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Inflation Reduction Act of 2022

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Latest legal news and recent law changes.

Inflation Reduction Act of 2022

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.

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Trustee’s Duties to Beneficiaries After the Death or Incapacity of the Settlor of a Revocable Trust

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Latest legal news and recent law changes.

Trustee’s Duties to Beneficiaries After the Death or Incapacity of the Settlor of a Revocable Trust

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.

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Bad Faith Trust Litigation Could Result in Reimbursement of Attorney Fees Above Your Allocated Distribution

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Latest legal news and recent law changes.

Bad Faith Trust Litigation Could Result in Reimbursement of Attorney Fees Above Your Allocated Distribution

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. 5th 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.

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Associate Danielle Lawrence is featured as one of Sacramento’s Top Attorneys

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Latest legal news and recent law changes.

Associate Danielle Lawrence is featured as one of Sacramento’s Top Attorneys

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).

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Trust Portability Election Extended to Five years

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Latest legal news and recent law changes.

Trust Portability Election Extended to Five years

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.

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Key Financial Institution will be First to Allow Crypto Retirement Accounts

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Latest legal news and recent law changes.

Key Financial Institution will be First to Allow Crypto Retirement Accounts

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.

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Temporary 100% Deduction For Food Or Beverages Purchased From Restaurants

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Latest legal news and recent law changes.

Temporary 100% Deduction For Food Or Beverages Purchased From Restaurants

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

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New Rules to take effect under the Trademark Modernization Act of 2020

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Latest legal news and recent law changes.

New Rules to take effect under the Trademark Modernization Act of 2020

The United States Patent and Trademark Office (USPTO) has adopted final rules that implement provisions of the Trademark Modernization Act enacted on December 27, 2020.  Most of the rules will become effective on December 18, 2021. Highlights of the new rules include streamlined procedures for canceling registrations due to nonuse.  The underlying policy for these new procedures is to “clean up” the USPTO registration rolls by removing registrations of marks that are not being “used in commerce.” These new regulations are designed to provide efficient and less expensive alternatives to the traditional proceedings before the Trademark Trial and Appeal Board for cancellation of a registration.  A party utilizing these new procedures (known as “reexamination” and “expungement”) will need to allege a certain lack of use of the mark in question and request the USPTO to institute an expungement or reexamination proceeding.  If the USPTO decides to initiate a proceeding, the registrant will be allowed an opportunity to submit evidence showing use of the mark, in rebuttal of the alleged nonuse.  Ultimately, the proceedings could result in the registrant’s loss of registration rights if the registrant is not able to submit appropriate evidence of use.

            The new rules implement formalized procedures for the USPTO’s handling of “letters of protest,” which letters allow third parties to submit evidence in opposition to an application for registration during the examination stage.   

            Finally, the new rules shorten the time period in which applicants/registrants have to respond to USPTO office actions.  Currently, one has 6 months to respond to an office action.  Starting December 1, 2022, the response time will be shortened to 3 months.  (However, a one-time three-month extension may be requested upon payment of a $125 fee.)

For more information, email the Burton Law Firm at info@lawburton.com.

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California Updates Several Employment Laws: Effective January 1, 2022

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Latest legal news and recent law changes.

California Updates Several Employment Laws: Effective January 1, 2022

1. The Definition of “Family” Officially Changed to Include Your In-Laws.

One of the more interesting changes comes from AB 1033 (available here). A straightforward law, the California Family Rights Act is amended so that “family” includes an employee’s parents-in-law.

Current law makes it unlawful for an employer to refuse to grant a request by an employee to take up to 12 workweeks of unpaid protected leave during any 12-month period for family care and medical leave.

Existing law defines family care and medical leave to include, among other things, leave to care for a parent. This is now expanded to include your parents-in-law.

2. Arbitration Invoices Shall be Due the Same Day They Are Issued

SB 760 (available here) amends the current law to remove the thirty (30) day leeway given to employers (or technically whomever the drafting party is) to pay initial arbitration fees so arbitration can begin. The new law requires the arbitration provider to provide invoices for the fees, in their entirety, to all parties to the arbitration on the same day and by the same means.

In other words, employers who have mandatory arbitration clauses in their contract must pay their arbitration invoices immediately upon receipt or they waive their right to enforce arbitration.

Notably, the law allows for the arbitration agreement to expressly provide for “a different time for payment”; thus this provision can be easily contracted around.

3, Theft of Wages, Gratuity, or Other Compensation is Escalated from a Civil Misdemeanor to Grand Theft.

AB 1003 (available here) escalates the “intentional theft” of an employee’s “wages, gratuities, benefits, or other compensation” equal to $950 or over for an individual, or $2,350 or above for two or more employees, to a grand theft crime. The employer’s actions need not occur all at once and can cumulatively occur through any 12-month period.

In other words, employers who “knowingly” miss a paycheck, take a cut of their employee’s tips, or refuse to properly provide any benefits required by law or any further compensation due to their employees, risk “imprisonment in a county jail for up to 1 year or as a felony by imprisonment in county jail for 16 months or 2 or 3 years.”

Now is a good time to make sure your Human Resources and Payroll departments are in good shape.

4. California Cracks Down on Emotional Support Animals.

AB 468 (available here) cracks down on the liberal allowance for emotional support animals and has two main parts.

First, it restricts health care practitioners from providing documentation relating for an emotional support animal unless the health care practitioner:

    1. Holds a valid license;
    2. Established a client-provider relationship with the individual for at least 30 days prior to providing the documentation;
    3. Completes a formal clinical evaluation of the individual regarding the need for an emotional support animal; and
    4. Provides verbal or written notice to the individual that knowingly and fraudulently representing themselves as the owner or trainer of a guide, signal or service dog (which is not the same thing as an emotional support animal) is a misdemeanor.

Second, it requires businesses that sell dogs to provide a written notice to the buyer or recipient of the dog stating that the dog does not have the special training required to qualify as a guide, signal, or service dog and is not entitled to the rights and privileges accorded by law to a guide, signal, or service dog.

5. Employment Posting Law Joins the 21st Century

SB 657 (available here) is a curious law, in that it provide legal permission for something every employer already does, and doesn’t actually do anything to make things better.

California law requires the posting of a variety of notices (wages, workers’ comp, etc.) in the workplace. The changes provide that in any instance in which an employer is required to physically post information, that employer may also distribute that information to employees by email with the document or documents attached.

Notably, the bill specifies that the employer must still physically display the required posting; it just allows them to email it as well. It is unclear why this needed to be codified in law, except perhaps to clarify that email was supplemental and not an alternative, and also to help remote workers; however, again, electronic posting is only allowed, and not required.

6. Nondisclosure Agreements and Other Related Non-Disparagement Agreements Cannot Cover Any Harassment or Discrimination.

SB 331 (available here) expands the topics protected by employee free speech, in that it expands the scope of matters which employers are prohibited from forcing an employee to refuse to divulge through a non-disparagement agreement. A non-disparagement agreement is when an individual has agreed that they won’t say anything negative about a company or its products, services, or leaders and generally covers all forms of communication. Employees will customarily sign such agreements as a condition for employment or as part of a settlement after a failed employment.

Previously, the law only protected sexual discrimination, meaning that you could never force an employee to refrain from divulging a previous circumstance of sexual misconduct or bias in the workplace; however, the law has been vastly expanded to include all forms of harassment, discrimination and/or retaliation. Furthermore, all employees must be made aware of this requirement for any non-disparagement contract to include the “magic words”:

Nothing in this agreement prevents you from discussing or disclosing information about unlawful acts in the workplace, such as harassment or discrimination or any other conduct that you have reason to believe is unlawful.

In other words, employers cannot prevent an employee from disclosing any harassment, discrimination and/or retaliation they reasonably believe occurred in the workplace. Furthermore, employers must make their employees aware of this for any nondisclosure agreement to be valid.

7. Cal OSHA Expands Their Ability to Issue Workplace Health and Safety Violations

The Division of Occupational Safety and Health (Cal OSHA) retains the power, jurisdiction, and supervision over every employment and place of employment in California. SB 606 (available here) makes it so that employers who have specific violations within two or more locations are considered to have that violation “enterprise-wide” and Cal OSHA can cite them as such (meaning their entire operation, not just where they found the violations). This enterprise-wide presumption is rebuttable, so employers can bring evidence that the violations are narrowly limited to specific sites.

The law also allows Cal OSHA to cite employers for “egregious” violations, for repeated, negligent, or intentional violations which show clear bad faith by the employer. Only one of the following needs to be proven true for a violation to now be considered “egregious”:

    1. The employer, intentionally, through conscious, voluntary action or inaction, made no reasonable effort to eliminate the known violation;
    2. The violations resulted in worker fatalities, a worksite catastrophe, or a large number of injuries or illnesses. For purposes of this paragraph, “catastrophe” means the inpatient hospitalization, regardless of duration, of three or more employees resulting from an injury, illness, or exposure caused by a workplace hazard or condition;
  • The violations resulted in persistently high rates of worker injuries or illnesses;
    1. The employer has an extensive history of prior violations of this part;
    2. The employer has intentionally disregarded their health and safety responsibilities;
    3. The employer’s conduct, taken as a whole, amounts to clear bad faith in the performance of their duties under this part; or
  • The employer has committed a large number of violations so as to undermine significantly the effectiveness of any safety and health program that may be in place.

8. Subcontractors and Manicurists get a Three-Year Extension on the “ABC” Independent Contractor Test.

AB 1561 (available here) is simple in that it stops the “ABC” test from expiring on January 1, 2022, and extends it until January 1, 2025 for manicurist or a subcontractors. The ABC test is what the government uses to determine if an individual is an employee or an independent contractor. The statute summary itself clearly explains the test:

Existing law requires a 3-part test, commonly known as the ‘ABC’ test, to determine if workers are employees or independent contractors for purposes of the Labor Code, the Unemployment Insurance Code, and the wage orders of the Industrial Welfare Commission. Under the ABC test, a person providing labor or services for remuneration is considered an employee rather than an independent contractor unless the hiring entity demonstrates that the person is:

    1. free from the control and direction of the hiring entity in connection with the performance of the work,
    2. the person performs work that is outside the usual course of the hiring entity’s business, and
    3. the person is customarily engaged in an independently established trade, occupation, or business [source (edited for clarity)].

9. Extension of the Statute of Limitations for Alleged Violations of the Fair Employment and Housing Act

SB 807 (available here) requires employers to preserve personnel records for employees and applicants for four (4) years from the date of creation and extends the time that the Department of Fair Employment and Housing (DFEH) has to bring a civil action for unlawful employment practices.

Previously, the DFEH had 150 days to file an action, but this has been extended to two (2) years. Moreover, the statute of limitations for the alleged aggravated party’s right to file a case is extended by however long it takes the DFEH to decide if they will sue.

In other words, an individual’s right to sue their employer for an alleged unlawful employment practice has been extended by up to two (2) years.

10. Warehouse Workers Given Expanded Rights in Meeting Their Quotas

AB 702 (available here) applies to warehouses with 1,000 or more employees in total or 100 employees in a single warehouse. It requires such employers to provide to each employee information regarding performance quotas—namely, all working objectives based on productivity speed, a quantified number of tasks, or a required amount to be handled or produced. In other words, for any employee with a performance quota, such employers must:

    1. Provide the employee with a written description of each quota to which the employee is subject upon hire or within 30 days of January 1, 2022 (the effective date of the law);
    2. Describe the quantified number of tasks to be performed or materials to be produced/handled;
    3. Define the time period within which the quota must be completed; and
    4. Describe any potential adverse action that could result from failure to meet the quota.

Furthermore, a quota must:

    1. Allow the employee to take a legally required meal or rest break;
    2. Be compliant with occupational health and safety laws; and
    3. Be clearly discussed with the employee.

For more information, please contact our firm at 916-822-8700 or info@lawburton.com.

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Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2021

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Latest legal news and recent law changes.

Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2021

[On November 5, 2021, the changes detailed below were approved by the Senate and are going to be voted on in the House of Representatives.]

Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2021
  • Increase to Allowable State and Local Tax Deduction (§137601): Currently, up to $10,000 may be deducted for state and local taxes. If passed, the new limitation would be $72,500 ($36,250 for married filed separately, trusts, and estates). This would be effective through 2031.
  • Limitation on Excess Business Losses of Noncorporate Taxpayers (§138202): The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided relief for taxpayers by eliminating the excess business loss limitation (which disallows excess business loss for noncorporate taxpayers for losses in excess of $500,000 for joint filers and $250,000 for individuals) for the 2018, 2019, and 2020 tax years. This proposal would permanently disallow excess business losses for non-corporate taxpayers and would allow taxpayers whose losses are disallowed to carry those losses forward to the next succeeding tax year as a deduction.
Potential Corporate Tax Impact: Effective – Introduction Date (September 13, 2021) 
  • Modification to Rules Governing the Sale or Exchange of Qualified Small Business Stock (§138149). Currently, a taxpayer (other than a corporation) who acquired (or acquires) Qualified Small Business Stock (“QSBS”) during certain periods in 2010, and thereafter, and has held the stock for more than 5 years, is able to exclude 100% of any gain from the sale or exchange of QSBS from his or her gross income. Under the proposal, if the taxpayer’s Adjusted Gross Income (“AGI”) equals or exceeds $400,000, or if the taxpayer is a trust or estate, then the 100% exclusion of any gain from the sale of a QSBS is reduced to 50%.
Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2022 
  • Modification to Treatment of Certain Losses (§138142): Under the proposed legislation, losses realized on certain securities will be treated as being realized on the day that the event establishing worthlessness occurred, rather than on the last day of the taxable year. This potentially limits the instances when such a loss would be treated as a capital loss as opposed to a short-term loss (ordinary loss). Also, under the proposed legislation, partnership indebtedness would be treated the same as corporate indebtedness for the purpose of Section 165 of the Internal Revenue Code (IRC) and worthless partnership interests would be treated as a loss from the sale or exchange of a partnership interest at the time of the identifiable event establishing worthlessness.  
  • Wash Sale Rules Apply to Related Parties and Digital Assets (§138152): Currently, the Wash Sale Rule provides that a tax loss resulting from the sale of a security is not deductible to the extent the taxpayer acquires a substantially identical security at either 30 days before or 30 days after the loss. The proposed legislation would include digital currencies such as cryptocurrency in the Wash Sale Rule. Also, under the new legislation, related parties whose acquisition of a substantially identical security within 30 days would also implicate the wash sale rules. 
  • Net Investment Income Tax Expanded (§138201): Under current law, a 3.8% tax is imposed on Net Investment Income (NII) on certain individuals, estates, or trusts if a trade or business is a passive activity for the taxpayer (i.e., the taxpayer does not materially participate in the trade or business). In other words, the 3.8% tax does not apply to income from a trade or business conducted as a sole proprietor, partnership, or S Corporation, if the taxpayer materially participates in the trade or business. Under the proposal, the 3.8% tax would be imposed on the NII of high-income individuals (taxpayers with greater than $400,000 in modified adjusted gross income (single filer) or $500,000 (joint filer)) regardless of whether the trade or business is a passive activity for the taxpayer so long as the income isn’t already subject to the Federal Insurance Contribution Act (FICA) or Self-Employment Tax. Additionally, the current tax is 3.8% of the lesser of NII or the excess of modified Adjusted Gross Income (AGI) over a set dollar amount. For trusts and estates, the current tax is 3.8% of the less of undistributed net income, or the excess of AGI over a set dollar amount. The drafted legislation also proposes to expand the definition of the NII subject to the tax by stating the 3.8% tax would apply to the greater of specified net income or NII. For trusts and estates, the 3.8% would apply to the lesser of (1) the greater the undistributed specified net income or undistributed NII; or (2) the excess AGI over the set dollar amount. 
  • High Income Surcharge Tax (§138203): This proposal would impose a surtax equal to 5% of a taxpayer’s modified adjusted gross income in excess of $10,000,000 ($20,000,000 if married, filing separately) and an additional 3% of a taxpayer’s modified adjusted gross income in excess of $25,000,000. For this purpose, the modified adjusted gross income would be defined as the adjusted gross income reduced by any allowed deductions. Any modified AGI of an estate or trust in excess of $200,000 would now be subject to a tax equal to 5%. In addition, any modified AGI of an estate or trust in excess of $500,000 would now be subject to a further tax equal to 3%. 
  • Rollover and Conversion Limits; Eliminate Back Door Roth IRAs (§138311): This proposal would prohibit after-tax IRA or employer plan contributions from being converted to Roth accounts for all taxpayers irrespective of income level. 
  • IRA Non-Compliance Statute of Limitations Extended (§138312): This legislation would extend the statute of limitations for IRA noncompliance related to valuation related misreporting and prohibited transactions from 3 years to 6 years. This would apply to taxes to which the current 3-year period ends after December 31, 2021. 
  • IRA Owners Treated as Disqualified Persons (§138313): The legislation proposes to further clarify that IRA owners (including individuals who inherit an IRA as beneficiary aft the IRAs owner’s death) are always disqualified persons for the purpose of applying the prohibited transaction rules. 
  • Holding DISC or FSC In IRA (§138503): An IRA holding an interest in a Domestic International Sales Corporation (DISC) or Foreign Sales Corporation (FSC) that receives commission or payment from any entity, stock, or interest owned by the individual for whose benefit the IRA is established, is a prohibited transaction.
Potential Tax Impact to Individual Taxpayer: Effective – Enactment Date (January 1, 2022)
  • Constructive Sale Rules Apply to Digital Assets (§138150): The Constructive Sale Rule under IRC §1259 provides that when there is a constructive sale of an appreciated financial position the taxpayer shall recognize gain as if such position were transferred at fair market value on the date of the constructive sale. A constructive sale occurs when a taxpayer holds an appreciated financial position and enters into certain designated transactions that substantially reduce taxpayer’s downside risk (such as a short sale). This tax proposal expands the definition of an “appreciated financial position” to include digital assets such as cryptocurrency. 
  • Deductions for Attorneys Representing in Contingency Fee Cases (§138518): If passed, expenses made that would be repaid contingent on recovery or settlement would be included as Section 162 (ordinary business expenses) deductions.
Potential Corporate Tax Impact: Effective – January 1, 2023
  • Corporate Alternative Minimum Tax (§138101): If passed, an alternative minimum tax of 15% would be imposed upon all income for corporations with an average income over $1 billion. Income is determined through an “adjusted financial statement.” This is a formal financial statement subject to certain rules but may generally be met with a form 10-K filed with the Securities and Exchange Commission.
Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2029  
  • Contribution Cap on Individual Retirement Plans of High-Income Taxpayers (§138301): The proposed legislation would prohibit new contributions to a Roth or traditional Individual Retirement Accounts (IRAs) if the total value of all of the taxpayer’s IRAs exceeds $10 million at the end of the prior tax year. However, rollover contributions shall not be treated as new contributions. This provision would only apply to individuals whose adjusted taxable income exceeds $400,000 (single filer) or $450,000 (joint filer). 
  • Increased Required Minimum Distributions for Excess Balances (§138302): This legislation would impose new required minimum distributions for taxpayers whose adjusted taxable income exceeds $400,000 (single filer) or $450,000 (joint filer) and whose combined IRAs (Roth, traditional, and defined contribution plan) exceed $10 million at the end of year. These individuals, regardless of their age, would be required to take a minimum distribution in the following year of an amount equal to 50% of the amount by which the aggregate accounts exceed $10 million. For taxpayers whose aggregate account balances exceed $20 million, the taxpayer will be required to draw the lesser of: (1) the amount needed to bring the aggregate balance down to $20 million; or (2) the aggregate balances in all Roth IRAs and designated Roth accounts.
Potential Tax Impact to Individual Taxpayer: Effective – January 1, 2032  
  • Rollover and Conversion Limits; Eliminate Back Door Roth IRAs (§138311):

This proposed legislation would eliminate the “backdoor” conversions of traditional IRAs or employer plan accounts to Roth IRAs for a taxpayer whose adjusted taxable income exceeds $400,000.