The last months of the year are often hectic and it is easy to overlook important deadlines. Below are a few items to keep in mind as the new year approaches:
IRA Required Minimum Distributions and Qualified Charitable Distributions by December 31
Retirement funds in an IRA, SIMPLE IRA, or SEP IRA cannot be kept indefinitely. If you have reached the age of 70½, you must withdraw from your account a minimum amount each year called the “required minimum distribution” or “RMD.” This RMD amount is calculated annually based on the year-end balance of the previous year.
You are not required to take your first RMD until April 1 of the year after you turn 70½. Thereafter, each RMD must be taken by December 31. The penalty for failure to take an RMD is a 50% excise tax on any undistributed portion of the RMD.
The RMD received by the account holder is taxable income. Recent legislation has now made permanent the “Qualified Charitable Distribution” (or “QCD”) which many individuals used to incorporate charitable giving into their tax and estate planning. In using a QCD, the account holder directs the IRA administrator to pay the RMD amount directly to a charitable organization (but not a private foundation or donor advised fund). By using the QCD, the account holder satisfies the RMD withdrawal requirement, avoids recognizing any taxable income, and supports a charity of his or her choice. Making a QCD can be as simple as a one-page letter sent to the IRA administrator.
Annual Exclusion Gifts by December 31
In general for 2016, a person can give away up to $5.45 million in assets (during life or upon death) before an estate or gift tax is imposed. One major exception is that a person may give up to $14,000 to any individual without the gift counting against the $5.45 million exemption amount and without being required to file a gift tax return. These $14,000 gifts are often referred to as “annual exclusion gifts.”
Many individuals use annual exclusion gifts to transfer large amounts of assets over time to reduce estate tax exposure in the future. The gifts can be made directly to an individual or to a trust established for the benefit of one or more persons. The deadline to make annual exclusion gifts is December 31 each year.
The Ninth Circuit Court of Appeals, which handles appeals from all California federal courts, recently delivered a blow to Uber drivers seeking to maintain a class action lawsuit against the ride-sharing company. In Mohamed v. Uber Technologies, Inc., the Court held that the arbitration agreements signed by drivers at the outset of their relationship with Uber were largely enforceable. The Court reversed an earlier ruling by the district court judge that found the agreements to be unconscionable. The Court found that the issues highlighted by the district court judge were “artificial.” The Court also found that the agreements’ opt-out provision provided drivers with an appropriate method to choose not to be subject to arbitration if they desired to maintain their right to bring class-action claims.
Although the ruling is largely a win for companies seeking to enforce arbitration agreements, the court also affirmed, consistent with California law, that the drivers’ claims brought under the California Private Attorneys General Act (PAGA) were not subject to arbitration. PAGA allows employees to sue employers, on behalf of the state, to receive civil penalties for violations of labor and safety laws. This means that Uber and other employers are still vulnerable to PAGA claims in state and federal courts, notwithstanding otherwise enforceable arbitration agreements. However, the overall effect of this ruling is that the majority of the drivers’ claims must be determined on an individual basis in front of an arbitrator, which is generally a speedy and less costly alternative to class-action litigation.
Please contact Mike Chase if you have any questions regarding this article.
Buy-sell agreements are frequently used by shareholders of both S corporations and C corporations to facilitate the orderly transition of ownership in the corporation and restrict the ability of the shareholders to transfer their shares. When preparing a buy-sell agreement for an S corporation, however, special consideration must be given to ensure that the agreement does not create a second class of stock, as an S corporation is not permitted to have more than one class of stock. If an S corporation has more than one class of stock, the corporation’s S status will terminate. The termination of a corporation’s S status can have severe tax implications on the shareholders of the S corporation.
A corporation is treated as having only one class of stock if all outstanding shares of stock of the corporation confer identical rights to distribution and liquidation proceeds. Differences in voting rights among shares of stock of a corporation are disregarded in determining whether a corporation has more than one class of stock.
A buy-sell agreement among an S corporation and its shareholders restricting the transfer of shares is disregarded in determining whether an S corporation’s outstanding shares of stock confer identical distribution and liquidation rights unless (1) a principal purpose of the agreement is to circumvent the one class of stock requirement and (2) the agreement establishes a purchase price that, at the time the agreement is entered into, is significantly in excess of or below the fair market value of the stock.
While buy-sell agreements are helpful in facilitating the orderly transition of ownership in an S corporation and restricting the ability of shareholders of an S corporation to transfer their shares, it is necessary to ensure that the buy-sell agreement does not inadvertently create a second class of stock. The attorneys in Boutin Jones’s Tax and Corporate and Securities group can help you determine if your buy-sell agreement inadvertently creates a second class of stock causing your status of an S corporation to be terminated.
A new California law will soon impose additional disclosure obligations on commercial landlords. Existing law (California Civil Code § 1938) requires a commercial landlord to state in every lease or rental agreement entered into on or after January 1, 2013, whether the premises being leased or rented have been inspected by a Certified Access Specialist (CASp) and, if so, whether the premises comply with construction-related accessibility standards. AB 2093 modifies California Civil Code § 1938. Under the new law, commercial landlords are still obligated to state in every lease or rental agreement whether the premises have been inspected by a CASp, but they are no longer obligated to state whether the premises comply with accessibility standards. Instead, commercial landlords are now subject to additional disclosure requirements depending on whether a CASp report has been prepared and whether any violations of accessibility standards are noted in the report. The new requirements apply to every commercial lease or rental agreement executed on or after January 1, 2017.
Although AB 2093 contains internal inconsistencies and ambiguities regarding the circumstances under which a CASp report is required to be provided to a prospective tenant, if the premises have been inspected by a CASp, the safest approach for commercial landlords is to provide a copy of the CASp report for the premises to the prospective tenant 48 hours prior to the execution of the lease or rental agreement. If the CASp report is not provided at least 48 hours prior to the execution of the lease or rental agreement, the tenant has the right to rescind the lease or rental agreement within 72 hours following execution. The landlord may require the prospective tenant to agree to maintain the confidentiality of the information in the CASp report, except to the extent disclosure is required to enable the tenant to remedy any accessibility violations the tenant agrees to correct. If any accessibility violations are noted in the report, the new law presumes that it is the landlord’s responsibility to correct the violations (unless landlord and tenant agree otherwise).
If the CASp report concludes that the subject premises meet applicable standards (and a “disability access inspection certificate” has been issued), the commercial landlord must provide a copy of the disability access inspection certificate (and any inspection report not already provided to the tenant) within 7 days of execution of the lease or rental agreement. If the subject premises have not been issued a disability access inspection certificate (because the premises have not been inspected or do not meet applicable standards), the lease or rental agreement must include the following specific language highlighting the tenant’s right to obtain a CASp inspection:
“A Certified Access Specialist (CASp) can inspect the subject premises and determine whether the subject premises comply with all of the applicable construction-related accessibility standards under state law. Although state law does not require a CASp inspection of the subject premises, the commercial property owner or lessor may not prohibit the lessee or tenant from obtaining a CASp inspection of the subject premises for the occupancy or potential occupancy of the lessee or tenant, if requested by the lessee or tenant. The parties shall mutually agree on the arrangements for the time and manner of the CASp inspection, the payment of the fee for the CASp inspection, and the cost of making any repairs necessary to correct violations of construction-related accessibility standards within the premises.”
The attorneys in Boutin Jones’s Real Estate Group will continue to monitor the development of this new requirement and will provide future updates in this space when appropriate.
Please contact any member of the Boutin Jones Real Estate Group if you have any questions about this article.
Under existing law, a California limited liability company, or LLC, may be dissolved, and its activities wound up, if, among other things, a majority of the members of the LLC votes to dissolve, unless the LLC’s articles of organization or operating agreement provide for a higher percentage. This majority requirement means that, for LLCs with only two members, if one member wants to dissolve the LLC, but the other wants the LLC to continue to operate, dissolution would require one member to seek a judicial dissolution–a costly and time-consuming process.
Effective January 1, 2017, the law governing the dissolution of California LLCs will be amended to provide that a LLC may be dissolved, and its activities wound up, if, among other things, 50% or more of the members of the LLC vote to dissolve, unless the LLC’s articles of organization or operating agreement provide for a higher percentage.
The change in the law is designed to make it easier for two-member LLCs to dissolve. According to the author of the new law, many small businesses are organizing without the assistance of legal counsel and do not fully appreciate the consequences of forming an LLC with equal ownership. If the members in an equal, two-member LLC do not agree to dissolve (i.e., are unable to achieve a majority vote), the result could be time consuming and costly litigation for judicial dissolution. The author of the new law indicates that this change in the law will maintain flexibility for LLCs to shape their articles and operating agreements in the manner that works best for them, while eliminating the unpleasant “surprise” existing law may hold for two-member and other small LLCs who are unaware that their dissolution can be far more complex than if they had formed as another type of business entity (such as a corporation, where only 50% shareholder approval is required for dissolution).
For existing limited liability companies with written operating agreements that address the vote threshold for dissolution, however, the new law will not have that effect unless the operating agreement is amended to change the majority requirement to 50% or more. Further, while California limited liability companies could provide that, on or after January 1, 2017, the holders of 50% or more of the members may cause the dissolution of the LLC, members of a LLC may resist such a provision. To illustrate, if Jane and Bob operate a two-member LLC that has become successful, would either Jane or Bob want the other to have the absolute right to dissolve the LLC, thereby putting the brakes on all future profits and operations? In most cases, the answer would be “no.” Nor would most members of a two-member LLC want to form a LLC which could be dissolved by the other member at any time.
Please contact any member of the Boutin Jones Corporate and Securities Group if you have any questions regarding this new law.
A new California law will soon require owners of commercial buildings over 50,000 square feet to calculate the energy consumption and energy efficiency of their buildings every year. The annual calculations, and other building information, must then be delivered to the State of California, which will publish the building-specific data on a publicly-viewable website.
The statute that imposes this so-called “benchmarking” program is California Public Resources Code § 25402.10. It was adopted in 2015, as AB 802, a bill that also repealed the prior energy benchmarking program, AB 1103, that had been in place, but widely ignored, for several years.
AB 802 gives the California Energy Commission (“CEC”) the power and duty to develop regulations to implement the benchmarking program. As of this writing, the CEC is in the process of developing those regulations. The CEC published draft regulations on July 18, 2016. Although the details may still change before the final regulations are issued, here are some of the key features of the program as described in the draft regulations:
The attorneys in Boutin Jones’s real estate practice group will continue to monitor the development of this new requirement and will provide future updates in this space when appropriate.
Please contact any member of the Boutin Jones Real Estate Group if you have any questions regarding this article.