Law Offices of Stuart Levine, LLC

Beware Arbitration Agreements. 

In a Fourth Circuit opinion handed down today, an arbitration provision effectively trumped a provision allowing the “at-will” termination of an employee.

The employment contract had a provision allowing the contract to be terminated at the will of the employer. However, it also had an arbitration provision. The arbitrator held that the termination was wrongful and awarded the employee over $1.1M in damages. The 4th Circuit upheld the arbitration award.

I shudder to think about how many agreements that I drafted are “at-will,” but have arbitration provisions. This is not the sort of outcome I would have expected when drafting those contracts.

The case is Warfield v. ICON Advisors, Inc.  Posted 2/05/2021

Tax Fraud and Not Following Kipling’s Advice. 

I generally do not post opinions in criminal cases, even criminal tax cases. However, the Fourth Circuit, in U.S. v. Barringer, offers a lesson that all of us might benefit from. This lesson is important regardless of our individual area of practice.

Barringer was the long-time Executive Vice President and a Board member of J&R Manufacturing, Inc. (“J&R”). Her responsibilities and duties included collecting and paying federal payroll taxes. After J&R began to have financial difficulties, she received a notice from the IRS that she was liable for J&R’s delinquent withholding taxes. On two occasions, she withdrew money from her 401(K) plan claiming that she was entitled to a withdrawal due to personal financial hardship, specifically, that she faced a possible foreclosure on her personal residence.

Both distributions and additional personal funds from her savings were ultimately transferred to J&R’s account. The first distribution was applied solely to pay J&R’s delinquent withholding tax obligations. The second was used to pay herself and other vendors, but not the Service.

Ultimately, Barringer was convicted and received a 36- month sentence for multiple counts of willful failure to collect or pay over taxes, in violation of 26 U.S.C. § 7202, and making materially false statements to federal agents, in violation of 18 U.S.C. § 1001. The sentencing judge applied a two-level enhancement because Barringer “abused a position of public or private trust, or used a special skill, in a manner that significantly facilitated the commission or concealment of the offense,” namely, that Barringer held a position of trust as to the Government to collect and pay the 941 taxes.

Look, Barringer did something very stupid. When confronted with a looming financial claim, she panicked. As a result, she suffered a loss that was far in excess of what would have resulted if she did nothing. She ignored Rudyard Kipling’s admonition to “keep your head when all about you are losing theirs.”

My guess is that most of us, not the least of all me, have, more often than not, ignored Kipling’s advice.  Posted 2/05/2021

Corp. Successor Liability; Maryland Unpaid Wage ActPlaymark, Inc. v. Perret, just handed down by the Court of Special Appeals, must be read by all business practitioners and anyone who deals with any sort of employment law.

First, it discusses at length the concept of corporate successor liability. In that regard, it provides a checklist of factors that will allow successor liability. Significantly, it also interprets the concept of a transfer of “all or substantially all of the assets” to tag a successor with predecessor liability to mean that the assets are transferred from the predecessor corporation, not that “all or substantially all of the assets” are transferred to a particular transferee.

With respect to employment law, it holds that the “mere inclusion of a covenant not to compete does not automatically remove post-employment payments from the realm of “wages” and the scope of the Wage Act if those benefits are (1) promised in exchange for employment, and (2) not expressly conditioned on continuing compliance with the covenant not to compete post-employment.”  Posted 02/01/2022


Award of Post-Judgment Attorney’s FeesThe Fourth Circuit Court of Appeals handed down an opinion in a case that teaches an important lesson to document drafters.

The case is Sky Cable, LLC v. Massamuttan Resort, LLC. It is a successor to an earlier case involving a judgment for fraud selling unauthorized TV programming provided by Direct TV. In the earlier case, Direct TV had obtained a judgment under a federal statute allowing an award of attorney’s fees. The defendant embarked on an intensive effort to hide assets in order to dodge paying that judgment. Ultimately, however, the plaintiff not only managed to locate and execute upon assets to satisfy the judgment, but also obtained an award of attorney’s fees for its post-judgment collection efforts. Based upon the federal statute involved, the Fourth Circuit affirmed the award of attorney’s fees incurred in the post-judgment collection effort.

As noted, the defendant’s liability in Sky Cable was based upon a federal statute allowing an award of post-judgment attorney’s fees incurred in enforcing a judgment. However, it is not certain that a “standard” attorney’s fee provision in a contract or promissory note would allow an award of post-judgment attorney’s fees. Accordingly, attorney’s fee provisions should be drafted to allow an award of attorney’s fees incurred in attempting to enforce a judgment, not just obtain one.

I have attached to the opinion a copy of the earlier opinion upholding the judgment, since that earlier opinion delves into the question of reverse veil-piercing that I thought might be of some general interest.  Posted 01/10/2022

Major Threat to Federal RegulationsOver the past couple of years, there have been numerous published tax opinions dealing with charitable, environmental, and historical easements. Most dealt with whether the easements in question comported with the relevant regulations. Given the shear number of such opinions, I have generally not posted them.

Yesterday, however, the 11th Circuit issued an opinion dealing with a charitable easement. The opinion held that the relevant regulation in question was “arbitrary and capricious and therefore invalid under the . . . procedural requirements” of the Administrative Procedures Act because the “Treasury, in promulgating the . . .regulation, failed to respond to [one organization’s] significant comment concerning the post-donation improvements issue as to proceeds.”

The importance of this case goes far beyond tax law. If adopted by other courts or if litigation challenging federal regulations is instituted in the 11th Circuit, there will likely be a wholesale invalidation of existing regulations. I would not be surprised if this case finds its way to SCOTUS.

The case is Hewitt v. Commissioner  Posted 12/30/2021

Active v. Passive. In CCM 202151005, the Office of the Chief Counsel held that whether an activity is a “rental activity” under § 469(c)(2) is not determinative of whether the exclusion from SECA tax under § 1402(a)(1).  Posted 12/27/2021

Anti-SLAPP Act. In MCB Woodberry Developer, LLC v. The Council of Unit Owners of the Millrace Condominium, Inc., the Court of Special Appeals upheld the dismissal of a lawsuit, basing its holding on the Maryland Anti-SLAPP statute. This is the first appellate opinion in Maryland addressing the Anti-SLAPP statute.

I found footnote 9 to be of some interest since it confirmed the ability in some instances to cite unreported decisions of other courts as persuasive authority Posted 12/17/2021

IRS: R-E-S-P-E-C-T. I’ve almost always found the personnel of the IRS and the MD Comptroller’s Office to be both helpful and respectful of taxpayers and their representatives.  Here, in a memorandum, the IRS Chief Counsel issued a reminder to its personnel to continue that practice.  Posted 12/11/2021

No 1031 Deferral for PA Tax Purposes. I don’t usually post opinions from other states. However, in Pearlstein v. Commonwealth, and two companion opinions that adopt the reasoning by reference to the opinion, the Court held that for Pennsylvania state tax purposes there is no “1031-Like” tax deferral available. I post the opinion because (i) I was surprised at the result and (ii) Pennsylvania is an adjoining state and Maryland practitioners may be involved in real estate transactions there.  Posted 12/06/2021

Reasonable Cause and FBAR. In U.S. v. Bittner, the U.S. Court of Appeals for the 5th Circuit addressed two issues with respect to FBAR (the reports required with respect to “Foreign Bank and Financial Accounts”).

The first issue is of general interest because the Court discussed what constitutes “reasonable cause,” a term of art used with respect to many areas of the Internal Revenue Code.

As to the second issue, the Court reached a different result than the 9th Circuit with respect to the number of penalties for non-willful violations one could be exposed to under FBAR. The 5th Cir. held that there was only one penalty per account regardless of the number of years involved. The 9th Cir. had held that a penalty could be imposed for each year for each account. The difference: In Bittner, per the 5th Cir., a $50,000 penalty versus $1.77M had the 9th Cir. rule applied.  Posted 12/03/2021

S versus C.  Taxpayers claimed that, notwithstanding that they had filed an S election for their corporation, the corporation was a C corporation because they had filed 1120 (as opposed to 1120S) returns. The Tax Court held that, unless specifically revoked, an S election remains in place.  The case is Hong Jun Chan.   Posted 12/01/2021

IRS Guidance on Digital Submissions.  The IRS has issued guidance on (i) approval to accept images of signatures and digital signatures and (ii) approval to receive documents and transmit encrypted documents by email. I have posted the guidance.        Posted 11/26/2021

Foreclosure Sales.         The IRS has issued guidance on (i) approval to accept images of signatures and digital signatures and (ii) approval to receive documents and transmit encrypted documents by email.  I have posted the guidance.    Posted 11/22/2021

Taxable IRA Distributions Taxpayers established self-directed IRAs and had the IRAs form single member LLCs of which they were the managers. With funds from pre-existing IRA assets that were liquidated, the LLCs purchased gold American Eagle coins. The Court held that the taxpayers had taxable distributions from the IRA when they received physical custody of the coins “irrespective of [the taxpayers’] status as the [LLC’s managers.]” The Court also sustained accuracy-related penalties against the taxpayers.

The case is Andrew and Donna McNulty Posted 11/19/2021

Involuntary Commitment in Maryland The Maryland Court of Special Appeals has issued a decision in J.H. v. TidalHealth Pennisula Regional, Inc., that reviews the standards and procedures for involuntary commitment. While many of you are not lawyers, you may, from time to time, have the need to be familiar with these procedures due to the illness of relative or loved one.  Posted 11/18/2021