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California is adding a $1,000.00 carrot with its bundle of sticks in the State’s efforts fight pollution. Recently, the legislature passed SB 457, which may give pedestrians a sizable refund. This change comes after California recently made national news for passing legislation that phases out new gasoline-fueled cars by 2035, and will soon vote on whether to tax multimillionaires an additional 1.75% to fund environmental safety. This new law provides a $1,000 refund for tax years 2023-2027, through the Franchise Tax Board, for households that satisfy two conditions.

First, the household must not own a vehicle that “is required to be registered with the Department of Motor Vehicles” and is not “moved exclusively by human power.” As such, surprisingly, even fully electric cars are exempt from this tax credit. Second, the household must not have gross income which exceeds $60,000 for spouses filing joint returns, or $40,000 for those filing as individuals. It is unsure how many individuals will qualify for this refund. Of note, Governor Newsom’s has not yet signed or vetoed the law as of the date of this posting; however, if no action is taken by September 30, 2022, SB 457 becomes law.

Want to know if you qualify? Contact the Burton Law Firm at 916-822-8700 or info@lawburton.com and schedule a consultation.

On September 2, 2022, Governor Newsom signed SB 971 into law, therein adding new Section 50466 to the Health and Safety Code. The law guarantees tenant’s rights to own “one or more common household pets within the resident’s dwelling unit” to prevent discrimination against domesticated pet-owning tenants by landlords. It applies to landlords receiving subsidies from the California Department of Housing and Community Development or certain low-income housing tax credits. The legislature advises that the law was necessary because “[a] majority of Americans consider their pets to be family members and nearly three-fourths of renters have pets[.]” Applicable landlords cannot require pet rent, prohibit pet breeds, or have pet weight limits. Landlords can, however, require a pet deposit for potential damages.

Per the statue, the new law only applies to “common household pet[s]” defined as “domesticated animal, including, but not limited to, a dog or cat, that is commonly kept in the home for pleasure rather than for commercial purposes.” Thus, it is likely to be broadly interpreted. The expressly allows “one or more common household pets” and does not provide clarification on just how many pets are allowed; however, it must assumable be on a objectively reasonable standards as Section 50466 also does not affect state laws or local ordinances relating to “public health, animal control, and animal anticruelty, or other statutes or laws that require reasonable accommodations to be made for an individual with a disability who maintains an animal to provide assistance, service, or support.”

Section 50466’s effective date is January 1, 2023. However, pets must be permitted for housing developments funded through the Zenovich-Moscone-Chacon Housing and Home Finance Act since January 1, 2018. Ultimately, approximately 352,000 households are expected to be impacted. The mechanism for enforcement are not mentioned; however, the Department of Housing and Community Development has a preexisting enforcement process that can begins with a complaint to ComplianceReview@hcd.ca.gov. The Department can also help landlords comply with this and other housing law provisions by emailing ComplianceReview@hcd.ca.gov, or the Burton Law Firm can also assure landlords are compliant with this law and several others unique to California.

For more information, please call 916-822-8700 or email info@lawburton.com.

As elections are near, it is important for 501(c)(3) organizations to remember that they must adhere to numerous rules if they choose to engage in non-partisan activities. Developing an internal policy for staff to reference during election season can help to ensure that your 501(c)(3) organization maintains its tax-exempt status. Although a 501(c)(3) organization’s exempt purpose may be political in nature, by law, none of its staff time or resources may be used for partisan political activities or purposes (i.e., to support or oppose a political party or candidate running for public office). Even a suspected violation of this law can result in costly investigations and may even cause the loss of such organization’s tax-exempt status. In addition to losing its tax-exempt status, the 501(c)(3) organization may be subject to severe excise taxes on spending deemed to be political expenditures. Consequently, it is crucial that each 501(c)(3) organization provide clear guidance to its governing body, staff, volunteers, and any other individuals who work for the organization.

Below are some of the more common political activities a 501(c)(3) organization should avoid:

• Contributing to a political campaign fund;
• Making Statements (verbal or written) that favor or oppose candidates of a political party
• Posting a website hyperlink to a specific candidate’s website

Determining whether a violation has occurred is on a case-by-case basis and is very fact-specific. Also, there are several non-partisan activities a 501(c)(3) organization is allowed to engage in. For example, a 501(c)(3) organization may engage in any of the following activities:

• Take a public stance upon a political issue, including ballot measures, so long as they do not suggest a preference for any candidate.
• Host a debate between candidates, so long as all of the candidates are treated equally and fairly.
• Encourage people to vote, so long as the 501(c)(3) doesn’t tell them who to vote for.

Lastly, although the 501(c)(3) organization may not engage in partisan political activities, it is important to remember that individuals who work for the 501(c)(3) are not prohibited from supporting or opposing candidates in their personal capacity separate from the organization, so long as they do not use 501(c)(3) resources. However, each organization should have detailed specific policies and procedures established to clearly distinguish between activities individuals undertake in the name of the organization and activities individuals take separate from the organization.

For a sample 501(c)(3) election policy, check out:

https://bolderadvocacy.org/wp-content/uploads/2022/01/Sample-Election-Season-Policy.pdf.

Additionally, if you would like more information on navigating the permissible activities a 501(c)(3) may conduct during an election year, please contact the Burton Law firm at: 916.822.8700 or email info@lawburton.com.

H.R.5376, better known as the Inflation Reduction Act of 2022 (“Act”), was signed by President Biden on August 16, 2022, after narrowly passing in the House of Representatives on August 12, 2022 and in the Senate on August 7, 2022. [Congress.gov].

Although less than 6% of the Act’s text, the Act’s tax provisions will have a national impact equal in scope to the Act’s separate impact on the healthcare and energy industries for the next decade. There are three key tax components to the Act: The corporate minimum tax, the stock excise tax, and Internal Revenue Service (“IRS”) funding.

Corporate Minimum Tax

The Act provides a minimum corporate tax of 15% levied upon corporations with net income over $1 billion. This “Adjusted Financial Statement Income,” will begin with the net income reported to the Securities and Exchange Commission. As such, infamous corporations that avoided the federal income tax despite billions of dollars of income [e.g. CNBC], will collectively pay billions in taxes. The tax takes effect after December 31, 2022.

Stock Excise Tax

The Act also introduces an excise tax of 1% of the fair market value of stocks repurchased by corporations. Unlike the corporate minimum tax, there is no income threshold to incur this tax. The tax is applicable only to publicly traded corporations excluding contributions to retirement accounts, pensions, and employee-stock ownership plans (ESOPs). This tax takes effect after December 31, 2022.

Expected Internal Revenue Service Increased Funding

The Act also increases funding to the IRS by almost $80 billion. This is in addition to its ordinary budget ($14.1 billion was separately requested for the 2023 fiscal year). About $45.6 billion of this appropriation will be dedicated to tax enforcement. Taxpayers should be especially diligent for future filings. The remainder is largely for operational support at $25.3 billion, although significant amounts are reserved for taxpayer services ($3.2 billion) and business systems modernization ($4.8 billion). Certain ancillary expenses may still be of interest. For example, $15 million is allocated for a feasibility study of developing an official free efiling tax return system.

The settlor (also called “trustor”) of a revocable trust has the authority to change or cancel the trust’s provisions.  The settlor can also assign other trustees to help manage the trust. For a revocable trust, the trustee normally only owes duties to the settlor who is able to revoke the trust. However, the ability of the settlor to revoke the trust can be terminated upon the determination of the incapacity or the death of the settlor, causing duties to be owed by the trustees to the beneficiaries.  Cal. Prob. Code § 15800.

In the former case, when the settlor is determined to be incompetent and no one else is competent and entitled to revoke the trust, the trustee has a mandatory duty to provide the information in the Trust to the beneficiaries. Additionally, the trustee also has to produce annual accountings.  Cal. Prob. Code § 15800. The only exception would be that upon determining the incapacity of the settlor, the court appoints a conservator as the conservatee’s decision-making surrogate and the right to revoke the trust is automatically passed onto the conservator. Johnson v. Kotyck, 76 Cal. App. 4th 83, 90 Cal. Rptr. 2d 99 (1999).

For example, In Johnson, the court determined that  “the only limitation on the court’s ability to authorize the revocation of a conservatee’s revocable trust is if the trust instrument “(i) evidences an intent to reserve the right of revocation exclusively to the conservatee, (ii) provides expressly that a conservator may not revoke the trust, or (iii) otherwise evidences an intent that would be inconsistent with authorizing or requiring the conservator to exercise the right to revoke the trust.” Id. at 87.

In the latter case, when there is no other competent person entitled to revocation of the trust after the death of the settlor, the beneficiaries have the right to request information and annual accounting from the trustee. The accounting of the trust needs to list what the assets were at the beginning of the year, the spending and the income generated from the trust, and what assets remain at the end of the accounting term. Trust accounting helps with the supervision of the actions of the trustees to make sure that the trustees are doing their job. However, the existence of any other person entitled to revoke the trust then denies the beneficiaries access to the trust information and accounting. Further, the Law Revision Commission also comments on Section 1580(a) that “the consent of the person holding the power to revoke, rather than the beneficiaries, excuses the trustee from liability as provided in Section 16460(a) (limitations on proceedings against trustee).”

Hence, in summary, usually, if a revocable trust has an incapacitated settlor, then the Trustee must account to the beneficiaries and provide them with the terms of the Trust; however, the determination of incapacity of the settlor does not force an accounting or providing copies of the Trust if any other competent person has a power to revoke the trust in whole or in part when the trust is still revocable.

Usually, each party bears their own litigation costs; however, in Trust litigation, the Courts have discretion to force a losing party to pay the prevailing party attorney fees if the litigation was deemed in bad faith. Though the Courts have traditionally shied away from doing so, Bruno v. Hopkins signals a change in that trend. Moreover, the case highlights that the Probate Court can shift fees even if they exceed the party’s share of assets the trust [Bruno v. Hopkins, 79 Cal. App. 5^th 801, 294 Cal. Rptr. 3d 852 (2022)].

In Bruno, the Petitioner argues the Trust was a forgery and challenge her own mother’s position as Trustee. Petitioner furthermore used the services of an Expert Witness to reinforce her claims’ merit. The Court did not agree, and held the Petitioner’s claims came in bad faith. The Court also held that it is unreasonable to rely on an expert’s conclusion when reliance on said expert testimony was also unreasonable.  Id., at 874.

The Court awarded $925,000.00 to the prevailing party, over four times the amount the Petitioner was to receive as a beneficiary.

The Court’s power to enforces this comes from their vast equitable power to award attorney fees against the losing party

Clients and Attorneys should both be aware that using an expert to support your claim will not necessarily shield you from court awarded attorney fees. If your litigation is deemed to have been brought in bad faith, you may be still be paying attorney fees to the other side even if you relied on an expert’s opinion to bring your claim.

Danielle LawrenceThe Burton Law Firm is pleased to advise that star associate Danielle Lawrence was profiled in Sacramento Magazine as one of the region’s top lawyers. This comes as no surprise as Danielle was recently named a “Rising Star” by Northern California Super Lawyers in 2021 and 2022, which is awarded to the top 2.5% of practitioners under the age of 40 [see link].

Danielle’s practice focuses on business and nonprofit law where she embodies Burton Law Firm’s continued ability to provide “Expert Counsel with Exceptional Solutions.” As she advises in her interview, she appreciates the rapidly changing day-to-day challenges the legal profession requires and takes great enjoyment from the continuous opportunity to assist and collaborate with entrepreneurs. Danielle has helped many nonprofits and advises that even if she won the lottery today, she would still be working every day to help nonprofits make the world a better place.

The article can be seen at: https://issuu.com/sacramentomagazine/docs/august_22 (page 71).

In Rev. Proc. 2022-32, the IRS has made a major announcement advising that portability elections for a Deceased Spousal Unused Exclusion (“DSUE”) are extended to five (5) years [see IRS] after the date of death, vastly expanding the previous deadline of nine (9) months [Former Guidance]. The decision amends § 301.9100-3 of the Procedure and Administration Regulations for “portability” under § 2010(c)(5)(A) of the Internal Revenue Code.

For those not familiar with the concept of a “portability election,” or just needing a refresher, portability allows the spouse of a recent decedent to continue using the decedent’s unused exclusion amount to their own transfers during life and death.  So, for example, in 2026 when the Estate Tax exemption reduces down to around $6 million a person, but a spouse has $10 million in assets after their spouse dies, they can “port” over the $6 million if unused by their former spouse, and have a $12 million exemption even though their spouse is no longer living.

Of note, however, is that the extension of the portability election time does not mean that the time allowed for a refund application is also extended. The potential applicant would not be able to get a refund if the deadline for the refund application is missed. Moreover, when filing the return of an estate, attention to detail is needed to be done correctly to ensure the election is properly requested.

The Burton Law Firm, PC has several certified special in Estate Planning, Trust and Probate Law and Taxation Law, and can make sure proper planning is used to take advantage of your portability election and related tax mitigation strategies.

All 916-822-8700 today to schedule a consult or email info@lawburton.com.

Fidelity Investment, one of the largest financial management companies in the United States with over $8.3 trillion of assets under administration [Q2 Highlights], will allow their investors to fund their 401(k) with Bitcoin [WSJ]. 

The crypto-investor population is growing, and many younger investors are experimenting with cryptocurrency. Fidelity’s announcement appears just days after the US Department of Labor cautioned against allowing cryptocurrencies to be invested in retirement plans [US Labor]; thus it is a very risky move by Fidelity.

Fidelity will be the first financial firm of its size to allow cryptocurrency in retirement accounts, which will force these accounts to come under heavy regulatory scrutiny. Still, to the bold go the riches, and this bold step could significantly boost their grasp on the market and secure future investors.

Currently, Bitcoin is the only cryptocurrency that will be available to investors, and Fidelity won’t enact its policy until later in 2022. Based on the demand for Bitcoin, Fidelity plans to expand to other cryptocurrencies as their plan progresses. Furthermore, investors will be limited to only investing 20% of their 401(k) assets into Bitcoin.

This is a game-changing event, though several competitors have declined to meet the challenge. For example, Vanguard Group has publicly said they will not allow crypt currencies at this time [WSJ]. Only time will tell whether this pays off for Fidelity.

It’s been almost two years since the World Health Organization declared the Covid-19 disease a pandemic, and yet the resulting hardships that stem from the economic fallout continue to flourish. The pandemic has impacted every industry in one way or another. However, the resulting economic downturn disproportionately negatively impacted the restaurant industry more than any other industry in the nation. A qualitative study of the pandemic impact on the restaurant industry reported that at the peak of the pandemic, during the shelter in place order, the food service industry lost nearly 3.1 million jobs, and more than 110,000 restaurants were projected to permanently close due to the economic fallout caused by the pandemic.i

When the Temporary 100% Deduction Applies

To provide economic assistance to the food service industry, congress enacted the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (Act). The Internal Revenue Code (Code) allows a deduction for business-related meals. Generally, expenses for business-related meals are limited to a 50% deduction. However, the Act provides a temporary exception to the 50% limit when business food and beverages are purchased from a restaurant. This temporary exception allows a 100% deduction for any business-related meals purchased from restaurants in 2021 or 2022 taxable years.

For the purposes of the Act, the IRS defines a “restaurant” as a business that prepares and sells food or beverages to retail customers for immediate consumption, regardless of whether the food or beverages are consumed on the business’s premises.ii

Additionally, the 100% deduction will also apply to any meal expenses incurred in connection to marketing, promotional, or social events (such as a company picnic, holiday parties, or team building events) hosted by the business.

When the Temporary 100% Deduction Does Not Apply

The following business and eating facilities are not considered restaurants for the purpose of the Act and are still limited to a 50% deduction:

• Any business that primarily sells pre-packaged food or beverages not intended for immediate consumption is not considered a restaurant for purposes of the Act. This includes grocery stores; specialty food stores; beer, wine, or liquor stores; drug stores; convenience stores; newsstands; and vending machines or kiosks. 2

• Any eating facility located on the business premises and provides meals to the business’s employees pursuant to their employment.

• Any employer-operated eating facility treated as de minimus fringe (meaning the benefits are so small and so infrequent accounting for it is unreasonable and impracticable).

Additionally, such business-related meals cannot be lavish or extravagant under the circumstances, and the taxpayer (or an employee of the taxpayer) must be present when the business meal is purchased. Otherwise, no portion of the meal is deductible as a business expense. It’s important to note that just because a restaurant is expensive does not mean it is lavish or extravagant. The IRS will look at the context and circumstances to determine if an expense was lavish or extravagant. iii

Temporary 100% Deduction and Per Diem Rates or Allowances

To deduct certain business expenses paid or incurred while on a business trip, a business is required to provide evidence to prove that such expense was a business expense. To do this, the business can either:

    (i) provide evidence of the actual allowable expense by maintaining adequate records of the date, location, and purpose of the trip, or other sufficient evidence (such as keeping receipts), or

   (ii) the business can use a per diem rate or allowance (fixed amount of reimbursement paid to employees for expenses incurred during business-related travel) that is equal to or less than the rate set each year by the General Services Administration (GSA).

If the business chooses to use a per diem rate, the deduction for such expense is allowed, and no further documentation is required. Furthermore, suppose a per diem rate or allowance is explicitly provided for Meal and Incidental Expenses (M&IE). In that case, such expense is treated as a business-related meal and is limited to a 50% deduction. However, the IRS has issued a temporary special rule that permits a business to treat the full M&IE of a per diem rate or allowance (that is equal to or less than the GSA rate) as a business meal purchased from a restaurant and will thus be 100% deductible if purchased in 2021 or 2021.iv

Although the per diem rate requires less elaborate bookkeeping, the temporary 100% deduction offers businesses an additional incentive to itemize their business-related meal expenses. In January 2021, the M&IE per diem rate set by the GSA was $66 per day. Per the special rule, 100% of that $66 will be deductible whether the meal was purchased from a restaurant or not. However, suppose an employee is on a business trip in Sacramento, and they have a business-related meal that is more than $66 (and is not deemed to be lavish or unreasonable under the circumstances). In that case, the business is permitted to take a larger deduction for such expense. Additionally, this will ensure that the business-related meals are actually purchased from restaurants and will assist in providing the restaurant industry the financial support it so desperately needs.

Conclusion

This article is intended to provide you with a comprehensive summary of the temporary 100% deduction and is not intended to serve as legal or tax advice.

Fully deductible items include business meals with clients (purchased from the restaurant); office snacks and meals (if purchased from a restaurant); and company-wide parties.

We strongly advise you to discuss the temporary 100% deduction with your tax advisor. Taking full advantage of this deduction could provide a sizeable financial benefit to your business (by reducing the amount of taxes owed) while simultaneously stimulating the struggling restaurant industry.

i Julia F. Lippet, Mackenzie B. Furnari, and Charlie W. Kriebel, The Impact of the COVID-19 Pandemic on Occupational Stress in Restaurant Work: A Qualitative Study (Oct. 2, 2021), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8508391/

ii Notice 2021-25

iii Revenue Procedure 2019-48

iv Notice 2021-63