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New Tax Law
Places New Burdens on Nonprofits
By:
Cathy C. Godshall
 On
August 17, 2006, the Pension Protection Act of 2006 was
signed into law. It contains extensive reforms designed
to end the abuse of the tax-exempt status of charitable
organizations.
The new rules place
significant new burdens and restrictions on charities,
including:
·
Fines and penalties increased. The
Act doubles the amount of excise taxes applicable to
certain prohibited activities by charities and their
officers, directors and trustees.
·
Recapture of tax benefit. The tax
benefit for gifts of tangible personal property for
which a fair market value deduction is claimed will be
adjusted if the property is not used for exempt
purposes.
·
Donations of clothing and household
items. No deduction is allowed for contribution of
clothing and household items that are not in good used
condition.
·
Stricter record keeping for charitable
contributions. Contributions made by cash or check
must be substantiated by bank record or written
acknowledgement from the charity — even if less than
$250.
·
Valuation and appraisal reform.
The accuracy-related penalties have been increased and
the Act establishes a civil penalty on any person who
prepares an appraisal that supports a tax position
resulting in a substantial valuation misstatement.
·
Private foundation income tax
increased. The net investment income tax for
private foundations has been increased to include
capital gains, annuities, and other investment income.
·
New restrictions on payments from
donor-advised funds and supporting organizations.
The Act applies a penalty tax on any grant, loan,
compensation or similar payments from a donor-advised
fund to a donor, donor advisor or a person related to
them and on similar payments from a supporting
organization to substantial contributors and persons
related to them.
·
Penalty taxes on certain grants.
The Act imposes penalty taxes on donor advisors who
recommend a grant made by a donor-advised fund if that
grant results in more than incidental benefit to the
donor advisor.
·
Excess business holding rules. The
Act limits the ability of donor-advised funds and
supporting organizations to hold active business
interests and imposes penalty taxes if the limits are
violated.
Please contact the members of the BDB Tax and Employee
Benefits Group with any questions regarding the new
legislation.
Cathy Godshall
is a Shareholder of the
Business Law
Practice Group.
She can be reached at
cgodshall@bdblaw.com
or
330.258.6449.
By:
Steven A. Dimengo
 Ohio’s
bright-line rules for establishing nonresident status in
Ohio, which apply only for income tax purposes, have
changed significantly, effective January 1, 2007. To
obtain the benefit of the irrebuttable presumption that
you are not a resident of Ohio, you must meet new
“contact period” requirements related to stays in this
state. We also recommend taking a series of actions to
establish your intent that another state be your state
of domicile.
§
The number of "contact periods" has
increased from 120 to 182. If you have more than 182
Ohio contact periods you will be presumed an Ohio
resident. A "contact period" consists of two
consecutive days in Ohio while you stay overnight away
from your non-Ohio abode (home). Accordingly, any time
you have consecutive days in Ohio while staying
overnight away from your non-Ohio abode, your number of
contact periods equals the number of consecutive days
you are present in Ohio, minus one.
§
You must continue to maintain an abode
outside Ohio for the entire year.
§
In determining contact periods, you may no
longer exclude days spent in Ohio for medical,
funeral or philanthropic purposes.
§
By April 15 following the year for which
you are claiming nonresident status, you must file an
affidavit with the Ohio Department of Taxation affirming
you were not domiciled in Ohio for any portion of the
tax year and identifying your residence(s) outside Ohio
for the year.
Former
Ohio residents that continue to have a strong Ohio
connection, such as maintaining an Ohio home, should
annually file the affidavit commencing in April, 2008.
To further minimize any exposure, those wanting to
support nonresident status should take the following
actions consistent with their intent that the non-Ohio
state, such as Florida, be their state of domicile:
§
file the Florida declaration of domicile;
§
register to vote in Florida;
§
obtain a Florida driver’s license;
§
title to Florida any vehicles to be used
in Florida; and
§
file federal and Ohio tax returns
reflecting their Florida address.
Tax Commissioner Rule 5703-7-16
continues to apply and identifies factors that cannot
be considered in determining a taxpayer’s state of
domicile. These include banking, credit card,
investment, insurance, legal, accounting, medical and
charitable relationships.
Keep in mind that Ohio nonresident
status is relevant only to the taxation of income
sitused to Ohio based upon your state of domicile. This
includes investment income and pension income from a
qualified plan. Income from tangible property located,
or business conducted, in Ohio remains taxable in Ohio.
Steve Dimengo
is a Shareholder and Chairman of the
Business Law Practice Group.
He can be contacted at
sdimengo@bdblaw.com
or
330.258.6460.
Corporate Law...
 By:
Craig S. Marshall, Corporate Law Group Chair and
Andrew W. Bernat
Changes to Ohio's Corporate Law
H.B. 301 made the following changes to Ohio’s corporate
law, effective mid-October 2006:
-
 Directors have the authority to amend regulations
for actions not relating to fundamental shareholder
matters.
-
Certain spin-offs do not require shareholder
approval.
-
Corporations can form a holding company without a
shareholder vote if they meet certain tests.
- An
existing entity may “convert” to a different form of
entity.
- Board
committees are authorized to delegate full committee
authority to subcommittees.
- SEC
reports are sufficient to allow public companies to
provide notice of adopted article amendments to
shareholders. Mailings are no longer required.
-
Consideration permitted for shares of stock or LLC
interests is expanded to include “the provision of
any other benefit.”
- From
the commencement of a voluntary case or court
approval of an involuntary case, a bankruptcy court
has the power to take corporate action without
approval of the board or shareholders.
Finance & Public
Law...
 By:
Stephen M. Hammersmith, Finance & Public Law
Group
Chair
IDB's are alive and well
Industrial development bonds (IDB’s) are available to
manufacturers for acquiring capital assets (building and
equipment) to create or preserve jobs. A minimum
borrowing size is about $1 million. This financing tool
provides the benefits of tax-exempt interest rates, but
over the past several years the use of IDB’s has been in
decline. The recent, historically low, interest-rate
environment, coupled with a slow economy, diminished the
value of IDB financing. But market interest rates have
been rising and the economy is improving, so IDB’s have
again become attractive. Interest rate savings can be
as high as 3% annually.
Tax Law...
 By:
David J. Lewis, Taxation Group Chair
Stronger IRS Enforcement
The IRS released statistics evidencing more audits in
2006 compared with 2005:
-
Individual returns increased by 6 percent.
-
Individuals reporting more than $1M of
income increased by 33 percent.
-
S corporations and partnerships, including limited
liability companies, increased by 34 percent and 15
percent, respectively.
-
Small businesses, i.e., those with less than $10M of
assets, remained roughly the same.
-
Large businesses, i.e., those with more than $10M of
assets, declined by 2 percent.
-
Exempt organizations were audited at a 43 percent
higher rate.
Exempt organizations often participate with for-profit
businesses in transactions designed to shield taxable
gains. However, there are issues that may need to
be addressed, and we can assist in this regard.
Employee Benefits Law...
 By:
Lisa M. deFilippis, Employee Benefits Group
Chair
Changes in the Pension Plan Law
The Pension Protection Act of 2006 makes significant
administrative and operational changes to the laws
governing retirement plans, effective in 2007 or 2008.
Planning for all changes must begin immediately. Most
defined benefit plan sponsors will need to accelerate
plan contributions, add notice and disclosure
requirements, deduction limits, PBGC premiums and filing
requirements. Comparable provisions apply to
union-sponsored multi-employer plans.
For defined contribution plans,
there are new rules relating to auto-enrollment for
401(k) plans, a shorter vesting requirement for
profit-sharing contributions, and provisions relating
to investment advice and other ERISA fiduciary issues, and
permitting a non-spouse beneficiary to take a
distribution as an “inherited rollover IRA,” thereby
extending the due date for taxes.
Nonprofit Law...
 By:
Gerald B. Chattman,
Nonprofit Group Chair
Overtime Payment Regulations
Many nonprofit organizations are
unaware that the Fair Labor Standards Act (Wage and Hour
Law) applies to their organization and can run into
serious issues involving the overtime regulation portion
of the law. Issues as to who is entitled to overtime
payment (exempt vs. non exempt employees), calculation
of overtime (in view of the effect of bonuses,
commissions, etc.) and hours on which must be paid
are extremely troubling. The Department of Labor, which
enforces the law, will be focusing more attention on
nonprofits. The Business Practice Group/Nonprofit Group
is prepared to assist clients in addressing these
issues.
Environmental Law...
 By:
William L. Caplan, Environmental Group Chair and
David J. Hrina
Rules for Conducting Environmental Due Diligence
On November 1, 2006, the U.S. EPA’s rule entitled
“Standards and Practices for All Appropriate Inquiries”
(the “Standard”) became effective. It impacts all
purchasers of real property who desire to claim one of
the defenses to liability under CERCLA.
CERCLA imposes strict, and joint and several liability,
and a purchaser of contaminated real property can be
liable under CERCLA for the entire cost of cleanup even
though the purchaser did not contribute to the
contamination. However, Congress established a limited
number of defenses to CERCLA liability. A party
intending to claim the benefits of any of the defenses
under CERCLA must have conducted “all appropriate
inquiries” into the condition of the property
immediately prior to acquisition of the property. The
Standard details the steps necessary to satisfy the “all
appropriate inquiry” requirement.
Mergers &
Acquisitions...
 By:
Robert W. Malone, Mergers & Acquisitions
Group Chair and
David W. Hilkert
Dealing with Insurance in Business Acquisitions
Most liability insurance policies include an
anti-assignment clause that purports to preclude anyone
other than the insured from making a claim under the
policy. This clause can be problematical where a
business passes from one corporate owner to another by
acquisition, spin‑off or reorganization.
 In
some jurisdictions a new corporation that acquires a
business may be liable for injuries caused by products
manufactured by its predecessor. In such situations, a
question often arises about the new corporation’s right
to acquire the predecessor’s coverage for a loss
(property damage or personal injury) that has occurred
but has not yet resulted in a claim. In two recent
cases, the Ohio Supreme Court held that under certain
circumstances the predecessor’s right to indemnity and
defense could be transferred, in spite of the
anti-assignment clause in the insurance policies. This
right can be a significant benefit to any corporation
that acquires a business from another. The members of
our mergers and acquisitions and insurance practice
groups can help you address insurance transfer issues.
Securities Law...
 By:
Steven A. Armatas
Ohio Amends Its Blue Sky Laws
In several areas, Ohio blue sky law incorporates federal
securities statutes and rules. A recent amendment to
O.R.C. 1707.01(T) makes it clear that references in
Chapter 1707 to federal law mean the current version of
that law. In addition, changes to O.R.C. 1707.20 modify
the Division of Securities’ rulemaking process so that
the Division can automatically incorporate future
amendments to federal securities rules by reference into
an Ohio rule. A new section, O.R.C. 1707.142, has also
been added to respond to federal requirements that a
state’s regulation of broker-dealers must, in many
respects, be identical to federal regulation.
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BDB’s Finance and Public Law Practice Group
represents political subdivisions and other public
bodies and represents clients involved in finance
transactions.
In the public law area our lawyers represent
counties, cities, villages, school districts,
townships, state agencies, state universities, and
special districts. We have represented these
entities in finance, procedure, legislation,
litigation, taxation, employment law, labor
relations, workers' compensation, zoning,
annexation, and general business matters. Lawyers
from all of the firm's practice groups have assisted
in that representation.
In the finance area, we represent borrowers,
lenders, investment bankers, and trustee banks. Our
services include commercial loans, lines of credit,
asset-based lending, asset securitizations, general
obligation bonds and notes, revenue bonds and notes,
publicly assisted private-sector financing (such as
industrial development bonds and health care
facility revenue bonds), special assessments,
tax-increment financing, letters of credit, taxable
bonds and notes, certificates of participation, and
tax-exempt leases.
We have served our clients as bond counsel,
underwriter counsel, bank counsel, lender counsel,
borrower counsel, issuer counsel and trustee
counsel.
Recent transactions include:
·
Bond counsel for tax-exempt bonds financing a
wellness center for a 501(c)(3) health care
provider.
·
Bond counsel for tax-exempt general obligation bonds
financing and refinancing public buildings, a sewer
system, a water system, roads and bridges for an
Ohio county.
·
Lender counsel for tax-exempt special obligation
bonds financing parks for a Florida city.
·
Borrower counsel for a tax-increment financing for a
mall developer.
The attorneys in the Finance & Public Law Practice
Group are
Stephen M. Hammersmith, Chair,
Gerald B. Chattman,
Edward C. Coaxum, Jr.,
Rana M. Gorzeck, Patricia A.
McIntyre,
Amy Scheurman,
James S. Simon,
Terry W. Vincent.
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Speaking Out
Save the Date for these Upcoming Presentations:
April
23 -
Nicholas T. George
(Akron)
has been selected by Heart to Heart Communications
to be their keynote speaker at their annual Akron Speaks
Out for Values Seminar. Mr. George's topic is entitled,
"Faith Is What Makes the Impossible, Possible: 12
Steps to Lead with Character." The event is
being held at the Knight Center.
INFORMATION ON SEMINARS OR SPEAKERS
If you are interested in obtaining information on
upcoming seminars or would be interested in having
speakers from Buckingham, Doolittle & Burroughs, LLP
make a presentation to your organization, please
contact: Lorna
Henderson, Client Relations Administrator, at
lhenderson@bdblaw.com
or 800.686.2825 ext. 86473. |
