the entity that will serve as the tenant under the lease. You may also want to attempt to limit the personal liability of the guarantors by negotiating the removal of any provisions calling for the joint and several liability of the guarantors. Under Texas law, a commercial landlord is required to mitigate damages from a defaulted lease. Thus, you might also want to ask that the personal guaranty be limited to a certain amount, such as six months base rent plus any arrearages, which would reasonably compensate the landlord for time spent securing a replacement tenant. Further, regardless of any other limitations you might negotiate, any guaranty required by your prospective landlord should be conditional upon the guarantor receiving notice that a default has occurred.

Common Operating Expenses
As a tenant, you want absolute clarity regarding all monetary obligations. Such clarity is not always possible when the landlord provides a mere estimate of what the “additional rent” (i.e., the tenant’s share of the operating expenses) will be. A landlord typically “passes through” to its tenants all of the landlord’s expenses for operating the entire building. Operating expenses can include items such as the landlord’s costs of insurance, taxes, electricity, and maintenance of common areas. There can be hidden traps for the unwary in this part of the lease. Pay attention to how your share of the operating expenses will be calculated. For example, if the lease states that your share of operating expenses will be your square footage divided by the total occupied square footage in the building, and you occupy 10% of a building which has 50% of its space filled, then you must reimburse the landlord for 20% of its operating expenses. This outcome can be prevented by insisting that the calculation be based on your portion of the leasable space in the building, whether or not the rest of the building is occupied.

You should also evaluate the items included in the list of operating expenses that will be passed through to you under the lease. Certain items should be carved out of common operating expenses, such as costs of a capital nature, amounts reimbursed by other tenants, and items not related to the operation of the entire building, such as broker fees paid by the landlord in connection with individual leases.

Restrictions on Use of Premises
Leases for medical office space often prohibit the tenant from providing in the leased premises certain medical and/or ancillary services such as clinical laboratory services and diagnostic imaging services. If your practice provides, or intends to provide, any of the services prohibited by your landlord, your lease must be revised (before the lease is signed) to permit your practice to provide the respective services in the leased premises.

Opportunity to Cure Defaults
Most leases contain both monetary obligations, such as the obligation to pay base rent, and non-monetary obligations, such as the obligations to maintain and repair the premises. Leases also typically define what constitutes a default of the lease and what remedies are available to the landlord in the event of a default by the tenant. Especially with respect to defaults of the non-monetary obligations established by the lease, it is not always readily apparent to the tenant when the landlord has deemed such a default to have occurred. Therefore, if your proposed lease states otherwise, it should be revised to provide that a failure to pay or perform will not constitute an event of default until the tenant has received notice of the failure and has had a reasonable period of time to “cure” such failure by making the payment or tendering performance.

Exit Strategy
A lease will include a provision which defines the duration, or term, of the lease. Agreeing to a long-term lease may get you a cheaper rental rate; however, before you sign a long-term lease, you should consider what will happen if you need to terminate the lease early (for example, if your medical practice fails to thrive in the leased premises or if your practice thrives so much that expansion becomes necessary). A straightforward exit strategy is a provision which would permit you to cancel the lease at some point in time (e.g., at the two year anniversary) if you are not in default under the agreement or upon the provision of prior written notice to the landlord (e.g., upon 60 or 90 day’s prior written notice). Another option would be to shorten the initial term of the lease but add renewal options exercisable by you that provide for a predetermined rental rate or a then-current market rate for the renewal term.

Most standard leases prohibit the tenant from assigning its rights or obligations under the lease and from subleasing part or all of the leased premises. If your proposed lease includes these standard prohibitions, or if it does not address your right to assign the agreement or sublease the leased premises, you should attempt to negotiate for the right to assign the lease (where a new tenant would “step into your shoes” under the same lease) or sublease the space (where a new contract would be entered into between your entity, as tenant, and a subtenant for all or part of the space). Either of these rights may limit your liability in the event you are forced to break the lease. At a minimum, you should attempt to negotiate for the right to assign the lease or sublet the space with the consent of the landlord, which consent shall not be unreasonably withheld.

Final Thoughts
This article is not meant to be an exhaustive list of all the issues that should be addressed when reviewing a proposed lease. Each lease will differ in its terms, and each physician practice will have its own tolerance for risk and its own unique needs and preferences. It is always prudent to enlist the help of an experienced real estate attorney before signing any lease or other contract pertaining to commercial real estate. You should be able to avoid many lease-related headaches by paying close attention to the terms of your next lease at the outset and negotiating those terms to suit your business with the help of an experienced commercial real estate attorney.

_________________________________________________________________________
Jerry B. Cohen and Kathleen Quiroz are Shareholders with Oppenheimer, Blend, Harrison and Tate, Inc. - a top ranked Health Care law firm in San Antonio and Kerrville. Collectively, they have served Corporate and Health Care clients for 38 years and have been recognized by their peers in the legal industry as leading attorneys at both the local and national level. Additional contributions in the development of the above article were made by Shelley P. Morkovsky an Associate in the Firm’s Real Estate practice group. Shelley is Certified by the Texas Board of Legal Specialization in Commercial Real Estate Law. You can reach the Health Care and Real Estate Practice Groups of Oppenheimer, Blend, Harrison and Tate, Inc. at 210.224.2000.

Stimulus Includes Money for Physicians

Kathleen Quiroz and Jerry B. Cohen — Fri, 03 Apr 2009 20:44:00 GMT

On February 27, 2009, President Obama signed the American Recovery and Reinvestment Act (“ARRA”), or stimulus package, into law. Included within ARRA is the Health Information Technology for Economic and Clinical Health Act, or HITECH, which is intended to play a transformative role in the use of technology in healthcare. Currently, it is estimated that approximately 14 percent of American physicians use some form of electronic health records (“EHR”). HITECH is designed to provide an infrastructure and financial incentives and disincentives to have EHR systems in use by more than 90 percent of American physicians by 2014, with the belief that savings will be achieved through the reduction of adverse events and the elimination of errors and duplication.

Meaningful Use of Certified EHR
To be eligible for the Medicare incentives provided in HITECH, a physician must be able to demonstrate his or her “meaningful use” of a “certified EHR” system. HITECH provides that “meaningful use” must be demonstrated to the satisfaction of the Secretary of the Department of Health and Human Services. While meaningful use will require the use of a system that includes the electronic prescribing of drugs, the remaining detail of what will constitute “meaningful use” will be clarified in regulations that are anticipated by the end of this year.

HITECH further defines “certified EHR technology” as a qualified electronic health record that is certified as meeting standards to be adopted by the HIT Policy Committee and the HIT Standards Committee, both of which are created and granted authority by HITECH. At this time, HITECH requires that a certified EHR be connected in a manner that provides for the electronic exchange of health information to improve the quality of health care, such as promoting the coordination of care. The initial standards also will address privacy and security issues, the nationwide health information technology infrastructure, the use of EHR to improve quality and technologies to collect patient demographic data and to address the needs of vulnerable populations. The precise standards and other requirements for certified EHR will be clarified in regulations that again are anticipated by the end of this year.

The Carrot – Medicare Incentives
HITECH creates a series of financial incentives through the Medicare program for physicians (other than hospital based physicians) to promote the adoption and meaningful use of certified EHR technology. The amount of the financial incentive available will equal 75 percent of a physician’s “estimated allowed charges” for the payment year in question, subject to the following caps:

First payment year - $15,000 (or $18,000 if the first payment year is 2011 or 2012)
Second payment year - $12,000
Third payment year - $8,000
Fourth payment year - $4,000
Fifth payment year - $2,000

While the details of what will be included in “allowed charges” will follow in regulations, physicians demonstrating meaningful use of a certified EHR system will be eligible for incentive payments through the Medicare program beginning as early as 2011. From the schedule above, it is clear that there is more money available to physicians the earlier they become meaningful users of certified EHR. However, no incentives will be available at all if the first payment year is after 2014 and, regardless of when the first payment year occurs, no payments will be made at all in years after 2016.

The Stick – Medicare Fee Schedule Reductions
HITECH imposes financial penalties on eligible physicians who are not meaningful users of a certified EHR system in 2015 or thereafter. Specifically, if an eligible physician is not a meaningful EHR user by 2015, the Medicare fee schedule amount for that eligible physician will be reduced as follows:

1 percent in 2015
2 percent in 2016
3 percent in 2017 and thereafter

Also, if fewer than 75 percent of all eligible physicians are meaningful EHR users by 2018, the fee schedule may be reduced by an additional 1 percent per year, up to a 5 percent reduction. Finally, HITECH anticipates that hardship exceptions may be adopted by regulation, such as for physicians in rural areas.

Alternative Incentives Through Medicaid Program
HITECH also includes alternative incentives for professionals with specific percentages of patients receiving medical assistance or meeting a definition of “needy.” These incentives may not exceed 85 percent of the net allowable costs for certified EHR technology and associated support and training. These incentives are capped at $25,000 in the first year and $10,000 per year in the second and subsequent years, with no payments to be made for more than 5 years or after 2021. In addition to these later compliance dates, the incentives through the Medicaid program also are available to a broader group of providers, including dentists, certified nurse midwives, nurse practitioners and certain physician assistants. However, professionals seeking incentives through the Medicaid program must waive their right to receive the Medicare incentives and must demonstrate that a certain patient volume is receiving medical assistance.

What Do We Do For Now??
While awaiting the regulatory detail for these incentive programs, physicians should assess their EHR needs and begin budgeting for the EHR adoption process. Physicians with existing EHR systems should contact their vendors to determine how the vendors plan to provide upgrades or patches that might be required to comply with the requirements of a “certified” system and should budget the costs associated with future upgrades and training.

Physicians planning to purchase an EHR system in the short term should either include in their contracts with vendors provisions requiring the vendor to provide necessary upgrades and patches or should consider deferring their purchases until the requirements for “certified” EHR systems are finalized. Ultimately, all physicians and physician groups will need to begin budgeting not only for the financial costs of acquiring or upgrading an EHR system but for the personnel time and expense for EHR conversion and training. Again, the sooner this process begins, the more likely a physician will be able to satisfy the 2011 timeline to receive the maximum available incentive payments under HITECH.

Physician Non-Compete Covenants

Kathleen Quiroz and Jerry B. Cohen — Sun, 01 Feb 2009 21:47:00 GMT

Non-compete covenants entered into in the context of an employment agreement purport to restrict the right of an employee (including physician owners and non-owners employed by a physician practice) to compete with his or her former practice after termination of the employment relationship. Given the complex legal and often emotional issues surrounding non-compete covenants, we frequently receive calls from physician practices or individual physicians regarding non-compete covenants. Should our group require one? Should I sign one? Are these things even enforceable?

The benefits of non-compete covenants for group practices are fairly obvious. No physician group likes the idea of investing time and money in recruiting and training a physician only to have that physician leave the group, take his or her patients and become the competition. Likewise, the concerns of the individual physician are equally obvious. No physician in a group likes the idea of building a practice, developing referral sources and nurturing a patient base only to be forced, upon leaving the group, to relocate his or her practice outside of a defined restricted territory that could be so distant from his or her prior practice location that the physician’s referral sources and patient base may be unlikely to follow.

The General Rule
As a general rule, a non-compete covenant, if correctly structured and reasonable in its terms, is enforceable, even against a physician. Group practices and other employers should understand, however, that non-compete covenants are tightly regulated and the specific prohibitions imposed on an employee’s ability to work must fit within a statutory framework, as interpreted from time to time by state courts.

Statutory Framework
The Texas Business and Commerce Code contains provisions dealing generally with all non-compete covenants and specifically with those applicable to physicians. Under the general statutory provisions, non-compete covenants, regardless of whether in an employment agreement or other type of contract, are deemed to be enforceable only if its terms satisfy all of the following requirements:

(a) The non-compete covenant is ancillary to or part of an otherwise enforceable agreement;

(b) The non-compete covenant does not impose unreasonable restraints as to the time or duration of the restrictions, the geographic area within which the restrictions apply, and the type or scope of the activity to be restricted; and

(c) The non-compete covenant does not impose a greater restraint than is necessary to protect the goodwill or other business interest of the employer or other promisee.

Judicial Clarification
Prior to 2006, non-compete covenants set forth in employment agreements were difficult to enforce because many courts found that they were not ancillary to or part of an otherwise enforceable agreement. Because of the “at-will” nature of most Texas employment relationships, courts were apt to find that employment agreements did not qualify as “an otherwise enforceable agreement” since employers could avoid their obligations by terminating the “at-will” employment relationship at any time.

In 2006, the Texas Supreme Court reexamined this issue and held that an employer’s non-monetary future promises or obligations within an employment agreement could provide the basis for “an otherwise enforceable agreement” if the employer actually follows through on the stated obligations or other promise. Even after this decision, however, the non-monetary consideration to be provided by the employer to the employee, such as additional training or access to confidential information, must be related to the employer’s interest in restraining the employee. Therefore, for example, an employer could assert the need for a non-compete covenant following termination to protect its interest in its confidential information that was provided to the departing physician during his or her tenure.

Statutory Framework Applicable to Physician Covenants
In addition to the generally applicable statutory requirements described above, Texas law further provides that a non-compete covenant applicable to a physician is enforceable only if its terms satisfy the following additional requirements:

(a) The non-compete covenant (i) must not deny the physician access to a list of his or her patients seen or treated within one year of termination, (ii) must allow access to the medical records of such physician’s patients upon authorization of the patient and payment of a reasonable copying fee, and (iii) must not require that a patient list or medical records be provided in a non-typical format, except by mutual consent of the parties to the contract;

(b) The non-compete covenant must allow the physician an opportunity to buy-out of the covenant at a reasonable price; and

(c) The non-compete covenant must not prohibit the physician from providing continuing care and treatment to a specific patient during an acute illness, even after the contract or employment has been terminated.

Judicial Reformation
Under Texas law, if a non-compete covenant is ancillary to an employment agreement, the party seeking to enforce the covenant (e.g., the employer) has the burden of establishing that the covenant meets the criteria discussed above. However, the failure of a non-compete covenant to satisfy one or more of these criteria does not necessarily mean that the covenant will be unenforceable. Instead, under Texas law, a court is permitted to reform or revise a non-compete covenant that is found to be unreasonable as to its duration, its geographic scope or its scope of restrained activity, or that otherwise imposes a greater restraint than is necessary to protect the goodwill or other business interest of the employer. In these cases, the court may itself modify the covenant as necessary to make the offending provision reasonable and then enforce the non-compete covenant as judicially revised.

Wait A Minute . . . Don’t Forget Stark Law
Having satisfied all of the requirements of state law reviewed above, physicians and physician groups need to consider whether the federal physician self-referral prohibitions commonly known as the Stark law might prohibit the use of a non-compete covenant at all. The federal regulations interpreting the Stark law include a specific exception for payments made by a hospital to a physician or physician group in connection with a recruiting agreement entered into with a new physician or the group hiring that physician. This exception recognizes the benefit of recruiting agreements in attracting physicians to potentially underserved areas but requires, among other things, that the physician remain in the area to which he or she was recruited as a condition of receiving payment under the recruiting agreement.

Given the regulatory requirement under the Stark law that physicians entering recruiting agreements with hospitals remain in the hospital’s geographic area for a specified period of time, the regulations establishing this Stark law exception prohibit a physician practice from imposing “restrictions that unreasonably restrict [a] recruited physician’s ability to practice medicine in the geographic area served by the hospital.” Thus, notwithstanding state law, if a physician is a party to or the subject of a recruiting agreement with a hospital, that physician may not be subject to a non-compete covenant for the period during which the physician is required to remain in that hospital’s geographic service area.

Final Thoughts
Given the complex state statutes, the overlay of judicial interpretation and the perhaps unexpected intrusion of the Stark laws and regulations, it seems no wonder that physician non-compete covenants continue to be the subject of so much inquiry. Ultimately, any non-compete covenant must satisfy the federal and state legal requirements described above. However, to be truly effective, a non-compete covenant also must both protect the business interests of the group practice as well as address the individual professional and personal concerns of the employed physician.

2008 Digest of Selected Mass Tort Bankruptcy Opinions

Debra L. Innocenti — Sat, 01 Nov 2008 21:44:00 GMT

A number of key opinions were issued this year, converging around the jurisdictional reach of a §524(g) injunction, preemption of insurance policy anti-assignment provisions, and the limitations of the power of Rule 9019 to override statutory requirements of the Bankruptcy Code.

Classification
In re Congoleum Corporation et al., United States Bankruptcy Court, District of New Jersey, Case No. 03-51524 (June 5, 2008) (J. Kathryn C. Ferguson)

The bankruptcy court held that the creation and differing treatment of two subclasses of asbestos claimants in the debtors’ joint plan of reorganization violated §§1129 and 524(g) of the Bankruptcy Code. One subclass consisted of all asbestos claimants who gave up in an omnibus settlement agreement (or never had) rights under certain pre-petition settlement agreements. In contrast, the other subclass claimants had the option to have their rights to payment determined through a continued adversary proceeding that would, in effect, entitle them to a chance for greater recovery. The bankruptcy court held that in addition to complying with the classification provisions of the Bankruptcy Code, the plan must also comply with the overlay of §524(g), which required that the plan value all present and future similar claims in substantially the same manner. The only proper criterion for differing between the pre-judgment claims was disease level. Moreover, the bankruptcy court held that an omnibus settlement agreement with the asbestos constituents that could meet “the very low threshold of Rule 9019” did not permit non-compliance with §§524(g) and 1129.

Impairment
Ad Hoc Committee of Asbestos Personal Injury Claimants and Jose Angel Valdez v. Dana Corp. (In re Dana Corp.), Civil Action No. 08-1037, 08-1038, Bankr. Case No. 06-10354 (S.D.N.Y. Sept. 30, 2008)

The district court affirmed the bankruptcy court’s holding that asbestos claims reinstated against one reorganized debtor with limited assets did not impair such claims where the asbestos claimants had no pre-petition rights against the other affiliated debtors.

Insurer Standing
Hartford Accident & Indemnity Co. v. Global Indus. Tech. Inc., Civil Action No. 07-1749, Bankr. Case No. 02-21626 (W.D. Pa. Jul 25, 2008); Hartford Accident & Indemnity Co. v. North Am. Refractories Cos. et al., Civ. Action No. 07-1750, Bankr. Case No. 02-20198 (W.D. Pa. July 25, 2008)

See Rhonda D. Orin, Denials of Insurance Company Standing: Two More Cases Join the Lengthening List, ABI Committee News: Mass Torts Committee, Vol 6: No. 4 (November 5, 2008).

In re Quigley Company Inc., 391 B.R. 695 (Bankr. S.D.N.Y. 2008) (J. Stuart M. Bernstein)

In an attempt to assist the parties resolving confirmation discovery disputes, the bankruptcy court issued a memorandum decision outlining the considerations governing the asbestos insurers’ standing to participate in confirmation. The bankruptcy court stated that the insurers were parties in interest and had the right to challenge the parts of the plan that directly implicated their rights and interests. The insurers could not, however, object to the plan based on how it affects the rights of third parties, even if those objections might provide grounds to defeat confirmation. The insurers’ discovery demands had to reflect such limitations.

Non-Debtor Section 362(a) Injunctions
W.R. Grace & Co., et al. v. Chakarian et al. (In re W.R. Grace & Co., et al.), 386 B.R. 17 (Bankr. D. Del. 2008) (J. Judith K. Fitzgerald)

The bankruptcy court held that it had the subject matter jurisdiction to consider whether to expand a preliminary injunction to include actions against railroad companies for exposure to the debtors’ former vermiculite mining operations. The bankruptcy court also held that the debtors met the requirements under §105(a) to expand the automatic stay to protect the non-debtor parties. The railroad company had asserted three avenues of indemnification that would directly impact the debtors’ estates if the tort actions were allowed to proceed, including contractual indemnification as well as insurance indemnification and separate insurance paid for by the debtors. Such indemnification went beyond the indirect common law theories that had missed the jurisdictional threshold in Pacor Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir. 1984). In Pacor, the intervention of another lawsuit was required before the defendants would have indemnity claims against the debtor.

The debtor also met both factors of the “unusual circumstances” test under §105(a). First, the debtors’ indemnification agreements with the railroad company caused them to share “an identity of interest such that a suit against the nondebtor is essentially a suit against the debtor.” The agreements also posed an adverse impact on the debtors’ estates, as the railroad company could assert in excess of 1,000 indemnification claims against the debtors. Additionally, allowing the tort actions to proceed would require the debtors to defend the railroad company while, at the same time, defend their own products and business operations, in essence, the very claims the debtors filed bankruptcy to stop. These same reasons also established the traditional, non-bankruptcy standards for injunctive relief.

Non-Debtor Section 524(g) Injunctions
Johns-Manville Corporation et al. v. Chubb Indemnity Insurance Company, et al. (In re Johns-Manville Corporation), 517 F.3d 52 (2nd Cir. Feb. 15, 2008)

The Second Circuit Court of Appeals held that the bankruptcy court was without subject matter jurisdiction to enjoin claims against certain insurers that were not limited by the terms and scope of the debtor’s insurance coverage, did not seek recovery from the debtor’s insurance proceeds, and alleged independent misconduct by the insurers.

The debtor reached a settlement with its primary insurers, which was predicated upon the bankruptcy court issuing an injunction that barred asbestos-related suits against the debtor’s settling insurers and channeled such claims to the asbestos trust. The 1986 order confirming the debtor’s plan provided for such an injunction. Subsequently, various plaintiffs sued the settling insurers under statutory and common law theories, both of which centered on allegations that the insurers suppressed information about asbestos hazards and propagated fraudulent defenses to frustrate asbestos claimants’ rights. The settling insurers moved the bankruptcy court to enjoin those actions, and during mediation reached a series of settlement agreements providing for entry of an order clarifying that 1986 confirmation order prohibited such suits and for the insurers to contribute additional funds to the asbestos trust. The bankruptcy court approved the settlement agreements and entered the clarifying order, finding that the insurers learned virtually everything they knew about asbestos from their relationship with the debtor and that the claims against the insurers were based on actions or omissions that necessarily “arise out of” and were “related to” the debtor’s insurance policies. The district court in large part agreed.

The Second Circuit Court of Appeals disagreed. It held that a bankruptcy court only has subject matter jurisdiction to enjoin third-party, non-debtor claims that directly affect the res of the bankruptcy estate. Here, the plaintiffs sought recoveries separate and apart from the debtor’s insurance proceeds. The bankruptcy court’s factual determinations—that the insurers learned virtually everything they knew about asbestos from the debtors and that the lawsuits against the insurers “inescapably” related to the insurers’ relationship with the debtor—were only part of the liability equation. If the debtor owes a duty to the plaintiffs independent of its contractual obligations to indemnify those injured by the tortuous conduct of the debtors, then the fact that it arises from a common nucleus of operative facts is of little significance. The claims then are not derivative, have no effect on the res, and, therefore, are outside the limits of the bankruptcy court’s jurisdiction.

In re Congoleum Corporation et al., Case No. 03-51524 (Bankr. D.N.J. June 5, 2008) (J. Kathryn C. Ferguson)

The bankruptcy court held that an omnibus settlement agreement could not cure the bankruptcy court’s lack of subject matter jurisdiction to issue non-debtor releases in the debtors’ joint plan. The provisions in question exculpated the debtors’ officers and directors and issued §524(g) injunctions for the benefit of non-debtor parties, including the future claims representative, members of the asbestos committee, and the bondholder committee. The court found the exculpation provisions were not appropriate for summary judgment (which was how the objections were considered), as the plan proponents would have to lay a factual foundation to justify the relief required. The bankruptcy court also noted that the fact that the parties worked hard to craft a consensual plan was not in itself enough justification. The bankruptcy court found the non-debtor §524(g) injunctions outside the scope of In re Combustion Engineering, Inc., 391 F.3d 190 (3d Cir. 2004), which made the plan unconfirmable as a matter of law.

In re Federal-Mogul Global, Inc., T&N Limted et al., 2008 WL 4493519 (Bankr. D. Del. Sept. 30, 2008) (J. Judith K. Fitzgerald)

The debtors, asbestos committee, and future claims representative negotiated a comprehensive settlement of certain non-debtor parties’ claims and plan objections, which consisted of two alternative arrangements. The first arrangement contemplated the non-debtor parties contributing $756 million to the asbestos trust, withdrawing their claims against the debtors, and receiving a §524(g) injunction, and the second arrangement contemplated the non-debtor parties making a smaller $140 million contribution without receiving an injunction.

The plan proponents argued that the requirements of §524(g) were met, as one non-debtor party’s liability arose by reason of ownership and management of a predecessor-in-interest and involvement in a transaction changing the corporate structure of a predecessor-in-interest of the debtors.

The bankruptcy court disagreed, holding that the alleged predecessor was an unincorporated division whose derivative liabilities now ran to the non-debtor party by reason of a contractual indemnity agreement contained in an asset purchase agreement. The non-debtor party did not own or manage a predecessor in interest of the Debtors and was not party to a transaction that changed the predecessor’s corporate structure. The bankruptcy court held that the plan proponents also failed to satisfy §524(g)’s requirement that the non-debtor party’s liability was alleged to arise “by reason of” the relationship. Instead, the bankruptcy court found that it was alleged to be liable by reason of its own conduct. Similarly, the second non-debtor party failed to overcome §524(g)’s hurdles, as its liabilities arose from contractual obligations to the first non-debtor party.

Quigley Co. Inc. v. Coleman et al. (In re Quigley), 2008 WL 2097016 (Bankr. S.D.N.Y. May 15, 2008) (J. Stuart M. Bernstein)

The bankruptcy court held that a §524(g) injunction was broad enough to enjoin asbestos claimants from bringing certain direct claims against the debtor’s parent, a non-debtor party. The bankruptcy court had entered a preliminary injunction on the petition date enjoining all asbestos-related litigation against the debtor’s parent, and the injunction was later amended to provide the narrower relief of a §524(g) injunction. Certain asbestos claimants sought to sue the parent for its direct liability under Restatement (Second) of Torts §400, which imposes a manufacturer’s liability on an entity that places its name on a product manufactured by another. The claimants argued that the third requirement of §524(g)—whether the parent’s liability arose “by reason of” its ownership or management of the debtor—could not be met. Specifically, they contended that third-party protection is limited to derivative claims that arise from the debtor’s conduct and the third party’s connection to or affiliation with the debtor. Conversely, where the third-party’s liability is based on its own conduct, §524(g) does not apply. The bankruptcy court disagreed, reasoning that the use of the parent’s name and logo paled in comparison to the wrongful conduct required to impose alter-ego liability, but that the claimants’ interpretation of §524(g) would exclude manufacturer’s liability and include veil piercing claims—a result that did not make sense. Instead, the bankruptcy court found that the parent’s name and logo would not have been used by the debtor but for the parent’s affiliation. Accordingly, the third requirement of §524(g) was met.

Preemption of Insurance Policy Anti-Assignment Provisions
In re Federal-Mogul Global, Inc., T&N Limted et al., 385 B.R. 560 (Bankr. D. Del. March 19, 2008) (J. Judith K. Fitzgerald)

Plan proponents and certain objecting insurers filed a joint motion for the bankruptcy court to determine whether assignment of asbestos insurance policies to a §524(g) trust is valid and enforceable, notwithstanding anti-assignment or consent-to-assignment provisions in the policies or applicable state law. The bankruptcy court held that the insurance policies were property of the estate within the meaning of §541, even if the policy had not matured, had no cash value, or was otherwise contingent. In turn, §1123(a) expressly preempted any non-bankruptcy rights that would interfere with the implementation of a chapter 11 plan. The bankruptcy court also held that the anti-assignment provisions only applied to assignments before liability; once an event occurred that gave rise to the insurer’s liability under the policy, the policy itself could be assigned.

The bankruptcy court disagreed with the insurers’ alternative argument that the asbestos policies were executory contracts and thus subject to §365. The bankruptcy court held that although the terms and conditions of the policies might still be in effect for the periods covered by the policies, the executory period ended when the last effective date of the policies had passed.

(This opinion was appealed by the objecting insurers to the district court and is set to be argued on November 12, 2008.)

In re Congoleum Corporation, et al., 2008 WL 4186899 (Bankr. D.N.J. Sept. 2, 2008) (J. Kathryn C. Ferguson)

The bankruptcy court held in favor of the plan proponents that the anti-assignment provisions in the debtors’ insurance policies were preempted by federal bankruptcy law and that the plan did not impermissibly alter the insurers’ rights under the policies. The joint plan proposed to transfer all asbestos insurance policies to the plan trust. The insurers whose policies contained an anti-assignment clause objected to that treatment, arguing that In re Combustion Engineering, Inc., 391 F.3d 190 (3d Cir. 2004) was not controlling on the preemption issue, as it focused on the inclusion of the policies in the bankruptcy estate under §541 and not the transfer of policies to a plan trust. The bankruptcy court held that such argument miscast the holding of Combustion Engineering, as the plan at issue provided for the policies to be transferred to an asbestos trust, which could be accomplished through §1123(a)(5) and not merely §541. Moreover, the bankruptcy court found that general preemption principals and the express language of §1123(a) (“[n]otwithstanding any other applicable nonbankruptcy law”) provides for preemption of state law restrictions on transferring the policies.

The bankruptcy court also held that the insurers’ various rights (e.g., to cooperation from the Debtors, to control defense of claims, to object to asbestos claims) were not impermissibly altered. The insurers argued that the joint plan violated their rights by giving the plan trustee the sole authority to litigate and settle claims against the plan trust. The bankruptcy court, however, agreed with the plan proponents that the plan trust would be bound by the cooperation clause and consent-to-settle provisions of the insurance contracts to the same extent as the debtors, and that it was the province of the state court in any coverage action to determine if the plan trust failed to fulfill those obligations and thus provided the insurers with a defense to coverage.

The bankruptcy court held that certain rights of the insurers such as controlling the defense of and objecting to asbestos claims were necessarily curtailed by §524(g), which requires a uniform system of claims valuation and similar treatment of similar present and future claims. Additionally, the bankruptcy court’s jurisdictional limitations would prohibit the insurer’s ability to object to the asbestos tort claims under §502.

(This opinion was appealed by the objecting insurers to the district court and is set to be argued on December 12, 2008.)

___________________________________________________________________________________

Debra L. Innocenti is an Associate in the Creditors' Rights & Bankruptcy practice of Oppenheimer, Blend, Harrison and Tate, Inc. She has been recognized as a Texas Rising Star and one of San Antonio's Best Lawyers. Debra can be reached at 210.224.2000 or dinnocenti@obht.com

Texas Franchise Tax - The Revamped Version

Kathleen Quiroz and Jerry B. Cohen — Wed, 08 Oct 2008 20:50:00 GMT

For many physician practices, 2007 was a confusing and potentially costly year as a result of the implementation of the revised Texas Franchise Tax, commonly known as the Margin Tax. Like most Texas businesses, physician practices and other healthcare providers recently have filed their first state franchise tax return under the new Margin Tax, and we are now able to survey the impact of this new tax.

Closing the “Loophole”
In prior years, physician practices and other healthcare organizations that were organized as professional associations or limited partnerships were not subject to the Franchise Tax. The Texas legislature, seeking to close this perceived “loophole” whereby some businesses were subject to tax and others were not simply based upon their form of legal organization, revamped the Franchise Tax with the new Margin Tax. Among other things, these changes made the Franchise Tax applicable to nearly all business entities organized or transacting business in Texas. Therefore, as of January 1, 2007, physician practices organized as professional associations became subject to the Franchise Tax for the first time.

As a general rule, any form of legal entity that provides its owners with a statutory liability shield now will be subject to the Franchise Tax. In fact, the only business organizations that remain free of the Franchise Tax are sole proprietorships, general partnerships directly owned by individual natural persons, tax exempt organizations, and certain trusts and estates of natural persons.

Calculating the Margin
At its most basic level, the Margin Tax is a tax on the difference, or margin, between a business’ revenue (adjusted for certain statutory exclusions) minus an amount calculated by one of three alternative statutory deductions or reductions. The three alternative deductions or reductions against revenue permitted by the Margin Tax are (i) a deduction for cost of goods sold, (ii) a deduction for the cost of employee compensation and benefits, or (iii) a simple multiplication of adjusted revenue by 70 percent. An entity’s taxable “margin” is the difference between its adjusted revenue and whichever of the three alternative deductions or reductions results in the lowest margin. Since physician practices typically have little if any costs of goods sold, most practices and other healthcare providers rely upon the compensation deduction or the 70% of revenue calculation.

Limits on the Compensation Deduction
Unlike the federal income tax system, where only “unreasonable” compensation cannot be deducted, the Margin Tax caps the compensation portion of the compensation and benefits deduction at a fixed $300,000 per individual. This $300,000 cap includes any cash compensation, including both W-2 income and distributive income from partnerships, limited liability companies, and S Corporations. Therefore, physician practices with highly compensated physicians or other employees may not be able to deduct the full amount of the compensation paid to such individuals. However, there is no similar cap on the benefits component of this deduction and, therefore, the full cost of employee benefits provided by a physician practice or other healthcare organization should be deductible.

Adjusting Revenue
Physician practices and other healthcare providers have been provided with certain advantages in the new Margin Tax provisions of the Franchise Tax. Primarily, when calculating the “revenue” of the organization, healthcare providers and healthcare institutions may exclude all revenues received from Medicare, Medicaid, CHIP, workers’ compensation and TRICARE as well as the actual costs for providing uncompensated care. Further, for beneficiaries enrolled in Medicare Part C or similar replacement products, revenues received for services provided to these beneficiaries from the private payers providing the Medicare and other replacement products can be excluded from revenue as well. Finally, co-payments and deductibles received pursuant to one of the above government healthcare programs, or pursuant to supplemental insurance for enrollees in one of the above programs, also may be excluded from revenue.

The amount of revenues excluded depends upon whether the organization is a “Healthcare Provider” or a “Healthcare Institution” under the Margin Tax. Healthcare Providers, including physician practices, may exclude 100 percent of the revenues received from the above sources. Healthcare Institutions, including hospitals and other facilities, may exclude 50 percent of the revenues received from the above sources.

The (Almost) Final Calculation
Therefore, to calculate the taxable margin of a typical physician practice or healthcare provider, the organization will (1) start with a determination of its total revenue, (2) exclude either 50 percent or 100 percent, as appropriate, of the revenues received from the government payers and replacement products as noted above, and (3) then either deduct the appropriate compensation and benefit amounts, or multiply the remainder by 70 percent. Again, the organization’s taxable margin will be the result of whichever of the deduction or reduction calculations generates the smaller margin.

Tax Rate and Small Business Exceptions
In general, the Margin Tax rate is 1 percent of an entity’s taxable margin. However, there are several exemptions and rate reductions for small businesses that should be of assistance to many smaller physician practices and other small businesses in the healthcare industry. First, no tax at all is owed by any physician practice or other business whose total revenue, net of the exclusions described above, is $300,000 or less. Similarly, no tax at all is owed by any entity whose calculated Margin Tax due is $1,000 or less. For physician practices and other businesses with total revenues, again net of exclusions, of $900,000 or less, certain tax rate reductions ranging from 20 percent to 80 percent of standard rate may be available. Finally, physician practices and other businesses with $10,000,000 or less in total revenues, again net of exclusions, may elect the “E-Z computation,” under which a reduced tax rate of 0.575 percent is imposed against total gross revenues.

Tiered Structures
One final issue that concerned many in the healthcare industry was the impact of the Margin Tax on tiered structures. A common example of a tiered structure for physician practices is a general partnership in which all of the partners are professional associations each owned by an individual physician. For some time, practitioners were concerned that the margin tax would apply to the organization’s revenue at the lower (general partnership) level and then again when paid or distributed to the upper (professional association) level. In such a situation, it was possible that the same dollar of revenue would be taxed twice. Fortunately, the Margin Tax statute was clarified to provide that revenue received as distributive income from a taxable partnership (such as a general partnership owned by professional associations) or subchapter S corporation would be excluded from the taxable margin of the upper tier, or recipient, entity.

The Dust Settles
Just over one year into this new tax regime, it is clear that, for many entities in the healthcare industry, the Margin Tax presents a challenging new reality. However, for physician practices and other healthcare organizations that receive significant revenues from government payers, and for those smaller practices or businesses that find themselves excluded from taxation, this new reality may not be as painful as once feared.

What Makes Them Tick and What Makes Them Blow Up

Bruce M. Mitchell — Wed, 20 Aug 2008 21:39:00 GMT

I. IMPORTANCE OF BUY SELL AGREEMENTS.

1. Buy Sell Agreements in General. A Buy Sell Agreement is a contract among the owners of a business, including a husband and wife in a community property state such as Texas, which commonly provides for the purchase or sale of ownership in the business under certain circumstances, such as death, disability, insolvency, divorce, withdrawal or expulsion of one of the parties. Buy Sell Agreements have become increasingly sophisticated contractual instruments and often incorporate voting agreements and other contractual governance provisions, succession and family business planning provisions, income and estate tax planning concepts, and dispute resolution procedures. As private equity investors began to invest in emerging businesses, they employed Buy Sell Agreements to limit the independence of management, control future sales of equity, define an exit strategy, set financial goals, and impose a system of rewards and penalties on the founders/managers of the business for achieving or failing to achieve those goals. Once used primarily to control the ownership of stock in small closely-held or family-owned corporations, so that ownership was preserved within the group or family, Buy Sell Agreements are now used in every industry, with every form of entity, and with a level of sophistication unheard of a decade ago.

2. Buy Sell Agreements for Family Businesses. One of the primary uses of Buy Sell Agreements is to establish a succession plan for family businesses, which still account for a high proportion of all businesses in the United States. Of those family businesses which are not sold by the founders, approximately two-thirds fail in transition of management to children. One often quoted study of family businesses from 1924-1984 reveals that 80% have ceased to exist. Of the 20% which still exist, 13% are still in the family, 5% were sold to outsiders, and 2% went public and are no longer controlled by the family. M.F.R. Kets de Vries, "The Dynamics of Family Controlled Firms: The Good News and the Bad News," Organizational Dynamics, p. 59-71 (1993). There are many reasons why it is difficult to transition family businesses to successive generations, including changes in market conditions, costs, consumer tastes, personnel, etc., but the most important reason may be lack of early, effective, and properly-executed business succession planning.

3. Buy Sell Agreements for Business Succession Planning. The first step in establishing a viable business succession plan is for a business owner to consider his or her own financial situation. If the business owner does not have sufficient personal assets apart from the business to retire, then he or she cannot retire unless the business is sold. Although this appears obvious, it is not unusual for a business owner (and the owner’s children) to ignore this reality until the owner is at the brink of retirement and options are limited. Assuming that the business owner is financially prepared for retirement, the owner should develop a written business succession plan that addresses the transfer of the management, control and ownership of his or her business. This plan should address a number of important elements, including:

A. As discussed above, planning his or her retirement, including evaluating whether he or she will have sufficient income.

B. Planning for a fluid succession of management after his or her retirement;

C. Planning the ownership transfer of the business to children, employees, or third parties.

Family business owners may be reluctant to give up control during their lifetimes: often, their success in business has come from maintaining tight control over operations and management decisions. First generation entrepreuners, in particular, have difficulty giving up control. The business owner should make the critical decisions involving ownership and management well in advance of retirement, in order to address the expectations of others (family members, employees, investors, bankers, etc.), minimize management instability, and anticipate business contingencies. The business owner should also communicate his or her decision to his family and key employees.

4. Motivating the Business Owner. It is often difficult to motivate business owners to start the business succession planning process. In order to overcome this reluctance, it is important to highlight the positive things that can happen for the owner, his business and his family through good planning. Good planning starts sooner rather than later and the more time the business owner has to plan and to modify and adapt his plan, the better the plan will be for him and for the business.

5. Transfer of Ownership of Business is Distinct from Transfer of Management of Business. The decision of who will own a business is often totally separate from the decision of who will manage the business. The best manager is often an employee rather than an owner or family member. Even if the business is to be managed by family members after the owner=s retirement or death, all family members may not be involved in management and those who are may have different responsibilities and authority.

A. Transfer of Ownership. A key decision is who will succeed to the ownership of the business. The usual transferees are family members, employees or third parties through a sale transaction.

B. Lifetime Transfer of Ownership or Testamentary Transfer. If the owner=s exit strategy is to sell the business to a third party during his or her lifetime, the owner should carefully consider and plan the sale of the business, including positioning the business so as to maximize its value as of the date of the anticipated sale.

C. Testamentary Transfers. If the transfer is at death, the owner must decide whether the ownership interests in the business will be bequeathed only to active family members or equally to all family members, and whether, in the later case, the active family members should have control over the business pursuant to a Buy-Sell Agreement. If the transfer is at death, the owner should be sure that proper estate planning has been completed prior to death so as to minimize any estate taxes.

6. Estate Tax Planning. The business owner has the opportunity to achieve enormous estate tax savings with proper estate planning, using such tools as gifts or sales to shift future appreciation. Shifting a substantial part of the future growth in value can result in enormous estate tax savings.

II. COMMON TRIGGERING EVENTS.

1. Death. Most Buy-Sell Agreements are primarily intended to cover the death of an owner. A mandatory purchase requirement is often imposed, in order to generate liquidity to the deceased owner’s family. Otherwise, the deceased owner’s family may not receive any income from the business, unless they are employed by the business, the business is sold, or the business declares dividends or distributors (which is highly unlikely).

2. Disability. The Buy-Sell Agreement also often addresses disability, since if an owner is disabled he may not be receiving an income from the business. Also, the remaining owners may desire a buy-out so that they are not in the position of working in the business to support the financial needs of the disabled owner, being pressured to declare a dividend, or be subject to criticism for taking to much in compensation. Often the most difficult issue to address is how disability is determined. Common alternatives include a physician examination, reliance upon a definition of disability in a disability insurance policy, and providing for a specific number of continuous days of absence from work. If an owner is no longer able to work, his family may desire a buy-out in order to generate liquidity for support needs. The remaining owners may likewise desire a buy-out to occur in order to prevent “meddling” by the disabled owner’s spouse. The key point in a disability triggering provision is the procedure for determining when disability occurs. Various alternatives include: (1) examination by a group of physicians, (2) reliance upon a definition of disability in disability insurance policy, (3) decision solely in the discretion of the board of directors, and (4) mechanical objective standards, including items such as the specific number of days of absence from work or reduction in performance levels.

3. Termination of Employment. Termination of employment, whether by reason of retirement or otherwise, often is a triggering event under a Buy-Sell Agreement. Specifically, the Buy-Sell Agreement should address permanent retirement, voluntary termination of employment by the company and by the employee, unilateral termination by the employee, and involuntary termination of the employee with or without cause.

The remaining owners will often not want a non-employed owner to keep his interest, particularly if the non-employed owner lost his employment “for cause.” Forced sales are often the subject of disagreement, particularly if the forced sale is a result of a termination “for cause.” Often, the terminated employee/owner claims that the termination was for the purpose of acquiring his ownership at a favorable price to the acquirers. Consequently, a well-drafted Buy-Sell Agreement that is not punitive is critical in this area, where litigation is common. The recent trend in cases generally supports a forced sale upon termination of employment, assuming it does not constitute a forfeiture, E.g., Ryan v. J. Walter Thompson Co., 453 F.2d 444 (2d Cir.), cert. denied 406 U.S. 907 (1971). The sale is generally not deemed to be a forfeiture if the price was reasonable when set and if the parties acted in good faith. See In Re Estate of Borchard, 74 Misc. 2d 376, 346 N.Y.S.2d 620 (Sup. Ct. 1973). Forced sales following discharge without cause will face strict judicial scrutiny, particularly if the purchase price is below-market. See Horne v. Drachman, 247 Ga. 802, 280 S.E.2d 338 (1981); Note, Exercising Options to Repurchase Employee-Held Stock: A Question of Good Faith, 68 YALE L.J. 773 (1959).The agreement should specifically state whether purchase rights will be created upon voluntary termination of employment, involuntary discharge with cause, or involuntary discharge without cause. For each, the manner of sale should be specified. For example, the parties may want to give the corporation an option to acquire shares of a shareholder who is discharged with cause (a "bad boy" provision), but to require repurchase (giving some protection to the discharged employee) in the event of a discharge without cause. Beware that if an employee must resell his or her stock when employment terminates, and if that restriction was in effect from the time that the shareholder purchased his stock, the stock will likely be treated as section 83 property. If a shareholder enters into competition with the corporation, typically the corporation will be given an option to purchase that shareholder's shares. Typically, a right of first refusal is given first to the corporation, and if it chooses not to exercise it, to the remaining shareholders on a proportionate basis.

4. Conflicts of Interest. If an owner enters into competition with the company, files a lawsuit against the company, or otherwise is in an adversarial relationship with the company, the Buy-Sell Agreement customarily provides that the company and the other owners will be given an option to purchase the adversarial owner’s shares.

5. Rights of First Refusal. Most Buy-Sell Agreements provide for a right of first refusal in favor of the company which prohibits sales to third parties unless the interests are first offered for sale to the company and the other owners (on a proportionate basis).

6. Transfer Incident to Divorce. The owners will almost never want a divorced spouse to become an owner. The Buy-Sell Agreement commonly addresses transfers incident to divorce. Otherwise, general restrictions on sales and transfers may not apply to transfers incident to divorce in a community property state. Typically, the Buy-Sell Agreement will give the divorced owner the right to acquire any interests awarded to the divorced spouse. If that owner does not exercise his or her option, the company and remaining owners will be given the option to acquire such shares within a certain period of time from the date of the transfer. The price under a buy-sell agreement will not necessarily be recognized as the value of the owner’s interest in the company upon divorce. See Keith v. Keith, 763 S.W.2d 950 (Tex. App. - Fort Worth 1989, no writ); Geesbreght v. Geesbreght, 570 S.W.2d 427 (Tex. App. - Dallas 1983, no writ); Finn v. Finn, 658 S.W.2d 735 (Tex. App. - Dallas 1983, no writ).c.

7. Tag-Along; Drag Along Rights. The Buy-Sell Agreement may prevent a controlling owner from selling his stock to a third party unless the buyer purchases minority owners= stock at the same price (“tag along”), or may allow a controlling owner to sell his shares to the third party and compel the sale of the minority owners= stock (“drag along”). Under Texas law, controlling shareholders have fiduciary duties to minority shareholders. A tag-along provision may protect the minority shareholder by requiring the majority shareholders to sell their interests together with the minority shareholder's interest, as long as the per share purchase price is the same for the majority and minority shareholders. See Glass v. Glass, 321 S.E.2d 69 (Va. 1984) (controlling shareholder is not required to see that minority shareholders get to sell their stock at the same price and controlling shareholders may negotiate in their own interest); Treadway Cos., Inc. v. Care Corp., 638 F.2d 357 (2d Cir. 1980); Hazen, Transfer of Corporate Control and Duties of Controlling Shareholders, 125 U. PENN. L.R. 1023 (1977); Andrews, Stockholders' Right to Equal Opportunity in the Sale of Shares, 78 HARV. L. REV. 505 (1965).

8. Permitted Transfers; Gifts. Buy-Sell Agreements sometimes permit gifts to family members. This facilitates lifetime transfers for estate planning purposes. If gifts are permitted to family members, the donees are generally required to become parties to the agreement and are subject to the same limitations on transfer as the donor.

9. Use Of Independent Trustee and Enforcement of Buy-Sell Agreement. Many Buy Sell Agreements employ trustees to insure that the terms of the Buy-Sell Agreement are performed by all parties. The trustee may be designated as the beneficiary of any life insurance policies used to fund the agreement and may also hold the stock certificates executed in a form such that they may be transferred.

10. Manner Of Sale--Mandatory Or Optional. The parties must decide whether the sale upon the occurrence of each triggering event should be mandatory, optional (a put right), or optional with the entity (a call right). This decision depends upon the personal preferences of the parties, but may affect the estate tax valuation of a decedent interest. Be very careful with using mandatory purchases with cross-purchase arrangements. If, for whatever reason, the purchasing shareholders would prefer at that time to use a corporate redemption, constructive dividends may result. To avoid that potential problem, consider giving the shareholders the first right to purchase the shares, giving the corporation the second right to purchase the shares, and finally, if the corporation does not purchase the shares, requiring that the individual shareholders purchase the shares.

III. IMPORTANT CONTRACTUAL PROVISIONS

1. Written Agreement. If the Buy-Sell Agreement qualifies as a shareholder agreement under applicable law, It must be in writing signed by all shareholders and made known to the corporation. It is most commonly signed by the corporation as well as the shareholders.

2. Term. Unless the Buy-Sell Agreement provides otherwise, it is valid for ten years in the case of a corporation. It is the intent of most parties to Buy-Sell Agreements that the term of the agreement be longer than ten years, so it is important that the term be specified in the agreement.

3. Legend on Stock Certificates. The Buy-Sell Agreement must require that all stock certificates and other certificated securities have a conspicuous note that the shares are subject to the agreement. This legend must include the following:

“These shares are subject to the provisions of a shareholders= agreement that may provide for management of the corporation in a manner different that in other corporations and may subject a shareholder to certain obligations or liabilities not otherwise imposed on shareholders in other corporations.”

Any purchaser of shares who, at the time of purchase, did not have knowledge of the existence of a shareholders= agreement may be entitled to rescission of the purchase. A purchaser is deemed to have knowledge of the existence of the agreement if its existence is noted on the certificate.

4. Signatures by Spouses. If the shareholders intend that the Buy-Sell Agreement bind their spouses, the spouses should also be parties to the agreement. This is sometimes overlooked and more often simply avoided because of a reluctance to involve the spouse in Abusiness matters.@ In a community property state, unless the stock is clearly identified as separate property, the failure to include the spouse as a party can have disastrous consequences and can involve the corporation in bitter divorce proceedings. If the spouse is asked to be a party to the Buy-Sell Agreement and the spouse=s community property rights and interests become subject to the agreement, it is important to provide for the spouse to have separate legal counsel review the agreement on the spouse=s behalf. Otherwise, the spouse may claim that he or she was never advised of the contents of the agreement, was just told to “sign it,” and was fraudulently induced to sign the agreement. The professional who prepared the Buy-Sell Agreement may then be subject to a claim that the professional had a conflict of interest because the professional represented both husband and wife, was deemed to be representing the community, or did not clearly advised the spouse that the professional did not represent the spouse. Further, the professional may be subject to a claim by the shareholder or the corporation (if the professional was representing both, as often happens) for failure to address conflict of interest issues with the spouse or to insure that the Buy-Sell Agreement is specifically enforceable against the spouse.

5. Voting Agreements; Voting Trusts. Voting Agreements and Voting Trusts are sometimes included as part of a Buy-Sell Agreement. Voting Agreements and Voting Trusts are governed by a separate provision of the law from shareholder agreements and are required to have specific provisions included in them. They generally provide for the manner in which shares are to be voted under various circumstances. If they are included in a Buy-Sell Agreement, it is important that the statutory requirements be met, including a separate legend on the corporation=s stock certificates addressing them.

6. Enforceability; Arbitration. The Buy-Sell Agreement should provide for the manner in which it may be enforced. First, it is important that the Buy-Sell Agreement provide for injunctive relief in the event of any attempt to violate the terms of the Buy-Sell Agreement, such as an attempt to transfer shares in violation of share transfer restrictions. Second, it is often advisable to provide for arbitration of any dispute, in order to expedite resolution of the dispute and limit costs and because the terms of the Buy-Sell Agreement and relationship of the shareholders may be confidential.

IV. VALUATION METHODS COMMONLY USED IN BUY-SELL AGREEMENTS.

1. Importance of Agreement on a Valuation Method. The Buy-Sell Agreement should include a fair and flexible valuation method for many reasons, including the following:

A. It determines the amount to be received by a selling shareholder;

B. It prevents or resolves disputes; and

C. It is a basis for fixing an estate tax value of the stock (agreements containing mandatory buy-sell provisions do not necessarily fix the estate tax value of a deceased shareholder's shares: the price established in the agreement is only one of the valuation factors the IRS considers. Note that the estate must be obligated to sell and the price must be fixed or determinable by a formula. A purchase option by the corporation or surviving shareholders to acquire the estate's stock may also qualify as an "obligation to sell")

2. Alternative Valuation Methods.

A. Agreed/ Fixed Price. Using a fixed price is dangerous, since it will not address an increase or decrease in value after the agreement is initially executed. It is quite common for fixed price agreements to provide that the price is reset annually or on some other periodic basis; however, this rarely happens as a practical matter.

B. Book Value. Book value rarely reflects fair market value because it ignores the corporation's earning potential. Furthermore, book value does not even reflect true asset value because of depreciation.

C. Capitalization of Earnings. Another common valuation method is a capitalization of earnings. The value is obtained by multiplying the corporate earnings by a capitalization factor. Capitalization of earnings may yield unreasonable values for close corporations because expenses, such as salaries and payment of personal expenses, are often determined for personal tax planning purposes rather than business needs of the corporation.

D. Appraisal. Appraisals are generally considered the fairest method of valuation, although they are also considered the most expensive. One advantage to the appraisal method for estate tax purposes is that it allows the estate to argue for appropriate minority and marketability discounts.

E. Formula Based on Future Earnings. A formula based on expected future earnings (earn out) may be used, although it has several disadvantages, including not bringing closure on the issue, engendering disputes over how earnings are calculated (the fairness of owner compensation, etc.) and how the business was managed, and not having a valuation that can be used for estate tax purposes.

F. Push Pull Method. A push pull provision allows any shareholder to require that the other shareholder or shareholders buy his interest or sell him their interests at a price he sets. The push pull generally favors the shareholder with the deepest pocket and the shareholder who is in control of or most knowledgeable about the business.

V. COMMON FUNDING METHODS.

1. Sinking Funds. The corporation or shareholders may make a business decision to use corporate assets or to set aside a sinking fund. The sinking fund method may be required if one or more shareholders are uninsurable, or if premiums would be prohibitively excessive due to the age or health of certain shareholders. There may be limits on the ability of the corporation to use sinking funds to purchase stock in the event the corporation does not have a surplus or is insolvent.

2. Life Insurance; Redemption.

A. Use of Corporate Funds. A corporate purchase agreement permits the use of corporate funds to purchase the stock or to pay premiums on life insurance policies purchased by the corporation for the purpose of funding the agreement. The insurance premiums are nondeductible.

B. Tax Brackets. If the shareholders are in a higher federal income tax bracket than the corporation, the shareholders under a cross-purchase agreement will need more pre-tax dollars in order to pay the premiums, even if the amount of the premiums can be distributed to the shareholder as salary and be deducted by the corporation as reasonable compensation.

C. Funding by Corporation. The corporate purchase agreement keeps the funding arrangements within the control of the corporation, so that each stockholder need not rely on the other stockholders' ability to accumulate the necessary funds with which to purchase the stock or to pay insurance premiums on policies on the lives of other stockholders.

D. Dividend Treatment. Very detailed requirements must be satisfied in order for a corporate redemption to avoid being treated as taxable dividends rather than as a sale or exchange which may avoid any income tax to selling shareholders because of the step-up in basis at death. The deceased shareholder may not be able to satisfy those requirements if other family members also own stock in the corporation under the attribution rules.

E. Simplification of Insurance Program. If the corporate purchase agreement is to be funded with insurance, the corporation needs insurance policies equal only to the number of stockholders participating in the corporate purchase agreement.

F. Increase in Corporate Value. If the corporation's purchase is funded by insurance, the insurance policies constitute a corporate asset and this may increase the value of the stock owned by each stockholder for federal estate tax purposes (and may be considered in determining the purchase price for the shares of a deceased shareholder=s stock).

G. Surplus and Solvency. State law may prevent the corporation from redeeming shares because of its need to comply with surplus, solvency, and other requirements.

3. Life Insurance; Cross-Purchase Agreement.

A. Increase in Cost Basis. Under a cross-purchase agreement, each purchasing shareholder receives an increased cost basis in the shares purchased from the selling shareholder. This factor is not critical if the purchasing shareholders intend to hold their stock until their respective deaths, but it may be critical if the purchasing shareholders intend to sell their shares during their lifetimes.

B. No Corporate Creditors. Proceeds of insurance received by stockholders are removed from claims of corporation's creditors.

C. Funding Availability. Cross-purchase funding is available where a corporate deficit or inability to create a surplus precludes a redemption.

D. Insurance Premiums Are Paid with After-Tax Dollars. Shareholders pay for insurance premiums on policies to fund the cross- purchase agreement with after-tax individual rate dollars, out of their personal incomes. Assuming the shareholders' salaries can be increased and still remain reasonable compensation deductible by the corporation, the shareholders' income tax rates should be compared with that of the corporation to determine the lowest after-tax cost of paying insurance premiums.

E. Cross Purchase Plan Can Avoid Adding Values Subject to Estate Tax. Under typical buy-sell agreement provisions, at the death of a shareholder, his or her stock will be purchased by the corporation or by the surviving shareholders. This arrangement may have various substantial disadvantages. First, as each shareholder dies, increased funding will be required, because he or she will own a greater interest in the corporation. Second, each surviving shareholder would own a greater value in the corporation, and the successively greater values will be subject to estate tax.

F. Split Dollar. Split-dollar life insurance may be used under a cross-purchase agreement to assist the shareholders in acquiring insurance on the lives of the other shareholders at a lower aggregate after-tax cost than if the shareholders each merely acquired insurance on the lives of the other shareholders on their own. Under the typical split-dollar arrangement, the corporation pays the portion of the annual premium equal to the annual increase in the cash surrender value of the policy, and the employee pays the balance, if any, of each year's premium. Upon the insured's death, the corporation recovers the full amount of the premiums it paid, and the insured's beneficiary receives the balance of the proceeds.

4. ESOP=s.

A. Qualified Plans. ESOP=s are qualified retirement plans that have as their primary objective the acquisition of corporate stock to be held for providing retirement benefits for corporate employees. ESOP=s can provide a market for stock of a shareholder who wishes to sell but has not outside market and contributions to an ESOP are currently deductible.

B. Employee ownership. Eventually employees of the company will own a significant interest in the company and have substantial voting power.

VI. DISABILITY PLANNING AND SALARY CONTINUATION PLANS.

The family business owner may wish to have a formal disability plan, to facilitate the deductibility of disability payments from the business to the disabled donor. Salary continuation plans allow for disability payments while minimizing risk of being treated as unreasonable compensation. The business owner should coordinate the business=s salary continuation plan with its disability policy (for example, make sure that policy does not provide that benefits will be reduced to the extent the company has salary continuation plan; coordinate payment obligations with funding availability under policy being careful to maintain policy as “informal” funding vehicle). The present value of company's obligation to pay salary continuation right for life expectancy should be considered in valuing stock of company--which can create sizable valuation adjustment. A salary continuation plan assures cash flow for the lives of the business owner and spouse without having to retain the company's ownership to assure that result. The salary continuation right probably is included in the employee's estate if he or she predeceases the spouse. The interest should qualify for the marital deduction as long as no portion of the payments are payable to anyone other than the surviving spouse. The salary continuation right should not be included in the estate of the second spouse to die as long as the right does not pass to anyone after the deaths of both spouses. Payments must constitute reasonable compensation to be deductible to the company for federal income tax purposes. Unfunded deferred compensation is generally not taxable to the employee for federal income taxes until paid. For employment tax purposes, deferred compensation is generally taxable at the earlier of the time the services are rendered, or the right to deferred compensation becomes nonforfeitable.

VII. MISUSE OF BUY SELL AGREEMENTS

1. Treating a Buy Sell Agreement as Static. A Buy Sell Agreement is an organic document that must be reviewed and, if necessary, revised on a regular basis during the life of the business. All businesses experience change, and even the most carefully drafted Buy Sell Agreement cannot anticipate every circumstance that may arise. In particular, Buy Sell Agreements that provide for a fixed value of the business or provide that the owners will meet periodically to set a fixed value for the business are potential traps if not reviewed and updated regularly. The risk of an unintended consequence, such as an obligation to purchase another owner’s interest for far more (or less) than its actual worth, is very real if the Buy Sell Agreement is treated as a static document. In such a situation, the only thing worse than not having a Buy Sell Agreement is having a Buy Sell Agreement that causes the wrong result.

2. Leaving the Difficult Decisions for Later. During the process of preparing a Buy Sell Agreement, it is important to consider all of the issues that may arise in the course of the life of the business, and not just those that are easy to resolve or that do not require difficult decisions. If, for example, management succession is an issue for the business, a Buy Sell Agreement that skirts this issue but provides for the purchase of the majority owner’s interest upon his death or disability could postpone a decision on management succession until the person best able to make it is dead or incapacitated.

3. Ignoring Spouses or Other Invested Parties. It is common to see Buy Sell Agreements that provide for the purchase of the community property interest of an owner’s spouse that are not signed by the spouse (or that is signed by the spouse without legal representation). Too often, there is reluctance to confront the issue with the spouse directly, either because the issue of divorce is too difficult to raise with the spouse or because the valuation of the spouse’s interest is unfair. As noted above in this outline, having a Buy Sell Agreement with a punitive buy out provision that is signed by a spouse under duress is one of those situations where it is worse to have the Agreement than to not have it: it is not enforceable and shows a bad intent. Similarly, having a Buy Sell Agreement that is intended to address the interests of other parties, including children and key employees, that they are either unaware of or that they do not understand, can cause surprise, frustration and anger when finally known to them, often at a critical time for the business. A business owner should seriously consider the merits of including provisions in a Buy Sell Agreement that he or she is unwilling to discuss with his or her spouse or other invested parties during the planning stage, but is willing to have them discover when there is a crisis, such as upon the business owner’s death.

4. Not Integrating Buy Sell Agreement with Corporate Governance Documents. It is critical to have a qualified professional review the organizational and governance documents of the business as well as relevant law to determine if the intended terms of the Buy Sell Agreement are in conflict with such documents or are void or voidable under the law. For example, a Buy Sell Agreement that provides for the purchase of a physician’s interest in a professional association by a non-physician is illegal. If the Certificate of Formation of a corporation provides that the shareholders have preemptive rights, a Buy Sell Agreement that ignores this provision may be unenforceable. The Buy Sell Agreement must be integrated with the organizational and governance documents of the business.

VIII. TAX PLANNING TECHNIQUES IN CONNECTION WITH THE BUY SELL AGREEMENT.

1. How to Reduce Taxes. The business owner, perhaps more than any other type of client, may be able to achieve enormous estate tax savings with proper estate planning. Central to these savings programs would be gifts or sales or "opportunity transfers" to shift future appreciation. The REAL estate tax problem is not the large amount of estate taxes that will be payable on the current value of the business, but the estate taxes that will be payable on the future growth of the business--with compounding. For example, a business worth $1,000,000 currently that is growing at 12% per year would grow to approximately $9.6 million in 20 years. Shifting a substantial part of that future growth can result in enormous estate tax savings. GRATs may be a particularly appealing method of shifting a substantial part of the future growth without making large current taxable gifts.

Motivating business owners to start the business succession planning process can be very difficult. The most important element of all of the steps in the business succession planning process is to act.

2. Use of Estate Planning Techniques. Typical bypass trust/marital deduction planning techniques should be used (to defer estate taxes until second spouse's death and to take advantage of both spouses' exemption equivalent amounts). Leave flexibility for allocating business interests to either the bypass trust or marital deduction share. If a business interest is ultimately left to only certain family members, consider whether that bequest will be made at first spouse's death or at second spouse's death. If at first spouse's death, consider how to fund estate taxes at first spouse's death. If at second spouse's death, consider using separate QTIP trust for the business interest.

3. Valuation Discount for Partnership Interest. The IRS often argues that partnerships should be ignored for estate and gift tax valuation purposes because they have no non-tax business purpose and have no economic substance. Section 2703 provides that restrictions on the right to sell or use transferred property should be ignored for valuation purposes unless the restrictions meet a safe harbor test. The IRS has tried to argue that ''2703 may restrict the availability for discounts of limited partnership interests. Several courts have rejected the IRS's position, reasoning that the transferred interest is a partnership interest rather than partnership assets, so ''2703 should not apply to ignore inherent restrictions on the use of the underlying partnership assets. Several cases have applied section 2036 to transfers of limited partnership interests where the donor-parent retained total control of the partnership activities, and where much of the partnership income was distributed to the donor. Factors suggesting the application of section 2036 include ignoring partnership formalities, parent continuing to enjoy all the benefits of partnership assets, commingling of partnership and personal funds, depositing partnership income in personal account, using partnership checking account as personal account, using residence in partnership without paying rent, and if relationship to assets remains the same after assets are transferred to the partnership. Estate of Schauerhammer v. Comm'r, T.C. Memo 1997-242; Estate of Reichardt v. Comm'r, 114 T.C. 144 (March 1, 2000); see Estate of Strangi v. Comm'r, 115 T.C. No. 35 (Nov. 30, 2000) ('' 2036 raised too late to be considered by court but court invited scrutiny of future partnerships under '' 2036). The IRS argues that a gift arises on creation of a family limited partnership if the assets contributed by parent to the partnership exceed the value of the partnership interests received by parent. Several courts have rejected this argument.

The amounts of discounts allowed in the reported cases have varied dramatically.

IX. USE OF BUY SELL AGREEMENTS BY PRIVATE EQUITY INVESTORS.

Private equity investors employ Buy Sell Agreements for several purposes, including:

(a) limiting the independence of management;

(b) controlling future sales of equity;

(c) defining an exit strategy;

(d) setting financial goals and imposing a system of rewards and penalties for achieving or failing to achieve those goals.

1. Limiting the Independence of Management. Private equity investors routinely request to participate in major business decisions, often requiring the business to obtain their consent to any major expenditures, borrowings, contractual commitments, acquisitions, sales or restructuring as well as any issuance of additional ownership interests (although it is non uncommon for a pool of ownership interests to be set aside for employees as a performance incentive). They are often guaranteed one or more seats on the Board of Directors or Managers and may have the right to take control of the Board in the event the business does not meet predetermined performance goals. They use a Buy Sell Agreement to insure that they have these rights contractually, including in the Buy Sell Agreement voting provisions that guarantee their voting rights, rights of first refusal, anti-dilution and vesting provisions that guarantee their equity position, and "triggers" that allow them to take control should the business stumble. They will often include similar provisions in the entity's governance documents to cover all bases.

2. Controlling Future Sales of Equity. Private equity investors expect to control future sales of equity in order to minimize dilution to them. They may also wish to direct future rounds of equity financing to themselves or other private equity investors they desire to cultivate. Although it is not uncommon for a pool of ownership interests to be set aside to be used by management as a performance incentive for employees, the size of this pool is usually relatively small. Various tools are used by the private equity investors to maintain their control over future sales of equity, including employing a Buy Sell Agreement to provide for anti-dilution, preemptive rights, rights of first refusal, conversion rights (e.g., non-voting to voting or preferred to common), the issuance of options or warrants (which are evidenced by a separate instrument), and "claw back" rights.

3. Defining an Exit Strategy and Setting Financial Goals. Private equity investors commonly make an investment with a specific exit strategy in mind. The exit strategy may be to sell the business, merge, or undertake a public offering, and usually is intended to be achieved within a relatively short period of time. A Buy Sell Agreement may be used to insure that this exit strategy is implemented, by giving employee/owners specific goals to achieve and rewarding or penalizing them for achieving or not achieving those goals. Rewards may include the issuance of additional ownership, the removal of restrictions on management, conversion of debt to equity or preferred stock to common stock, and so forth. Penalties may be the loss of ownership or the right to acquire ownership, the loss of control over management decisions, or additional dilution. The Buy Sell Agreement is used as a tool to achieve the desired goals and implement the exit strategy of the private equity investor.

XII. CONCLUSION.

A well drafted and comprehensive Buy Sell Agreement is critical to any business, and should address the purchase and sale of ownership under various circumstances, business and succession planning, particularly in the context of a family owned business, retirement and estate planning, and dispute resolution procedures. It should tick like a dependable watch, be checked regularly, and be properly maintained. It should never blow up.

_________________________________________________________________________

Bruce M. Mitchell is the firm’s Chief Executive Officer and a Shareholder in its Corporate & Securities practice. He has been recognized as one of the Best Lawyers in America, a Texas Super Lawyer and one of San Antonio's Best Lawyers. Bruce can be reached at 210.224.2000 or bmitchell@obht.com

Can Construction Liens Die an Early Death?

Charles A. Japhet — Fri, 01 Feb 2008 22:08:00 GMT

Time Deadlines in the Enforcement or Removal of Liens

One of the biggest aggravations a general contractor or owner faces in the construction of a project comes if they receive a dreaded lien notice in the mail. Often, this is the first indication that a valued subcontractor or trusted general contractor may be in financial straits that can affect the progress and timely completion of a project. Texas law is clear on the time deadlines involved in dealing with lien claims. It is equally clear that it is imperative for the lien claimant to come to a resolution or timely file a lawsuit to protect its lien rights.

In most cases, when a letter notifying a property owner and/or the general contractor for a project is received, those parties have ample time to protect themselves by withholding funds from payments to lower tier contractors. Chapter 53.056 of the Texas Property Code requires that written notice of any unpaid balance be sent to the general contractor by at least “the 15th day of the second month following each month in which all or part of the claimant’s labor was performed or material delivered.” In laymen’s terms, this means the notice must be given on the fifteenth of the month which is approximately six weeks after the end of the month in which the work was done. This same notice must be given to the owner by the fifteenth day of the next month (approximately ten weeks after the end of the month when the work was done). Thus, on a thirty day billing cycle, if a payment is not quickly received, a general contractor should expect a notice letter. The owner’s notice lets the owner know, a month later, of the dispute between the subcontractor and the general contractor. The notice letter serves to alert the owner of potential problems with his general contractor and to allow it to protect itself by retaining the funds claimed until there is a resolution.

As many are aware, if the parties do not solve the issue after receipt of a notice letter, the next step is the filing of an affidavit claiming a mechanic’s and materialman’s lien on the property for the project. Under Texas Property Code Section 53.052, for commercial projects, the deadline for this filing is the 15th day of the fourth month “after the day on which the indebtedness accrues” and for residential projects this deadline is the 15th day of the third month “after the day on which the indebtedness accrues.” Under Property Code Section 53.053, “indebtedness accrues” typically on the last day of the month when labor was performed or material was furnished under the contract or agreement between the parties or on the last day of the month in which such a contract was terminated. Finally, notwithstanding the required “15th of the month” filings, under Property Code Section 53.101, to trap funds held by an owner, the claimant must file his lien affidavit within thirty days of the completion of the project

If you are the owner or general contractor of a project on which a claimant has filed a lien affidavit, the questions then arises as to what you are to do once such a claim is received? At that point, under Texas Property Code Section 53.084, an owner or general contractor is typically only liable for the ten percent retainage which is required to be held until thirty days after completion and for “trapping” any funds due to be paid after the notice letter has been received from a claimant. If the owner fails to hold onto these funds, the owner is personally liable and the project property is subject to the lien claim up to the amount of the money which should have been withheld. However, if the owner has properly withheld funds and the lien claimant persists in failing to release the lien affidavit filing, there are two distinct options – one proactive and aggressive and the other a waiting game.

The proactive option involves the owner (or any other party opposing the filing of a lien) either filing a bond to discharge the lien under Property Code Section 53.171 and/or filing an action under the terms of Property Code Section 53.160 to have the lien claim summarily removed. The bond filing simply removes the real estate lien and allows the claimant to pursue the matter as a personal civil matter against the owner. In the summary removal action, the innocent party, who has otherwise complied with all provisions of the law, is provided a process whereby it can have an invalid mechanic’s lien removed relatively early. At the hearing on such a matter, it is the lien claimant who bears the burden of proving that it timely furnished all notices and timely filed all lien claims. The party opposing the lien filing bears the burden of showing that it withheld all required monies after receipt of any notices. The court is required to “promptly” rule on whether the lien claimed in the lien affidavit should be removed. The claimant does have the option of having this order stayed but only if the lien claimant posts a bond for the attorneys’ fees and costs likely to incurred by in any future proceedings. Additionally, it is important to note that if a lien claim by a subcontractor does proceed to a lawsuit, the lien foreclosure action must be defended at the expense of the general contractor.

The waiting game option is available to those who are not actively seeking to sell the property in question. This takes advantage of the fact that the time period for bringing an action to foreclose on non-residential property that is the subject of any lien filing claiming a mechanic’s or materialman’s lien is the later of two years after the deadline for filing a lien affidavit or “one year after completion, termination, or abandonment of the work under the original contract.” For residential property, both limitation periods above are reduced to one year.

“Time is of the essence” is not just a term to be used in the purchase and sale of real property. Lien claimants, general contractors and owners must be fully aware of the deadlines by which they can assert their rights to protect themselves under the law. Ultimately, the law requires timely resolutions to protect real property from encumbrances which can mar titles in years to come. An aggressive, informed action by a party who has complied with the law is the best means of protection.

_________________________________________________________________________
Charles A. Japhet is a shareholder in the Real Estate practice group of Oppenheimer, Blend, Harrison and Tate, Inc. He has extensive experience in commercial and residential real estate transactions and litigation. He may be reached at 210.224.2000 or via email at cjaphet@obht.com.

The purpose of this article is solely informative. The material contained herein should not be in any manner considered legal advice. This communication does not create an attorney-client relationship. Legal advice is rendered only by consulting with an attorney.

Warranty? What Warranty? - Implied Warranties in Texas

Charles A. Japhet — Tue, 01 Jan 2008 22:11:00 GMT

Many contractors or tradesmen think that they can avoid or limit any warranty they may be liable for by simply not addressing warranties in their contracts. Actually, just the opposite is true. Under Texas law, the best way to limit warranty liability is by expressly dealing with the issue in a written contract.

While there are a number of implied warranties recognized under the law, in contractor/subcontractor relations, the following implied warranties are most commonly at issue:

the implied warranty of good and workmanlike performance;
the implied warranty of merchantability; and
the implied warranty of fitness for an intended purpose.

Texas courts have found that these warranties are included in any contract between the parties whenever necessary to ensure that the parties receive that for which they bargained. It is the quality and finish of the end product of the contract for goods or services that determines whether there has been a breach of warranty.

Prior to 1968, Texas courts recognized the doctrine of caveat emptor, or “let the buyer beware,” in most new construction cases. Since that time, courts have recognized that builders and contractors should impliedly warrant that their work has been constructed in a good, workmanlike manner. The Texas Supreme Court has held that in order to establish a breach of the implied warranty of good and workmanlike construction, the contractor must fail to construct a building or home in a manner generally considered proficient by those capable of judging such work. The implied warranty of good and workmanlike construction extends only to those defects that are unknown to the buyer, it does not include those defects, even if substantial, known or expressly disclosed to the buyer.

Texas law also recognizes the implied warranties of merchantability and fitness for a particular purpose in Section 2.314 of the Texas Business and Commerce Code. That Section provides that “a warranty that the goods shall be merchantable is implied in a contract for their sale if the seller is a merchant with respect to goods of that kind.” Guidelines for determining whether an item is “merchantable” are included in that Section. Typically, however, for a breach of this warranty, the goods in question must have a defect at the time they left the builder or manufacturer which renders them unusable in the expected course of business.

This is closely akin to the implied warranty of fitness for a particular purpose which is discussed in Texas Business and Commerce Code Section 2.315 where it provides that this implied warranty exists:

[w]here the seller at the time of contracting has reason to know any particular purpose for which the goods are required and that the buyer is relying on the seller’s skill or judgment to select or furnish suitable goods, there is, unless excluded or modified, under the next section an implied warranty that the goods shall be fit for such purpose.

Avoiding the imposition of the implied warranties under contract is important because there is a four year statute of limitations governing such implied warranties. This time period may be extended in some circumstances if the defect is not discoverable until well-after completion. The real world effect of this is that a contractor may be liable for a defect many, many years after completion. Thus, dealing with these issues in contract discussions is extremely important.

The implied warranty of merchantability can be disclaimed by use of the term “merchantability” in a disclaimer which is conspicuous. The implied warranty of fitness for a particular purpose can be disclaimed by general language so long as it is also a conspicuous disclaimer. In both these situations, Texas Business and Commerce Code Section 2.316(c) may also allow the disclaimer of implied warranties in the following ways:

by using expressions such as “as is”, “with all faults” or other language which in common understanding calls the buyer’s attention to the exclusion of warranties and makes plain that there is no implied warranty; and
when the buyer before entering into the contract has examined the goods or the sample or model as fully as he desired or has refused to examine the goods … [where such examination] ought in the circumstances to have revealed to him [the defect];
… by course of dealing or course of performance or usage of trade.

Reliance on items 2 and 3 above should only be made as a last resort when the contractual language is insufficient. In every case, crafting a clear contract expressly dealing with (or disclaiming) warranty issues is the better course.

The parties may avoid application of the implied warranty of good and workmanlike construction when the parties’ agreement provides for the manner, performance or quality of the desired construction. This requirement can be accomplished by inclusion of the appropriate language which may be as simple as, “[Builder] warrants its product against failure due to defective workmanship or materials for a [time period] from completion date. [Builder’s] liability shall be limited to the written warranties specified herein.”

While implied warranties are important in keeping business transactions above-board and protecting purchasers from unscrupulous dealings, the better course, in all circumstances, is to deal with warranty issues directly and to freely discuss them prior to contract. It is always better for parties to a contract to decide the terms of their agreement than to have to endure a costly fight over it later and have a group of strangers decide the possible future of a business.
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Charles A. Japhet is a shareholder in the Real Estate practice group of Oppenheimer, Blend, Harrison and Tate, Inc. He has extensive experience in commercial and residential real estate transactions and litigation. He may be reached at 210.224.2000 or via email at cjaphet@obht.com.

Limiting Liability By Following Retainage Law

Charles A. Japhet — Sat, 01 Dec 2007 22:22:00 GMT

One of the most commonly misunderstood aspects of construction contracts is why it is necessary to keep retainage from payments to contractors. Most contractors see this as a method for the owner to deny them money that has already been earned. Many owners see it as a nuisance – and agree with the contractors that it is a denial of money already earned.

However, when the owner pays the contractor all money earned, without withholding retainage, the owner exposes himself to a great deal of liability. Owners, or general contractors acting for owners, who enter into contracts for construction must realize the benefits and necessity of keeping ten percent of moneys earned by subcontractors.

“Retainage” is defined by Texas statute as the “amount representing part of a contract payment that is not required to be paid to the claimant within the month following the month in which labor is performed, material is furnished, or specially fabricated material is delivered.” Withholding retainage is a matter that is statutorily mandated. Texas Property Code Section 53.101 states:

“During the progress of work under an original contract for which a mechanic’s lien may be claimed and for 30 days after the work is completed, the owner SHALL retain:

10 percent of the contract price of the work to the owner; or
10 percent of the value of the work, measured by the proportion that the work done bears to the work to be done, using the contract price or, if there is no contract price, using the reasonable value of the completed work. ”

The use of the word SHALL makes retention mandatory. Failure to retain funds exposes the owner to the possibility that he will have to pay the amount of the retained funds twice – once to the contractor from which he should have retained funds and once to a lien claimant who files a lien on the property after not getting paid. To clarify matters, it is not just the general contractor or a subcontractor who may be legally liable to satisfy a lien claimant. Rather, it is the owner who may be ultimately liable to the claimant.

The limitations on liability and protections given to an owner who follows the requirement to withhold retainage are also provided by statute. Section 53.084 specifically provides an owner is not liable for any amount paid to the original contractor as long as he has properly withheld required funds.

This protection is somewhat tempered once an owner receives a “fund trapping” notice. A “fund trapping” notice is a notice sent by a subcontractor, within proper time limits, prior to filing a lien affidavit, in which the subcontractor is required to notify a property owner of his claim and to notify the property owner to withhold funds from the contractor who is claimed to be delinquent. Upon receipt of such notice, the owner is required to withhold funds from that contractor or subcontractor until the claim is otherwise paid or settled. Failure to do so will subject the owner’s property to a lien and could subject the owner to personal liability. The owner’s remedy here is simply - withhold paying whatever the disputed amount might be. If the disputed amount is in excess of what is owed to the contractor or subcontractor being paid, and the owner has properly withheld retainage, the owner is protected.

The lesson to be learned is that typically an owner contracting for improvements can protect himself from being liable for any amount above his contract amount simply by following Texas law. Withholding retainage limits any claim to the amount retained and withholding further payment after receipt of a fund trapping notice will almost always prevent liability above what the contractor was owed. When entering into contract negotiations and when making progress payments during construction, the question of whether or not to withhold retainage should never be an issue – it must be mandatory.
________________________________________________________________________
Charles A. Japhet is a shareholder in the Real Estate practice group of Oppenheimer, Blend, Harrison and Tate, Inc. He has extensive experience in commercial and residential real estate transactions and litigation. He may be reached at 210.224.2000 or via email at cjaphet@obht.com.

Standardized Construction Contracts Undergoing Change

Charles A. Japhet — Mon, 01 Oct 2007 21:26:00 GMT

In many construction negotiations, it is not uncommon for the parties to disagree over what is seemingly the simplest facet of the negotiation – the form of contract . The owner’s, the contractor’s or even the builder/developer’s?

To put some order to this quandary, it helps to understand that long ago, the American Institute of Architects (AIA) published several standardized forms which navigate the middle ground between the parties and add an element of equity with which both sides could be comfortable. These AIA standardized forms helped set up the norms of contracts now in common use in the construction industry.

The current version of these forms date from 1997. However, periodically, the AIA issues revised standard documents in order to modernize and update the forms to conform to changing industry standards, and the AIA plans to issue new versions of many of its contracts in October 2007.

AIA construction forms are typically organized by an alphanumeric system. The October 2007 revisions to five A-series contract documents are of particular interest. These include:

the A101, a stipulated sum contract;
the A111, a cost-plus contract with a guaranteed maximum price;
the A114, a cost-plus contract without a guaranteed maximum price;
the A107, an abbreviated contract with general conditions; and,
the A201, the general conditions of the contract for construction.

The A201 contract, entitled General Conditions of the Contract for Construction, is typically used as a corollary document in conjunction with the A101, A111 and the A114 contracts. It sets forth, among other things, terms for the basis of the parties’ relationship, dispute resolution avenues, warranty terms, insurance coverages, administrative terms, payment approval provisions and other general provisions which should be common to most construction contracts. The A101, A111 and A114 contracts set forth the actual monetary terms and negotiated provisions of typical construction dealings.

Some of the 2007 changes to these documents involve the numbering of the documents themselves. In order to simplify matters, the A111 contract has been re-numbered to A102 and the A114 contract has been renumbered to A103. The other document numbers remain the same. However, a majority of the changes to the A-series are in the general conditions of the A201 contract. Among these are:

Elimination of mandatory arbitration. An arbitration clause will be left in but will be subject to an option to accept or decline arbitration. Mandatory mediation will remain as part of the contract.
Grouping of all dispute and claims resolutions issues into a new Article 15. Among the changes are a provision allowing for consolidation and joinder of all disputes. Previously, disputes involving the architect/designer and contractor could be forced into separate, costly disputes.
Contractors and subcontractors will face new additional insured coverage requirements.
The ability of an owner to inquire about the payment and lien status of subcontractors and suppliers will be strengthened along with the inclusion of a section allowing payment by joint checks to contractors and subcontractors.
New limits will be placed on a contractor’s ability to request additional financial assurances from an owner.
Provisions allowing for the replacement of the job architect by a neutral third-party will be added to alleviate potential conflicts in owner/contractor disputes.
Elimination of a time limitation on claims. These issues are now to be left to existing state laws.

Parties should also be aware that, due to the explosion in the use of digital data, the AIA has issued contract forms that deal with the transmission and exchange of digital information which can be incorporated into the 2007 A201 forms.

AIA forms have been successful because they are generally fair and have been time-tested in the courts. As a result, there is a multitude of case law based on the interpretation of standard AIA forms. The evolution of AIA forms shows that they can be adapted to an ever-changing world of construction designs, standards and methods. Beginning late this year, owners and contractors should pay particular attention to what version of contract they are entering into and should insist on updated 2007 forms. For a further update on the progress of, and changes to, AIA forms, visit the AIA website at www.aia.org.

Charles Japhet is a shareholder in the real estate section of Oppenheimer, Blend, Harrison and Tate, Inc. specializing in commercial and residential real estate transactions and litigation. He may be reached at 210 224 2000 or at cjaphet@obht.com

Two of the city's top law firms join forces to offer clients a broader range of expertise

sabrina — Fri, 02 Sep 2011 01:07:51 GMT

Oppenheimer Blend Harrison and Tate, CEO, Marty Roos, stands with Ed Valdespino, Partner-in-Charge of Strasburger's SA office.(SAN ANTONIO), September 2, 2011 — One of San Antonio’s most prominent law firms, Oppenheimer, Blend, Harrison and Tate, Inc., will join Strasburger & Price, LLP to create the city’s fourth largest firm with more than 40 attorneys locally. All current practicing shareholders of Oppenheimer Blend will be joining the combined firm, including the three remaining name shareholders, Stanley Blend, Reese Harrison and John Tate.   Statewide, the combined firm will boast over 210 attorneys making it one of the 20 largest firms in the state. In San Antonio, the combined firm will be known as Strasburger Price Oppenheimer Blend. The combination will be effective at the end of this month.   The firms will initially remain in their existing office spaces but plan to consolidate into a single office in early 2012.

Strasburger is one of the state’s leading law firms with offices in Austin, Collin County, Dallas, Houston and San Antonio. The firm also maintains offices outside Texas in New York City, Washington, D.C., and through Strasburger & Price, S.C., Mexico City.

Oppenheimer Blend, founded over 40 years ago by Jesse H. Oppenheimer, has an impeccable reputation throughout San Antonio and South Texas. The firm’s many legacies to the region include representing the investors who brought SeaWorld to San Antonio and the developers of Retama Park, the city’s first-ever horse and greyhound racetrack. In addition, the firm assisted one of its former shareholders, Herb Kelleher, a founder of Southwest Airlines, in successfully overcoming legal obstacles which threatened to prevent the airline from getting off the ground.

Today, with offices in San Antonio and Kerrville, the firm represents large public and private companies in complex corporate and tax matters, and influential individuals, ranching families and wealthy foreign nationals with their estate and business planning needs.

Combining their practices in San Antonio results in Oppenheimer Blend lawyers having the ability to bring a wider range of litigation and business services to their clients and to handle larger projects while Strasburger gains the benefit of Oppenheimer Blend’s deep ties to the San Antonio business community and its tax, estate planning, corporate and health care expertise.

Strasburger is focused on growing the firm's robust healthcare practice because of the continuing impact of governmental and market driven healthcare reform. Adding the Oppenheimer Blend lawyers will allow Strasburger to expand the regional scope of its representation of hospitals, healthcare providers, physicians and physician groups in transactional and regulatory matters, as well as in qui tam and false claims act cases, fraud and abuse regulation, reimbursement and cost recovery audits, and other affected areas.

Combined, new firm creates powerhouse business and litigation law practices

According to Marty Roos, CEO for Oppenheimer Blend, “The strengths of the two firms complement one another and will competitively position the firm as the go-to law firm in San Antonio.” He said, “Both firms concentrate much of their work on representing middle market companies and entrepreneurs, and seek to do so with a value proposition that provides clients with legal services at a lower cost than similarly sized and larger law firms. We did not want to join a firm that would require us to significantly increase our billing rates as a condition to joining.” Roos sees growth opportunities for the combined firm in complex litigation matters, business transactions, tax, intellectual property, immigration and healthcare.

David Oppenheimer, son of Jesse Oppenheimer and head of Oppenheimer Blend’s Corporate & Securities Practice Group, said of today’s news, “This firm was founded to provide top-drawer legal services in San Antonio for entrepreneurial businesses and individuals, with the belief that every client deserves the best legal advice.” He said, “Joining forces with Strasburger helps our firm further that goal. We gain expertise that will aid us in addressing our clients’ specialty legal needs well into the future.”

According to Stanley Blend, “The cultures of the two firms are very compatible. The core principles by which Strasburger operates are very similar to those of our founder, Jesse Oppenheimer.” Blend said, “As a part of Strasburger’s broad suite of specialty services, we will be able to deliver a wider range of expertise to our clients – such as complex litigation -- on a larger platform at competitive rates. We will also be able to handle larger projects because of the greater depth of the combined firm.”

Dan Butcher, Managing Partner of Strasburger, added to Blend’s comments, saying, “Strasburger will gain the benefit of Oppenheimer Blend’s unique expertise in a number of key practice areas, such as healthcare and cross border wealth management, which will complement our sizeable practice teams in those areas.”

Carol Glendenning, Chair of the Strasburger’s governing Policy Committee, said her firm looks forward to “continuing Oppenheimer Blend’s heritage of providing outstanding legal representation to the San Antonio community as well as its history of serving in leadership roles in key civic and professional groups in San Antonio. Adding the Oppenheimer Blend lawyers to Strasburger aligns perfectly with our strategy of being the premier firm in Texas for middle market business and the firm of choice for run the company work for larger national and international companies.”

Marty Roos will join Strasburger’s Policy Committee, while several Oppenheimer Blend attorneys will take leadership roles in the San Antonio office and on various firm-wide committees, such as Strasburger’s Health Care Practice Steering Committee.

According to Ed Valdespino, the Partner-in-Charge of Strasburger’s San Antonio office, “The addition of this talented group of business lawyers is a real game changer for us in San Antonio because it provides us expertise and manpower in specific areas where our client needs continue to grow. The combination will have an immediate impact on our practice and the San Antonio legal community. This new platform will also create the need for additional hiring in key practice areas.”

###

Important and exciting news regarding our firm

sabrina — Fri, 02 Sep 2011 00:25:15 GMT

Dear clients and friends:

We have some exciting news to share with you about our firm. At the end of September, Oppenheimer, Blend, Harrison and Tate, will join the regional firm of Strasburger & Price. Our combined firm will be known in San Antonio as Strasburger Price Oppenheimer Blend.

We are proud to be your attorneys and look forward to continue serving you with expanded capability and expertise. You can expect to receive the same excellent and responsive service from our attorneys at the same competitive rates that have always provided you with outstanding value.

All current practicing shareholders of Oppenheimer Blend will join the combined firm, including the three remaining name shareholders, Stanley Blend, Reese Harrison and John Tate along with David Oppenheimer, head of Oppenheimer Blend's Corporate & Securities Practice group, and son of the late Jesse Oppenheimer, the firm's founder.

Strasburger is one of the state's leading law firms with offices in Austin, Collin County, Dallas, Houston and San Antonio. Statewide, the combined firm will be one of the 20 largest firms in the state with more than 210 attorneys. In San Antonio, Strasburger Price Oppenheimer Blend will be the city's fourth largest firm with more than 40 attorneys.

This combination is a game changer. It allows our already strong firms to offer even more value and expertise to our clients.

For us, as a part of Strasburger's broad suite of specialty services, we will be able to deliver a wider range of legal services -- such as complex litigation, immigration, and intellectual property -- on a larger platform. We look forward to offering these expanded legal services with the same depth of expertise you have come to expect from our unequalled tax, estate planning, corporate, bankruptcy and health care practices.

Moreover, the cultures of our two firms are compatible, and the core principles by which Strasburger operates match those of our founder, Jesse Oppenheimer.

While the firms initially will remain in their existing office spaces, we plan to consolidate into a single San Antonio office in early 2012.

Please join us as we celebrate another milestone in our firm's history. As always, if you have any questions, don't hesitate to contact me or any of our attorneys.

Your truly,

Marty Roos, CEO
Oppenheimer, Blend, Harrison and Tate, Inc.

Texas Raffle Law Very Strict

sabrina — Tue, 30 Aug 2011 15:15:18 GMT

Katy was interviewed by WOAI's Jim Forsyth; the interview aired Monday, August 29, 2011.

Texas Raffle Law Very Strict

Follow us on LinkedIn

sabrina — Thu, 16 Jun 2011 22:20:50 GMT

Are you on LinkedIn? If you are, take a minute to connect with us. LinkedIn is one of the largest professional business social networks in the world, with over 70 million members in 200 countries.

Last month, Oppenheimer Blend made the leap into the world of LinkedIn and you can now find our attorneys on the popular professional networking site.

This is just one more way to connect with us in addition to our Website, RSS feeds and quarterly newsletter!

Three Oppenheimer Blend Attorneys Named "Texas Rising Stars"

sabrina — Thu, 16 Jun 2011 16:28:34 GMT

Oppenheimer, Blend, Harrison and Tate, Inc. is pleased to announce that three of its attorneys have been named to the prestigious list of the 2011 Texas Rising Stars which was published in the April 2011 issue of Texas Monthly magazine.

Attorneys selected as Texas Rising Stars are 40 years of age or younger and have practiced law ten or fewer years. According to Texas Monthly, each year only 2.5% of Texas attorneys are named to the list.

The firm congratulates each of our Texas Rising Stars for achieving this impressive recognition and for their commitment to continued superior legal excellence. Oppenheimer Blend’s 2011 Texas Rising Stars are:

Katherine E. David, Associate, Property Exchange and Tax Practice Groups
Debra L. Innocenti, Associate, Creditors' Rights & Bankruptcy Practice Group
Laura C. Mason, Shareholder, Corporate & Securities and Health Care & Life Sciences Practice Groups

For further information please contact the firm’s Marketing Department at 210.224.2000.

Oppenheimer Blend congratulates the 2011 Health Care Heroes

sabrina — Wed, 15 Jun 2011 22:52:31 GMT

Compassion. Dedication. Innovation. Every day, members of our health care industry make an impact on our community though their compassionate and quality patient care -- their dedication to research and innovation -- their administrative excellence and their service to the poor and uninsured.

Oppenheimer, Blend, Harrison and Tate, Inc. is proud to sponsor this program alongside the San Antonio Business Journal. We congratulate this year’s winners and applaud them for their selfless dedication to improve the quality of health care in our community and the quality of life of our residents. We look forward to great things from each of this year’s Health Care Heroes, and we wish them all continued success.

Health Care Heroes is an annual awards program, coordinated by the San Antonio Business Journal, that recognizes outstanding achievement in and dedication to the various aspects of our city’s health care industry. Nominations for these awards were sought through notices published in the San Antonio Business Journal as well as on its Website. Nominees from the prior year were considered as well.

The winners of this year’s Health Care Heroes were selected by a panel of judges headed by San Antonio Business Journal publisher Kent Krauss and were honored at a reception held at the McNay Art Museum on May 11. The reception presented the winners, their families, colleagues and event sponsors the chance to mix, mingle and celebrate. The reception also featured an award presentation program that included a brief video biography of each award recipient, and their remarkable contributions to San Antonio’s health care industry.

Those honored as Health Care Heroes for 2011, and the categories in which they each were recognized, were:

Health Care Advocates
• Sister Stephanie Morales, Chaplain, Nix Health
• Susan Zinn, J.D., Director, Medical Legal Assistance for Families, A project of Texas Rio Grande Legal Aid

Community Outreach
• Susan Douglass, Administrative Director, Child Health and Safety Awareness, University Health System
• Jim Young, Executive Director, Faith Family Clinic

Health Care Innovator
• Lawrence Hoberman, M.D., Developer of EndoMune Probiotic.
• Annette Zaharoff, M.D., Founder of the Non-Surgical Center of Texas

Biomedical Research
• Kyriakos Papadopoulos, M.D., Senior Clinical Investigator, The START Center
• Sarah Williams-Blangero, Ph. D., Chair, Department of Genetics, Texas Biomedical Research Institute

Outstanding Physicians
• Adam Bingaman, M.D., Ph. D., Director, Live Donor and Incompatible Kidney transplant Programs
• Pamela Otto, M.D., Professor of Radiology, University of Texas Health Science Center San Antonio
• Evan Ratner, M.D. Medical Director, Impact Urgent Care

Health Care Provider (Non-Physician)
• Sylvia Cano, Oncology Social Worker, The Howard A. Britton, M.D. Children’s Cancer & Blood Disorders Center at Christus Santa Rosa Children’s Hospital in San Antonio
• Melinda Rodriguez, Co-founder and CEO, Access Quality Therapy Services Inc.
• Luis Humberto Solis, Daughters of Charity Services of San Antonio

Administrative Excellence
• Adele Giles, Senior VP, Chief Quality and Compliance Officer, Nix Health
• Arcelia Johnson-Fannin, PharmD., Dean, Feik School of Pharmacy, University of the Incarnate Word
• Christine Kean, Chief Operating Officer, The San Antonio Orthopaedic Group
• Rita Pavlik, Office Manager, Steven R. Payne, D.D.S.

Lifetime Achievement
• Richard Senelick, M.D., Medical Director, HealthSouth RIOSA/ Editor in Chief HealthSouth Press
• Raymond Troxler, M.D., Clinical Associate Professor, Department of Medicine, Division of Clinical Pharmacology, University of Texas Health Science Center San Antonio

Office Manager/ Administrator
• Kelly Ann Shy, Administrator, Alamo Maxillofacial Surgical Associates, PA

For further information please contact the firm’s Marketing Department at 210.224.2000.

OBHT Announces 2011-2012 San Antonio CPA Speaker Series

sabrina — Wed, 25 May 2011 15:51:12 GMT

Oppenheimer, Blend, Harrison and Tate, Inc. is proud to continue its partnership with the San Antonio CPA Society and its involvement with their Speaker Series. The series was created eight years ago to help educate local accountants about current legal issues and provide continuing education credit. The series, which was the first of its kind, will include ten topics this season, providing a total of 20 hours of CPE to approximately 30 accountants per event.

Interested In Attending?

If you are a CPA and would like to attend an OBHT presentation, register today by contacting the San Antonio CPA Society at 210.828.2722 or toll-free at 888.828.8680. All events are held in the San Antonio CPA Society CPE Foundation Training Center – located at 901 N.E. Loop 410, Suite 420. CPE is provided by the Texas State Board of Public Accountancy.

Below are the topics and dates for the 2011-2012 OBHT Speaker Series.

2011 Presentations

Date: June 14, 2011, 11:30 a.m. – 1:30 p.m., Luncheon
Presenters: Elizabeth Copeland, CPA, J.D. (Shareholder)
Title: Uncle Sam Wants You! .... or Your Foreign Account!
Description: This course will discuss the recently announced 2011 Offshore Voluntary Disclosure Initiative for taxpayers with undisclosed foreign accounts, as well as what taxpayers can expect from the program given the IRS handling of the 2009 foreign account program. The course will also address a number of important US and international developments in tax reporting and compliance.

Objectives:

To discuss results of the 2009 Offshore Voluntary Disclosure Program.
To discuss relevant provisions of the Foreign Account Tax Compliance Act (FATCA).
To discuss the Taxpayer Advocate Service's Annual Report to Congress with respect to the compliance challenges faced by U.S. taxpayers located or conducting business abroad.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Date: July 7, 2011, 11:30 a.m. – 1:30 p.m., Luncheon

Presenter: Katherine E. David, J.D. (Associate)

Title: TAXonomy: The Classification of I.R.C. 501(c)(3) Exempt Organizations

Description: The Pension Protection Act of 2006 made significant changes to how 501(c)(3) organizations are classified. The process continues through Treasury Regulations, and some exempt organizations are finding it necessary to restructure in response to the changes. This presentation will explain the difference between private foundations and public charities and will describe the different types of public charities including Type I, Type II, and Type III supporting organizations. The topics discussed will be of interest to practitioners that form and advise I.R.C. Sec. 501(c)(3) organizations. Practitioners who represent institutional trustees (such as bank trust departments) should consider attending to learn about how the new rules affect their clients' charitable trusts.

Objectives:

To understand how a 501(c)(3) organization is classified as either a "private foundation" or a "public charity" and the implications of that classification.
To become familiar with the legislative changes made by the Pension Protection Act of 2006 and how the ongoing regulatory process has implemented those changes.
To discuss planning opportunities that might be available to organizations that struggle with their newfound Type III supporting organization status.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Date: August 10, 2011, 11:30 a.m. – 1:30 p.m., Luncheon

Presenters: Debra L. Innocenti, J.D. (Associate); Robert K. “Chip” Sugg, J.D. (Associate)

Title: Commercial Real Estate Defaults and Bankruptcy Planning

Description: With commercial real estate on shaky footing, the prospect for defaults of commercial debtors has increased. Some owners may turn to Chapter 11 bankruptcy for an opportunity to buy time or restructure their secured debt; however, the 2005 amendments to the Bankruptcy Code have expanded some of the more restrictive single-asset real estate (“SARE”) provisions to reach more debtors. As a result, bankruptcy will require earlier and more sophisticated planning.

Objectives:

To learn the definition of a SARE and the impact of this designation.
To become familiar with some of the issues a SARE debtor should consider before a Chapter 11 filing.
To learn how an entity might make decisions now to avoid the SARE designation altogether.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

Date: September 28, 2011, 11:30 a.m. – 1:30 p.m., Luncheon

Presenters: David P. Stanush, CPA, J.D. (Shareholder)

Title: Community Property – When is What is mine Ours?

Description: This seminar will cover Texas’ community property system and its impact on property owned by one or both spouses.

Objectives:

How to determine what is the community property of the couple.
How to determine what is the separate property of one of the spouses.
What are the management rights of the spouses in their community property as compared to the separate property of one of the spouses.
How spouses by agreement can alter the characterization of property.
What are the rules of marital property liability.
Discussion of tax issues that impact community property.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

Date: October 27, 2011, 11:30 a.m. – 1:30 p.m., Luncheon

Presenter: Lindsay A. Martin, J.D. (Shareholder)

Title: Estate Planning Issues For Mexican Nationals

Description: The course will cover the federal income tax, estate tax, gift tax, and generation-skipping transfer tax rules as they apply to nonresident aliens, resident aliens, domiciliaries, and U.S. persons receiving gifts from nonresidents or foreign estates. The seminar will focus on the interplay between immigration status, domicile, and tax treatment under US law. Personal offshore holding corporations, cross-border gifting, joint property ownership, and practical estate planning considerations will be addressed. The presentation is tailored to specifically address the issues faced by Mexican nationals in a planning context.

Objectives:

To provide a working understanding of the basic income tax and transfer tax rules applicable to Mexican nationals who are present in the U.S. on temporary visas or as legal permanent residents.
To learn practical planning tips for the ownership of U.S. property and businesses.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Date: December 6, 2011, 11:30 a.m. – 1:30 p.m., Luncheon

Presenters: James M. McNeel, J.D. (Shareholder)

Title: Fiduciary Litigation Update

Description: This seminar will cover the review of cases and statutes dealing with Breach of Fiduciary Duty of Executors, Trustees and Power of Attorney, as well as contested guardianship matters.

Objectives:

To identify issues and problems and help prevent unnecessary litigation where CPA or client serves as fiduciary.
To identify and deal with clients where capacity has become issue or where someone is or may be subject to undue influence.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

2012 Presentations

Date: January 19, 2012, 11:30 a.m. – 1:30 p.m., Luncheon

Presenters: Martin I. Roos, J.D. (Shareholder); Laura C. Mason, CPA, J.D. (Shareholder)

Title: Limited Partnerships & Estate Planning

Description: This seminar will discuss the use of limited partnerships in estate planning, including contribution of assets to limited partnerships, partnership valuations, being in partnership with family members, gifting of limited partnership interests to minimize estate taxes, and related estate planning topics. This seminar will also address the current state of federal estate and gift laws, and successful tools for preserving wealth.

Objectives:

To discuss limited partnerships and how they might be used in estate planning.
To discuss appropriate assets to contribute to limited partnership.
To discuss practical implications of being in partnership with family members
To learn current estate and gift laws and discuss successful planning tools.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

Date: February 16, 2012, 11:30 a.m. – 1:30 p.m., Luncheon
Presenter: Lindsay A. Martin, J.D. (Shareholder)
Title: Trust Me: An Introduction to Some Unusual Trusts
Description: The course will address legal estates that constitute trusts, but that are somewhat unusual and rarely seen. Topics include explanations of the Health and Education Exclusion Trust (HEET), gun trusts, pet trusts, “rabbi trusts”, land trusts, “Coogan trusts”, cemetery trusts, alimony trusts, and constructive trusts, among others. Attendees will learn about the origins of these types of trusts, their treatment for tax purposes, how they are formed under Texas law, and the rights and responsibilities of trustees and beneficiaries who are party to these relationships.

Objectives:

To provide a working understanding of some of the more obscure trust estates that a practitioner may encounter
To provide background knowledge to identify and classify such trusts.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Date: April 11, 2012, 11:30 a.m. – 1:30 p.m., Luncheon
Presenters: Cassia M. Ysaguirre, J.D. (Associate); Ean Niland, J.D. (Associate)Title: Choice of Entity for Health Care Businesses and HIPAA Considerations for Accountants Working with Health Care Businesses
Description: This course will cover the liability and tax benefits and drawbacks of the common forms of entities available for use by health care providers, as well as the implications of the need for regulatory compliance based on the state and federal laws that regulate entities that operate within the health care industry. In addition, this course will cover the newly enacted laws and regulations relating to the Health Insurance Portability and Accountability Act of 1993 (commonly referred to as “HIPAA”), which in many cases creates new obligations and imposes significant liability on accountants who work with health care providers.

Objectives:

To provide a working understanding of the benefits and drawbacks of the business entities commonly used by health care providers from a liability and tax perspective.
To provide a high-level introduction to the health care laws that regulate health care entities.
To provide an understanding of an accountant’s responsibilities under HIPAA with respect to protected health information received while working with a health care provider.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Date: May 22, 2012, 11:30 a.m. – 1:30 p.m., Luncheon

Presenter: Katherine E. David, J.D. (Associate)

Title: Don't Rock the Vote: Lobbying and Political Campaign Activity by I.R.C. 501(c)(3) Exempt Organizations

Description: Section 501(c)(3) organizations are limited in their ability to conduct lobbying activities. They are absolutely prohibited from intervening in political campaigns in favor of or in opposition to candidates. Penalties for violation include punitive excise taxes or loss of tax-exempt status. A well-intentioned organization can run afoul of the rules without realizing that its actions are improper. Gear up for the upcoming election year by getting up to speed on the rules, to help your clients operate within them.

Objectives:

To understand how an I.R.C. 501(c)(3) organization's lobbying activities are measured to ensure they are "insubstantial."
To recognize political campaign intervention, including indirect intervention that may occur by accident
To learn strategies and planning techniques for clients that need to conduct lobbying activity, to avoid excise taxes and threats to exempt status.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Proposed IRS Rule Could Spell Trouble for Texas Banks

sabrina — Fri, 06 May 2011 16:50:15 GMT

The story also ran in the Houston Chronicle and was picked up by a number of other blogs including one on Forbes.com. Martin is routinely called upon by clients and media for his expertise in international tax planning issues.

Lawmakers fight IRS proposal for banks to report interest earned by foreigners

Banks fear rule would cost them depositors

Texas banks fret over proposed IRS rule

Firm Celebrates a Sixth Successful Beyond the Glass Ceiling Event

sabrina — Tue, 29 Mar 2011 20:58:11 GMT

Oppenheimer, Blend, Harrison and Tate, Inc., Frost, the San Antonio Business Journal, and Regnier Valdez & Associates, once again were proud sponsors of the sixth annual Beyond the Glass Ceiling program celebrating the achievements of every San Antonio woman. This year's theme was Our History is Our Strength.

On Thursday, March 3rd of this year, 150 of San Antonio's most influential women gathered at a cocktail reception at the San Antonio Country Club to celebrate and kick off National Women's History Month at the 2011 Beyond the Glass Ceiling event. This year's honoree was preeminent preservation architect, Carolyn Peterson, who has made Texas' rich cultural heritage accessible to the public by revitalizing some of our state's most treasured historic landmarks.

Since 1966, Ms. Peterson has designed continual restorations to San Antonio's Spanish Missions and has given new life to the historic courthouses of Bexar, Caldwell, Hays and Maverick. Beginning in 1988, she served as the architect leading the seven-year effort to restore the Texas State Capitol.

Last year's honorees included Secretary of State Hope Andrade, Joci Straus, City of San Antonio City Manager Sheryl Sculley, and former mayor Lila Cockrell.

Special thanks to our Event Planning Committee:

Oppenheimer, Blend, Harrison and Tate, Inc.

Kathleen Quiroz, Chair
Katy David
Sabrina Lewis
Laura Mason
Lauren McLaughlin

San Antonio Business Journal

Mary Jonas
Debi Slowik
Donna Tuttle

Frost

Sallie Newman
Suzanne Peterson
Stacy Pozza
Shawnee Solis
Lisa Owens
Cat Wilson

Firm's Health Care Practice Group is now the Health Care & Life Sciences Practice Group

sabrina — Thu, 10 Mar 2011 19:51:52 GMT

The firm’s Health Care Practice Group has changed its name to Health Care & Life Sciences Practice Group.

Health care and life sciences are estimated to be two of the largest industries in South Texas and are perhaps the two industries that affect the lives of all people. As participants in these industries, health care providers, suppliers, and life sciences companies not only face the business challenges common to all industries but also must contend with an extraordinarily complex system of state and federal laws and regulations unique to these industries. While some firms may offer the expertise of business lawyers, and others the expertise of regulatory lawyers, the attorneys of our Health Care & Life Sciences Group possess the expertise of both business and health care regulatory lawyers.

According to Kathleen Quiroz, the Group’s practice leader, “the name change reflects the actual practice as it has evolved.” Quiroz said, “While we have always represented life sciences companies in a wide range of corporate and transactional matters, we now also advise and assist our life sciences clients with operational and regulatory matters such as clinical research and development, regulation by governmental agencies such as the Federal Drug Administration, and the federal and state regulations which govern interactions between life sciences companies and health care providers. The new name of our practice group better describes the diversity of the services we offer to our clients."

The Health Care & Life Sciences Practice Group includes Kathleen Quiroz, practice group leader and shareholder; Laura C. Mason, shareholder; Bruce M. Mitchell, shareholder; Edward A. Niland, II, associate; and Cassia M. Ysaguirre, associate.

Marty Roos is named CEO

sabrina — Thu, 10 Mar 2011 19:43:37 GMT

Oppenheimer, Blend, Harrison and Tate, Inc., announced today that Marty Roos has been named chief executive officer for the firm, succeeding Bruce Mitchell who served as the firm’s CEO for the past eight years.

Marty, a shareholder and leader of the Estate Planning & Probate Practice Group, has been with the firm since his graduation from law school in 1990. Consistently recognized as one of the best estate planning attorneys in the state, Marty's commitment to the success of the firm led to his appointment as COO by the firm's management.

Roos' practice focuses on estate planning, probate, and estate administration. His practice also includes business succession planning as well as charitable planning and his expertise includes all aspects of estate planning. Roos has been recognized by Texas Monthly magazine and Law and Politics as a "Texas Super Lawyer" in the area of Estate Planning and Probate from 2005-2010, and was named by the San Antonio Business Journal as one of San Antonio's Outstanding Lawyers.

Bruce Mitchell said of Roos’ appointment, “I couldn't be more pleased that Marty has been chosen to lead Oppenheimer Blend.” He said, “Marty has that rare leadership quality that makes people around him want to excel. He also is tireless in his own law practice and will be perfectly able to balance the demands of managing the firm while maintaining a thriving law practice.”

Roos said, “Having begun my career at Oppenheimer Blend 20 years ago, I am very proud to now serve as its chief executive officer. “ He said, “We have a great franchise. In its 42 year existence, the firm has repeatedly been recognized as one of the top firms in San Antonio. From our staff, to our associates, and our shareholders, it is a terrific place to be a part of. To continue on that path is now my responsibility.”

Elizabeth Copeland - 2010 Belva Lockwood Outstanding Lawyer Award

sabrina — Mon, 24 Jan 2011 23:33:49 GMT

Last fall, our own Elizabeth Copeland -- a shareholder with the firm’s Tax Practice Group -- was named the 2010 Belva Lockwood Outstanding Lawyer, an annual recognition awarded by the Bexar County Women’s Bar Foundation, and based on overall contributions to the legal profession. Nominees for the award are judged on work undertaken to improve the status of the legal profession as well as contributions to the community in the form of charitable and volunteer work. Nominees also are judged on experience, reputation and standing in the legal community. Only those attorneys who have been practicing for more than seven years are eligible for this award.

Copeland’s not new to this award. Each year the Bexar County Women’s Bar Foundation also recognizes one outstanding young lawyer; Copeland was the recipient of the Belva Lockwood Outstanding Young Lawyer award in 1998. She also has been recognized as one of the “Best Lawyers in America” and as a “Texas Super Lawyer” in the area of Tax Law.

Copeland’s most significant contribution to the community was starting The Tax Court Pro Bono Program that provides free legal assistance to low income taxpayers who are facing trial in the United States Tax Court. The program was the first of its kind in the nation, and is now used as a model for other state bars to provide similar assistance. New York City was the most recent bar to follow the model that Copeland created for this purpose. Copeland received the Janet Spragens Pro Bono Award from the American Bar Association for her work on the Tax Court program.

Copeland was honored as this year’s award recipient on October 14th at the Foundation’s Autumn Affair event at the Witte Museum.

Please join us in congratulating Elizabeth Copeland.

San Antonio Business Journal confirms it. We have Outstanding Lawyers.

sabrina — Mon, 24 Jan 2011 23:17:24 GMT

Our firm is honored to announce that three of our shareholders – Stanley L. Blend, John H. Tate, II, and Martin I. Roos – were honored in the San Antonio Business Journal’s first annual Outstanding Lawyer Awards supplement, which hit newsstands on November 19, 2010. There were 17 attorneys total who were honored, and no other firm had as many attorneys receiving the honor as did OBHT.

Blend, Tate, and Roos all share an important trait: each has spent his entire private career at OBHT.

Stanley L. Blend is the Chairman of the Board at OBHT and the leader of the Tax section at the firm. He has been practicing in the area of tax law for 43 years. His career began in Washington, D.C. in the Chief Counsel’s Office at the Internal Revenue Service. But since he returned to San Antonio in 1972, he has been an integral part of the firm. The Business Journal’s article highlighted Blend’s many accomplishments in his field of practice, but perhaps the best quote in the article, which sums up Blend’s expertise, came from Patrick O’Daniel, who serves as the chairman of the State Bar of Texas Tax Section. O’Daniel said of Blend, “He is truly a Texas tax legend.”

John H. Tate, II is a shareholder in the Creditors’ Rights & Bankruptcy section of OBHT, and has been practicing with the firm his entire 38-year career. He has handled many complex and high-stakes bankruptcies, including his representation of the trustee for a trust set up to benefit persons injured as a result of asbestos exposure caused by the mining giant, ASARCO. Tate recently won an approximate $1 billion victory for that client. Michael McConnell, a former bankruptcy judge who was also a law school classmate of Tate, was quoted in the Business Journal article as saying of Tate, “He’s well respected all around: Adversaries and friends, in the judiciary and even opposing counsel…he has the highest standards of conduct – a man that never, ever breaks his word.”

The final OBHT award recipient was Martin I. Roos, who is the Chief Operating Officer and head of OBHT’s Estate Planning and Probate section. Roos has been at the firm for his entire 20-year legal career. The Business Journal lauded Roos’ many accolades, including his community service and his ability to provide thoughtful and thorough estate plans for all ranges of clients, from those with very large to very modest estates. The article also focused on Roos’ leadership in creating personally-tailored estate planning packages for large numbers of employees at local companies, including the approximately 1,800 such plans for Valero employees. Roger Kirstein, a shareholder at the firm of Langley & Banack, who uses Roos for his own family’s affairs, was quoted as saying of Roos, “His intelligence, honesty and trustworthiness have made him a sought after confidant and attorney in the area of estate planning.

Our firm is honored to have such talented attorneys who have won such a prestigious honor.

New Leaders - Key to Survival

sabrina — Mon, 24 Jan 2011 23:06:42 GMT

The development of new leaders is key to the survival of any business. Knowing the importance of this fact, Oppenheimer, Blend, Harrison and Tate, Inc. regularly encourages team members to both participate in and lead two well known leadership development programs in order to enhance their leadership skills and engage with the community at a high level.

Lindsay Martin, a shareholder in the firm’s Estate Planning & Probate Practice Group, recently graduated as a member of the 2010 class of Leadership San Antonio (Class 35), and Robert (Chip) Sugg, an associate in the firm’s Creditors’ Rights & Bankruptcy Practice Group, completed the 2010 Leadership Lab program. In addition, Debra Innocenti, an associate in the firm’s Creditors' Rights & Bankruptcy Practice Group, has been a member of the steering committee for two of the last three Leadership San Antonio classes (Classes 33 and 35).

Leadership San Antonio is jointly sponsored by the Greater San Antonio Chamber of Commerce and the San Antonio Hispanic Chamber of Commerce. The highly selective program recently completed its thirty-fifth year and gives participants an in-depth understanding of the promises and challenges facing San Antonio.

The 2010 Leadership Lab class was the program’s eleventh class in San Antonio. The program is sponsored by the North San Antonio Chamber of Commerce. Over a nine-month period, participants are offered leadership development and work-force preparedness training using the most current thinking, research, and best practices in leadership development focusing on five core elements including: professional performance, leadership, management, community service and self-awareness.

The firm has a long history of participation with both programs. Past Leadership San Antonio graduates include Martin I. (Marty) Roos, the leader of the firm’s Estate Planning & Probate Practice Group, Debra Innocenti, and W. Richey Wyatt, a shareholder in the firm’s Corporate & Securities Practice Group. James M. (Jim) McNeel, the leader of the firm’s Trust & Estate Litigation Group, Mark M. Murphy, an associate in the firm’s Litigation Practice Group, and Edward A. (Ean) Niland, an associate in the firm’s Corporate & Securities and Health Care & Life Sciences Practice Groups, are all graduates of the Leadership Lab program. This participation will continue in the coming year, Cassia M. Ysaguirre, an associate in the firm’s Corporate & Securities and Health Care & Life Sciences Practice Groups, has been accepted into the Leadership Lab’s 2011 class.

Oppenheimer, Blend, Harrison and Tate, Inc., supports Leadership San Antonio and Leadership Lab in building strong leaders who in turn inspire others to reach new heights.

For further information please contact the firm’s Marketing Department at 210.224.2000.

Marty Roos' Interview - Who will benefit from the tax bill extension

sabrina — Mon, 20 Dec 2010 21:28:24 GMT

Follow the link to read WOAI's interview with Marty Roos.

Local Estate Lawyer Says Estate Compromise Will Benefit Many

"Raising Funds Without Raising Issues: A Guide to Texas State Laws that Affect Nonprofit Fundraising"

sabrina — Thu, 21 Jul 2011 04:00:00 GMT

Katy David, an Associate with Oppenheimer, Blend, Harrison and Tate, Inc. will be the speaker at the NB Business University seminar on August 17, 2011, presented by the Greater New Braunfels Chamber of Commerce. The NB Business University is a program of the Chamber's Business Advisory Committee.

Many nonprofit organizations have small staffs and limited budgets and rely on volunteers. These organizations understandably want to devote their time and resources to their missions and may find it difficult to stay on top of the various, often complicated, rules that apply to them. Texas state law governs raffles, poker tournaments, galas, and auctions.

Katy's presentation will review the state laws that apply to common nonprofit fundraising activities and will give organizations some practical tips to help them raise money without raising legal issues.

First Annual FGI SA Connect

sabrina — Wed, 20 Jul 2011 04:00:00 GMT

Debra Innocenti, an Associate with Oppenheimer Blend, will be part of a panel of speakers at The Fashion Group International, Inc.'s First Annual Networking Mixer, being held on Thursday, July 21, 2011.

Debra's presentation will include legal tips for the fashion-industry business, from choosing the right entity to navigating copyright and trademark hurdles.

The panel of speakers will begin their presentation at 7:00 p.m.

"Welcome to America - Now What?"

sabrina — Wed, 13 Jul 2011 04:00:00 GMT

Lindsay A. Martin, a Shareholder with Oppenheimer, Blend, Harrison and Tate, Inc. will speak at the November 18, 2011 TSCPA Tax Institute session being held in Dallas, Texas.

Lindsay's "Welcome to America - Now What?" presentation covers the federal income tax, estate tax, gift tax, and generation-skipping transfer tax, and information reporting rules as they apply to nonresident aliens, resident aliens, domiciliaries, and U.S. persons receiving gifts from nonresidents or foreign estates.

"Welcome to America - Now What?"

sabrina — Mon, 27 Jun 2011 04:00:00 GMT

Lindsay A. Martin, a Shareholder with Oppenheimer, Blend, Harrison and Tate, Inc. will be a presenter at the November 17, 2011 TSCPA Tax Institute session being held in San Antonio, Texas.

Lindsay's presentation is titled "Welcome to America - Now What?" and will cover the federal income tax, estate tax, gift tax, and generation-skipping transfer tax and information reporting rules as they apply to nonresident aliens, resident aliens, domiciliaries, and U.S. persons receiving gifts from nonresidents or foreign estates.

TAXonomy: The Classification of INternal Revenue Code Section 501(c)(3) Organizations

sabrina — Fri, 03 Jun 2011 04:00:00 GMT

Katherine E. David will be a speaker at the 2011 Tax Alliance Conference, on June 16, 2011 at the Plano Convention Center.

Her presentation will explain how a 501(c)(3) organization is classified as either a "private foundation" or a "public charity" and the implications of that classification. It will also address the legislative changes made by the Pension Protection Act of 2006 and how the ongoing regulatory process has implemented those changes. The presenter will also discuss planning opportunities that might be available to organizations that struggle with their newfound Type III supporting organization status.

Choice of Entity for Health Care Businesses and HIPAA Considerations for Accountants Working with Health Care Businesses

sabrina — Tue, 24 May 2011 04:00:00 GMT

This course will cover the liability and tax benefits and drawbacks of the common forms of entities available for use by health care providers, as well as the implications of the need for regulatory compliance based on the state and federal laws that regulate entities that operate within the health care industry. In addition, this course will cover the newly enacted laws and regulations relating to the Health Insurance Portability and Accountability Act of 1993 (commonly referred to as "HIPAA"), which in many cases creates new obligations and imposes significant liability on accountants who work with health care providers.

Objectives:

To provide a working understanding of the benefits and drawbacks of the business entities commonly used by health care providers from a liability and tax perspective.
To provide a high-level introduction to the health care laws that regulate health care entities.
To provide an understanding of an accountant's responsibilities under HIPAA with respect to protected health information received while working with a health care provider.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Trust Me: An Introduction to Some Unusual Trusts

sabrina — Tue, 24 May 2011 04:00:00 GMT

The course will address legal estates that constitute trusts, but that are somewhat unusual and rarely seen. Topics include explanations of the Health and Education Exclusion Trust (HEET), gun trusts, pet trusts, "rabbi trusts", land trusts, "Coogan trusts", cemetery trusts, alimony trusts, and constructive trusts, among others. Attendees will learn about the origins of these types of trusts, their treatment for tax purposes, how they are formed under Texas law, and the rights and responsibilities of trustees and beneficiaries who are party to these relationships.

Objectives:

To provide a working understanding of some of the more obscure trust estates that a practitioner may encounter.
To provide background knowledge to identify and classify such trusts.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Fiduciary Litigation Update

sabrina — Tue, 24 May 2011 04:00:00 GMT

This seminar will cover the review of cases and statutes dealing with Breach of Fiduciary Duty of Executors, Trustees and Power of Attorney, as well as contested guardianship matters.

Objectives:

To identify issues and problems and help prevent unnecessary litigation where CPA or client serves as fiduciary.
To identify and deal with clients where capacity has become issue or where someone is or may be subject to undue influence.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

Limited Partnerships & Estate Planning

sabrina — Tue, 24 May 2011 04:00:00 GMT

This seminar will discuss the use of limited partnerships in estate planning, including contribution of assets to limited partnerships, partnership valuations, being in partnership with family members, gifting of limited partnership interests to minimize estate taxes, and related estate planning topics. This seminar will also address the current state of federal estate and gift laws, and successful tools for preserving wealth.

Objectives:

To discuss limited partnerships and how they might be used in estate planning.
To discuss appropriate assets to contribute to limited partnership.
To discuss practical implications of being in partnership with family members.
To learn current estate and gift laws and discuss successful planning tools.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.

Estate Planning Issues for Mexican Nationals

sabrina — Tue, 24 May 2011 04:00:00 GMT

The course will cover the federal income tax, estate tax, gift tax, and generation-skipping transfer tax rules as they apply to nonresident aliens, resident aliens, domiciliaries, and U.S. persons receiving gifts from nonresidents or foreign estates. The seminar will focus on the interplay between immigration status, domicile, and tax treatment under U.S. law. Personal offshore holding corporations, cross-border gifting, joint property ownership, and practical estate planning considerations will be addressed. The presentation is tailored to specifically address the issues faced by Mexican nationals in a planning context.

Objectives:

To provide a working understanding of the basic income tax and transfer tax rules applicable to Mexican nationals who are present in the U.S. on temporary visas or as legal permanent residents.
To learn practical planning tips for the ownership of U.S. property and businesses.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Community Property - When is What is Mine Ours?

sabrina — Tue, 24 May 2011 04:00:00 GMT

This seminar will cover Texas' community property system and its impact on property owned by one or both spouses.

Objectives:

How to determine what is the community property of the couple.
How to determine what is the separate property of one of the spouses.
What are the management rights of the spouses in their community property as compared to the separate property of one of the spouses.
How spouses by agreement can alter the characterization of property.
What are the rules of marital property liability.
Discussion of tax issues that impact community property.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advance preparation required.

Don't Rock the Vote: Lobbying and Political Campaign Activity by I.R.C. 501(c)(3) Exempt Organizations

sabrina — Tue, 24 May 2011 04:00:00 GMT

Section 501(c)(3) organizations are limited in their ability to conduct lobbying activities. They are absolutely prohibited from intervening in political campaigns in favor of or in opposition to candidates. Penalties for violation include punitive excise taxes or loss of tax-exempt status. A well-intentioned organization can run afoul of the rules without realizing that its actions are improper. Gear up for the upcoming election year by getting up to speed on the rules, to help your clients operate within them.

Objectives:

To understand how an I.R.C. 501(c)(3) organization's lobbying activities are measured to ensure they are "insubstantial."
To recognize political campaign intervention, including indirect intervention that may occur by accident.
To learn strategies and planning techniques for clients that need to conduct lobbying activity, to avoid excise taxes and threats to exempt status.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Uncle Sam Wants You! ... or Your Foreign Account!

sabrina — Fri, 20 May 2011 04:00:00 GMT

This seminar addresses the recently announced 2011 Offshore Voluntary Disclosure Initiative for taxpayers with undisclosed foreign accounts, as well as what taxpayers can expect from the program given the IRS handling of the 2009 foreign account program. Also addressed will be a number of important US and international developments in tax reporting and compliance.

Objectives:

To discuss the new tax provisions of the 2011 Offshore Voluntary Disclosure Initiative.
To discuss results of the 2009 Offshore Voluntary Disclosure Program.
To discuss relevant provisions of the Foreign Account Tax Compliance Act (FATCA).
To discuss the Taxpayer Advocate Service's Annual Report to Congress with respect to the compliance challenges faced by U.S. taxpayers located or conducting business abroad.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

TAXonomy: The Classification of I.R.C. 501(c)(3) Exempt Organizations

sabrina — Fri, 20 May 2011 04:00:00 GMT

The Pension Protection Act of 2006 made significant changes to how 501(c)(3) organizations are classified. The process continues through Treasury Regulations, and some exempt organizations are finding it necessary to restructure in response to the changes. This presentation will explain the difference between private foundations and public charities and will describe the different types of public charities including Type I, Type II, and Type III supporting organizations. The topics discussed will be of interest to practitioners that form and advise I.R.C. Sec. 501(c)(3) organizations. Practitioners who represent institutional trustees (such as bank trust departments) should consider attending to learn about how the new rules affect their clients' charitable trusts.

Objectives:

To understand how a 501(c)(3) organization is classified as either a "private foundation" or a "public charity" and the implications of that classification.
To become familiar with the legislative changes made by the Pension Protection Act of 2006 and how the ongoing regulatory process has implemented those changes.
To discuss planning opportunities that might be available to organizations that struggle with their newfound Type III supporting organization status.

The method of presentation is group-live instruction and the program level is basic. There are no prerequisites for this course nor is there any advanced preparation required.

Commercial Real Estate Defaults and Bankruptcy Planning

sabrina — Fri, 20 May 2011 04:00:00 GMT

With commercial real estate on shaky footing, the prospect for defaults of commercial debtors has increased. Some owners may turn to Chapter 11 bankruptcy for an opportunity to buy time or restructure their secured debt; however, the 2005 amendments to the Bankruptcy Code have expanded some of the more restrictive single-asset real estate ("SARE") provisions to reach more debtors. As a result, bankruptcy will require earlier and more sophisticated planning.

Objectives:

To learn the definition of a SARE and the impact of this designation.
To become familiar with some of the issues a SARE debtor should consider before a Chapter 11 filing.
To learn how an entity might make decisions now to avoid the SARE designation altogether.

The method of presentation is group-live instruction and the program level is intermediate. There are no prerequisites for this course nor is there any advanced preparation required.