by Mat Sorensen | Jun 23, 2015 | News
Have you given a negative review of company? Have you ever posted something unflattering about someone you didn’t like? Do you own a business with a Facebook, Yelp, Google+, or Linkedin page? Well, there’s no shortages of lawsuits about posts people make about businesses. And I get it. If you order a Pepsi and you get a Coke, well that’s one start down on Yelp. If you wait on hold for more than 10 minutes, that calls for a Facebook post about your “crappy” mortgage loan company. While these are trivial things we may have been critical about when posting reviews or comments on-line, there have been hundreds of cases over on-line reviews or comments about businesses that have resulted in legal action.
Consider the case of Jane Perez who wrote scathing reviews of her contractor on Yelp where she accused him on botching her home renovation and stealing jewelry during construction. Well, the allegations of Ms. Perez weren’t truthful and her contractor sued her for defamation and alleged $750,000 in damages from lost business as a result of the un-truthful review. Ms. Perez counter-sued alleging that her contractor’s responses weren’t true either and she too was defamed. The case went to a jury who eventually found that both parties were untruthful in there on-line comments and postings and as a result didn’t award damages to either. However, as reported by Mandi Woodruff on Yahoo Finance, not everyone case ends like this. In a recent case, a disgruntled patient of 2 Arizona surgeons created an entire website alleging that they botched her plastic surgery. Well, the Arizona surgeons found her website un-truthful and took her to court and won damages of $12 million dollars. And lastly, Southwest Airlines sued a passenger for defamation, slander, and libel when the passenger posted numerous complaints about the airline and its agent on her personal Facebook and Twitter accounts. The complaints alleged that the airline refused to allow the passenger to sit next to her children.
There are a few important legal lessons to be learned from these companies.
1. Truth is the Legal Standard. Every case that seeks to silence negative reviews or social media comments must allege that the comments posted are not truthful. The first amendment protects all of us when giving negative reviews or comments but only when those reviews are truthful. Consequently, any case brought to remove or silence a negative comment or review must allege that the comment is not truthful. If the comment or review was the truth, then there is nothing legally that you can do to force the other person to remove or correct the comment. You should certainly attempt to make it right though by contacting the customer to see what can be done to fix whatever the situation is that caused the negative statements.
2. Defamation and Libel. If the information posted about you or your business on-line is untruthful, then the legal action you may bring is called defamation. There are two types of defamation. The first type is libel and this has to do with defamation that is written. This would include on-line writings. The second type is slander and this has to do with defamation that is spoken. In order to win a defamation suit you must show the following; a) that a statement was made, b) that it was published for others to see, c) that the statement caused you injury, and d) that the statement was false.
Awards in a defamation suit generally consist of removal of the false statement(s) and damages for the amount of lost profits or injury that was caused. Keep in mind that while lawsuits can be powerful and can remedy harm caused to you or your business, they are also costly and they don’t resolve your case in an expedient manner.
Before heading off to court though, heed the advice of digital marketing expert Chris Bennett. Chris is the CEO of 97th Floor and was a guest on our recent radio show. Chris suggested that if your business is subjected to negative comments or reviews on-line, that it is best to attempt to remedy those issues off-line. Don’t write a spirited rebuttal on-line. If you are dealing with a disgruntled person, you are not going to win them over by telling them they are wrong. And, you typically add more fuel to the fire when a comment thread or review thread grows from back-and-forth comments between a business and a customer. This is sage advice and reminds me of a review I read on VRBO.com about a vacation rental I was looking to rent. I was distracted by a 1 star review that was given on a property I was interested in. I read the back and forth between the renter and the property owner and without knowing who was right or wrong (how could a third party), I was only left with a feeling that the property owner was hard to work with because they kept arguing in the comments instead of leaving them as is or saying thanks for your feedback. Instead of arguing on-line in responses to comments, Chris advises to businesses to reach out to the disgruntled customer through phone or e-mail and find a way to make them a happy customer.
If you’re unable to resolve the negative comment or review through personal communication and if that comment or review is false AND is causing you or your business injury, you can bring a lawsuit against the person who caused you harm and can resolve it in the Courts. You could also engage a lawyer to write a letter warning of a lawsuit if the false comment or review is not corrected. Keep in mind, a lawsuit can be a long and costly process so you only want to engage in this effort if you truly are being damaged. If only your feelings were hurt, or if the statements were mostly true, then don’t waste your time with a lawsuit as it wont be worth the legal fees.
by Mat Sorensen | Jun 16, 2015 | News
While I’m no “pet lawyer,” I do own a 9-year-old Chihuahua and, along with other pet owners, have often looked up the laws affecting pets. For example, what happens in divorce to the family dog or cat? What if I want to return my pet to the seller? What happens to my pet upon my passing? Well, I’ve wondered this stuff too and decided to write about it. I know it’s off of my typical path, but we all encounter these everyday legal issues:
1. Buying a Pet: According to the American Veterinary Medicine Association, 21 states have so-called “pet lemon laws” that allow a buyer of a pet to return the pet to the seller for a full refund in the event that the pet has an illness or disease. These laws are time-sensitive and the buyer of a pet with an illness or disease must act quickly. For example, in Arizona, a buyer of a pet has 15 days to return the pet to the seller in the event that the pet has an illness or disease. The buyer has 60 days to return the pet in the event of congenital or hereditary disease (California’s time frame is one year). Upon returning the pet, under these laws the buyer is typically entitled to their purchase price plus any veterinary expenses.
2. Owning a Pet: There are a number of laws that govern the care you should extend to your pet. Again, these laws are at the state level and vary from state to state. One common law relating to pet ownership is that pets cannot be left in extreme weather conditions without food and shelter. Another common law found in many states restricts a pet owner from leaving their pet – typically dog – in a car unattended. These laws are designed to protect the pet, and failure to abide by them can be a crime.
3. Divorce and Death: I know, the D words. One is common and the other is certain, and if you own a pet, the law may determine your pet’s new owner in these situations.
Let’s address divorce first. By law, pets are personal property, like your furniture, guns or jewelry. Although there is typically much more meaningful attachment to our pets than to personal effects, the law treats them the same. As a result, in the event of divorce where the ownership of a pet is in dispute, the court will analyze certain factors to determine who should receive the pet. These factors are different from the factors a court will consider when determining custody of children, which generally is determined by considering the best interests of the child. In determining ownership of a pet following divorce, the court would look to who owned the pet. Was this pet owned by one person before the marriage? In this case, the person who owned the pet prior to marriage would get ownership of the pet upon divorce. What if the pet was bought by both parties during the marriage, or even before marriage. Then, the court will look at whose money supported the pet, who took care of the pet (e.g. who walked, cleaned, took to vet, etc.), and who spends the most time with the pet to determine the appropriate owner of the pet. If the pet is a family pet and if children are involved, it is likely that the “family pet” would go to the person who receives custody of the children.
The second situation where ownership of your pet may come into question is upon your death. We all want our pet to be loved and cared for after our passing. As a result, if you have a pet, consider listing in your will or trust a provision that states who shall receive the pet upon your passing and also consider gifting this person a lump sum of, let’s say, $5K to compensate them for caring for the pet. While you may create “pet trusts” and other extensive legal structures to outline the care of your pet, like the billionaire Leona Helmsley who left a $12 million dollar trust fund for her dog, such trusts and structures are not necessary to ensure the proper care and ownership of your pet upon your passing. Consequently, a simple statement in your will or trust as to who you want to receive your pet and a grant of a certain lump sum of money to be given to them from your estate to care for the pet is the proper solution for most of us.
by Mat Sorensen | Apr 20, 2015 | News
A Joint Venture Agreement (aka, “JV Agreement”) is a document many business owners and investors should become familiar with. In short, a JV Agreement is a contract between two or more parties where the parties outline the venture, who is providing what (money, services, credit, etc.), what the parties responsibility and authority are, how decisions will be made, how profits/losses are to be shared, and other venture specific terms.
A joint venture agreement is typically used by two parties (companies or individuals) who are entering into a “one-off” project, investment, or business opportunity. In many instances, the two parties will form a new company such as an LLC to conduct operations or to own the investment and this is usually the recommended path if the parties intend to operate together over the long term. However, if the opportunity between the parties is a “one-off” venture where the parties intend to cease working together once the agreement or deal is completed, a joint venture agreement may be an excellent option.
For example, consider a common JV Agreement scenario used by real estate investors. A real estate investor purchases a property in their LLC or s-corporation and intends to rehab and then sell the property for a profit. The real estate investors finds a contractor to conduct the rehab and the arrangement with the contractor is that the contractor will be reimbursed their expenses and costs and is then paid a share of the profits from the sale of the property following the rehab. In this scenario, the JV Agreement works well as the parties can outline the responsibilities and how profits/losses will be shared following the sale of the property. It is possible to have the contractor added to the real estate investors s-corporation or LLC in order to share in profits, but that typically wouldn’t be advisable as that contractor would permanently be an owner of the real estate investor’s company and the real estate investor will likely use that company for other properties and investments where the contractor is not involved. As a result, a JV Agreement between the real estate investors company that owns the property and the contractors construction company that will complete the construction work is preferred as each party keeps control and ownership of their own company and they divide profits and responsibility on the project being completed together.
While a new company is not required when entering into a JV Agreement, many JV Agreements benefit from having a joint venture specific LLC that is created just for the purpose of the JV Agreement. This venture specific LLC is advisable in a couple of situations. First, where the parties do not have an entity under which to conduct business and which will provide liability protection. In this instance, a new company should be formed anyways for liability purposes and depending on the parties future intentions a new LLC between the parties may work well. Second, where the arrangement carries significant liability, capital, or other resources. The more money, time, and liability involved in the venture will give more reason to having a separate new LLC to own the new venture and to isolate liability, capital, and other resources. A $1M deal or venture could be done with a JV Agreement alone, however, the parties would be well advised to establish a new entity as part of the JV Agreement. On the other hand, if the venture is only a matter of tens of thousands of dollars, the costs of a new entity may outweigh the benefits of a separate LLC for the venture.
There are numerous scenarios where JV Agreements are used in real estate investments, business start-ups, and in other business situations. Careful consideration should be made when entering into a JV Agreement and each Agreement is always unique and requires some special tailoring.
by Mat Sorensen | Apr 14, 2015 | News
April 15th is only one-day away and as a result I wanted to remind everyone of three crucial deadlines that apply to your IRA on April 15th. In addition to the April 15th deadline, I also wanted to note which deadlines can be extended.
1. Contributions – Roth IRA and Traditional IRA contribution deadlines for 2014 are April 15, 2015. Even if you extend your personal return until October 15th, the Roth and Traditional IRA deadline is still April 15th. However, for SEP IRAs, the contribution deadline can be extended if you have filed an extension with the company tax return (or personal return if you file your business income on schedule c of your personal return). If you are thinking about making a contribution sometime soon and if you haven’t yet made any contributions for 2014, you might as well make the contribution now and have it count for 2014 numbers. This will leave you with 2015 contributions that can be made over the next 12 months should you decide to later make additional contributions. For more details on 2014 retirement plan contribution deadlines, please find my prior article on 2014 contribution deadlines here.
2. Back Door Roth IRA – The so called “back door” Roth IRA, must be established by April 15th for 2014 contributions. The “back door” Roth IRA is an excellent strategy that can be used by anyone to obtain Roth IRA dollars. Even if you max our your 401(k), you can still open up and fund a “back door” Roth IRA. Even if you have income in excess of the Roth IRA contribution limits, you can still open up and fund a back door Roth IRA. In short, the back-door Roth IRA occurs when you open and fund a non-deductible IRA. You can fund this each year for up to the IRA contribution limits (2014, $5,500, or $6,500 if over 50) . This goes into a non-deductible IRA, meaning no tax deduction, and then you simply convert it to a Roth IRA. Since the restrictions on who can convert to a Roth IRA where removed a few years ago it has allowed more and more high-income earners or those who max out their 401(k) to save additionally using a Roth IRA. Again, keep in mind, that if you are contributing for 2014 purposes that you must make that contribution by April 15th. For more details on the back-door Roth IRA please refer to a prior article I wrote on the subject here.
3. 990-T Tax Return Deadline – If your IRA incurred unrelated business income tax (UBIT) in 2014, then is must report and pay the tax by filing form 990-T with the IRS by April 15th. This return may be extended up to 3 months by filing an extension to the IRS for the IRA. Note that this extension must be filed for the IRA and that it is not part of your personal return. Most commonly, UBIT tax can occur for an IRA if the IRA’s investments are leveraged with debt. The most common example would be an IRA that purchased a rental property with IRA funds and with funds from a non-recourse mortgage loan. Since this investment is leveraged with non-IRA funds that are debt, the IRS taxes the profits they attribute to the debt and as a result the IRA is subject to UBIT. I have a comprehensive webinar on UBIT tax and the IRA’s 990-T tax return that can be viewed here. UBIT tax can also apply to an IRA that receives ordinary income. Keep in mind that passive income is always exempt in an IRA, unless it is leveraged with debt as explained above, and as a result, rental income, interest income, royalty income, dividend income, and capital gain income are exempt from UBIT tax.
Please contact the office if you need a consult on any of these items above. Also, the law firm is now preparing 990-T returns for client’s IRAs that incur UBIT tax. Contact is immediately if you need a 990-T return filed for 2014 for your IRA so that an extension may be obtained with the IRS. Once the extension is in place, we will being working on the return.
By: Mat Sorensen, Attorney and Author of The Self Directed IRA Handbook.
by Mat Sorensen | Mar 24, 2015 | News
I’m presently attending and speaking at the Retirement Industry Trust Association’s (RITA) conference in Washington, D.C. RITA is the national association that represents the self directed IRA industry and has most major companies in the industry as members. I have spoke today on Legal/Litigation Case Updates in the industry and will be speaking tomorrow on unrelated business income tax compliance (UBIT). However, I wanted to update those who follow my blog and our firm’s newsletter as to some interesting comments from the IRS relating to self directed IRAs. As RITA does every year, a representative from the IRS was present and spoke on new rules for IRAs. The representative was a high ranking lawyer at the IRS with supervision responsibilities over retirement plans. Her remarks were a good insight into the IRS and what they are interested in with respect to self directed IRAs. I have copied a few items from my notes below.
1. Government Accountability Office Report– The IRS representative referenced a Government Accountability Office (GOA) report on IRA’s issued on October of 2014. This report was called, IRS Could Bolster Enforcement of Multi-million Dollar Accounts, but more direction from Congress is Needed. In short summary, the report outlines that there are over 600,000 IRAs that have balances of over $1M. This is great news for retirees but the GAO believes that a small portion of these accounts may have obtained large values improperly. Specifically, the IRS representative referenced the report on two issues. First, on Roth conversions where the valuation is low at the time of conversion and then increases in value and is distributed tax free. The concern is that the proper valuation needs to be set at the time of the conversion to fairly report tax and GAO report believes that values are being underreported. Second, the IRS representative referenced IRAs that fund a business and then take a salary from that business. This was possibly in reference to what are called Rollover on Business Start-Ups (ROBS) or to IRA/LLCs where the IRA owner takes a salary for serving as manager as a salary is a prohibited transaction (see, Ellis v. Commissioner). As outlined more fully in my book and prior blog articles, it is a prohibited transaction to take a salary for managing your own IRA/LLC.
2. Update IRA Form 5498– The IRS updated from 5498 a couple of years ago and starting in 2015 is requiring IRA custodians to begin reporting the type of assets held in the IRA if those assets include “non market assets”. For example, real estate, LLC or LP, and notes would have specific codes for reporting the assets held by the IRA. I specifically asked the IRS representative what the IRS intends to use this data for and was told that the IRS doesn’t release that information and provide that guidance to the public. Fair enough. The GAO report does, however, offer some insight and it primarily discusses how the form can be used to zero in on potentially abusive transactions and un-fair value shifting transactions where closely held non-publicly traded assets are unfairly purchased or valued (in a roth conversion) in the IRA.
I will be writing more about the GAO report in later articles but these were the two items referenced by the IRS representative today that I though were insightful. The message from the IRS today was really focused on bad actors and that the IRS does have a desire, but admittedly not the resources, to audit and find those bad actors abusing the tax rules with their self directed IRA. And so they should, a self-directed IRA can be an excellent tool for building wealth but must be used properly in accordance with the law.
by Mat Sorensen | Mar 17, 2015 | News
The IRS has some significant collection tools it can use to collect federal taxes. The IRS can lien assets such as your home, seize cash in bank accounts and garnish wages. Although the IRS does have these significant collection tools, there are also numerous tax payer protections available during the tax collections process. The process of tax collection from the IRS can be long and “taxing” and the IRS has ten (10) years from the date when your tax liability was assessed to collect on the taxes. During this collection process, it is important that you are proactive in dealing with an outstanding tax liability. Below is a list of options that are available to taxpayers. I would note that none of these options resolve around settling for pennies on the dollar.
1. Appeals Process. If you disagree with the decision of an IRS employee at any time during the collection process, you may ask that employee’s manager to review your case. If you disagree with the manager’s decision, you have the right to file a written appeal under the Collection Appeals Program. You can appeal collection actions such as liens, levy’s of bank accounts or garnishment of wages. You are also entitled to a Collection Due Process Hearing where you can challenge the IRS’s determination of tax owed.
2. Tax Court. If you are unsuccessful in the IRS appeals process you may file a petition in the U.S. Tax Court to challenge the amount due. This appeals process is far more difficult to understand and usually requires the assistance of an attorney.
3. Installment Agreement. If you have tax owed which you do not dispute but cannot afford to pay you may set up an installment agreement with the IRS to re-pay the tax owed. Under an installment agreement the IRS does charge interest on the amount owed but will cease collection activity and will allow you to pay the tax over time. If you owe $50,000 or less then you don’t have to complete an extensive financial statement and the process can be done on-line or by phone with the IRS. If, however, you owe over $50,000, then you must complete IRS form 9465 which outlines your assets, income, and debts to the IRS.
4. Offer in Compromise. You may make a deal with the IRS under what is called an offer-in-compromise. Under an Offer in Compromise you agree to pay a certain amount to the IRS as a settlement for all amounts they have assessed as due. There are three grounds under which the IRS will accept and Offer in Compromise. First, if there is a doubt as to whether you are truly liable for the tax. Second, if there is doubt as to whether you are actually able to pay the IRS back. Lastly, an offer may be accepted if the offer promotes efficient tax administration due to an economic hardship or special circumstance of the taxpayer.
5. Office of Taxpayer Advocate. At any time in the collection process where the IRS office has been unresponsive to taxpayer requests, a taxpayer may receive the assistance of the Office of The Taxpayer Advocate. The Taxpayer Advocate is an independent office within the IRS but it is their responsibility to assist the taxpayer in dealing with other offices within the IRS. Only the IRS would have such an office. The Taxpayer Advocate can help give you advice on how to resolve your tax problem. We have used the Office of the Taxpayer Advocate in many instances and while they are within the IRS office they can be helpful in getting responses to requests for information and in obtaining decisions on Offer in Compromises and Appeals.
Many CPA’s and Attorney’s are familiar with tax collection and it is crucial that a taxpayer facing collection actions be aware of the procedural options available to them. We have helped numerous clients in our office resolve difficult tax situations by using some of the procedures above. The key is to be proactive in your case to ensure that you don’t miss deadlines and other opportunities to resolve your tax problem.
By: Mathew Sorensen, Attorney and Author of The Self Directed IRA Handbook
