[Editor’s Note: This column originally misstated the estate and gift tax rate in effect for early 2010. It has been corrected.]
A host of new laws took effect on Jan. 1, and some important decisions are coming down in the courts and in Congress that will affect businesses and their owners.
I gathered a few legal experts to help pick apart important developments in employment, real estate and tax law. Here’s a closer look.
The biggest development in 2012 for employment law likely won’t come from a new statute, but rather a court decision. By early February, the California Supreme Court is expected to issue a ruling on the so-called Brinker case, Brinker Restaurant Corp. v. Superior Court of San Diego County. The case concerns whether employers must actually ensure that employees take a meal break during the first five hours of a shift or whether the employer merely needs to make the break available and let the employee decide. “A lot of attorneys are waiting to see what happens, and a lot of appeals court cases depend on it,” said Steve Lee, a partner at Ventura-based Myers, Widders, Gibson, Jones and Schneider.
If the ruling is upheld, the main consequence will be that employers need an effective way to ensure non-exempt employees take meal breaks within the first five hours of the shift – either a mechanical time clock or a computer-based system. And no more “late lunches,” because that creates a sort of penalty. “They’ll have to pay one hour to that employee even though the employee did take a lunch,” Lee said.
As far as statutes, there’s SB 299, which requires employers to maintain group health care coverage for female employees who take disability leave during pregnancy. (This isn’t quite the same as routine “maternity leave.” If you’re not sure, call your attorney.)
Another new law, SB 459, cracks down on employers who were trying to trim spending during the recession by classifying employees as independent contractors and avoiding the costs of workers comp insurance, payroll taxes and other burdens. Employers could face fines of between $5,000 and $25,000 for willful misclassification.
“My opinion is that there are very few independent contractors. If the person is doing the business of the business, that’s a strong indication the person is an employee,” Lee said.
Tax and property law
As is so often the case, federal income tax law will reflect the messiness of congressional politics this year.
There’s no patch yet for the Alternative Minimum Tax, but the real concern is what will become of President Obama’s deal to extend the Bush-era tax cuts until the end of this year. Part of that last-minute deal was adjusting the estate and gift tax to a rate of 35 percent with an exemption for the first $5 million. That trapped some early birds who paid more gift taxes – 35
But a $5 million exemption and 35 percent are the best rates that the estate tax has ever seen, so there’s probably upside to acting now, said Lee Johnson of Santa Barbara-based Ambrecht & Associates. And the potential upside is huge – if Congress does nothing, the rates go back to pre-2001 levels of 55 percent with a $1 million exemption. “It really depends on the political climate at the end of the year,” Johnson said. “Gridlock is not out of the question.”
Also on the tax front, the continuing crackdown by the IRS on foreign asset disclosure requires another form this year, and it’s due earlier. In short, the IRS requires disclosure of any sizable foreign accounts in a new form called FATCA that is more comprehensive than the previous form, the FBAR, which is also still due. But more importantly, the FACTA is due along with your taxes on April 15, rather than by mid-year, and penalties are $10,000 if you forget. So if you’ve been FUBAR’d by the FBAR in the past, call your tax attorney for the facts on FACTA.
In the property law arena, there’s an important change on transferring interests in real property held by an LLC. It’s always been the case you can’t skirt a property tax reassessment under Prop. 13 by stashing property in a legal entity and shifting the ownership shares – a change in control, whether all at once or cumulative over many years, means reassessment.
The difference now, according to Dibby Allan Green, an advanced certified paralegal at Ambrecht, is that transfers that induce a change in control or ownership, even automatic ones ticked off by a death, must be reported to the State Board of Equalization within 90 days, or else there’s a mandatory penalty equal to 10 percent of the taxes due and with no upper cap. This is especially tricky for businesses, who might not hear about the death of a minor stockholder for months.
The advice is to update bylaws or LLC agreements to require notification of transfers of interests, or, on failure to do so, apply a penalty of docking the fees or resultantly higher taxes from the shareholder’s payouts.
• Stephen Nellis writes a monthly column on the legal business. Contact him at [email protected]