SAAS Services vs. Licensed Software

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Privacy, Technology and Perspective

SAAS Services vs. Licensed Software. Let’s focus on the difference between software-as-a-service (SAAS) and licensed software. The distinction is important.  Here, we’ll look at why, and help you spot outdated agreements and fill in missing terms.

Background

More and more software providers have transitioned to SAAS-based offerings, which rely on data storage and software stored in the cloud.  Compare previous times when software was delivered via CD-Roms, disk drives, and over file transfer protocol sites, for example.

Despite today’s extensive use of SAAS services, many companies still rely on legacy contracts to cover those services.  That is a problem because legacy licensing agreements often do not cover SAAS services – they only cover the use of the software.

Here are a few clues that you may be working from an outdated agreement:

• ·       Use of the term “license;”

• ·       No definitions for the terms “Authorized User,” “Customer Data,” and “Services.”

• ·       No terms regarding data privacy and security; and

• ·       Thin representations and warranties (or disclaimers) covering only the software (and not the “Services”).

What terms do SAAS agreements need?  Here are some ideas:

1. A comprehensive SAAS services agreement under which the subscriber gets access to and use of the SAAS services based upon the conditions set forth in the contract;

2. Definitions which expressly set out who is an “Authorized User, and define “Customer Data,” “Provider IP,” and “Services;”  

3. Specific provisions regarding access, use of the services, use restrictions, and support;

4. Robust confidentiality provisions covering, at minimum, confidential intellectual property, trade secrets, third-party confidential information, and other sensitive or proprietary information, including Customer Data;

5. A provision that asserts Customer’s ownership of Customer Data and restricts access to and use of it, including, if appropriate, restricting derivative uses of “insights” derived from Customer Data, in whole or in part.  The agreement should also clarify what happens to Customer Data when the Services terminate, or the agreement expires (most organizations want their data returned and want their providers to delete their data);

6. Privacy and security provisions, such as a privacy and data security addendum or data processing agreement, as appropriate;

7. A provision regarding fees and the subscription period. Customers should require certainty in the contract itself, including the fees for the services, payment requirements, invoicing terms, and any renewal fee notification or process (as well as any caps on renewal fees);

8. Reps and Warranties in and around the SAAS services (at a minimum, they should conform in all material respects to the specifications – which is one reason why it is so important to define the Services well, including descriptions and specifications).

9. Customers should also ask their Provider to include at least basic privacy and security reps and warranties;

10. Termination rights that provide straightforward ways for both parties to end their agreement, and are clear about what steps must be taken then; and

11. A service level agreement that addresses performance issues (such as uptime and speed of performance) and provides credits for unplanned downtime.

Suppose you find yourself looking at a legacy contract that is missing these terms (or an amendment that purports to address a SAAS-based offering, but its underlying agreement is missing these terms). In that case, likely, you don’t have a SAAS services agreement in front of you, and you’ll need a new document.

A final point – It’s important to educate your procurement group on the difference between SAAS services and licensed software.  Too many important issues may slip through the cracks otherwise.

—

Hosch & Morris, PLLC is a boutique law firm dedicated to data privacy and protection, cybersecurity, the Internet and technology. Open the Future℠.

 

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Firefighter visitation schedules for those who work 24-hour shifts

The classic American conception of the workday begins at 9 and ends at 5. How many songs have been written about the nine to five work schedules? We can probably hum or sing a couple of those to ourselves right now. Rolling into work when the sun is getting up and getting home by dinnertime is what most of us are used to up in our working lives. This allows us to maintain a somewhat normal schedule as far as our body clocks are concerned. We do not have to get off-kilter as far as our eating, sleep, or other habits.

The other thing that working a typical nine-to-five work schedule allows us to do is be on the same schedule as our children. When kids are in school, they go to school during the daytime without fail. There are no night school options for children. If we work hours that do not allow us to be at home the moment our children get off from school then there are after-school activities, daycare, and other arrangements that can be made. This has been a development during the past three or four generations when women began to enter the workforce more consistently and left the home.

Working during the same hours that our children are in school makes sense on many levels. Fortunately, most people can work fairly standard hours that allow them to be at home when their children are also off from school. However, if you are a firefighter then you may have some concerns about how to build meaningful relationships with your children because of your work schedule. I can’t speak for every single firefighter, but I know of many firefighters who work shifts where they will be asked to remain on call for at least 24-hour shifts and then we’ll have multiple days off from work. Depending upon the needs of your fire station or department you may be asked to take on either longer or shorter shifts with variable times where you can be off from the work period

To this point in your life working these shifts may not have been completely intolerable for you and your family. Having a spouse by your side who can be home during the hours when you were working with your children means that there will always be someone present to care for your kids when they are home. Additionally, you can go to work and serve your community and not be concerned about the well-being of your children while you were away. After all: marriage is a team sport and you and your spouse are teammates in all things. This includes raising children. 

However, this discussion can change to a great extent when you consider the challenges posed by a firefighter’s divorce. Once a divorce begins and certainly after the divorce case is over you are no longer raising children in a pure team environment. Yes, there is such a thing as co-parenting after a divorce where you and your ex-spouse we’ll need to work together and communicate to raise your children. With that said the nature of your relationship will never be as good as it once was when you and your spouse had a working marriage. In that case, you need to consider what challenges may be present in terms of raising a child while being a firefighter.

Probably the most significant consequence of getting a divorce as a parent of children under the age of 18 is needing to figure out how you are going to structure possession, visitation, and conservatorships issues regarding your kids. While most parents understandably concern themselves with the visitation and possession questions primarily conservatorships is also a topic that you and your attorney should work hard on while engaging in negotiations for your divorce case. Do not overlook the importance of being able to make decisions for your child and retain duties to care for your child because of your divorce. 

Firefighters especially run the risk of losing time, decision-making capabilities, and duties for their children because of their profession. This does not mean that you are a bad firefighter or a bad parent. What it does mean is that children typically do best with a parent who works consistent hours in a stable environment. While your work schedule man self is consistent the hours do not necessarily coincide with your child’s school and extracurricular activities. As a result, it is difficult for you to commit to being present for your child as much as he or she may require. Whereas while you were married your spouse was able to fill in these gaps for you the reality is that as a single adult the same cannot be said. 

All of this, I believe, should not cause you major concern and an endless amount of worry. It should certainly be on your radar for this is not a situation for you to try to avoid or one for you to despair over. Rather, by working with an experienced family law attorney you can take your work schedule, needs of your children, and other circumstances in your life and combine them into a whole life approach geared towards benefiting your children and strengthening the relationship that you have with them. The question you need to ask yourself is how you are going to connect all of these dots? 

By contacting the experienced family law attorneys with the Law Office of Bryan Fagan you can begin to learn more about divorce in Texas. It is true that all divorces, no matter who you are, follow the same general steps and process. However, every divorce tends to look different due to the number of individualized factors involved in your case compared to another person. Do not underestimate the degree to which your work schedules, that of your spouse, or the needs of your children will play a role in the negotiation of your divorce case. When you consider that most Texas divorces are settled out of court rather than determined in court by a judge that makes negotiation and planning even more important.

A free-of-charge consultation with one of our experienced family law attorneys can begin the process of you learning more about your case and how to approach the different issues that are relevant to you and your family. These consultations can take place at one of our two Houston area locations, over the phone, or even via video. We want to help accommodate your needs and your work schedule as much as possible. Please reach out today if you have questions or simply want to learn more about getting a divorce in Texas. Our attorneys can help guide and provide you with information that can be of great assistance to you and your family.

Working out a plan for visitation with your children during and after a divorce

Work-life balance is something that we hear a lot about these days. Everyone wants to be able to achieve great success both as a parent and in the workplace. This is the equivalent of wanting to have your cake and eat it too. However, most people who have raised children while working can tell you that there are seasons of life where more attention needs to be paid at work and more attention than will need to be paid at home. There is no permanency or being able to provide constant attention either at home or at work period that plan simply will not work for most people. Rather, you need to be able to pick your spots and focus your attention on important times both at work and at home when the time is right. 

For example, if there is a performance review, training exercise, or another part of your firefighting work that needs to have your attention for a season of time then you may need to shift some of your focus away from home and place it on your work during this time. That doesn’t mean you don’t care about your home life or your kids. However, it is simply acknowledging that there are commitments at work that require you to pay attention. Once the season is over at work you can go back to applying a normal amount of attention to your family or children. 

By the same token, if your child is struggling with your divorce, academics, or in any other area of your life, you may need to take some time away from normal work activities to provide your child with the attention that he or she needs. For example, it may be that you must provide your child with counseling or other therapy for any reason. It’s not as if you can leave your child to attend those meetings on their own. Being present with your child and asking your employer to make temporary accommodations for you it’s just a part of parenting. It will not last forever and you will be able to r resume a more standard work-life balance once you have addressed the issue with your child.

The bottom line is that being able to achieve a perfect work-life balance is simply not possible. There will always be times when one area of your life will take away from the other. Wellbeing a firefighter and working the type of hours that you do is a unique condition for firefighting the inability to achieve a constantly perfect work-life balance is not unique to firefighters. All adults who are parents of young kids struggle from time to time at being able to achieve the desired amount of work-life balance that we strive for. Again, this does not make us bad parents or bad employees. It is just an acknowledgment that there’s nothing wrong with striving for a great work-life balance even if that balance is sometimes hard to achieve.

When it comes to you being a firefighter you should always pursue opportunities to advance your career in hopes of being able to benefit the life of your child and yourself. Rising through the ranks of the firefighter it’s probably different than doing so in corporate America or a typical office environment. However, you should learn what it takes what the chief of your department or other supervisors looks for when assigning shifts and allowing people to advance in their careers as a firefighter. Having discussions and understanding expectations is a key part of this process.

I mentioned this to you not because I am a career coach but because advancing in the ranks of a firefighter may allow you to achieve a greater work-life balance. Well, I have never been a firefighter personally I have known and worked on behalf of firefighters in the past. From what I understand certain roles within the fire department allow for more consistent and stable hours compared to the typical shift work that a firefighter is expected to endure. If ultimately your goal is to have more standard hours in terms of your work schedule, then asking how to get to that stage in your career would make a lot of sense to me. If you are just starting as a firefighter, it may take some years of service to get to that point. However, if you are a veteran firefighter then your ability to get into those sorts of positions may be somewhat easier than you had believed previously. Asking and then learning and obtaining information is usually the first step in this process. You may be surprised to learn just how achievable it is for you to be able to rise in the ranks of firefighters. 

For the time being, however, you may need to just figure out how to manage your work schedule in terms of being able to build a visitation and possession schedule with your kids. As I mentioned at the beginning of today’s blog post it is not as if your work hours and your child’s school hours will ever perfectly coalesce. That is probably a dream that will never be fully realized. However, you can take your work schedule as a firefighter and then build a possession schedule around it as best as possible. What that looks like for you depends a great deal upon the needs of your children and your availability to meet those needs. 

For example, suppose that you work a schedule where you are on call for 48 hours and will be away from home. After that, you will be available to spend time with your children for three days at a time. Your schedule rotates like that on a predictable and consistent basis. What can this mean for you as far as opportunities to spend meaningful time with your kids? Well, it may mean that you and your Co-parent need to work together to negotiate a possession schedule that works well for your children and both of you. The idea that your spouse will become frustrated and simply tell you that he or she will not work with you on negotiation for the subject is not reasonable or realistic. The fact is that as a family court judge we will not penalize you for being a firefighter if it comes to going to a trial. 

Rather, even firefighters get time with children and divorce trials. He was a firefighter who can be awarded time with your children even if you do not work a traditional 9 to 5 schedule. However, a standard possession order likely will not work well for you considering that weekends are not always available to you. For that reason, you may have to come up with a schedule that allows you to see your children as much as possible during the week and on the weekends when you are available. If you know that your schedule is going to be the same for an extended period, then that is something that you should negotiate through in your divorce. Look at your calendar and then the needs of your children. Negotiate with your spouse on a schedule that will not disrupt the lives of your children but will allow you to see them as much as possible. 

The last item I will note is that living close to your ex-spouse can make all of this a lot easier for you and your children. The less time you spend in the car the more time you can spend with your children. When you consider the challenges related to traveling in and around the Houston area by car with children then you know exactly what I mean. Limiting the amount of car travel to pick up and drop off your children means that you have more time with them to spend. This is a factor of many people do not consider during a divorce and I think that is a mistake, especially for firefighters. 

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 hesitate 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 firefighter divorce cases as well as about any other family law case in Texas and how it may impact you and your children moving forward.

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Court Holds That Engineer Does Not Owe Fiduciary Duties To A Non-Client

In Hussion St. Bldgs., LLC v. TRW Eng’rs, Inc., the plaintiff landowner claimed its real property was injured by the failure of an engineering firm involved in developing the adjoining property to include a water-detention plan. No. 14-20-00641-CV, 2022 Tex. App. LEXIS 2193 (Tex. App.—Houston [14th Dist.] April 5, 2022, no pet. history). The landowner asserted claims of negligence and breach of fiduciary duty, and the trial court granted the engineering firm’s summary-judgment motion on the grounds that limitations barred the negligence claim and licensed engineers do not owe fiduciary duties to non-clients. The court of appeals reversed the summary judgment on the negligence claim because the engineering firm failed to conclusively establish that the landowner’s claims accrued more than two years before this suit was filed. Turning to the breach of fiduciary duty claim, the court held:

TRW moved for summary judgment on Hussion’s breach-of-fiduciary-duty claim on the ground that engineers do not owe fiduciary duties to non-clients under Texas law. TRW is correct. Indeed, courts have declined to hold that engineers owe fiduciary duties even to their own clients. See Sheffield Dev. Co. v. Carter & Burgess, Inc., No. 02-11-00204-CV, 2012 Tex. App. LEXIS 10599, 2012 WL 6632500, at *10 (Tex. App.—Fort Worth Dec. 21, 2012, pet. dism’d). The provisions of the Administrative Code on which Hussion relies do not create fiduciary duties owed to the public at large, nor do they purport to do so. They do not refer to “duty” at all, much less to the elevated duties owed by fiduciaries.

Hussion nevertheless argues that the Administrative Code creates an informal fiduciary relationship. This argument misapprehends the nature of an informal fiduciary relationship. An informal fiduciary relationship, also known as a “confidential relationship,” may arise “where one person trusts in and relies upon another, whether the relation is a moral, social, domestic or merely personal one.” ... Fiduciary duties arise only in the context of fiduciary relationships, and Hussion does not claim to have had a relationship of trust and confidence with TRW that existed independently from, and prior to, TRW’s work on the Project.... If a business transaction is involved, “the special relationship of trust and confidence must exist prior to, and apart from, the agreement made the basis of the suit.” ... Because TRW owed no fiduciary duties to Hussion, we conclude that the trial court properly granted summary judgment against Hussion on its breach-of-fiduciary-duty claim.

Id.

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Appellate Court Affirmed Receivership Order Where Appellant Waived His Complaints By Not Securing Rulings And By Not Challenging All Potential Grounds Upon Which The Order Was Based

In In re Estate of Vines, a probate court appointed a receiver over a business that was owned by a decedent. No. 01-21-00003-CV, 2022 Tex. App. LEXIS 2327 (Tex. App.—Houston [14th Dist.] April 12, 2022, no pet. history). After the decedent died, her grandchildren challenged a new will and other documents that were executed by their grandmother in favor of the grandmother’s nephew. The trial court appointed a temporary administrator and later appointed a receiver over a business that was owned by the grandmother, but that was now controlled by the nephew. The nephew appealed the receivership order on multiple grounds.

The nephew first argued that the business had been transferred to him outside of probate, and that the probate court had no jurisdiction to appoint a receiver over that non-probate asset. The court of appeals held that he waived that argument by not securing a ruling on it, and the court held that the issue was still before the trial court. The nephew also challenged the appointment of a receiver under Texas Civil Practice and Remedies Code Section 64.001(3). That provision provides that a court may appoint a receiver:

(1) in an action by a vendor to vacate a fraudulent purchase of property; (2) in an action by a creditor to subject any property or fund to his claim; (3) in an action between partners or others jointly owning or interested in any property or fund; (4) in an action by a mortgagee for the foreclosure of the mortgage and sale of the mortgaged property; (5) for a corporation that is insolvent, is in imminent danger of insolvency, has been dissolved, or has forfeited its corporate rights; or (6) in any other case in which a receiver may be appointed under the rules of equity.

Id. (citing Tex. Civ. Prac. & Rem. Code § 64.001(a)). The court of appeals noted that the trial court’s receivership order simply cited to Section 64.001 and did not specify which subsection it was basing its ruling on. The court then held that the nephew waived his complaint by not challenging all grounds upon which the trial court based its ruling:

The probate court’s January 11, 2021 order appointing a receiver stated it was appointing a receiver pursuant to Chapter 64 of the Texas Civil Practice and Remedies Code, but it did not specify which subsection it was relying on in granting the appointment of a receiver. Thus, on appeal, it was incumbent on Kenneth to attack all possible grounds. Here, Kenneth does not attack all independent grounds that support the probate court’s order. Specifically, Kenneth assigns no error to subsection (a)(6), which generally allows a probate court to appoint a receiver under the rules of equity. By failing to attack this independent ground, Kenneth has waived error, if any

Id. The nephew also challenged the order under Texas Business Organizations Code Section 11.404, but the court similarly held that he waived that argument by not challenging all grounds thereunder. The court affirmed the receivership order.

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Tax Court in Brief | Sestak v. Commissioner | Badges of Fraud, Bribery, and Violation of Sharply Defined Public Policy

The Tax Court in Brief – April 25th- April 29th, 2022

Freeman Law’s “The Tax Court in Brief” covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

For a link to our podcast covering the Tax Court in Brief, download here or check out other episodes of The Freeman Law Project.

Tax Litigation:  The Week of April 25th, 2022, through April 29th, 2022

• Valentine v. Comm’r, TC Memo. 2022-42| April 28, 2022 | Gustafson, J. | Dkt. No. 6724-19

Sestak v. Comm’r, TC Memo. 2022-41| April 25, 2022 | Weiler, J. | Dkt. No. 17285-18

Opinion

Short Summary: In 2012, Michael Sestak was employed as a consular officer by the State Department at the U.S. Consulate in Ho Chi Minh City, Vietnam. Sestak was responsible for reviewing U.S. visa applications and issuing U.S. visas to applicants. Sestak devised a scheme whereby he would receive compensation in exchange for facilitating approval of nonimmigrant visas to the U.S. through his position as a consular officer. From February to September 2012, Sestak approved 410 visa applications directed to him, and Sestak received payments—that were ultimately wired to his bank accounts—totaling $3,227,501. In an attempt to hide his bribery proceeds, Sestak acquired real property in Thailand for a total of approximately $3.2 million.

In 2013 Sestak timely filed his 2012 Form 1040, U.S. Individual Income Tax Return, reporting therein wages of $122,029 as an employee of the State Department. He did not report the $3,227,501 in bribery proceeds he received.

The State Department uncovered the fraudulent scheme, and ultimately, Sestak pleaded guilty to conspiracy to commit offenses against the U.S. and to defraud the U.S., bribery of a public official, and conspiracy to engage in a monetary transaction in property derived from specified unlawful activity. In a plea deal, Sestak executed a preliminary consent order of forfeiture imposing a forfeiture money judgment of $6,021,441 in favor of the U.S., which included forfeiture of his real estate holdings in Thailand, all of which represented bribery proceeds traceable to the fraudulent visa scheme and were subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C), 18 U.S.C. § 982(a)(1) and (6), 21 U.S.C. § 853(p), and 28 U.S.C. § 2461.

Sestak was permitted—under U.S. supervision and approval—to sell the real estate holdings in Thailand, with portions of the proceeds to be used to pay any of Sestak’s federal income tax due for tax years 2012 and 2013. Ultimately, Sestak sold his real estate holdings at a loss, but the U.S. received $1,551,134. The IRS then audited Sestak’s 2012 return, and through IRS Letter 950, along with Form 4549–A, Income Tax Examination Changes, the IRS asserted the civil fraud penalty against Sestak. A Revenue Agent made an initial determination to assert the civil fraud penalty under section 6663, and prior written supervisory approval was obtained to assert the civil fraud penalty pursuant to section 6663. Then, those decisions were formally communicated to Sestak.

Key Issues:

• Whether petitioner is entitled to a tax deduction for the financial loss against his bribery proceeds received for the tax year in question?
• Whether Sestak is liable for the civil fraud penalty under section 6663?

Primary Holdings:

• Loss deductions are disallowed where the deduction would frustrate a sharply defined federal or state policy. To allow Sestak a deduction for losses arising out of forfeited proceeds obtained through illegal activities would undermine public policy by permitting a portion of the forfeiture to be borne by the Government, thus taking the “sting” out of the forfeiture. In this case, Sestak is not entitled to a loss deduction for the proceeds from the real estate sales that Sestak later forfeited pursuant to the forfeiture agreement with the United States.
• And, yes, Sestak touched just about every “badge of fraud,” and he is liable for the civil fraud penalty under section 6663.

Key Points of Law:

• Burdens of Proof. The taxpayer bears the burden of proving that the Commissioner’s determinations are erroneous. Rule 142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933). Under section 7491(a)(1), “[i]f, in any court proceeding, a taxpayer introduces credible evidence with respect to any factual issue relevant to ascertaining the liability of the taxpayer for any tax imposed by subtitle A or B, the Secretary shall have the burden of proof with respect to such issue.” See Higbee v. Commissioner, 116 T.C. 438, 442 (2001). Petitioner has not introduced credible evidence sufficient to shift the burden of proof to respondent under section 7491(a) as to any relevant issue in dispute.
• Gross Income. Section 61 provides that gross income from whatever source derived is subject to federal income taxation. Gross income specifically includes income from illegal sources, such as bribes. Traficant v. Commissioner, 89 T.C. 501 (1987), aff’d, 884 F.2d 258 (6th Cir. 1989). Taxable income means gross income minus those deductions allowed by law. 26 U.S.C. § 63.
• Loss Deduction. Section 165(a) allows a deduction for “any loss sustained during the taxable year and not compensated for by insurance or otherwise.” In the case of an individual, the deduction is limited to losses incurred in a trade or business or in any transaction entered into for profit or to certain theft or casualty losses. 26 U.S.C. § 165(c). A deduction arising from a loss on the sale or exchange of a capital asset can be claimed only to the extent allowed by sections 1211 and 1212. 26 U.S.C. § 165(f).
• A deduction for property forfeited, if allowed, falls under section 165 and not under section 162. See, e.g., Holmes Enters., Inc. v. Commissioner, 69 T.C. 114 (1977); Holt v. Commissioner, 69 T.C. 75 (1977), aff’d per curiam without published opinion, 611 F.2d 1160 (5th Cir. 1980).
• Federal courts consistently disallow loss deductions where the deduction would frustrate a sharply defined federal or state policy. See, e.g., Wood v. United States, 863 F.2d 417 (5th Cir. 1989); United States v. Algemene Kunstzijde Unie, N.V., 226 F.2d 115, 119–20 (4th Cir. 1955); Fuller v. Commissioner, 213 F.2d 102 (10th Cir. 1954), aff’g 20 T.C. 308 (1953). The test of “nondeductibility on public policy grounds under section 165” is the severity and immediacy of the frustration of a “sharply defined national or state policy” that would result from allowance of the deduction. Stephens v. Commissioner, 905 F.2d at 670; Wood, 863 F.2d at 417.
• Trade or Business Deduction. Section 162(a) “allow[s] as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Neither the Code nor the regulations provide a generally applicable definition of a “trade or business.” Commissioner v. Groetzinger, 480 U.S. 23, 27 (1987). Determining the existence of a trade or business requires a review of the facts of the case, with a focus on: (1) whether the taxpayer undertook the activity intending to earn a profit; (2) whether the taxpayer is regularly and actively involved in the activity; and (3) whether the taxpayer’s activity has actually commenced. See Groetzinger, 480 U.S. at 36; Weaver v. Commissioner, T.C. Memo. 2004-108, 2004 WL 938293, at *6.
• Civil Tax Fraud. “If any part of any underpayment of tax required to be shown on a return is due to fraud,” section 6663(a) imposes a penalty of 75% of the portion of the underpayment attributable to fraud. The IRS has the burden of proving fraud by clear and convincing evidence. 26 U.S.C. § 7454(a); Rule 142(b). The IRS must establish two elements: (1) that there was an underpayment of tax for each year at issue and (2) that at least some portion of the underpayment for each year was due to fraud. Hebrank v. Commissioner, 81 T.C. 640, 642 (1983).
• Section 6751(b)(1) provides that “[n]o penalty under this title shall be assessed unless the initial determination of such assessment is personally approved (in writing) by the immediate supervisor of the individual making such determination.” As a threshold matter, the IRS must show compliance with section 6751(b)(1).
• Under section 7491(c), the IRS carries “the burden of production in any court proceeding with respect to the liability of any individual for any penalty.” This burden requires the IRS to come forward with sufficient evidence indicating that imposition of the penalty is appropriate. See Higbee, 116 T.C. at 446. The IRS’s burden of production under section 7491(c) includes establishing compliance with section 6751(b)(1). See Chai v. Commissioner, 851 F.3d at 217, 221–22.
• To allow a taxpayer a deduction for losses arising out of forfeited proceeds obtained through illegal activities would undermine public policy by permitting a portion of the forfeiture to be borne by the U.S. Government, thus taking the “sting” out of the forfeiture. See Tank Truck Rentals, Inc. v. Commissioner, 356 U.S. 30, 35 (1958); Wood, 863 F.2d at 422.
• There is a distinction between possible deductions relating to income received from an unethical business practice and income received by violation of some federal or state law or, by virtue of their illegality, frustrate federal or state policy. See Lilly v. Commissioner, 343 U.S. 90 (1952). And, a deduction for (for example) legal fees incurred in the unsuccessful defense of a criminal prosecution relating to a business may constitute ordinary and necessary business expenses that are deductible without frustrating public policy. See Commissioner v. Tellier, 383 U.S. 687 (1966). In sum, a taxpayer may be allowed to deduct legitimate (i.e., ordinary and necessary) business expenses in the operation of an illegitimate enterprise, provided that the allowance of a loss deduction does not undermine the impact of any sharply defined policy, such as, against bribery of a government official.
• Civil Fraud Penalty. The IRS must prove an underpayment of tax in support of the fraud penalty, but such proof need not be the precise amount of the underpayment attributable to fraud. Rather, the IRS must prove only that a part of the underpayment is attributable to fraud. Estate of Beck v. Commissioner, 56 T.C. 297, 363–64 (1971). When the fraud is intertwined with unreported income and indirectly reconstructed income, the IRS may prove an underpayment by proving a likely source of the unreported income. at 361.
• When a taxpayer fails to report bribery proceeds, it is established by clear and convincing evidence that the taxpayer has an underpayment. Then, the IRS must prove fraudulent intent.
• Fraudulent Intent. Fraud is intentional wrongdoing designed to evade tax believed to be owing. Neely v. Commissioner, 116 T.C. 79, 86 (2001). The existence of fraud is a question of fact to be resolved upon consideration of the entire record. Estate of Pittard v. Commissioner, 69 T.C. 391, 400 (1977). Fraud is not to be presumed, nor should a finding of fraudulent intent be based upon mere suspicion. Petzoldt v. Commissioner, 92 T.C. 661, 699–700 (1989).
• Direct proof of fraud is rarely available; thus, fraudulent intent is usually established by circumstantial evidence. at 699. This may be shown by showing that “the taxpayer intended to evade taxes known to be owing by conduct intended to conceal, mislead, or otherwise prevent the collection of taxes.” Parks v. Commissioner, 94 T.C. 654, 661 (1990).
• The taxpayer’s entire course of conduct may be examined to establish the requisite intent, and an intent to mislead may be inferred from a pattern of conduct. Webb v. Commissioner, 394 F.2d 366, 379 (5th Cir. 1968), aff’gC. Memo. 1966-81.
• “Badges of fraud” include: (1) understating income, (2) keeping inadequate records, (3) giving implausible or inconsistent explanations of behavior, (4) concealing income or assets, ] (5) failing to cooperate with tax authorities, (6) engaging in illegal activities, (7) supplying incomplete or misleading information to a tax return preparer, (8) providing testimony that lacks credibility, (9) filing false documents (including false tax returns), (10) failing to file tax returns, and (11) dealing in cash. See, e.g., Schiff v. United States, 919 F.2d 830, 833 (2d Cir. 1990). No single factor is dispositive, but the existence of several factors is “persuasive circumstantial evidence of fraud.” Niedringhaus v. Commissioner, 99 T.C. 202, 211 (1992).
• Fraud occurs upon the filing of a false return with the requisite fraudulent intent, and that conduct cannot be subsequently purged through the filing of an amended return. See Badaracco v. Commissioner, 464 U.S. 386, 394 (1984).

Insights: There is a fine—but sometimes precise—line between a possible tax deduction arising from income derived from an unethical business practice versus from violation of state or federal law. The former may afford a basis for a taxpayer to claim and receive legitimate loss deduction on income so received; for the latter, loss deductions are disallowed where the deduction would frustrate a sharply defined federal or state policy. The test of non-deductibility on public policy grounds is the severity and immediacy of the frustration of a sharply defined national or state policy that would result from allowance of the deduction. Accepting bribes in exchange for visas to enter the United States is one such example where a sharply defined federal policy is frustrated, and as such, a deduction for losses incurred from the sale of property purchased with such bribed funds will, more likely than not, be disallowed.

The post Tax Court in Brief | Sestak v. Commissioner | Badges of Fraud, Bribery, and Violation of Sharply Defined Public Policy appeared first on Freeman Law.

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Attorney Spotlight: Kimberly Rosales

What type of law do you practice and what sorts of cases are you typically involved in?
I am an asbestos attorney. I represent clients who have been exposed to asbestos and as a result, developed asbestosis, lung cancer, and/or mesothelioma cancer.

What made you want to become an attorney?
I was interested in the legal system, and I wanted to pursue a career where I could advocate for others. I also wanted to pursue a career where I could be challenged and grow as a professional.

What’s the most memorable case you’ve been involved in and why? 
My most memorable case was a Spanish speaking Mesothelioma client in Houston because I signed-up the case; had to translate all client meetings; and translated the deposition preparation meetings. I was heavily involved in the case, because I am bilingual, which gave me the privilege to create a close connection with the client and his family. Additionally, this opportunity allowed me to expand my knowledge of asbestos exposures related to refineries and power plants; asbestos literature; and case strategy. Further, I got hands-on experience that has enabled my success in recent lung cancer and mesothelioma client meetings and depositions.

What’s something your job has taught you? 
Under the mentorship of Darren McDowell and Steve Schulte, I have learned how to work-up asbestos cases. They have taught me how to take effective depositions and help me bolster my confidence as an attorney. They have taught me to not be afraid, take risks, and learn from my mistakes.

What’s the most memorable case you’ve been involved in and why? 
I enjoy serving the community (locally and internationally). I have served the homeless community in Denton and Dallas; volunteered at Catholic Charites Dallas; and translated a non-profit’s resource pages based out of Nicaragua from Spanish to English. I traveled to the Dominican Republic through UT Austin Global Medical Training, and we provided free medical examinations to underprivileged communities. I also helped rebuild a home in New Orleans that was destroyed by Hurricane Katrina through UNT Alternative Spring Break.

The post Attorney Spotlight: Kimberly Rosales appeared first on Fears Nachawati Law Firm.

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April 29, 2022 Weekly Round Up

It is hard to believe we have reached the end of April, but here we are!  Lots of agricultural law news happening around the country.

Photo by Bailey Alexander on Unsplash

*Article highlights nuance with 10% cap on residence homestead tax.  My colleague, Dr. Blake Bennett, recently published a fact sheet looking at a nuance within the Texas Property Code related to the 10% cap on the yearly increase for residence homestead taxes in Texas.  The Texas Property Code places a 10% limitation on the amount a County Appraisal District may increase the appraised value of a residential homestead from one year to the next.  Critically, however, that exemption does not take effect until January 1 of the tax year following the first tax year the owner qualifies the property for the exemption.  Dr. Bennett’s article offers several examples to show how this plays out.  This is great information, particularly as people are currently receiving Notices of Appraised Values and determining whether they wish to protest.  [Read article here.]

*Texas Central Railway allegedly behind $600,000 in property taxes.  A number of Texas counties have filed an amicus brief in Miles v. Texas Central Railway alleging that Texas Central has failed to pay approximately $600,000 in property taxes on the parcels of land for which the company is listed as owner.   [Read article here.]

*US Supreme Court will not review ruling striking down Kansas “ag gag” law.  The United States Supreme Court denied Kansas’ Petition for Certiorari to review a Tenth Circuit Court of Appeals decision holding the Kansas law unconstitutional.  I did a prior blog post on the Tenth Circuit opinion here.  [Read article here.]

*Arizona cage-free mandate requirement pushed back to 2025.  Arizona egg producers will have additional time to prepare to comply with a state law mandating that all eggs sold in the state come from cage-free hens.  Initially, the law was set to go into effect in May 2023, but the Arizona Department of Agriculture has pushed that deadline to January 2025.  There is a minimum floor space requirement that will be imposed in the interim, going into effect from October 1, 2022 through the end of 2024.  [Read article here.]  Do keep in mind that all eyes are on the United States Supreme Court and the Constitutional challenge to California’s Prop 12.  [Read prior blog post here.]  The outcome in that case certainly could have significant impacts on this Arizona law as well.

*Widow offers advice on what to do after losing a spouse.  I read an article offering a seemingly simple tip after someone dies: Be sure to get bills out of their name.  Additionally, the article also highlights the importance of having a valid will and designating an executor of the estate as ways to help simplify the process for loved ones left behind.  [Read article here.]

*Study shows that longer-term leases likely to increase conservation measures.  DTN Progressive Farmer recently highlighted the results from an Iowa State University study looking at the adoption of conservation practices on leased land. Not surprisingly, the study found that farmers are more likely to implement conservation practices on leased land when the lease is for a term of more than 2 years.  This is likely because it is difficult for a farmer to  reap the benefits and recover the costs of implementing these practices in a two-year time frame. I think that is an interesting consideration for both landowners and tenants when negotiating lease agreements.  [Read article here.]

Upcoming Programs

On Monday, I’ll be in Kansas City presenting on carbon contracts with Dr. Jordan Shockley at the CIPA Meeting.  On Thursday, I’ll be headed back to the homeland with an opportunity to speak on carbon contracts with Dr. Justin Benavidez in Clovis, New Mexico.

Also, we are excited to have registration up and running for our “Where’s the Beef: Legal & Economic Considerations for Direct Beef Sales Businesses” programs!  These FREE events will offer a deep dive for anyone interested in selling beef directly to the consumer.  We’ll be in Amarillo on June 17 (register here) and in Brenham on August 26 (register here).

As always, find my full upcoming program list here.

The post April 29, 2022 Weekly Round Up appeared first on Texas Agriculture Law.

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Will Captive Audience Meetings Become Unlawful at the NLRB

In a recent post on the Fisher Phillips blog, I and my colleagues examine this issue.

Here is the first paragraph:

The NLRB’s top prosecutor just issued a memo which seeks to bar employers from convening employee meetings on working time to address union representation unless they provide employees specific assurances that participation is completely voluntary. These so-called “captive audience” meetings are routinely conducted to educate employees – particularly in response to arguments advanced by organized labor outside the workplace – and have been a staple in the American workplace since Congress amended the labor laws to recognize employer free-speech rights almost 75 years ago. Although a handful of states have enacted statutes attempting to restrict such meetings, the April 7 memo from NLRB General Counsel Jennifer Abruzzo (formally known as GC Memo 22-04) represents an unprecedented development in the annals of modern labor law. What do employers need to know about this significant step – and what should they do about it?

The rest of the article is available here: https://www.fisherphillips.com/news-insights/nlrbs-top-sheriff-calls-for-abrupt-end-to-75-years-of-lawful-captive-audience-meetings.html

The post Will Captive Audience Meetings Become Unlawful at the NLRB appeared first on Texas Labor Law Blog.

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A Two For: substantial limitation on the major life activity of working and Morbid Obesity the Texas Approach

I had already gone through two drafts of putting this blog entry together when I saw that the United States Supreme Court came down with it decision in Cummings (we discussed the oral argument here). One thing Cummings shows me is that predicting the Supreme Court result from the oral argument is a fools errand. I will try to remember that the next time. The case will be my very next blog. In short, the majority opinion decides that emotional distress damages are simply not a part of the traditional calculus of contract damages and therefore, are not available under the Rehabilitation Act of 1973 as well as the Affordable Care Act. More on this next week or if I can swing it, later this week.

 

Today’s blog entry gets its origins from both a case in my pipeline and from me finishing a chapter on disability discrimination that will appear in the Rutter Group Federal Employment Law Litigation treatise later this year. So, the blog entry discusses two different concepts. First, does proving up a substantial limitation on the major life activity of working, which has customarily meant having to show that the plaintiff cannot do a broad range of jobs, survive the ADAAA? Second, does morbid obesity require an underlying physiological condition when claiming disability discrimination. As usual, the blog entry is divided into categories and they are: working at the major life activities; does morbid obesity require an underlying physiological condition in order to be considered a disability; Texas Tech University Health Sciences Center-El Paso v. Dr. Niehay facts; court’s reasoning that morbid obesity qualifies as an impairment in a regarded as claim even without evidence of an underlying physiological cause; court’s reasoning on the applicability of the catspaw theory; court’s reasoning that the lower court did not err in considering Texas Tech’s own personnel statements about what happened when the interim program director consulted Texas Tech University legal counsel; court’s reasoning that direct evidence existed; and thoughts/takeaways. Of course, the reader is free to focus on any or all of the categories.

 

I

Working as the Major Life Activity

 

In Sutton v. United Airlines the Supreme Court held that mitigating measures should be considered when deciding whether a person had a disability. That particular holding was overruled by the amendments to the ADA, the ADAAA. Sutton also said that to be substantially limited in the major life activity of working that you had to look at whether the individual could do a broad class of jobs. The question is whether after the amendments to the ADA does that principle still survive? The answer is confusing, especially if you do Boolean searching in a legal database as that will likely lead you one way that may not be accurate. What you do have to do is start with the case of Booth v. Nissan North America, 927 F.3d 387, 394 (6^th Cir. 2019). Then, cite check, Sheppardize, or whatever you like to call it the section of Booth talking about how proving up working as the major life activity follows Sutton even after the ADAAA. When you do that, you find out that the EEOC also agrees that the analysis of the major life activity of working being substantially limited, which focuses on whether the individual can do a broad class of jobs, still survives even after the amendments to the ADA. See, EEOC Interpretive Guidance of title 1 of the ADA at 1630.2(j)(5) and (6). So, you have both case law as well as guidance from the EEOC itself talking about how the broad class of jobs is still the rule with respect to figuring out whether working as the major life activity is substantially limited. As such, if you are on the plaintiff side you definitely want to avoid alleging working as the major life activity if at all possible, a point which the EEOC makes in its guidance as well. If you do allege working as the major life activity and you do not have to, one wonders whether that wouldn’t give rise to a legal malpractice claim, and we discussed that possibility here.

 

II

Does Morbid Obesity Require an Underlying Physiological Condition in Order to Be Considered a Disability

 

The answer to this question entirely depends upon the jurisdiction you were in. At the federal level, the trend is very clear that morbid obesity requires an underlying physiological impairment in order to proceed with a disability discrimination claim. See here for example. However, many states have their own disability nondiscrimination laws and they are not necessarily tracking the federal trend. For example, we previously discussed how Washington has decided that morbid obesity is always a disability under Washington Law Against Discrimination. Recently, Texas has decided that under their disability nondiscrimination law, the Texas Commission on Human Rights Act law that morbid obesity does not require an underlying physiological impairment in a regarded as claim situation. Let’s take a look at the Texas decision, Texas Tech University Health Science Center-El Paso v. Dr. Niehay, here, decided on January 31, 2022, by the Court of Appeals of Texas.

 

III

 

Texas Tech University Health Science Center-El Paso v. Dr. Niehay Facts

 

The facts of this case are quite egregious and can be found in great detail in the opinion. Basically, you have a resident that weighed over 400 pounds. The program where she was doing a residency at did not appreciate that. She had a particular problem with the person who ran the residency program, an interim director. At one point, the interim director actually went into the University legal counsel’s office to figure out whether she could terminate the resident because of the plaintiff’s weight. The lawyer for the school said that she could not terminate based upon that reason because it would be discrimination. After hearing that, she repeated to the attorney that she believed that the resident was not performing well because of her weight and that she needed to find another reason to terminate her from the program. The University did not take steps to protect the information from when the program director consulted legal counsel when it was revealed what the nature of that conversation was at the program director’s deposition.

 

IV

Court’s Reasoning that Morbid Obesity Qualifies as an Impairment in a Regarded As Claim Even without Evidence of an Underlying Physiological Cause

 

1. No dispute exists that plaintiff was morbidly obese.
2. No dispute exists that her condition was transitory or minor.
3. The Texas Commission on Human Rights Act defines a disability as a mental or physical impairment or being regarded as having such an impairment. Texas Labor Code Annotated §21.002(6).
4. The Code of Federal Regulations as promulgated by the EEOC provided significant guidance to the interpretation of the Texas Commission on Human Rights Act.
5. The relevant provisions in the Code of Federal Regulations define a physical or mental impairment as any physiological disorder or condition affecting one or more body systems. Those body systems might include the neurological, musculoskeletal, respiratory, cardiovascular, digestive, genitourinary, immune, circulatory, humic, lymphatic, skin, or endocrine system. 29 C.F.R. §1630.2(h)(1).
6. While physiological disorder and physiological condition are not defined by the C.F.R., when the statute uses an undefined word, a court should apply the word’s common ordinary meaning.
7. Webster’s defines physiology as the organic processes and phenomena of an organism or any of its parts of a particular bodily process.
8. The word “condition,” when referring to a physical state includes, “a mode or state of being... proper or good condition (as for work or sports competition)... the physical status of the body as a whole... [Usually] used to indicate abnormality.” Morbid obesity meets these definitions.
9. The Texas Court of Appeals cites to the Washington case that we discussed here.
10. Plaintiff testified at her deposition that her morbid obesity is a contributing factor to cardiac issues and is also associated with metabolic syndrome, which includes hormonal imbalances, insulin resistance, and the potential to develop type II diabetes. She also testified that can affect activities such as walking, running, climbing, breathing and muscle function. Plaintiff and Amicus also directed the court to secondary medical authority viewing morbid obesity as a physiological disorder or disease without regard to its cause.
11. Another Texas Court of Appeals has previously stated that obesity can be properly classified as a disability when it substantially affects the body system.
12. In a regarded as claim, the plaintiff need not actually have the perceived impairment, rather plaintiff only needs to be regarded, whether it be correctly or incorrectly, as having it by the employer. It is illogical to suggest that a plaintiff must establish that the imagined impairment they are regarded as having by their employer-but don’t actually have-is also regarded by the employer as being caused by an imagined underlying physiological cause that they likewise don’t have. There is also no basis or authority for imposing that requirement on a portion of regarded as cases (where the plaintiff is shown to actually have the perceived impairment), but not others (where she isn’t).
13. Texas Tech’s interpretation of the law makes no sense for another reason as well. That is, even if the employer did fabricate and imagine cause for the impairment that the person did not have, the specific cause they imagined would determine whether liability existed or not. For example, an employer deciding the employee was morbidly obese for psychological reasons could never be held liable for terminating the employee on that basis. Yet an employer who viewed the employee had being morbidly obese through no fault of their own-for physiological reason-would be subject to potential Texas Commission on Human Rights Act liability.
14. The decision is limited to regarded as claims.
15. It is possible that the defense may still prevail on the merits. For example, it might be able to show that the plaintiff was not qualified, especially since a person with a regarded as claim is not entitled to reasonable accommodations under the ADA as amended.

 

V

Court’s Reasoning on the Applicability of the Catspaw Theory

 

1. Under the catspaw theory, a plaintiff need not show that the final, official decision-maker harbored a discriminatory animus toward her. Instead, the plaintiff may present evidence that a subordinate employee harbored such intent, and that the subordinate employee’s efforts led to a recommendation for termination, which the final decision-maker effectively rubber stamped. That is, federal courts will not blindly accept the titular decision-maker at the true decision-maker. Rather the question is whether the worker possess leverage, or exerted influence over the titular decision-maker.
2. Another way to look at it is if a supervisor performs an act motivated by unlawful animus intended by the supervisor to cause an adverse employment action and that act as a proximate cause of the ultimate employment action, then the employer is liable.
3. Some evidence existed that the interim program director was fulfilling the role of program director at the time of the disciplinary hearings. The interim program director testified at her deposition that she retained a function of program director, i.e. responsible for supervision of the program. She also reiterated that in her CV attached to her deposition. Finally, another physician who became a faculty member at the tail end of plaintiff’s disciplinary proceedings testified in his deposition that it was his understanding that the interim program director had been performing most of the duties of program director while another person served at the name director before his arrival.
4. In a footnote, the court noted that the interim program director made corrections to her deposition testimony with her actual deposition testimony. If nothing else, that created the question of fact regarding the role she actually performed at the time of plaintiff’s termination.
5. Evidence also existed that the interim program director used her position to initiate and pursue disciplinary proceedings against the plaintiff with limited supervision or input from the named program director. More particularly, without first consulting with the named program director, the interim director: 1) initiated an investigation into plaintiff’s performance; met with legal counsel; 2) sought advice on what disciplinary steps she should take; 3) called emergency meeting to discuss plaintiff’s performance; and 4) took the lead role in gathering and presenting information regarding plaintiff’s performance. She also sent emails outlining several new complaints about the plaintiff and advocated for urgent action. In the responses to those emails, several members of the disciplinary committee, advocated for plaintiff’s immediate suspension or termination based in part upon the information supplied by the interim program director.
6. The named program director testified that he conducted no independent investigation to verify the information presented to him by the interim program director before recommending plaintiff’s termination. He also testified that had he been in charge of the disciplinary proceedings, he would have conducted an independent investigation into the claims against the plaintiff for reporting the matter onto the disciplinary committee.
7. It was the interim program director that took the lead role in summarizing the evidence leading to the recommendation to terminate the plaintiff.
8. No evidence existed that an independent investigation was launched before upholding the termination recommendation.

 

VI

Court’s Reasoning That the Lower Court Did Not Err in Considering Texas Tech’s Personnel Statements about What Happened When the Interim Program Director Consulted Texas Tech University Counsel

 

1. A Yolanda Salas was present in the room when the interim program director met with Texas Tech University legal counsel, Frank Gonzalez, about the plaintiff’s situation.
2. At that meeting, Salas said the following transpired:

 

Gonzalez advised Dr. Wells that “she had to find specific reasons why she wasn’t performing well to dismiss her,” and that Gonzalez advised Dr. Wells that she could not “use her weight as a reason to dismiss her.” He also reportedly advised Dr. Wells that there had to be other reasons to dismiss Dr. Niehay. Salas also testified that during the meeting, Gonzalez repeatedly cautioned Dr. Wells to be “careful how she handled this [and] that she couldn’t mention anything about her weight.” Dr. Wells agreed with Gonzalez that she could not mention Dr. Niehay’s weight, and then asked him how she could “word it,” apparently referring to her initiation of disciplinary proceedings, to instead “show” that Dr. Niehay was not performing well. And, Salas testified that Dr. Wells informed her after the meeting that she believed Dr. Niehay “wasn’t performing well because of her weight and that–but that she had to find a way to–find other reasons other than that” to terminate her. Salas expressed her belief that Dr. Wells was determined to find other reasons to dismiss Dr. Niehay, in order “to 20 As a predicate to this question, Dr. Niehay’s counsel first asked what Salas had told Dr. Niehay about what attorney Gonzalez had said. Texas Tech’s counsel then stated, “Objection, privileged.” The witness then asked that the question be repeated, and the counsel then asked a somewhat different question–whether a specific statement was made by attorney Gonzalez, to which no objection was made. 41 go around the weight issue” and that she later contacted various other faculty members, “just looking for a reason to dismiss her.”

 

3. The parties agree that the communication between the interim program director and Frank Gonzalez were covered by the attorney-client privilege.
4. The attorney-client privilege is waived when the holder of the privilege voluntarily discloses the privileged material to a third party.
5. Salas, who was not a management level employee within the agency, lacked the independent authority to waive the privilege on Texas Tech’s behalf.
6. The attorney-client privilege can also be lost during discovery proceedings when the party holding the privilege fails to adequately assert it, and instead allows the privileged information to be disclosed on the record.
7. Texas Rules of Civil Procedure allows for an attorney to instruct a witness not to answer a question during an oral deposition if it is necessary to preserve a privilege.
8. Texas Rules of Evidence supports the general rule that evidentiary privileges are waived at the privilege holder voluntarily discloses the privileged matter or consents to disclosure. One subsection of that rule specifically applies to the attorney-client privilege and limits the general waiver rule when there has been actual disclosure. That particular section provides a mechanism to clawback inadvertently disclose attorney-client communication providing it is done promptly.
9. Texas Tech allowed the substance of the privilege communication to be elicited at a deposition and later transcribed. That is a problem because once the information has been disclosed, loss of confidentiality is irreversible.
10. The preferred course of action would have been for Texas Tech’s counsel at Salas’s’ deposition to instruct Salas , who was a current employee, not to reveal attorney-client communications, an approach specifically allowed by the Texas Rules of Civil Procedure. That simply wasn’t done. Further, Texas Tech took no action to protect the privilege communication until almost 2 years later, which was certainly not promptly, when objected to plaintiff’s use of the deposition when it filed a motion to strike.

 

VII

Court’s Reasoning That Direct Evidence Existed

 

1. Salas’s testimony was direct evidence that the interim program director had discriminatory intent against the plaintiff based upon plaintiff’s perceived impairment, and so the McDonnell Douglas burden shifting procedure does not apply to this case.
2. For workplace comments to provide sufficient evidence of discrimination, the remarks must be: 1) related to the protected class; 2) proximate in time to the adverse employment decision; 3) made by an individual with authority over the employment decision at issue; and 4) related to the employment decision at issue.
3. Salas’s testimony not only contained comments that the interim program director viewed plaintiff’s weight to be an impairment, but also expressed an intent to terminate the plaintiff and find other pretextual reason to cover up her true motives. The timing of those statements was just before the imposition of the probationary period that preceded plaintiff’s termination.

 

VIII

Thoughts/Takeaways

 

1. Many states have disability nondiscrimination laws and they may take a different approach than the federal cases interpreting the ADA even though those states will look to the ADA and the EEOC for guidance. Washington and Texas have now done precisely that with respect to whether a physiological condition is required for morbid obesity claims. The Washington case goes further because it extends beyond regarded as claims.
2. The Texas case is a regarded as claim case. That is a very important distinction because under both Texas and the ADA as amended, regarded as claims do not allow for reasonable accommodations. In this particular case, that could be a critical factor.
3. Whether morbid obesity requires an underlying physiological condition will undoubtedly head to the Supreme Court eventually.
4. As far back as 1993, the First Circuit held that morbid obesity was a disability under §504 of the Rehabilitation Act. See, Cook v. Rhode Island, Department of Mental Health, Retardation, & Hospitals, 10 F.3d 17 (1st Cir. 1993), which was also a regarded as claim.
5. Labor and employment lawyers frequently discuss the catspaw theory of liability as it can come up frequently. I haven’t done that much in my blog. The Texas decision does a nice job of laying out the theory in an understandable manner.
6. Attorney-client privilege can be compromised by third parties in the room.
7. Texas Tech’s approach to protecting the conversation was a bit strange. It seemed that just got lost in the shuffle somehow. If you do have an issue with needing to protect the attorney-client privilege, it has to be done promptly.
8. It is rare at depositions where a lawyer instructs a witness not to answer a particular question, but it does happen from time to time and indeed, as this case illustrates, it should happen.
9. Even if somehow the conversation with the attorney was not admitted, the facts of this case are so egregious that the plaintiff might still survive under McDonnell Douglas.
10. Independent investigations are an excellent preventive law tool. If utilized in this case, the result may have been different.
11. There also seemed to be a lack of training on what the rights of people with disabilities are. Be sure to use knowledgeable trainers (it’s a huge part of my practice).
12. Direct v. indirect evidence is made a big deal of here. That continues to be the case in most places. We did discuss one court’s frustration with having to make the distinction constantly here.
13. The first section of this blog entry should make it very clear that a plaintiff should only when absolutely necessary alleged working as the major life activity. It is simply too difficult to prove and also creates a risk of legal malpractice, which we discussed here. I believe that it is likely that even after Kisor v. Wilkie, which we discussed here, that determining whether working at the major life activity is substantially limited per the Sutton test and the EEOC interpretive guidance will survive if it ever gets to the Supreme Court.

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Sexual Assault Awareness Month 2022 | Greening Law

Every April, the National Sexual Violence Resource Center (NSVRC) coordinates a month-long Sexual Assault Awareness Month (SAAM) campaign. The goals of this campaign include educating and engaging the public in addressing the widespread issue of sexual assault via awareness, prevention, and how to support those affected by it.  The term “sexual assault” is an umbrella [...]

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The Doctrine of Constructive Receipt

Under the doctrine of constructive receipt, a cash-basis taxpayer who has an unrestricted right to receive income is treated as though they actually received the income–even if they did not.  Thus, even when a taxpayer has not received possession of the income, the taxpayer is generally subject to tax as though they received possession of the income when the income is set apart of the taxpayer, credited to the taxpayer’s account, or made available to the taxpayer.  The doctrine, however, is subject to some limitations, and income is not constructively received where the taxpayer’s control of its receipt is subject to substantial limitations or restrictions.

What is the Doctrine of Constructive Receipt?

The doctrine of constructive receipt provides that a taxpayer is subject to tax on an item of income if the taxpayer has an unrestricted right to determine when that item of income will be paid. The income tax principle was first expressed by the Supreme Court in the 1930 case of Corliss v. Bowers, 281 U.S. 376 (1930), where Justice Holmes stated that “[i]ncome that is subject to a man’s unfettered command and that he is free to enjoy at his own option may be taxed to him as his income, whether he sees fit to enjoy it or not.”

The Tax Court has elaborated, explaining that the doctrine of constructive receipt is based on the principle that income is received or realized by cash method taxpayers when it is made subject to the will and control of the taxpayer and can be, except for his own action or inaction, reduced to actual possession.

The constructive receipt doctrine is embodied in Treasury Regulations, including section 1.451-2(a), which provides, in part, as follows:

Income although not actually reduced to a taxpayer’s possession is constructively received by him in the taxable year during which it is credited to his account or set apart for him so that he may drawn upon it at any time. However, income is not constructively received if the taxpayer’s control of its receipt is subject to substantial limitations or restrictions. Thus, if a corporation credits its employees with bonus stock, but the stock is not available to such employees until some future date, the mere crediting on the books of the corporation does not constitute receipt.

That is, an item of income (for example compensation for services) is includible in gross income for the taxable year in which it is actually or constructively received. And income is constructively received in the year in which, although not actually received, it was made available so that the taxpayer could actually receive it at any time.

Cash vs. Accrual Accounting

The doctrine of constructive receipt is only applicable to cash method taxpayers.  More precisely, it is already built into the accrual method of accounting.

Under the accrual method, income is included under the “all events” test: in the tax year when all events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy.  Under IRS guidance, the “all events” test is satisfied when (1) the required performance takes place, (2) payment is due, or (3) payment is made, whichever happens first.

Under the cash receipts and disbursements accounting method, income is recognized when payment is actually or constructively received.  Thus, when income is deemed to be received under the constructive receipt doctrine, a cash-basis taxpayer is subject to tax on the income, even if they did not actually receive possession of it.

The post The Doctrine of Constructive Receipt appeared first on Freeman Law.

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Enhancing Your Visibility Through Media Commentary | David Coale

While lawyers are used to reading and speaking legalese, breaking complex legal concepts into digestible bits is a talent not all lawyers have. But, with legal issues and court proceedings frequently in the news, it’s becoming an increasingly necessary skill set. This is particularly true when attorneys need to speak to the media about legal issues and cases. This episode’s guest, David Coale, a partner at Lynn Pinker Hurst & Schwegmann, LLP,

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Celebrating Arab Americans in the Law

In recognition of Arab American Heritage Month and the diverse national and cultural identity groups that comprise the Arab American community, today’s blog post will focus on Arab Americans in the law. Specifically, we will highlight the recently formed National Arab American Bar Association (NAABA), which according to one of its founders, Ryan J. Suto, aims to empower Arab American legal professionals.

NAABA’s three objectives are to “(1) support the professional growth and advancement of Arab American lawyers, (2) cultivate an understanding of the legal challenges facing Arab Americans, and (3) serve Arab American communities nationwide.” By advancing these aims, NAABA seeks to achieve a number of corresponding goals, including the creation of “a coherent pipeline of community leaders from law school to the federal bench and every legal path in between,” as well as the defense of democracy, and the empowerment of Arab Americans, including attorneys.

Offering opportunities for professional development and volunteerism and doing so by building on existing resources at the national, local, and personal levels, NAABA will – and already has – fostered connections and community for both seasoned legal professionals and those just entering the field.

NAABA creates space for a group of Americans who have, until recently, been under-recognized in the legal arena. With the celebration, every April, of National Arab American Heritage Month, this community of rich cultures and histories – linked together by unifying traditions, yet distinct in many remarkable ways — will be celebrated, not only for achievements in the legal profession, but for contributions to all aspects of American society, in Houston, in Texas, and in the nation.  

For additional reading about Arab American history, culture, and traditions, please visit the links below:

• National Arab American Heritage Month | INSIGHT Into Diversity (FAQ)

• Coming To America – Arab American National Museum (arabamericanmuseum.org)

• The Arab American Historical Foundation Home | Preserving and Disseminating Arab American History

• American-Arab Anti-Discrimination Committee (ADC)

• University of Houston Resources and Reading Lists 

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What's different in a law enforcement divorce?

Law enforcement officers and their spouses who go through a divorce tend to have different experiences than most of the public. Not only are divorces very unique matters for each family that goes through the process, but law enforcement officers have specific circumstances that impact their lives more acutely than others. One of the most unique ways that a divorce for law enforcement officers impacts their lives is regarding child custody. Raising a child as a law enforcement officer or law enforcement officer spouse is difficult enough as it is. The process of divorcing while being in a law enforcement family is about as difficult as it gets.

Additionally, the pension rules associated with divorcing a police officer also need to be mentioned. As a law enforcement officer, you took an oath to serve your community. That service does not come at zero cost to you. You put your life on the line each day in performing the daily activities that are a part of your job. Serving the community in a law enforcement capacity also impacts your family law. Having a job with an atypical schedule means that you may not be able to see your kids as often as you would like. It could be that your marriage has suffered as a result of your career path. 

When it comes to being a law enforcement officer one of the major perks of the job is that you can earn and build a pension throughout your working life. Your pension is something that is contributed automatically and may be impacted by years of service, your base rate of pay, and other factors that are related to your specific role as a law enforcement officer. If you have specific questions about your pension, then you should reach out to your human resources department at work to ask questions. This is the best resource for you to collect information and develop a plan for your retirement. I would recommend doing this regardless of what happens in your divorce. 

Pension division for law enforcement officers and their spouses

If you are an officer, then you are likely heading into your divorce wanting to protect your pension as much as possible. On the other hand, if you are an officer’s spouse then you may be concerned about your ability to retire. Either way, the pension is an important part of a divorce for those families who are in law enforcement. Here is some important information for you to consider as you begin the divorce process. 

Texas, as you may know, is a community property state. This means that the property that you own at the time of your marriage is presumed to be marital property and thus divisible by a family court judge. This is a big difference between how Texas treats property and how other states treat marital property. In most other states the spouse who purchases the property earns more income, or otherwise contributes more financially to the marriage and can retain more of the property. 

Not so much in Texas. Texas presumes that not only is all property owned between you and your spouse to be a community in nature but that it doesn’t matter who contributed more economically when it comes to the two of you. Your spouse could have been a stay-at-home spouse or parent and never have worked a day in their life and now be on the same footing as you financially. Let that sink in for a moment or two. 

But wait. Before you kick the bedpost in frustration why not look at this situation from the perspective of your spouse. Even if he or she never worked a day in your marriage outside of the home it’s not that their economic contribution was zero. Cooking, cleaning, childcare, transportation, appointment setting, home maintenance, etc. If not for your spouse, you may have had to pay people to perform these services for you. Paying people costs money if you weren’t aware. Therefore, I have it on pretty good authority that you would not be in a much better position than you are not but for this community property assumption. 

When we talk about community property, we do not just mean the tangible property that you see around your house. Your vehicles, the house itself, your silverware, and the video game system in the game room. These are types of property, to be sure. However, when we talk about property in the context of a Texas divorce case, we are also discussing intangible property. Savings accounts, checking accounts, and retirement accounts are just a few of the intangible assets that are counted as community property. Your pension is a type of community property if you accumulated and contributed to the account during the length of your marriage. 

The default setting for a family court judge would be to split your community property right down the middle. However, let’s examine some important caveats to this assumption. First, there are almost always external factors that weigh on a judge when determining how community property would be divided. One of the great things about working with an experienced family law attorney is that we can help you identify those factors and plan for them- whether they work in your favor or not. Contact the Law Office of Bryan Fagan today to learn more about the services that we can provide to you as a client of ours.

First, the judge would consider fault on your part or that of your spouse when it came to the breakup of your marriage. In Texas, as in every other state, you can obtain a divorce for no reason. Discord or conflict in personalities, irreconcilable differences, and incompatibility are just a few of the euphemisms we give to people who simply no longer want to be married. This is otherwise known as a “no-fault” divorce. You and your spouse are not placing any blame on the other when it came to your divorce. You simply no longer could tolerate being married and are getting a divorce. 

On the other hand, Texas allows for you, your spouse, or both of you to assert fault grounds when it comes to a divorce. These fault grounds include things like adultery, abandonment, and cruel treatment. Not only would you need to allege one of these fault grounds, but you would need to provide specific evidence to a family court judge to substantiate the allegation. If you can do so then you can reap some benefits from having done so.

What sort of benefit, you may be asking? When it comes to your property division being able to prove that your spouse contributed enough to substantiate a fault ground for divorce means that you could be in line to receive a disproportionate share of your community estate when the case is all said and done. Disproportionate means more than half. Since you were an “innocent” spouse you would be rewarded for your innocence, to put it another way. This is an important point to make and can make the property division aspect of your case much different than simply saying that a judge would split your property right down the middle. 

The amount of community property in play can also impact issues like who gets to keep the house after the divorce and whether spousal maintenance will be ordered. Keep in mind also that you and your spouse are likely to be the people who determine how your community property is divided and not a judge. Therefore, the two of you can begin to throw out settlement offers from the beginning of your divorce to work through these types of issues. No use waiting until your case is over with to leave it all up to a judge. Work through these issues as best you can and only rely upon the judge if it becomes clear that this is your only option. 

Community property and your pension

The idea that all property earned during your marriage will be classified as community property and thus divided evenly sounds nice on paper but doesn’t exactly come out that way in the real world. Rather, we have already seen that external factors can play a role in this process. In addition to concepts like fault grounds for divorce, there are other issues in play when it comes to how your property will be divided in a divorce. 

Let’s consider the subject of commingling. When you and your spouse mix community property with the separate property you have commingled property. For example, if you deposit money earned during your marriage into a savings account that you had before you married then you have a potential situation for commingling of property. The money that you earned and deposited into the account before your marriage would be separate property and is not divisible. 

The tricky part for you, your spouse, and potentially a family court judge is determining which portion of the account is separate property and which portion is community property. When you have mixed money up in an account it can be tricky to go back and decide on which is separate, and which is community. It may be that you can simply go back and look through your account to look at when you got married and how much money was in the account on that date. This would be separate property. Any money deposited after that date would be a community. You may have to consider interest rates on the account and the growth inside the account, as well. 

However, this assumes that you can log into your online account and look back many years to determine all this. What if you are in a situation where online records aren’t as easily located? What if you don’t do online banking and instead rely upon the statements mailed to you by the bank? I know this sounds far-fetched to some of you, but many people still bank this way. What then? How could you ever feel confident about making this sort of determination? In that case, you would likely need to hire a forensic accountant to make the call for you. 

This same general principle could also apply to your pension. It may be the case that you were working as a law enforcement officer before you got married. In that case, you would need to figure out how much of your pension is separate property and how much of it is community property. There is a ratio that is applied to your pension based on the total number of years that the two of you were married and the number of years that you earned a pension. 

Here is an illustration of that ratio using round numbers. Suppose that you and your wife were married for 10 years and you earned your pension for the past 15. That means that 10/15 or 66.6666% percent of your pension is community property. That percentage would then be applied to the dollar value of your pension and monthly payment would then need to be calculated. Pensions do not act like 401(K)s or IRAs. Rather, pensions do not allow you to pick the funds that they are invested in. You contribute to your pension and a plan administrator or fund manager chooses the investments. When you become vested in your pension after serving your law enforcement body for a certain period then you would be able to receive a specific sum of money each month at retirement. Typically, as you get older and more experienced within the law enforcement body you would be able to take home more money per month at retirement. 

How can you keep as much of your pension as possible in a divorce?

When it comes to a divorce case you are playing defense if you are the spouse who has the pension. All that money is technically in your name. However, the law in Texas can divide up that property even if the account doesn’t mention your spouse’s name. The same can be said for your house, vehicles, or anything else you own for that matter. If you are trying to quickly switch the names of various documents into your own so that you can keep the property after a divorce, then you can put that dream to rest. It won’t matter, and the court won’t like that you did it (and neither will your spouse). 

As we mentioned earlier, you and your spouse will have ample opportunity to divide up your pension and all community property in mediation or other informal settlement negotiations. Here is some food for thought when it comes to negotiating on this subject. This is general information and should not be taken to apply specifically to your divorce. The best way for you to obtain specific advice about your case is to work with an attorney with the Law Office of Bryan Fagan. In that case, you can be sure that one of our lawyers is doing the work necessary to give you specific advice based on you and your interests. 

If you and your spouse both have retirement accounts, then you may agree for both of you to simply keep what you have in your name and move along your ways. This works well if those retirement accounts are equal in value or close to it. If you have a pension and your spouse has a 401(K) then you probably will need to do some planning as far as comparing the two types of retirement vehicles. It’s a bit like comparing apples to oranges. 

Next, you and your spouse could make a trade offer. Suppose that, for whatever reason, your spouse wants a portion of your pension. You may be willing to trade that portion of your pension (over and above the community property share) for another asset. Maybe you own a small vacation cottage on Lake Conroe that you want to keep for recreation/fun? If that cottage’s value is equal to the portion of the pension in question, then that may be a deal that you want to pursue. 

Finally, you could offer your spouse a spousal beneficiary election on your pension in exchange for a higher percentage of the account. This would work out for your spouse if, sadly, you were to pass away. Rather than name one of your kids or a future spouse as the beneficiary then your ex-spouse would get the pension. This sounds like a risky move, depending on your circumstances. However, if you have nobody else in your life you would like to insert as a beneficiary after the divorce it may work out and make some sense. 

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 hesitate 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 law enforcement divorce situations but also about how your family may be impacted by the filing of a divorce or child custody case. 

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