The Difference Between Workers’ Compensation and Federal Employers Liability Act

Workers’ compensation and the Federal Employers Liability Act (FELA) are two important pieces of legislation that protect employees in the United States. However, many people don’t know the difference between the two. In this blog post, we will discuss the key points of each law and help you determine which one is best for your needs.

What is Workers’ Compensation

Workers’ compensation is a system of insurance that provides benefits to employees who are injured or become ill as a result of an accident on the job. Benefits can include medical expenses, income replacement, and death benefits. Workers’ compensation is typically mandatory in most jurisdictions, meaning employers must provide coverage for their employees. In some cases, employees may be able to elect not to participate in the workers’ compensation system, but this is generally only allowed if the employee has alternative insurance coverage. Workers’ compensation helps to ensure that employees who are injured on the job are able to receive the benefits they need without having to sue their employer. As a result, it helps to protect both employees and employers.

What is the Federal Employers Liability Act

The Federal Employers Liability Act, or FELA, is a federal law that provides compensation to railroad workers who are injured on the job. Railroads are a particularly dangerous workplace, and FELA was enacted in order to protect workers from being taken advantage of by their employers. Under FELA, injured workers are entitled to receive damages for their injuries, including lost wages and medical expenses. In addition, FELA protects workers from retaliation by their employers if they report an injury. If you are a railroad worker who has been injured on the job, you may be entitled to compensation under FELA.

FELA was enacted in 1908 to protect and compensate railroad workers injured on the job. Between 1889 and 1920, there was a massive expansion in the U.S. for railroad use, and the expansion came with an increase of dangers experienced by railroad workers—including loss of limb and death. FELA was enacted by Congress as a way to reduce injuries and deaths resulting from accidents on interstate railroads so that workers could be better protected.

“The Federal Employers Liability Act was designed to put on the railroad industry some of the costs of the legs, arms, eyes, and lives which it consumed in its operation. Not all these costs were imposed, for the Act did not make the employer an insurer. The liability which it imposed was the liability for negligence.”

–Justice William Douglas, U.S. Supreme Court

FELA was designed not only to discourage negligent conduct but also to provide liberal recovery for injured workers and to shift to the railroad industry part of the risks inherent in dangerous railway work.

If you or a loved one have been seriously injured in a train accident while employed as a railroad worker, it is important that you understand your legal right to receive compensation for those injuries under FELA. You can also read about what to do if you are injured during a railroad accident.

The Key Points of Each Law

Workers’ compensation and the Federal Employers Liability Act (FELA) are both designed to protect workers who are injured on the job. However, there are some key differences between the two laws. Workers’ compensation is a state-mandated program that provides benefits to workers who are injured or become ill as a result of their job. Benefits can include medical expenses, income replacement, and death benefits. FELA, on the other hand, is a federal law that applies to railroads and other employers who are engaged in interstate commerce. FELA provides workers with the right to sue their employer for negligence if they are injured on the job. As such, workers who are covered by FELA may be entitled to greater damages than those who are covered by workers’ compensation.

How to Determine Which Law is Best for You

The workers’ compensation system is a state-mandated insurance program that provides benefits to employees who are injured or become ill as a result of their job. Workers’ compensation pays for medical expenses and, in some cases, lost wages. The Federal Employers Liability Act (FELA) is a federal law that provides protections for railroad workers who are injured on the job. FELA covers a wide range of injuries, including those caused by repetitive motion, chemical exposure, and hazards on the tracks. FELA also provides for lost wages and medical expenses. So, which law is best for you? If you are injured on the job, your employer is required to provide workers’ compensation coverage. However, if you work for a railroad or another employer who is engaged in interstate commerce, you may be covered by FELA. If you have any questions about which law applies to you, please contact an experienced railroad accident lawyer at Morrow & Sheppard LLP.

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Ramadan 2022 is Here: Do I Qualify for a Religious Accommodation?

Texas Employment Lawyer Rasha Zeyadeh

The Muslim holy month of Ramadan is observed by 1.6 billion people around the world. Practicing Muslims will be fasting from dawn until dusk (approximately 6 a.m. to 8 p.m.) beginning on April 2, 2022 and ending on May 2, 2022. Fasting means no food or liquid of any kind. Yes, that includes water! Ramadan is meant to be a time of spiritual discipline – of deep contemplation of one’s relationship with God, extra prayer, increased charity and generosity, and intense study of the Quran. It is a joyous month meant to be shared and celebrated with loved ones.

Fasting during Ramadan is one of the five pillars – or duties – of Islam, along with the testimony of faith, prayer, charitable giving, and making a pilgrimage to Mecca. The practice of fasting is intended to be a reminder of human frailty and dependence on God for sustenance. It reduces the distractions of life to allow time to focus on our relationship with God. Importantly, it provides an example of the hunger and thirst the poor experience, which is intended to encourage empathy for and charity to the less fortunate.

Continue reading ›

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Legislative Immunity Trumps Everything Says the First Circuit

Before getting started on the blog entry of the day, I do want to give a shout out to CODA, which won a best supporting actor, a best adapted screenplay, and best picture at the Academy Awards. As a small d deaf proud person in a deaf and hoh proud (daughter also wears hearing aids), household, I am beyond thrilled. I hope it means more persons with disabilities actually get a chance to be a part of the industry both in front of the camera and behind it and that more persons with disabilities get a chance to play roles portraying persons with disabilities.

 

The case of the day is one we have blogged on twice already. The case is Cushing v. Packard, which we discussed here and here. If you recall from that discussion, the district court decided that legislative immunity trumps everything. A panel of the First Circuit decided that was not the case. It was then heard en banc and decided, here, by the First Circuit (just five judges), and the majority opinion says that legislative immunity does trump everything. Since we have blogged on this case already twice before, I felt compelled to blog on this decision as well. As usual, the blog entry is divided into categories and they are: Judge Barron’s majority opinion; Judge Thompson’s dissenting opinion; and thoughts/takeaways. The decision was 3-2 with Judges Barron, Howard, and Lynch in the majority and Judges Thompson and Kayatta dissenting. The question before the court was whether title II of the ADA or §504 Rehabilitation Act authorizes a federal court to resolve the dispute among members of the state legislative body about whether voting on bills may be done remotely rather than in person.

 

I

Judge Barron’s Majority Opinion Holding That Legislative Immunity Trumps Just about Everything

 

1. The privilege of legislators to be prevented from being sued is to enable and encourage a representative of the public to discharge a public trust with firmness and success. That is, the reason to keep government officials immune from deterrence to the uninhibited discharge of their legislative duties if not for their private indulgences but for the public good.
2. Legislative immunity can be asserted against claims seeking only declaratory or prospective relief as well as damages because it exists to protect those engaged in legislative activities from the burdens of defending against the suit and not merely being held liable in one.
3. Plaintiffs complaint clearly sought redress from the Speaker of the House and not the state. Also, for a variety of reasons, the Speaker of the House cannot be equated with the state. These reasons include: 1) a suit brought against a state officer in their official capacity is not the same thing as a suit against the state; 2) the complaint itself did not go after the state but only the Speaker of the House; 3) suits against officers in their official capacity are not the same as suits against the state because a suit against the state implicates 11^th amendment sovereign immunity while official capacity suits do not; and 4) just because title II of the ADA covers public entities that does not transform this case into a suit against the state.
4. The Supreme Court has held that legislative immunity can be asserted as a defense in an official capacity suit.
5. While the Supreme Court has talked about municipal corporations not having available to it immunity available to local officials under §1983, they have never reached a similar conclusion with respect to suits against states or against state agents in their official capacities.
6. That the legislature is covered by §504 of the Rehabilitation Act does not transform the case into a suit against the state either.
7. While a legislative body appears to be a title II entity, it still gets the ability to assert legislative immunity.
8. If Congress wanted to abrogate legislative immunity it could have explicitly done so. Just because it explicitly abrogated sovereign immunity in the ADA does not mean that it intended to abrogate legislative immunity. You need explicit abrogation wording for either or both. That is, common law principles of legislative immunity are incorporated into the judicial system and they should not be abrogated absent clear legislative intent to do so. Any general language that might be found in the statute suggesting that legislative immunity is abrogated is simply not good enough; it has to be explicit.
9. The ADA makes no express reference to legislatures or legislators.
10. Title II of the ADA does not indicate any intent by Congress to deal with these subtle considerations of the mixture of legislative or executive duties with the political facts of life.
11. While plaintiffs claim no legislative act is involved, voting is a legislative act.
12. While legislative immunity does not attach to the activities that are merely casually or tangentially related to legislative affairs, determinations about the procedure governing the means by which House members may cast votes are not so easily characterized that way. Further, the injunctive relief plaintiffs seek is relief that must run against a state legislator directly to be effective.
13. The scope of legislative immunity is not dependent upon immunity that a particular state itself recognizes under its own law.
14. Just because a statutory violation is involved, that does not mean it rises to the extraordinary circumstances necessary for the exception to legislative immunity to apply.
15. The challenged conduct does not on its face target any class of legislators because it involves adhering to existing rules rather than making new ones.
16. The extraordinary circumstances test for getting around legislative immunity has to be set at a high level because otherwise you may get federal judges improperly intruding into internal state legislative affairs. You also will get partisan battles whereby partisan state legislators improperly enlist federal judges to participate in them.
17. Congress is better suited to explicitly waive legislative immunity than are the courts to do it on a piece by piece basis.

 

II

John Thompson’s Dissenting Opinion

 

1. The majority opinion effectively disenfranchises thousands of New Hampshire residents simply because the representatives are persons with disabilities.
2. The majority opinion immunizes any legislative role that does not on its face target any class of legislators, which is a standard so broad as to immunize race and religious-based discrimination as well.
3. The majority opinion opens the floodgates to potential abuse and spells a recipe for disaster in the future.
4. The speech or debate clause in the Constitution was intended to be for the benefit of the people and not their representatives.
5. While legislative immunity was necessary for the separation of powers, the true driving goal was representation of the public.
6. Early courts acknowledged that the people were careful in providing privileges to their legislators that would not unreasonably prejudice the rights of private citizens.
7. Modern courts have also recognized that legislative immunity is not a personal privilege, i.e. not directed to the benefit of the legislators themselves.
8. The purpose of legislative immunity is not to prevent judicial review of legislative actions but to ensure that legislators are not distracted from or hindered in the performance of their legislative task by being called into court to defend their actions.
9. The Supreme Court has never addressed a case where it held that the extraordinary character exception to legislative immunity applies. It has said that the clause should not be extended so as to privilege illegal or unconstitutional conduct beyond that essential to foreclosing executive control of legislative speech or debate and associated matters, such as voting and committee reports and proceedings.
10. It is contradictory to think that legislative immunity can protect some legislators decisions to effectively preclude other legislators from discharging their duties. The majority opinion leaves some people without their voice in representative government.
11. What benefit do the people gain in immunizing their own disenfranchisement?
12. The removal of a representative from his or her official duties in the face of an arrest, process, or subpoena, and the resulting loss of the voice for those he or she represents is an evil admitting of no comparison.
13. The Supreme Court has never addressed any case in which a legislature has sought to exclude legislators based upon federal statutory really protected characteristics.
14. In a footnote, the dissenting judge says that the legislative acts involved here has only one cause behind them, namely discrimination against a person’s statutorily protected disability. That is a far cry from removing a legislator because of nefarious activities jeopardizing the public trust in the office.
15. At oral argument, the State admitted that if the state legislature excluded a legislator on racial or other clearly unconstitutional grounds, the federal or state judiciary would be justified in testing the exclusion by federal constitutional standards. That was a correct position taken at oral argument because the consequences of not conceding at least some level judicial review to the exclusion of a duly elected representative are staggering. Such a situation would permit legislative immunity, which is designed to safeguard representative democracy, to be weaponized against the representation it is meant to support.
16. While the majority opinion essentially says that discrimination on the basis of disability is inconsequential, Congress certainly disagrees: 1) Congress enacted the ADA to provide a clear and comprehensive national mandate for the elimination of discrimination against persons with disabilities; 2) the ADA came in response to Congress’s finding that many people with physical or mental disabilities have been precluded from participating in all aspects of society because of discrimination on the basis of their disability; 3) persons with disabilities as a group occupy inferior status in society; 4) Congress found that individuals with disability continually encounter various forms of discrimination, including the discriminatory effects of overprotective rules and policies, failure to make modification to existing facilities and practices, exclusionary qualification standards and criteria, segregation, and relegation to lesser services, program, activity, benefits, jobs, or other opportunities.
17. The majority opinion says that legislative rules subverting the ADA and discriminating against the disabled are simply not extraordinary enough even though: 1) Congress explicitly found that people with disabilities were systematically discriminated against and enacted a law meant to put those individuals on equal footing; 2) Congress thinks that discrimination is a serious and pervasive social problem; and 3) Congress passed the ADA with a seeming intent to reject the Supreme Court’s refusal to consider disability as a suspect classification akin to race (the dissent notes in a footnote that the discrete and insular language that originally appeared in the ADA was taken out of the amendments. However, the dissent correctly points out that the reason the insular and discrete finding was taken out was because the courts were using it to narrow the scope of the ADA rather than expand it).
18. The Supreme Court has repeatedly expressed a skeptical eye towards applying legislative immunity to legislative actions that effectively remove certain constituents representative power in the government.
19. The logistical issues claimed by the Speaker of the House have been a moving target and don’t make any sense. So, there is no grave legislative concern in pushing the scale in favor of legislators with disabilities being able to fulfill their duties and allowing them to serve the people who elected them.
20. It is extraordinary to remove a legislator from representing the people who elected them.
21. Plaintiffs never waived the extraordinary character/circumstances argument.
22. The First Circuit has previously said that a legislature that votes to allow access to a chambers to members of only one race or two followers of one religion might veer into the orbit of the extraordinary character exception and disability should be treated no differently.
23. The court opened the floodgates to a host of rules designed to oust various subsets of legislators based on a host of protected characteristics just so long as other legislators are clever enough to craft them in an ostensibly neutral way. Such rules include possibly:

 

• A rule prohibiting the use of any electronic devices on the voting floor, but a member needs a hearing aid;
• A rule that all members must stand to address the legislative body, but one of the members is wheelchair bound;
• A rule prohibiting service animals from entering the floor during a session, but a member requires one;
• A rule prohibiting a sign-language interpreter from entering the floor during a session of the body, but a member requires an interpreter.
• A rule prohibiting a representative from wearing any headwear,27 but certain members adhere to a religion that requires doing so28;
• A rule prohibiting facial hair, but certain members’ religions prohibit them from shaving;
• A rule requiring that all sessions be held on Saturday mornings, but some members are Jewish and observe Shabbat.

According to the majority, absolute legislative immunity would apply in all of the situations because none of these rules take aim at any class of legislators.

 

24. The distinction between adhering to existing rules rather than making new rules makes absolutely no sense because it fails to explain why the court should turn a blind eye to discrimination simply because it is based upon an established practice within a legislative chamber. Such a rule also fails to explain how the adherence to a pre-existing rule somehow lessens the potential for nefarious intent compared to a choice to enact the new rule.
25. According to the majority opinion, representatives in the United States House of the Muslim faith would have no recourse when it came to wearing a religious headscarf because the U.S. House had a rule in place to disallow head coverings on the house floor. Similarly, the current New Hampshire House Rules requires a member to rise from their seat in order to speak and debate, make a motion, or deliver any matter to the House. Immunizing these effective ousters of representatives flies in the face of the entire purpose of legislative immunity.
26. At oral argument, the Speaker said that challenges to hearing aids and service animal hypotheticals would be barred by absolute legislative immunity and the majority agrees.
27. It doesn’t require, “Walt Disney level imagination” (the term actually used by Judge Thompson), for a legislature to come up with random reasons that would attach any of these rules to the legislative process.
28. The majority opinion very well dooms the next case where there is some suspicion of a facially neutral rule driven by abuse. It goes so far as to say that legislative immunity trumps everything and bars any suit based upon any facially neutral legislative rule regardless of its impact on a representative democracy.
29. The majority opinion gives carte blanche to legislatures to strategically silence legislative opponent and effectively disenfranchise their constituents so long that they can conjure up some facially neutral rationale for the rule. Such an opinion is at the expense of legislators with disabilities as well as at the expense of their constituents who elected them to serve.

 

III

 

Thoughts/Takeaways

 

1. As a person with a disability and as a person dedicated to helping others understand the rights of people with disabilities, my personal opinion is that this decision goes too far and should be appealed to the United States Supreme Court. Even with the configuration of the United States Supreme Court as it is, I still believe that Representative Cushing has a decent chance of winning at the Supreme Court. Judge Thompson essentially wrote the brief for the plaintiffs.
2. Look for the majority’s arguments to be made with respect to judicial immunity of state judges as well. It would be strange that judges charged with interpreting the law and getting it right would be free from any liability whatsoever should they themselves violate the rights of a person with a protected characteristic. The majority opinion suggest that is very well the case for both legislators and state judges (it isn’t a reach to see how the majority opinion easily applies to the actions of state judges).
3. Legislative immunity applies to both suits for damages and for declaratory and injunctive relief, which only raises the stakes involved with this decision.
4. I do understand how the majority argues that the State is not involved in official immunity suits, but that doesn’t mean that the dissent doesn’t have the better argument anyway.
5. Some of the arguments made by Judge Thompson implicitly address arguments often seen in standing cases, such as this one decided by the 11^th Circuit on March 29, 2022, which I may very well discuss in a subsequent blog entry and strongly suspect that Richard Hunt will discuss in one of his blog entries.
6. I agree with Judge Thompson that an existing rule v. a new rule distinction makes little sense.
7. Regardless of legislative immunity, we now see partisan legislators inviting federal judiciary intervention in all kinds of disputes. So, I am not sure that particular argument of the majority opinion withstands deeper analysis.
8. Is what the Speaker did involve legislative acts, i.e. only tangentially related to legislating? The answer to that question is far from clear in my view.
9. The ADA clearly applies to disparate impact. It is a far closer question whether the Rehabilitation Act applies to disparate impact.

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Navigating the Branch Profits Tax

The Branch Profits Tax

The branch profits tax is imposed on foreign corporations engaged in a U.S. trade or business through a branch, rather than a subsidiary.  The branch profits tax is imposed in addition to any tax on income that is effectively connected[1] to the conduct of the business.

In other words, under the branch profits tax, foreign corporations with U.S. branches are, in theory at least, subject to two levels of tax: (i) At the entity level when the U.S. branch earns income, and (ii) at the shareholder level when the earnings are deemed to be repatriated.

In effect, the branch profits tax treats the U.S. branch of a foreign corporation as if it were a subsidiary—at least for purposes of taxing the repatriation of profits.  This puts the earnings and profits of a foreign corporation’s branch that are deemed to be repatriated to its home office on equal footing with the earnings and profits of a U.S. subsidiary that are paid out as a dividend to its foreign parent.  By treating a branch’s profits as though they were remitted to the foreign corporation, the branch profits tax effectively eliminates the advantage of operating as a U.S. branch rather than a subsidiary with respect to the repatriation of profits.

 

The Taxation of a Foreign Corporation’s Effectively Connected Income, Generally

Foreign corporations that have a trade or business in the U.S. may be subject to tax on the income that is effectively connected with that U.S. trade or business at normal corporate tax rates. A foreign corporation has effectively connected income if it is engaged in a trade or business within the U.S. and has income connected to that trade or business. For example, a foreign corporation that performs services in the U.S. is engaged in a trade or business in the U.S. and has effectively connected income.

 

The Branch Profits Tax, Generally

The branch profits tax was enacted under the Tax Reform Act of 1986.  It was intended to put a U.S. branch of a foreign corporation on par with a U.S. subsidiary of a foreign corporation.

The branch profits tax imposes a 30% tax (or lower rate under an applicable treaty) on the after-tax earnings of a foreign corporation’s U.S. trade or business that are not deemed to be reinvested in that U.S. trade or business. The branch profits tax is imposed on the “dividend equivalent amount.” As such, the branch profits tax treats a U.S. branch of a foreign corporation as if it were a subsidiary of a foreign corporation.

The branch profits tax is imposed in addition to the tax imposed by section 882 on effectively connected income.

Note that the termination or incorporation of a U.S. trade or business, or the liquidation or reorganization of a foreign corporation or its domestic subsidiary, may impact the branch profits tax.

 

The Dividend Equivalent Amount

The term “dividend equivalent amount” is defined as a foreign corporation’s effectively connected earnings and profits, with certain adjustments. The dividend equivalent amount is similar to dividends paid by a subsidiary either out of current E&P not yet invested or out of accumulated E&P invested in subsidiary assets.

To determine the dividend equivalent amount, we start with the effectively connected earnings and profits.  Effectively connected earnings and profits are the earnings and profits (or deficits) determined under section 312 and Treasury Regulations that are attributable to effectively connected income (within the meaning of the Treasury Regulations).[2] Because the phrase effectively connected income includes income treated as effectively connected, income that is effectively connected income under section 842(b) (minimum net investment income of an insurance business) or 864(c)(7) (gain from property formerly held for use in a U.S. trade or business) gives rise to effectively connected earnings and profits. Effectively connected earnings and profits also includes earnings and profits attributable to effectively connected income of a foreign corporation earned through a partnership, and through a trust or estate. For purposes of section 884, gain on the sale of a U.S. real property interest by a foreign corporation that has made an election to be treated as a domestic corporation under section 897(i) will also give rise to effectively connected earnings and profits.

Generally, the effectively connected earnings and profits are adjusted (up or down) to reflect increases or decreases in the branch’s investment in United States assets (i.e., its U.S. net equity).  The dividend equivalent amount is reduced by the increase in a U.S. branch’s U.S. net equity.  It is increased by a U.S. branch’s decrease in U.S. net equity.

U.S. net equity equals U.S. assets minus U.S. liabilities.  The Treasury Regulations provide elaborate rules for the calculation of U.S. net equity.

There are two ways to increase U.S. net equity: use the profits to purchase additional U.S. assets or to reduce U.S. liabilities. Branch income that is reinvested in qualifying branch (U.S.) assets is not considered repatriated to the foreign home office.

On the other hand, if branch income is not reinvested in qualifying U.S. assets, then it is deemed repatriated.

Tax Treaties

The United States is a signatory to more than 60 income tax treaties.  With some exceptions, a qualifying foreign corporation that is a resident of a country with which the United States has an income tax treaty and that has a dividend equivalent amount.

Our Freeman Law interactive tax treaty map provides a link to tax treaty materials for each U.S. treaty partner:

 

If the foreign corporation satisfies the limitation on benefits provisions of the applicable tax treaty with respect to the dividend equivalent amount, the foreign corporation will not be subject to the branch profits tax on that amount (or will qualify for a reduction in the amount of tax with respect to such amount) if—

(i) The foreign corporation is a qualified resident of such country for the taxable year;[3] or

(ii) The limitation on benefits provision, or an amendment to that provision, entered into force after December 31, 1986.

A foreign corporation that, in any taxable year, is a qualified resident of a country with which the United States has an income tax treaty in effect solely because it meets the requirements of § 1.884–5(b) and (c) (relating, respectively, to stock ownership and base erosion) is exempt from the branch profits tax or subject to a reduced rate of branch profits tax pursuant to a treaty with respect to the portion of its dividend equivalent amount for the taxable year attributable to accumulated effectively connected earnings and profits only if the foreign corporation is a qualified resident of the treaty country under the Treasury Regulations, in whole or in part, in a consecutive 36–month period that includes the taxable year of the dividend equivalent amount. A foreign corporation that fails the 36–month test is exempt from the branch profits tax or subject to the branch profits tax at a reduced rate with respect to accumulated effectively connected earnings and profits (determined on a last-in-first-out basis) accumulated only during prior years in which the foreign corporation was a qualified resident of such country.

 

Foreign corporations should also analyze whether they have Form 5472 or other reporting obligations.

 

[1]For purposes of the branch profits tax, under applicable regulations the term “effectively connected income” means income that is effectively connected with the conduct of a trade or business in the United States and income that is treated as effectively connected with the conduct of a trade or business in the United States under any provision of the Code. The term effectively connected income also includes all income that is or is treated as effectively connected with the conduct of a U.S. trade or business whether or not the income is included in gross income (for example, interest income earned with respect to tax-exempt bonds).

[2] The term “ECEP” does not include any earnings and profits attributable to—

(i) Income excluded from gross income under section 883(a)(1) or 883(a)(2) (relating to certain income derived from the operation of ships or aircraft);

(ii) Income that is ECI by reason of section 921(d) or 926(b) (relating to certain income of a FSC and certain dividends paid by a FSC to a foreign corporation or nonresident alien) that is not otherwise ECI;

(iii) Gain on the disposition of a U.S. real property interest described in section 897(c)(1)(A)(ii) (relating to certain interests in a domestic corporation);

(iv) Income that is ECI by reason of section 953(c)(3)(C) (relating to certain income of a captive insurance company that a corporation elects to treat as ECI) that is not otherwise ECI;

(v) Income that is exempt from tax under section 892 (relating to certain income of foreign governments); and

(vi) Income that is ECI by reason of section 882(e) (relating to certain interest income of banks organized under the laws of a possession of the United States) that is not otherwise ECI.

[3] Note that if a foreign corporation is a qualified resident only with respect to one of its trades or businesses in the United States, i.e., the trade or business that is an integral part of its business conducted in its country of residence, and not with respect to another, the treaty exceptions may only apply to that portion of its dividend equivalent amount attributable to the trade or business for which the foreign corporation is a qualified resident.

 

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Introducing The Portia Project | M.C. Sungaila

This episode features the Texas Appellate Law Podcast’s first three-time guest, M.C. Sungaila. She joins Todd Smith and Jody Sanders to discuss her new podcast, The Portia Project, which chronicles the careers of women judges and lawyers and their impact on the legal profession. M.C. discusses what drove her new project, as well as her goal of inspiring a new generation of women lawyers and law students. Join us to hear about the

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Alex Jones Sanctioned

This really is not how to manage a lawsuit. A Connecticut judge has ordered that Alex Jones be sanctioned $25,000  per weekday until he appears for his deposition. The Judge found Mr. Jones in contempt of court for missing two deposition dates. It is very odd that Jones has totally failed to cooperate in discovery with the opposition. Every party to a lawsuit – especially the defendant – finds the process annoying. But, the parties must appear for depositions. The Sandy Hook plaintiffs have all been deposed. Only Mr. Jones has so far avoided the normal process.

The Judge also ordered that Mr. Jones’ deposition occur in Connecticut. The plaintiffs had been trying to depose Mr. Jones in Austin, where Jones lives. That is a normal practice. But, the Judge has rightly recognized that Mr. Jones has taken advantage of that practice.

Jones offered $120,000 per plaintiff to settle their claims on Monday. But, the plaintiffs rejected his offer. And, they should reject it. With his obstinate conduct and now, already in default, the jury may go well above normal limits. See Politico news report here.

Too, Mr. Jones has made this a very personal sort of lawsuit. Spewing lies about one’s young children is completely cruel. I expect there is much bad blood between the parties.

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Collaboration is Not the Same as Mediation or Arbitration

When you go through with a collaborative divorce you agree to hire attorneys (along with your spouse) who must withdraw from representing you if it becomes apparent that you cannot continue collaboratively. An issue may arise that you and your spouse cannot come to terms with an agreement regarding. In that case, the collaborative attorney must move aside and allow you to proceed elsewhere with representation. That attorney will withdraw from your case and no longer be your attorney of record. You may choose to proceed with another lawyer or without one for the rest of your divorce. 

When you find yourself in a situation where you had to interrupt your divorce to find a new attorney that means several things for your case. First, the new lawyer will need to be brought up to speed quickly depending on the circumstances of what is going on. Do not underestimate the complexity of the issues in your case if you find yourself needing to hire an attorney after a collaborative divorce did not work out for the two of you. Finding an experienced attorney who can jump in and immediately make a difference is essential in this situation. 

Next, the costs of your case can increase because of needing to find a new lawyer. Consider what may happen if you find yourself close to a total settlement of a case but with only a few outstanding issues. If mediation or trial date is upcoming then the attorney will need to be brought up to speed very quickly. As a result, you may find yourself paying the attorney more than you ordinarily might be due to the degree of difficulty and the speed with which the attorney will have to learn your case. 

The other thing that you must come to grips with is that you may experience some degree of anger or frustration at the divorce process due to the problems that you have had with collaboration. It is normal to feel like your spouse let you down or that he or she is to blame for the need to hire new counsel and enter a contested divorce. Either way, your only path forward is to take the divorce case one day at a time and do what you can to resolve the issues through negotiation. That part of the divorce does not change. A divorce in Texas is still based upon negotiation whether it is collaborative or not. 

Whether a collaborative process works better for you than a traditional divorce is really up to your circumstances. As with any divorce, the specific circumstances of your case are very important. If you and your spouse agree on most of the major issues of your case and life then a collaborative divorce may end up being for the best. On the other hand, if you have many issues that are not close to being resolved then a traditional divorce may be better for you. A collaborative divorce is almost surely less stressful than a traditional divorce. However, if there are enough circumstances ongoing that are difficult to work through then you may need to do a traditional divorce, ultimately. 

What is collaborative mediation?

Collaborative mediation combines aspects of traditional mediation and collaborative divorce. The process attempts to be as efficient as possible in terms of how long it takes as well as the results that can be achieved in this period. Collaborative divorces encourage settlement negotiation and cooperation on difficult issues. Mediation allows for you and your spouse to come together in a structured environment to try and work through the outstanding issues in your case. Combining both elements leads many people to a situation where you can get a lot done in your case in a fairly short amount of time. 

Here is how collaborative mediation works. In this setting one attorney, a collaborative law mediator will guide you and your spouse through a process where you can get to discuss important issues related to your case. There are financial, parent-child, and other issues relevant to your divorce. As a result, this mediator will have their hands full. However, because the mediator will have been through situations like yours previously, he or she will understand how complex your case is and to what extent he or she needs to “push” both of you towards a consensus. 

When it comes to financial issues you and your spouse may need some help in figuring out how to divide up your community estate. This can be an extremely complicated issue given the factors that may be relevant in your life. Your age, work experience, and education are all relevant considerations. Additionally, the goals of you and your spouse both short-term and long-term after the divorce will factor into how you negotiate on finances. Having another voice be able to weigh in on this situation can be helpful. 

For family-related issues, conservatorship and custody are almost always at the top of the list in terms of priorities for parents like you. Being able to make decisions and having the responsibility to care for your kids are the hallmarks of conservatorship discussions. Being able to make educational, health, and other decisions for your kids is a central part of being a parent. Likewise, being able to provide your child with medical care, education, and home are the duties most relevant to parenthood. 

Child custody becomes relevant when we consider the degree to which you can spend time with your children. This is typically the most negotiated-upon subject. No parent wants to lose time with their children because of a divorce. While that may be unavoidable to an extent, you will still want a schedule that suits you and your family. You and your spouse are probably best suited to come up with a plan on issues like this. However, a collaborative mediator can help you to problem solve using creative solutions to time division issues. This subject can get competitive in terms of both parents wanting to be able to have as much time with their children as possible. The desire to do this is understandable it is one where you should be prepared for some degree of animosity. This animosity may be fleeting but it will be serious. Being able to spend time with your children is probably the most specific fear that parents have about their children.

A collaborative law mediator will help guide you and your spouse towards a resolution. The more information of the two you have the better you will be able to make decisions that are based on fact and objectivity rather than subjective opinions and emotion. While the collaborative mediation process cannot remove all a motion from your case it is well suited to help when you are struggling with being able to objectively view the circumstances surrounding your case. having another set of eyes to view your case can be extremely helpful and can decrease the overall acrimony that the two of you are facing.

as you begin to gain more evidence in the case you may change your opinion on any number of subjects. For example, you may have held a particular opinion about how your community estate should be divided given what you thought you knew about the state of your finances. However, through document sharing, you may have come to find out that the state of your finances was quite different than what you had been led to believe previously. At that point, you may be more willing to approach a settlement based on the terms suggested by your spouse rather than based on your settlement proposal.

One of the main areas where spouses in your position may have some degree of disagreement would be on alimony. Supporting your spouse after your divorce is over is enough to and many negotiation sessions for spouses. These folks may be uncomfortable with the idea of financially supporting a person that they are not married. However, you may also be in a position where you desperately need some degree of financial assistance after your divorce for any number of reasons. The real question to ask isn’t whether you are comfortable with receiving or paying alimony but what a judge would be likely to do if this issue cannot be settled.

From the outset, one of the things that you should be made to understand throughout your case is that family court judges are not overly excited to order alimony to be paid. Specifically, alimony in this context would be known as spousal maintenance if it were ever ordered by a judge. In that case, the alimony that is paid would be limited in nature. Texas only created statutes related to spousal maintenance a relatively short period ago. As a result, many judges are more apt to award a disproportionate share of your community property to a spouse rather than award spousal maintenance.

However, you may find that in sharing information regarding the family finances that your spouse does stand to benefit from spousal maintenance. You may have assumed that he or she would be able to provide for themselves after a divorce given the amount of Community property that they would be receiving. However, the specific types of Community property or even their limitations in immediately landing a job can impact the need for alimony or spousal maintenance. Even spouses who are otherwise in agreement on many areas of their case can disagree on this subject. Being able to mediate collaboratively means that you can exchange information in a relatively stress-free environment and understand where the other person is coming from much better.

One of the downsides of collaborative mediation and collaborative divorce, in general, is that the costs may be higher than a traditional divorce due to the increased usage of professionals and experts. For example, you and your spouse may have agreed to utilize parenting professionals, financial professionals, or other people to help negotiate your way through a divorce. Many times, in a situation like this these professionals, would need to be present at every negotiation session or mediation. The costs of their being present on a near-constant basis in your divorce can add up to be significant. You should consider this with your spouse before agreeing to a collaborative divorce. If nothing else, you may want to consider limiting the use of experts and professionals in this regard. For example, you may agree to utilize a financial expert only when necessary. This way you can limit their usage in your case and avoid unnecessarily high costs associated with divorce.

Collaborative mediation is a combination of collaborative divorce and traditional mediation

In a collaborative mediation session, you will find that you still have a great degree of privacy and confidentiality. Mediation allows the two of you to be able to keep the contents of your discussion from going outside of that mediation room. If the subject matter that you will be discussing is especially sensitive or if you have a greater need for privacy than most then a collaborative mediation still allows for you to keep these sorts of matters private rather than having them see the light of day. Keep in mind that in a hearing or trial setting most anyone can waltz into the courtroom and watch the proceedings. Depending on the subject matter of your hearing this can be extremely embarrassing. 

Next, the mediator is still a neutral party. You do not have to worry about the mediator favoring your spouse over you or vice versa. Rather, the mediator will be there not to provide advice but rather to help you all arrive at a point in the discussion where you can have meaningful settlement negotiations. This is an underestimated part of the process. Being able to rely upon the mediator to be independent and neutral is a great part of any negotiation process. this is true whether it is a collaborative mediation session or a traditional mediation session period. You will be able to mediate with that person for a particular length of time. That way you will know in advance how much time you must spend walking through these issues. This will allow you to better budget your time and money effectively.

A collaborative mediation session puts you in a position where time is money and the time to reach a consensus on any outstanding issues is now. Do not underestimate just how much time is wasted in a divorce. In a traditional divorce, parties can spend a great deal of time waiting around for one another to make offers and counteroffers. In mediation, there is no such waiting period you will be asked to make settlement offers encounter offers given the limited amount of time. As an attorney that I know is fond of saying: deadlines spur action. I have seen people accomplish more in a four-hour mediation session than they did during a four-month divorce leading up to that mediation session. Hey, a collaborative law environment further encourages parties like you and your spouse to put aside whatever differences you must efficiently arrive at positive outcomes for the two of you. 

Additionally, Mediation in a collaborative environment encourages positive family relationships moving forward. This is true, especially in the context of co-parenting. The feeling in many divorce cases is that the two parents could not be happier that they are moving on with their lives. However, these parents stand to forget that They will be spending the next several years co-parenting together as a team. Mediation is great at causing parents to remember that even if they are technically adversaries in a divorce we have some time to spend as teammates in raising children together. The collaborative divorce process in general and mediation specifically eliminates much of the desire or mindset geared towards considering your spouse as an adversary. It can be to everyone’s advantage to consider your spouse a teammate even in a divorce.

Finally, the less you and your spouse fight during the divorce the better it is the previous change. I can think of very few instances where a great amount of macaroni between parents ultimately leads to better outcomes for kids. With that said, eliminating the need for conflict typically encourages the strength of this family as far as parenting is concerned. The more willing you are to set aside past disagreements with your spouse the better off your family and children will be. To learn more about the collaborative divorce process why not give our law office a phone call today?

Questions about the material contained in today’s blog post? Contact the Law Office of Bryan Fagan

If you have any questions about the material contained in today’s blog post please do not does it take to contact the Law Office of Bryan Fagan. Our licensed family law attorneys offer free of charge consultations six days a week in person, over the phone, and via video. These consultations are a great way for you to learn more about the world of Texas family law as well as about how your family circumstances may be impacted by the filing of a divorce or child custody case.

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More District Court Thrashing Around on Arbitrary and Capricious Calculation of Willful FBAR Penalties (3/30/21)

I have written before on the saga of Timberly Hughes.  Court Sustains Willful FBAR Penalty for Two of Four Years (Federal Tax Crimes Blog 10/15/21), here.  Hughes is back in the news, so to speak.  In United States v. Hughes (N.D. Cal 18-cv-05931-JCS 3/29/22), here, Magistrate Judge Spero is trying to wrap up the case so that it goes to the District Judge and then, apparently, to the Ninth Circuit.  (The docket entries in CourtListener are here.)

 In high level summary:

1. The court confirms that for the two years it previously found nonwillful, that while losing on the willful penalty for the 2 years, there would be no nonwillful penalty for those years.  The court says (p. 3, n 4):

   n4 “The United States does not seek nonwillful penalties against Ms. Hughes for 2010 and 2011, though the United States reserves its right to appeal the Court’s  willfulness determination as to 2010 and 2011.” Pl.’s Reply (dkt. 168) at 2

I have never thought about whether nonwillful and willful penalties can be assessed and litigated in the alternative (something like a lesser included offense concept).  Since the IRS never assessed the nonwillful penalty, I suppose it is out of time to assert assess.  I don’t know whether such alternative assessments and/or litigation could be made under the statutes or procedures.  For example, in the Hughes case, applying the nonwillful penalty to the years the court found were not willful.

2. The Court found that there were errors in the calculations and methodology in several respects and remanded to the IRS to reconsider the penalties.  There is no discussion of potential statute of limitations issues from a recalculation and reassessment.  The issue is whether a new assessment would be permitted or only an adjustment downward to the prior assessment.  I am not sure whether the normal APA remand to the agency holds or forces open the statute of limitations (sort of the way a petition to the Tax Court in a deficiency cases suspends the statute of limitations so that the correct number after litigation gets assessed).

3.  In paragraph 2 my prior blog here, I discussed a potential glitch where the IRS uses its methodology to quantify the willful penalty by spreading the amount quantified at 50% of the single high amount over the willful years.  The example I gave was a high amount of $2 million over four willful years and for simplicity assumed that high amount was static at all times during the year.  The maximum penalty authorized by the statute would be 50% per year, for an aggregate of $4 million.  Under the IRS policy to apply only a 50% to the high amount for all willful years (that’s not each year), the willful penalty would be the same $1,000,000, but applied to each of the four years.  Now, with two years dropping out, does $500,000 allocated to the now nonwillful years drop off or can the IRS re-allocate the lost $500,000 to the years in which the willful penalty was sustained.  I don’t know.  And, if you vary the amounts so that only in one year the high amount was $2 million, you can get weird results to this type of issue.  And what if in that varying scenario, the high amount were in a year judicially determined to be nonwillful?

4.  Somewhat relating to paragraph 3, the Court says(p. 7, paragraph 22):

22. Based on that guidance, which the IRS applied to determine Hughes’s penalties, the understatement of several account balances in 2010 and 2011 has resulted in a detriment to Hughes because they resulted in allocating a smaller portion of the total penalty to those years for which the United States failed to carry its burden to show a willful violation, and thus a greater allocation for the years where the United States is entitled to collect such penalties. 

Of course, the penalty amounts in the years found not willful drop off altogether. That is good for Hughes. The Court’s lament is that, if the IRS had applied it formula correctly, more should have been allocated to the nonwillful years on the notion that those allocated penalty amounts go away altogether and that on the remand the maximum aggregate penalties for the two willful years would be $500,000.   That is not the way the calculation formula is designed to work.  The high balance for the willful years is the base multiplied by 50% which is then allocated over the willful years, now two rather than one.   In the example, the same penalty should then be allocated to only 2 years — $500,000 per year rather than $250,000 per year . The problem is that the formula does not contemplate allocating any of the penalty to nonwillful years.  And as before, there can be weird results with varying amounts in the accounts over the years, particularly if the high amount year used were one found to not be willful.

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Louisiana Operator Slapped by Appellate Court

Author Ethan Wood

Louisiana’s compulsory pooling scheme seeks to balance the interests of individual landowners and oil and gas operators to promote responsible development of natural resources. Because of compulsory pooling, operators are not held hostage by individual landowners who refuse to lease, but landowners are afforded protections so as not to be taken for a ride by unscrupulous operators.

One such protection for landowners is the operator’s duty to report information to unleased landowners upon request (La. R.S. 30:103.1). Failure to provide the information means the operator forfeits the right to demand contribution from the unleased owner for the costs of drilling operations (La. R.S. 30:103.2).

These statutes are often litigated, but few disputes result in a reported decision. But last month, the U.S. 5^th Circuit Court provided some guidance for how to interpret the notice provisions of 30:103.1-2 in B.A. Kelly Land Company, LLC v. Aethon Energy Operating, LLC.

What We Have Here is a Failure to Communicate

B.A. Kelly Land Company owned unleased interests in two compulsory units in Bossier Parish. Kelly sent a letter via certified mail to Aethon Energy Operating, LLC on December 15, 2017, requesting information regarding sixteen wells in the two units. The letter described the unleased lands, the units, names of wells, and asked for information regarding (1) the total amount of hydrocarbons produced, (2) the price received for the hydrocarbons, (3) operating costs and expenses, and (4) information regarding funds expended to enhance or restore production. This first letter did not contain an explicit reference to 30:103.1, nor did it request that reports be classified as “initial reports” or “quarterly reports.”

Kelly followed up with another letter sent via certified mail on April 17, 2018, that referenced the previous letter and called attention to the fact that Aethon failed to comply with the first letter. This letter also did not include a specific reference to 30:103.1 or 30:103.2, nor did it reference the possibility of a lawsuit, penalty or forfeiture under 30.103.2.

Aethon did not send the requested information to Kelly until February 12, 2019—after Kelly filed suit seeking a judgment that Aethon had failed to comply with its disclosure and reporting obligations. Kelly sought a declaration that Aethon had forfeited its rights to demand contribution for Kelly’s share of drilling costs.

The Pen is Mightier

At the district court, Aethon successfully argued that because Kelly failed to reference the statutes and failed to use certain key language, Kelly had failed to comply with the statutory requirements. The Court of Appeals reversed, finding that the district court had “erroneously engrafted conditions into [30:103.1 and 30:103.2] that are not present in the text of the statutes themselves.”

The first letter satisfied the requirements of the statute because it was (1) in writing, (2) sent by certified mail, (3) contained the name and address of the unleased owner, and (4) “was sufficiently clear to give Aethon, as operator of the Units, notice that Kelly, an unleased owner, was requesting reports pursuant to [30:103.1].” Further, the letter’s request for four types of information “matched almost verbatim the four categories of information” the statute requires operators to provide. The second letter similarly complied with 30.103.2 by referencing the earlier letter, reciting most of the crucial language of 30.103.2, and sufficiently calling attention to Aethon’s failure to comply with 30.103.1.

The court of appeals rejected the district court’s emphasis on referencing the statutes and omission of “reports” or the possibility of a lawsuit in the letters; these “requirements” are not in the text of the statutes and should not be read into them.

The Last Word

This week’s musical interlude ...ouch.

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What to Do If You’re Injured in an Offshore Accident

If you’ve been injured in an offshore accident, you may be wondering what to do next. You likely have a lot of questions and concerns, and you may not know where to turn for help. That’s where an offshore accident lawyer comes in. An experienced lawyer can help guide you through the legal process and make sure that you get the maximum compensation you deserve.

How an Offshore Accident Lawyer Can Help

An offshore accident lawyer can help you recover compensation for your injuries, lost wages, and medical expenses. They can also help you file a claim with the responsible party’s insurance company. In addition, an offshore accident lawyer can help you negotiate a settlement with the responsible party(ies). If you’re unable to reach a settlement, they can also represent you in court. As you can see, an offshore accident lawyer can provide a lot of assistance if you’ve been injured in an accident.

The Benefits of Working With an Offshore Accident Lawyer

Working with an offshore accident lawyer has many benefits. First, they are familiar with the laws and regulations governing offshore work. This can be a complex area of law, and having someone on your side who knows the ins and outs can be a huge help. Second, offshore accident lawyers have extensive experience litigating cases involving offshore accidents. This means that they know how to build a strong case and present it in a way that is most likely to win. Finally, the experienced offshore accident lawyers at Morrow & Sheppard LLP understand the physiology of injuries sustained in an offshore accident. This knowledge can be vital in ensuring that you receive the full compensation you deserve. If you have been injured in an offshore accident, working with an experienced lawyer can be the best way to ensure that you receive the compensation you deserve.

How to Choose the Right Lawyer for You

When you’ve been injured in an offshore accident, it’s important to choose the right lawyer to represent you. Here are a few things to look for when making your selection:

• Experience: You want a lawyer who has experience handling offshore accident cases. Ask about their track record and whether they have any familiarity with the specific type of accident you were involved in.
• Resources: An offshore accident can be a complex case, so you’ll want a lawyer who has the resources necessary to investigate and build your case. Make sure they have access to expert witnesses and other resources that can help your case.
• Commitment: Your lawyer should be committed to getting you the best possible outcome for your case. They should be willing to take the time necessary to understand your case and work with you to get the best result.

If you’re looking for a lawyer who meets all of these criteria, Morrow & Sheppard LLP is a good option. We have extensive experience handling offshore accident cases and are committed to getting our clients the best possible outcome.

Questions to Ask When Hiring a Lawyer

When you’re faced with an offshore accident, the last thing you want to worry about is whether or not you have the right lawyer on your side. But with so many lawyers to choose from, it can be tough to know whom to trust. Here are four questions to ask when hiring an offshore accident lawyer:

1. What is your experience with offshore accidents? You want to make sure that your lawyer has experience dealing with offshore accidents specifically. Otherwise, they may not be familiar with the laws and regulations that apply to your case.
2. What is your success rate? It’s important to know how successful your lawyer has been in similar cases in the past. If they have a high success rate, that’s a good indication that they know what they’re doing.
3. Do you work on a contingency fee basis? This is an important question to ask, a contingency fee basis is a common way for lawyers to be paid. Under this arrangement, the lawyer does not get paid if they lose the case. This can be a good option for injured workers, as it eliminates the need to pay any fees upfront.
4. What type of representation do I need? Not all lawyers are created equal. Some may specialize in representing plaintiffs, while others may specialize in defending defendants. Make sure you choose a lawyer who specializes in the type of case you have. If you’re not sure, don’t hesitate to contact us for more information.

If you can answer these questions, you’ll be well on your way to finding the right offshore accident lawyer for you.

What to Expect During the Legal Process

Being involved in an offshore accident can be a confusing and stressful experience. You may be worried about your health, your job, and your future. You may also be wondering what to expect from the legal process.

The first step is to contact an offshore accident lawyer. A qualified lawyer will be able to advise you of your rights and help you understand the legal process. They will also be able to gather evidence and build a strong case on your behalf.

The next step is to file a claim. This is the process of asking the court to recognize your claim and award you damages. Your lawyer will help you file the right paperwork and make sure that your claim is properly presented.

The next step is to wait for a response from the court. This can take some time, so be patient. In the meantime, your lawyer will be working on your case and gathering evidence.

The last step is to negotiate a settlement. Many cases are resolved through settlement, so your lawyer will work with the opposing party’s lawyers to come to an agreement that’s fair for both sides. If a settlement can’t be reached, your case will go to trial.

Your lawyer will guide you through every step of the legal process and ensure that you’re treated fairly throughout the process. They will be there to answer any questions you have and help you get through this difficult time.

If you’ve been injured in an offshore accident, don’t hesitate to contact an experienced offshore accident lawyer at Morrow & Sheppard LLP. They will be able to guide you through the legal process and help you get the compensation you deserve.

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Noticing Attorneys Fees

The lease at issue in Apple Texas Restaurants v. Shops Dunhill Ratel, LLC, No. 05-20-01052-CV (March 25, 2022) (mem. op.), contained a “prevailing party” allowing either side to recover in a suit about the lease. The judgment included an award of “defensive” fees, and the Fifth Court concluded that that topic had fairly been placed at issue:

“[I]n addition to both parties’ repeated reliance on section 13.08 described above, Dunhill provided disclosure responses more than a year before trial describing its counsel’s expected testimony regarding defensive attorney’s fees, stating, (1) Dunhill “is entitled to damages pursuant to the Lease . . . and interest, attorneys’ fees, and costs,” and (2) its counsel “is expected to testify regarding the reasonableness and necessity of attorneys’ fees and costs related to the prosecution of Plaintiff’s claims . . . and defense against Defendant’s counterclaims.’”

No. 05-20-01052-CV (March 25, 2022) (mem. op.).

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Not Bad Faith

A sanctions award was reversed in Ozmun v. Wood when, among other matters: “‘[T]he district court denied PRA[‘s] cross motion for summary judgment on the FDCPA claim which indicates [Appellant’s] position was far from frivolous. In fact, it was so substantial that the district court thought it warranted a trial.’ Thus, Ozmun’s claims brought under the TFDCPA were not a ‘clear misuse of the TFDCPA’ as the district court stated. They simply failed on summary judgment.”  No. 19-50397 (March 24, 2022) (unpublished, citation omitted)).

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Bankruptcy and IRC Section 4980H

The recent bankruptcy case of In re Creative Hairdressers, Inc. et al, Case Nos. 20-14583 and 20-14584 (jointly administered) (Bankr. D. Md., March 3, 2022) involved the intersection of IRC section 4980H‘s employer shared responsibility payment and bankruptcy law.

Bankruptcy and Section 4980H’s Employer Shared Responsibility Payment

This case addresses an interesting intersection of tax and bankruptcy law.  Specifically, it looks at the bankruptcy court’s treatment of claims made by the Internal Revenue Service (IRS) under §4980H of the Internal Revenue Code.  The specific issue addressed is whether or not such claim is entitled to priority status as an excise tax under §507(a)(8)(E) of the Bankruptcy Code.  Ultimately, the Court concluded that it is entitled to such priority status to the extent that such claim related to any payments required under the statute arising within three years from the petition date.

Section 4980H was added to the Internal Revenue Code by the Affordable Care Act (“ACA”), enacted on March 30, 2010.  Section 4980H applies to applicable “large employers” (generally, employers who employ at least 50 full-time employees, including full-time equivalent employees, on business days during the preceding calendar year).  Section 4980H generally provides that an applicable large employer is subject to an assessable payment if either (1) §4980H(a) applies because the employer fails to offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and any full-time employee is certified to receive a premium tax credit or cost-sharing reduction; or (2) § 4980H(b) applies because the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and one or more full-time employees is certified to receive a premium tax credit or cost-sharing reduction.

In this case, the IRS asserted a priority claim against the Debtors for the employer shared responsibility payment (“ESRP”) under §4980H.  Specifically, the IRS sought priority status as an excise tax under 11 U.S.C. §507(a)(8)(E).  The Debtors objected, contending the ESRP is not an excise tax entitled to priority treatment, but is a nonpriority penalty. The parties also disputed when the “transaction occur[red]” that gave rise to the ESRP, as that phrase is used in 11 U.S.C. §507(a)(8)(E)(ii).

The Debtor was partially self-insured as defined by the ACA.  The Debtors qualified as an Applicable Large Employer under the ACA.  The Debtors offered minimum essential health insurance coverage to at least 95% of their employees, but some employees were allowed a tax credit or cost-sharing reduction for any of the following reasons: (a) the coverage did not provide minimum value; (b) the coverage was not affordable; or (c) the employee was not offered coverage. Under the ACA, if an employee receives a tax credit or cost-sharing reduction, then the IRS may charge the employer a shared responsibility payment under §4980H.

For the tax period ending December 31, 2016, the IRS charged the Debtors an ESRP for the employees that were allowed a tax credit or cost-sharing reduction under the ACA. For each month from January 2016 through November 2016, over 450 of the Debtors’ full-time employees were enrolled in a qualified health plan for which they were allowed a tax credit or cost-sharing reduction. On December 19, 2018, the IRS sent the Debtors a Letter 226-J with a proposed ESRP of $818,640.00 for tax year 2016, noting liability was applicable under 26 U.S.C. § 4980H(b). Ultimately, the amount was reduced to $778,050.00.

Beginning in 2017, the Debtors did not offer a health plan offering minimum essential coverage to salon employees. As a result, CHI accrued ESRP charges for 2017 and 2018. For each month of tax year 2017, over 350 of CHI’s full-time employees were allowed a tax credit or cost-sharing reduction by the IRS.  On October 3, 2019, the IRS sent the Debtors a Letter 226-J certifying that one or more employees were allowed a tax credit and proposing an ESRP of approximately $13,901,259.96, but later reduced to $1,311,930.00 upon a showing that the Debtors had offered minimum essential coverage to at least 95% of their full-time employees and their dependents.

Bankruptcy and the IRS’s Proof of Claim

The Debtors filed for bankruptcy in 2020.  The IRS filed a Proof of Claim against the Debtors asserting a liability of $2,094,029.28 and asserting priority status under §507(a)(8)(E).  In the Form 410 Summary, the IRS identified the tax as an “Excise” tax for the relevant periods.

The Court looked at two issues in relation to the IRS claims, as follows:

1. Whether  the ESRP was an excise tax entitled to priority under §507(a)(8)(E) of the Bankruptcy Code; and
2. if the ESRP was an excise tax, whether the amounts claimed by the IRS for 2016 and 2017 taxes were “on a transaction occurring within three years of the petition” as required by §507(a)(8)(E).

The Bankruptcy Code grants priority status to certain allowed claims. Section 507(a)(8) grants priority to “excise” taxes:

((8))  Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for—

****

((E))  an excise tax on—

((i))  a transaction occurring before the date of the filing of the petition for which a return, if required, is last due, under applicable law or under any extension, after three years before the date of the filing of the petition; or

((ii))  if a return is not required, a transaction occurring during the three years immediately preceding the date of the filing of the petition.

Section 507(a)(8)(E).

Is the ESRP an Excise Tax?

The Bankruptcy Code does not define the term “excise tax.” In United States v. Reorganized CF & I Fabricators of Utah, Inc.(“CF&I”), 518 U.S. 213, 224 (1996), the U.S. Supreme Court addressed whether an exaction was an excise tax entitled to priority under the statutory predecessor to §507(a)(8)(E) or a nonpriority penalty. The IRS asserted a claim against the debtor CF&I Steel Corporation for fees assessed for failing to make annual minimum funding contributions to a pension plan, as provided in 26 U.S.C. §§4971(a). Under §4971(a), an employer that failed to make its required contribution was assessed a tax of 10% on the accumulated funding deficiency. The debtor failed to pay $12.4 million of the required contribution into its pension plans for the tax year prior to filing bankruptcy. The amount due under 26 U.S.C. §§4971(a) was approximately $1.24 million.  The IRS similarly sought priority status for the exaction as an excise tax.  The bankruptcy court allowed the claim, but determined it was a noncompensatory penalty, not an excise tax, and denied priority. The district court and the Court of Appeals for the 10th Circuit affirmed.

In affirming, the Supreme Court focused on the operation—not the label—of the provision establishing the liability. CF&I, 518 U.S. at 224. It concluded that the Bankruptcy Act of 1978, which codified priority to several types of taxes, “reveals no congressional intent to reject generally the interpretive principle that characterizations in the Internal Revenue Code are not dispositive in the bankruptcy context, and no specific provision that would relieve us from making a functional examination of § 4971(a).” Id. The Court noted that a functional examination is supported by a long history of precedent in determining whether a tax is an “excise tax” for bankruptcy priority purposes. Id. ; see United States v. La Franca, 282 U.S. 568, 571-72 (1931) (a “tax” and a “penalty” “are not interchangeable one for the other. No mere exercise of the art of lexicography can alter the essential nature of an act or a thing; and if an exaction be clearly a penalty it cannot be converted into a tax by the simple expedient of calling it such.”); City of New York v. Feiring, 313 U.S. 283, 285 (1941) (determining whether a “tax” was entitled to priority treatment under §64 of the Bankruptcy Act of 1938); United States v. New York, 315 U.S. 510, 514-17 (1942) (relying on its decision in Feiring which examined the effect of the exaction).

The Court stated that “a tax is an enforced contribution to provide for the support of government; a penalty, as the word is here used, is an exaction imposed by statute as punishment for an unlawful act.” CF&I, 518 U.S. at 224 (citing to La Franca, 282 U.S. at 571-72). The Court concluded that the pension provision at issue was obviously penal in nature. The 10% exaction was not created to support the government. The legislative committee reports stated that the previous statutory penalties did not incentivize employers to fully fund their plans. Id. at 226. Instead, the new provision would penalize employers directly by requiring them not only to fund the deficiency but also pay the 10% exaction. Id. The Court highlighted that the 10% excise was in addition to the Pension Benefit Guaranty Corporation’s independent claim to the total amount of the pension contribution deficiency. Thus, the pension provision had a primarily punitive aim versus a goal to support the government.

The Supreme Court affirmed the use of this “functional approach” analysis of an exaction in Nat’l Fed’n of Independ. Bus. v. Sebelius (“NFIB”), 567 U.S. 519 (2012), which addressed whether the individual shared responsibility payment of the ACA passed Constitutional muster under the Taxing Clause.  At the time of the decision, the individual mandate required most Americans to maintain minimum essential health insurance coverage. Under the ACA, if an individual did not maintain minimum essential health insurance coverage, then the individual was required to make a shared responsibility payment to the IRS with their taxes and it was collected like a tax penalty.

After NFIB, many courts grappled with the question of whether the individual mandate was an excise tax under §507(a)(8)(E), with differing results.  The Court here focused on the Fourth Circuit’s opinion in Liberty Univ., Inc. v. Lew (“Liberty”), 733 F.3d 72 (4th Cir. 2013).   The Court in Liberty relied on the Supreme Court’s analysis in NFIB to determine that ESRP is a tax under the “Taxing and Spending or General Welfare Clause.” Liberty , 733 F.3d at 95-96. The Fourth Circuit applied the “functional approach” and concluded that the ESRP functioned as a tax and not a penalty.  Turning to the case at bar, the Maryland Bankruptcy Court ultimately concluded that the employer shared responsibility payment is an excise tax entitled to priority.

Does the IRS have Priority?

Turning to the second issue, the Court noted that finding that the ESRP was an excise tax did not end the inquiry.  Section 507(a)(8)(E) provides that allowed unsecured government claims are entitled to priority only to the extent such claims are for an excise tax on “a transaction occurring during the three years immediately preceding the petition date.” §507(a)(8)(E). The parties disputed whether there was a “transaction” that imposed the ESRP and, if so, when the transaction “occur[ed]” under the ACA.  The Court determined that it is the underinsured or uninsured employee’s act of enrolling in a qualified health plan that triggers the ESRP, and therefore concluded that the “transaction occur[s]” under §507(a)(8)(E) when an employee who is not offered the minimum level of insurance coverage and who meets certain financial standards enrolls in a qualified health plan.

Ultimately, the Court determined that, based on the petition date of April 23, 2020, the three-year period of §507(a)(8)(E) began on April 23, 2017.  Any ESRP amounts arising from employee enrollments in a qualified plan prior to that date were excluded from priority, and would be deemed general unsecured claims.  Therefore, the court granted in part and denied in part the Debtors’ objection to the IRS claim.

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Houston Maritime Attorney: Get the Legal Help You Need

If you are a maritime worker who has been injured on the job, it is important to seek legal help as soon as possible. A Houston maritime attorney can help you file a claim and get the compensation you deserve. At Morrow & Sheppard LLP, we have years of experience helping injured maritime workers get the justice they deserve. We understand the complex laws that govern maritime accidents, and we will fight for your rights every step of the way.

What is a Houston Maritime Lawyer and Why Do I Need One

Maritime lawyers are experts in a niche area of law that deals with shipping, boating, and other water-related activities. If you are involved in a maritime accident or dispute, you will need the services of a maritime lawyer to ensure that your rights are protected. Maritime law is a complex area of law, and maritime lawyers have the experience and knowledge to navigate the legal system on your behalf. Without the assistance of a maritime lawyer, you could be at a disadvantage when it comes to seeking compensation for your injuries or losses. When choosing a maritime lawyer, it is important to choose someone who has experience handling cases like yours. Maritime lawyers have the skills and resources to handle even the most complex maritime legal issues.

How to Find the Right Houston Maritime Attorney for Me

There are many maritime lawyers in Houston, but how can you be sure you are choosing the right one for your case? Here are some things to consider when making your selection:

First, it is important to choose a lawyer who has experience handling cases like yours. If you have been injured in a maritime accident, for example, you will want to find a lawyer who specializes in Jones Act cases. This way, you can be confident that they are familiar with the specific laws and regulations that apply to your case.

Second, it is also important to choose a lawyer who you feel comfortable working with. This means finding someone who you can communicate openly and candidly with. You should also feel confident that they will be able to effectively represent you in court.

Third, you should ask about the lawyer’s fees and what they will be charging you for their services. Maritime lawyers typically allow maritime victims to seek compensation without needing to pay hourly rates for their lawyer’s time, and by basing the lawyer’s fee on the amount of the recovery, they ensure that the client’s and the lawyer’s interests are fully aligned.

Finally, you should always do your research before choosing a maritime lawyer. Read reviews online and ask around for recommendations. This way, you can be sure that you are making the best decision for your needs.

What Can They Help With

Maritime law is a complex and specialized area of the law that deals with disputes and accidents that occur on navigable waters. If you have been injured in a maritime accident, or if your loved one has been killed, you need an experienced maritime lawyer on your side. Houston maritime lawyers have the knowledge and experience to help you get the compensation you deserve. They can help you recover damages for your medical expenses, lost wages, pain and suffering, and more. Maritime law is federal law, so it is important to choose a lawyer who is familiar with the applicable laws and has a proven track record of success in maritime cases. The Houston maritime lawyers at Morrow & Sheppard LLP have successfully represented clients in a wide range of maritime cases, including injuries and fatalities, Jones Act claims, and more. If you need legal assistance, contact us today for a free consultation.

Houston Maritime lawyers can help you with your legal needs if you have been injured in a maritime accident or lost someone important to you. The experienced Houston maritime attorneys at Morrow & Sheppard LLP are ready and waiting to partner with you on your case, from the moment of injury through trial proceedings – all without charging hourly rates for their time. Contact us today for more information about what we do and how our services could benefit your situation.

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About those appellate fees …

Under the most current precedent, this testimony was insufficient to prove up a contingent award of appellate attorneys fees:

“Dunhill will be required to incur additional attorney’s fees if Apple appeals the final judgment entered in this Action. In my opinion, Dunhill will likely incur at least $35,000 in reasonable and necessary attorney’s fees if Apple appeals the final judgment to the Court of Appeals. In addition, Dunhill will likely incur at least an additional $35,000 in reasonable and necessary attorney’s fees if Apple appeals the final judgment to the Texas Supreme Court and Dunhill is required to respond thereto.”

Apple Texas Restaurants v. Shops Dunhill Ratel, LLC, No. 05-20-01052-CV (March 25, 2022) (mem. op.) (applying Yowell v. Granite Operating Co., 620 S.W.3d 335 (Tex. 2020)).

 

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Appellate jurisdiction and its entanglements

An interlocutory appeal had some matters entangled with it in Jiao v. Xu (not unlike the quantum entanglement recently photographed for the first time, right):

“The preliminary injunction is an interlocutory order made appealable by 28 U.S.C. § 1292(a)(1). The declaratory relief constitutes a final order, and we have appellate jurisdiction under 28 U.S.C. § 2201. The turnover order is likewise final, and we have appellate jurisdiction to review it under 28 U.S.C. § 1291.  Typically, we would not have jurisdiction over the district court’s
denial of Xu’s motion to dismiss.  But to the extent the
underpinnings of Xu’s motion are inextricably intertwined with the district court’s subsequent rulings challenged on appeal, we determine that we have jurisdiction to address those issues. See Magnolia Marine Transp. Co. v. Laplace Towing Corp., 964 F.2d 1571, 1580 (5th Cir. 1992) (‘[O]ur jurisdiction is not limited to the specific [injunctive] order appealed from, and we may review all matters which establish the immediate basis for granting injunctive relief.’); see also In re Lease Oil Antitrust Litig. (No. II), 200 F.3d 317, 320 (5th Cir. 2000) (reaching denial of motion to dismiss as part of § 1292(a)(1) appeal where issues were ‘so entangled as to arrive here together’ and ‘[d]elaying review . . . would make no practical sense’).”

No. 20-20106 (March 11, 2022) (emphasis added, footnote and certain citations omitted).

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What can you do if your co-parent is harassing you?

When you break up with someone, you probably don’t expect that you’ll have to continue to communicate with them. Unfortunately, you will have to do just that if you share children. Co-parenting with an ex who isn’t always kind or respectful can be challenging.

There are many ways that an ex might harass you while you’re trying to co-parent. In some cases, the actions are just irksome, but other times they can be downright illegal. While you shouldn’t ever try to match their disrespect, you must ensure that you’re protecting your rights as the child’s other parent.

Take a step back

It’s easy to become overwhelmed when your co-parent is harassing you. Take a step back from the situation to determine what options you have to address the matter. If the harassment is in the form of constant phone calls, you might be able to have the parenting plan set up to utilize only monitored communication so the harassing behavior can be addressed by the court.

Discuss the actions with someone

There might be legal implications of the harassment so you should make sure that you document what’s going on and discuss it with the person helping you with the child custody matters. It might behoove you to talk to your therapist or someone similar so you can find out how you can cope with the situation without having to cause more undue stress on the children.

There aren’t any easy answers when your ex is harassing you and you share children. One of the possible ways you can protect yourself is to have a solid parenting plan. This can include stipulations about parent conduct, as well as conflict resolution. Set this up so that it reflects the child’s best interests, and remember that it can be modified later if necessary.

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