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On December 22nd, President Trump signed into law the Tax Cuts and Jobs Act, which will take effect on January 1st.  This legislation will have far reaching implications for both individual and corporate taxpayers.  The attached analysis and charts provide an overview of some of the key changes made by the new Act, along with some planning considerations between now and year-end.

Tax Cuts and Jobs Act

 

On December 22nd, President Trump signed into law the Tax Cuts and Jobs Act, which will take effect on January 1st.  This legislation will have far reaching implications for both individual and corporate taxpayers.  The attached analysis and charts provide an overview of some of the key changes made by the new Act, along with some planning considerations between now and year-end.

Tax Cuts and Jobs Act

 

Click here for a profile of Michael W. Mills, Esq., or our Tax practice. 

According to the National Center for Charitable Statistics (NCCS), more than 1.5 million nonprofit organizations are registered in the U.S.   We are proud to represent many such nonprofit organizations operating in the greater Delaware Valley.
These organizations serve the communities in which we live with steadfast passion and dedication.  The focus on community improvement, volunteerism and charity is remarkable.  We are pleased to play our small part in furtherance of their lofty goals.

Unfortunately, not everyone involved in the nonprofit industry shares the same altruistic philosophy.  Invariably, we read newspaper stories about the nonprofit treasurer who diverted funds destined for an ambulance squad or the director that diverted hundreds of thousands from youth athletics programs.  The question becomes, what is a nonprofit to do when defalcation is discovered? 

Generally, the law imposes no duty upon an individual or organization that discovers a financial defalcation to report the facts discovered to the authorities.  Only with respect to certain crimes, mostly involving abuse or child pornography, does a duty to report criminal activity arise.  Under current statutory law, no such duty exists upon the discovery of a theft or diversion of nonprofit funds.    

Many nonprofits are reluctant to report the defalcation.  The negative publicity which follows a public disclosure can be devastating to the credibility of an organization that is already competing for donor dollars.  Based on such pressures, for-profit organizations often choose to forego even the private exercise of confronting the accused in an effort to seek recovery preferring instead to simply take steps to ensure the same kind of breach of trust could not be repeated.  In the nonprofit world, such private decision making is in sharp contrast to fiduciary duties owed to the organization and the moral, if not legal, duties which are founded in the donor/donee relationship.   Moreover, the public nature of nonprofit tax filings may render disclosure inevitable,  such that the desired privacy cannot be maintained. 

Large nonprofits must file an Internal Revenue Service Form 990 each year.  The form summarizes the financial performance of the nonprofit.  In turn, every Form 990 that is filed is publicly available with just a few key strokes.  The Form 990 requires that the organization report to the IRS whether the organization “became aware of a significant diversion of the organization’s assets” in the current year.  Thus, the IRS requires the organization disclose defalcations which amount to a “significant diversion”. 

Despite potential negative publicity associated with disclosure of malfeasance in nonprofit administration, the inevitability of disclosure weighs in favor of a more transparent approach.  Best practices suggest that the entity’s Form 990 be reviewed by the board of directors prior to submission to the IRS, in fact,  the redesigned form asks whether the tax return was furnished  to the board for review prior to filing.  An astute donor – particularly a business savvy donor - is likely to read the 990 with a critical eye.  The worst scenario is that a director or donor becomes aware of the defalcation and subsequently questions the adequacy of management response, potentially a death knell to contributions, and the tenure of the secretive executive director. 

In addition, the nonprofit’s auditor, while not required to disclose every fraud in a footnote to the financials, would need to consider whether the theft had a financial impact on the statements.  If the dollar amount warranted it, it might have to be reported directly on the statements – either as a line item-loss from fraud or a receivable for repayment of stolen funds. 

Further, the question of the directors’ fiduciary duties to the organization in such circumstances has not yet been addressed.  Certainly, the directors of a nonprofit, having been placed in a position of trust by the organization, and bear some responsibility for effective management and control.   To date, no court has imposed liability upon the directors of a nonprofit for failing to investigate potential recovery, failing to report defalcation, or failing to seek recovery of proceeds unlawfully diverted.   While that is certainly not what the volunteer directors sign up for, we can see that case coming. 

Navigating the potential exposure requires a complete understanding of financial controls and information, reporting requirements and the composition of the board of directors.  Generally, the best advice is to conduct a complete investigation, proactively adopt whatever policies are necessary to prevent a re-occurrence, and report the bad actor to the relevant authorities.  Such actions would certainly satisfy any duty to the organization. 

Susan Maslow, a founding partner of the law firm of Antheil Maslow & MacMinn, LLP, was presented with the Harriet M. Mims Award by the Women Lawyers Division of the Bucks County Bar Association at the association’s annual dinner earlier this month. The award is named after Harriet Mims, the first female judge in Bucks County and one of the first women to be admitted to the Bucks County Bar. The award is presented annually to a female attorney who exhibits the characteristics of strength, leadership and integrity who also has served as a mentor to young lawyers. Nominations are made by members of the association with a panel making the final selection of the recipient.

In addition to her career as a preeminent business attorney, Ms. Maslow is an active member of the charitable community, serving since 2009 on the Board of Directors of Big Brothers Big Sisters Bucks County.  She also currently serves on committees for the Pearl S. Buck Foundation and the Bucks County Women's Advocacy Coalition, as well as the Executive Committee of the  Board of Directors of the Central Bucks Chamber of Commerce.  She provides pro bono legal services through the Pennsylvania Volunteer Lawyers for the Arts.

 

 

 


Jessica Pritchard, a Partner with Antheil Maslow & MacMinn will participate as a panelist in Pennsylvania Bar Institute’s Continuing Legal Education program entitled “Family Law 101” on December 11th in Philadelphia. The program is designed for lawyers who are new to the practice or stepping into the family law field, and provides an overview of the challenges faced, tools needed and other valuable insights and resources for new practitioners. 

 

In the many years I have been working as outside counsel to closely held businesses, one of the frequent pitfalls leading to costly litigation and operational conflicts is the failure of shareholders to adequately document and formalize their expectations, especially as it relates to minority shareholders.  The first question I ask when contacted by a business owner who is dealing with shareholder conflicts is “What does your shareholders’ agreement say?”  Unfortunately, too often, the answer is “What shareholders’ agreement?”   

Many small businesses are formed by a group of people who share a collective belief at the time of formation.  There are often unwritten understandings as to the division of roles within the business.  Almost universally, the expectation is that all of these founding shareholders will devote ongoing resources to the business.  Conflicts arise when those expectations diverge, when one shareholder fails to perform within the business, or even when a shareholder exits the company.   
 
When conflict does arise, mechanisms for resolution can be limited, complex and expensive.  Certainly a transfer of a non-performing shareholder’s stock seems like a simple straightforward course of action.  However,   in the absence of an agreement providing for transfer upon specified events, the business has no absolute right to remove a shareholder or force a transfer of the share ownership interest.  Even a shareholder who has ceased to be actively involved in the business continues to enjoy all of the rights attendant to the ownership of the shares: the shareholder need not come to work, need not contribute capital, need not pursue business opportunity in the name of the company.  Employment may end, but the right to enjoy distribution of profits does not, as long as share ownership persists.  As most small businesses are organized as subchapter “s” corporations, profits must be distributed in accordance with share percentage. 

Ownership of stock gives rise to all of the rights provided by statute.  Minority shareholders enjoy the right to obtain information about the performance of the company, attend and vote at shareholders’ meetings, and receive distributions of profits derived from corporate operations.  Minority shareholders can be an impediment to stock transfers, anchors against change and obstacles to capital expenditures. Such situations are a constant bone of contention among owners of small businesses. 
 
Of course, the best solution is an agreement that accurately reflects the understandings of the shareholders at the time the shares are assigned, or the company is formed.  Such agreements can provide clearly defined roles within the business, mandatory transfer upon termination of employment, death or disability, valuation mechanisms and provisions restricting transfer.  Adopting an agreement, at minimum, provides a foundation for the business relationship, and may provide a roadmap in the event of disagreement.    

In the absence of an agreement, a dispute with a minority shareholder requires careful management. The majority must take care to avoid vesting a minority shareholder with breach of fiduciary duty claims or shareholder oppression.   Compliance with corporate formalities is imperative. While there is no guaranty of continuing employment for a minority shareholder (with exceptions), distributions or profits in accordance with ownership percentages is required if the company has elected “s” corporation treatment.  Certainly, majority and employed shareholders may receive compensation for services rendered, but an artificial manipulation of corporate profits would certainly be relevant to a minority shareholder oppression claim.  

Pennsylvania Business Corporations Law provides little relief to a majority shareholder who continues to run a profitable business without the assistance of his or her minority shareholders. The statute provides no right to extract a non-performing shareholder against his/her will at any price, and provides no absolute right of liquidation. Even the nuclear option of judicial corporate liquidation requires that the complaining shareholder allege irreparable harm to the company; an allegation which may be impossible if the business is successful as a result of the majority’s efforts.

Formation of an appropriate and workable shareholders’ agreement requires legal representation; as does management of divergent goals between shareholders.  Owners of s corporations with minority shareholders would be wise to review their governing documents and take proactive steps to safeguard the future value of their shares, and avoid crippling and costly litigation. Antheil Maslow and MacMinn business attorneys are highly experienced in such matters and leverage a team of professionals in differing disciplines to navigate these complex waters.       

 

 

 

Antheil Maslow & MacMinn, LLP is proud to announce that Partner Joanne Murray was honored by the Bucks County Herald and the Bucks County Bar Association in their “Lawyers Among Us” partnership which recognizes county attorneys who go above and beyond in their commitment to their communities, their profession and society.  Murray was recognized for demonstrating extraordinary leadership in the advancement of women. 

 

Joanne Murray practices in the firm’s Business and Finance group, focusing on helping small business owners achieve their goals. From inception to business maturity, Joanne serves as an experienced and insightful counselor to business owners as they face the financial, legal and operational challenges that are an inevitable part of the life cycle of a business.

 

 

Jamie M. Jamison, Esquire, of Antheil Maslow & MacMinn, and Kelley M. Fazzini, Esquire, of Hangley Aronchick Segal Pudlin & Schiller, are co-chairing the 10th Annual Toby L. Dickman Seminar entitled “The Intersection Between Mental Health and Family Law”. The Seminar is sponsored by the Montgomery Bar Association and will take place on December 8, 2017 from 8:30 a.m. to 12:00 p.m. in Courtroom A of the Montgomery County Courthouse.

The Seminar will provide a thorough overview of the mental health issues affecting the practice of family law with in depth discussions regarding mental health disorders and addiction disorders of litigants and children arising in custody, support, equitable distribution and protection from abuse matters. The perspectives of judges, masters, mental health professionals, education professionals and experienced family law practitioners will be presented. 

The Seminar is approved for 3.5 substantive CLE credits and registration information is available at https://www.montgomerybar.org/events/cle-seminars.php. Breakfast will be provided courtesy of Antheil Maslow & MacMinn, LLP, Hangley Aronchick Segal Pudlin & Schiller and High Swartz.

Joanne Murray Receives "Wonder Woman" Award from Bucks County Herald and Bucks County Bar Association for demonstrating extraordinary leadership in the advancement of women.

Thursday, 16 November 2017 20:15

Reevaluating Harassment Training

Written by Patricia Collins

A recent article from NPR entitled “Trainers, Lawyers Say Sexual Harrassment Training Fails” got me thinking about employee training programs. Specifically, every employment lawyer will advise employers to provide training for employees regarding harassment and discrimination.  I would like to say that employers follow this advice in order to ensure a professional and safe workplace, but the truth is that employers provide training mostly because their lawyers advise them that training will bolster a defense in the event of a harassment claim.   This cynical approach to employee training is, I think, the reason why the experts cited in the article concluded that training is not working.  
 
Training is a “check the box” activity:  the employer gets to say that it provided training, in the event of a claim.  The employees are required to attend in order to keep their jobs, and so they attend and zone out.  The article accuses employees of going through the motions, but employers probably are too.  The lawyers told them to train, so the employer is training. 

Here’s what I’ve learned:  the serious offenders, those who engage in serial harassment, inappropriate relationships or even assault, are going to engage in that behavior no matter what training you provide.  An employee who lacks the insight to know that certain behaviors are unacceptable (everywhere, really) will not have an epiphany during mandatory employee training.  One-on-one training often helps in these situations, but not always, and not fundamentally (that is, the employee will know what to do to stay employed, but will not really care that the behavior was inappropriate).

Having said that, I want to be clear, employers should provide training – it is good risk management for certain employers.  But, perhaps it should be a more sincere activity on both sides:  employers should consider more interactive training, smaller groups and individualized training for departments.  They should also engage in a healthy evaluation of their workplace culture prior to planning the training. 

Further, if the goal is prevention of harassment, hostile work environment claims or other unacceptable workplace behaviors, training is not always the answer.  Instead, employers should remember that culture comes from the top.  If officers, supervisors and managers maintain professionalism, it sets the tone.  It might be valuable to warn and provide one-on-one training to managers who do not demonstrate professional behavior, but in the end, appropriate workplace behavior should be a qualification for any leadership role. 

No lawyer will ever advise an employer not to provide training, but perhaps it is time to be more thoughtful about what training looks like for specific employers.  Avoiding litigation cannot be the only goal, or the training will never work.  We can work with employers to come up with a training plan that complies with the law, and is appropriate for their business.