Divorce In California

Obtaining Court Orders

admin — Fri, 27 Jan 2012 20:34:47 +0000

Parties May Agree by Stipulation

A stipulation is an agreement of both parties that is submitted to the court either before a hearing or on the record during the hearing. To stipulate to child support a Stipulation to Establish or Modify Child Support and Order – FL-350 must be submitted to the court. If the stipulation occurs before the hearing it is drafted as a pleading, signed by both spouses, and submitted to the court.

Ex Parte Motion

An ex parte motion provides quicker relief and avoids some notice requirements of an Order to Show Cause or Noticed Motion. Temporary restraining order may be had without notice to the other party but all other orders require notice unless the petition or declaration show that “great or irreparable injury” would otherwise result to the applicant before the matter can be heard on notice.

Order to Show Cause

To obtain an order with an Order to Show Cause the party seeking the order must complete Order to Show Cause - FL-300 which is delivered to the judge’s department for signature and to obtain a hearing. The party seeking the order then serves the other party with a copy other required papers. Service by mail is permitted if the other party has “made an appearance” in the matter but can also be done through personal service in accordance with California law.

Notice of Motion

Notice of Motion - FL-301 – is uses to request this variety of order. Once filed, the next step is usually to phone the clerk to obtain a hearing. And mail all required service documents.

Application for Order and Supporting Declaration – FL-310

The party indicates what orders are requested and details facts supporting the request. Draft with care! In an ex parte motion the court can draft relief only upon what is stated in the declaration and other filed documents.

For financial issues an Income and Expense Declaration – FL-150 is filed and served with the moving papers along with a blank FL-150 and FL-320.

*For temporary protective orders, domestic violence forms must be used.

Order After Hearing

Once the judge has ruled on the matter an order form(s) must be submitted to the court along with a copy sent to the other party. The relevant forms for cases other than domestic violence

Child Support Enforcement

admin — Wed, 21 Sep 2011 03:59:08 +0000

Non-custodial spouses are required by law to pay child support according to the order or judgment issued by the court. For assistance with child support enforcement, contact your local child support agency. Unpaid and overdue child support are required to be paid with interest. Failure to pay child support can result in a variety of civil and potentially criminal penalties.

Child Support California

admin — Mon, 19 Sep 2011 18:29:43 +0000

Child Support California

The system for financially providing for children is known colloquially as Child Support California. Both parents are required by law to provide for their children, regardless of marital status. The laws regulating child support in California permit the court to order that either parent or both provide regular support for living and medical expenses.

Once the court has ordered child support, the parent must comply by following the order. The order may sometimes be enforced through income withholding which ensures that wages paid from an employer are designated for compliance with the court order.

Modification of Child Support California

Child support may be modified through petitioning the court. In order for the court to grant such as petition, the petitioner must show a material change in circumstances, such as a job loss or other reason warranting a reduction or increase in child support.

Criticism of Child Support California

Child Support California has come under attack for being unfair to non-custodial spouses who believe child support is used to support the other parent instead of the child. The problem lies in the court’s inability to oversee how child support is used. Family law attorneys often seek a settlement concerning child support which contains restrictions on how support is used. For example, a parent may agree to pay certain sums directly to a private school.

Responsibility for Former Spouse’s Debt

admin — Tue, 16 Aug 2011 16:39:32 +0000

Under California’s community property laws, a divorced spouse may be responsible for the former spouse’s debts. According to California law all debts incurred by either spouse during marriage are usually considered community property. After divorce, creditors can recover against either spouse for community property debts. Creditors can also seek to recover against “formerly community property” that was assigned to you in your divorce judgment.

Your legal obligations to satisfy community debts does not end once your former spouse files for bankruptcy. After your former spouse files for bankruptcy, creditors may seek from you repayment of debts even though the court assigned such debts to your former spouse.

How to Get Attorney’s Fees in a California Divorce

admin — Mon, 20 Dec 2010 20:51:54 +0000

Hiring an attorney can be quite expensive with costs varying on the complexity of the case. Sometimes the court will order one side to pay attorney fees for the other party. Fees are most commonly awarded because one spouse is unable to afford an attorney while the other spouse earns enough to help cover the costs.

A second common instance of the court awarding fees occurs when one party refuses to comply with a court order. If one party incurs costs as a result of the other party’s failure to follow the court order, then the court generally awards fees.

Courts award fees when one party does not act in good faith, called a monetary sanction by the court. The court will order a reasonable amount.

Request for fees are made through initial filing documents.

Divorce Guide

admin — Mon, 20 Dec 2010 19:59:52 +0000

California Divorce Law

Three Typical Cases:

A California divorce begins once a spouse files a “Petition” in the Superior Court for dissolution of the marriage. The Petition requests a dissolution of marriage along with other marital issues such as property division, debt division, child custody, child support, spousal support, payment of attorney fees and court costs, etc. Once the Petition is filed, the path to resolution of the divorce depends on Respondent’s action. The Respondent may

1) not respond to the Petition

Default: The Respondent in the case does not file timely response to the petition for divorce or legal separation. The Respondent “defaults” and the case proceeds without the Respondent’s participation.

2) settle the case; or,

Uncontested: Parties settle by way of agreement. The Respondent may or may not file a Response.

3) contest the divorce by filing a Response.

Contested: Response is filed and the case is resolved by a Judge.

Uncontested an Default Divorces:

Step by step divorce process:

Step 1: Decide Which Court:

The case must be filed in a court that has authority to hear your case, requiring compliance with jurisdiction requirements.

Step 2: Download and Prepare Initial Forms

Petition – FL-100 – Asks the court for a divorce and to decide other issues.

Summons – FL-110 – Notifies your spouse of the divorce

Proof of Service of Summons – FL-115 – Explains when and how you notified your spouse.

Declaration Under Uniform Child Custody Jurisdiction and Enforcement Act – FL-105 & Attachment FL-105(A) – Informs the court of information regarding your children

Property Declaration – FL-160 – Lists your assets

Court Orders – procedure depends on what you request incuding restraining orders, support and property issues.

Request to Waive Court Fees – FW-001 – available to lower income persons

Step 3: File Petition and Other Documents

Obtain copies for service

Step 4: Serve The Petition and Other Documents

Have another person over 18 hand your spouse the petition and summons, then notify the court.

Step 5: Default – Absent a Response

If your spouse does not take certain actions you may request that the court decide the matter.

Step 6: Financial Disclosure

Gather ALL your financial information. File and serve Income and Expense Declaration – FL-150 or for simpler estates Financial Statement – FL-155. File and serve a final disclosure or waiver.

Step 7: Marital Settlement Agreement

If the Respondent agrees to settle issues of the divorce, the singed marital agreement will state the resolution. Deciding how to resolve these issues is complex which can be disappointing to parties looking for a fast and cheap answers. Common issues include

Division of Property and Debts

Child Custody and Support

Spousal Support

Attorney Fees & Costs

Step 8: Order for Wage Garnishment for Child Support

Orders the payor’s employer to garnish for child support

Step 9: File Judgment Documents

These docs contain the resolution to all divorce issues

Step 10: Service of Judgment

Step 11: File Child Support Case Registry
Sends notice of child support requirement to the State.

Step 12: Serve The Order To Withhold (Wage Garnishment) On Spouse’s Employer
Serves payor’s employer and requires the employer to pay the spouse.

Complex Contested Divorce Steps :

Procedure and Strategy Varies Widely

At minimum contact an attorney for an individual consultation

Preliminary Motions:

Obtained by filing an “Order to Show Cause” or “Noticed Motion:” You may ask the court to decide issues before the complete resolution of the divorce. For immediate relief seek an ex parte proceeding. The strategy varies depending on the stage of the proceeding.

Support & custody

Property & living arrangements

Attorney fees and costs

Domestic violence

Conduct Discovery

Begin by asking your spouse for all relevant info, then evaluate the need for formal discovery including depositions, interrogatories, requests for admissions, and others.

Obtain a Hearing

Attend Settlement Conferences

Identify all unresolved issues and attempt a resolution

Prepare Evidence for Trial

Complex evidence rules dictate how you will present your case.

Attend Trial

Complete the Steps Required Documents for a Valid Judgment

Outlines

admin — Sat, 18 Dec 2010 13:05:22 +0000

All outlines are for educational purposes only.

Corporate Taxation

admin — Sat, 18 Dec 2010 12:51:01 +0000

CORPORATE TAXATION 2010
Formation of Corporation
- intro
  - 351
    - SH do not recognize gain or loss on transfer of prop controlled (80) corp.
      - new & old corps
- requirements
  - one+ persons (indviduals corps, parts, etc) must transfer property to a corp;
    - property - $, inventory, accounts receivable, patents, goodwill & industrial know-how
  - the prop must be trasferred solely in exchange for stock of the transferee corp; and
    - stock – not debt, not non-qualified preferred stock
  - transferors must control;
    - 80% of total combined voting power of all classes of stock entitled to vote and a least 80% of each class of nonvoting stock
  - immediately after exchange
    - no binding agreements that cause SH to lose control
- Stock for services
  - OI on exchange of stock for services
  - if transfer services and prop
    - entire stock count toward control
- Basis
  - exchanged basis
  - if more than one group of stock, basis allocated by proportionally by FMV
  - Prop transferred with built in loss
    - limited to FMV
    - if more than one prop transferred losses are netted with gains
    - corp may elect to reduce SH basis in stock to amnt of loss
      - allows corp to keep the basis higher than FMV
  - SH basis
    - formula:
      - transferor’s basis in property transferred minus;
      - amount of cash and FMV of boot; plus
      - gain recognized by transferor;
      - if more than one kind of stock
        
        basis allocated in propertion to FMV of each class
    - basis of boot received
      - FMV
  - Corp’s Basis
    - if the transferor recognizes gain b/c of the receipt of boot, the corps basis in the prop received is the transferor’s basis plus any gain recognized.
- Holding Period
  - tacked
- Boot
  - boot
    - property other than stock
    - transferor’s realized gain is recognized to the extent of the FMV of boot received
    - gain triggered by receipt of boot results in increase to the SH basis in the stock received and the C’s basis in the transferred prop.
      - Eg, SH transfer FMV 50 & basis 10; for 40 shares and $10.
        
        Gain is 40 but only $10 (the boot) realized
      - Eg, SH transfer FMV 50 & basis 10; for 5 shares and 45.
        
        Recognized gain is limited to 40, even though boot was 45
    - multiple properties transferred and boot received
      - boot allocated among transferred assets in proportion to their relative FMV
        
        eg, SH transfer 30 basis 5 & 20 basis 5; for 40 stock and 10 boot
        
        boot split 6 | 4
- Assumption of Liabilities
  - transferor relieved of liability reduces basis of stock received by amnt of relief
    - eg, SH transfers basis 20, FMV 60, debt (10), in exchange for 50 stock
      - SH basis in stock is 10
  - Liabilities in Excess of Basis
    - sum of liabilities received by C exceed aggregate adjusted basis of props transferred by SH
      - excess is treated as gain from sale or exchange of prop
        
        eg, SH transfer basis 30, FMV 100, debt (55); for stock 45
        
        SH must recognize 25 gain
        
        prevents negative basis
Nonliquidating Distributions
- Analysis
  - the amnt of distribution;
  - how much of that is a dividend;
  - the tax treatment of these amnts; and
  - whether the dividend is qualified and thus entitled to long cap gains
- Amount of Distinction
  - cash received by SH + FMV of any other prop; minus
  - liabilies assumed by SH
- Amount of Dividend
  - Dividend to the extent it is made out of EP for the tax year of distribution; or
  - if current EP are insufficient, out of EP accuumlated yb the corp
- Tax Treatment of Distributions
  - Dividend – included in GI
  - Non-dividend b/c exceeds EP
    - tax-free return of capital and reduced SH basis in stock;
    - in excess of basis is treated as gain from sale
      - capital gain – 15%
  - eg, C has 5 EP. Distributes 12 to SH who has basis in stock of 6
    - 5 dividend, basis 0, gain 1
- Property Distributions
  - Appreciated Property
    - Corp recognizes gain on nonliquidatind distributions of appreciated property in an amount equal to the difference between the FMV of the proeprty and its adjusted basis.
      - Eg, C distributes 10basis & 30FMV
        
        C recognizes 20gain. Increase EP 20
      - if property is subject to a liability, FMV of distributed property is treated as not less than the amnt of liability
        
        paying gain up to the loan
  - Loss Property
    - C may not recognize loss on the distribution of property with an adjusted basis that exceeds FMV.
      - Eg, C 30basis 10fmv to SH.
        
        No loss. C should have sold the property for a loss
Stock Redemption and Partial Liquidations
- overview
  - repurchase of stock.
  - Dividend or sale?
    - Lower equity interest – sale
  - Taxed as dividends under 301 unless qualifies as an exchange under one of four tests in 302b.
    - Reduction in interest; and
    - contraction of biz activities
  - Corp recognizes gain but not loss
  - Exchange used to be preferred because taxed lower than dividend
- Constructive Owndership of Stock (Family Attribution)
  - individual is treates as owning stock owned by:
    - spouse
    - children
    - grandchildren
    - *NO bro/sis
    - *only attributed once
  - From Corporations
    - stock owned by C is owned proportionately by a SH who owns actually or contructively 50% or more in the value of C’s stock
  - To Corporations
    - All stock owned by SH who actually and constructiviely owns 60% or more of C stock is attributed to the corp
      - eg, SH owns 60% of C. SH owns 100 shares of Y.
        
        C owns 100 shares of Y
- Redemption Treated as Exchange
  - Substantially Disproportionate Redemptions
    - requirements
      - Immediately after redemption, SH must own less than 50% of total combined voting power of all classes of stock entitled to vote.;
      - % of voting stock owned by SH must be reduced by 20%;
      - % of common stock (voting or non-voting) owned by SH must be reduced by 20%;
      - attribution rules apply
    - eg, SH owns 60 of 100. Redeems 25. Owns 35 of 75. less than 50% and reduction is less than 80% of SH prior ownership
    - series of redemptions:
      - smtz taken together as one transaction usually finding that there was substantially disproportionate redemption
  - Complete Termination of SH interest
    - Treated as exchange
    - Waiver of Family Attribution
      - complete termination of SH actual interest is treated as exchange even if SH constructively owns stock under 318.
      - requirements
        
        all interest terminated;
        
        10y look forward rule;
        
        SH not acquire stock for 10y (unless bequest)
        
        procedural req – notice to IRS
        
        10y look back rule;
        
        not acquired redeemed stock within 10y of distribution from a person whose stock is attributable under 318; or
        
        attributee received stock from SH;
        
        unless not motivated by tax avoidance
        
        innocent transfers ok
      - waiver of attribution by entities
        
        p192
    - Redemption is not essentially equivalent to a dividend
      - safe-harbor
      - meaningful reduction of SH proportiante interest;
      - facts and circumstances
    - Partial Liquidations
      - Only applies to noncorporate SH
      - partial liquidation
        
        not essentially equivalent to a dividend;
        
        corporate contraction
        
        involuntary events;
        
        change in nature of biz;
        
        reserve for expansion
        
        distribution is pursuant to a plan;
        
        distribution occurs w/i the tax year in which the plan is adopted or the succeeding tax year
      - termination of business safe harbot
        
        termination of biz and engaged in another biz
        
        qualified biz
        
        5y before distribution and not acquired w/i that time
        
        distribution of assets
        
        not a subsidiary
        
        pro rata redemptions
        
        pro rata to SH
        
        no surrender of stock required
- Tax Consequences of Redemptions
  - To SH
    - Redemption treated as Exchange
      - treated as sold to outsider
      - gain or loss
        
        no loss if SH owns (directly or indirectly) more than 50% of the corp stock
      - basis allocation? P 198
    - Redemption treated as 301 distribution
      - dividend to the extent of EP and the balance is a reduction of basis or cap gain.
      - If treated as a dividend basis of redeemed stock is added to basis of any remaining shares held by SH or 318 related
        
        eg, SH owns 100sh with basis50. C distributes 80 in redemption of 40. Distribution was a dividend.
        
        Basis of redemed shares (20) is added to basis of shares retained by SH
    - basis of distributed property
      - if treated as 301 distribution and SH receives property
        
        basis in prop is FMV of prop
  - To Corp
    - Recognition of gain or Loss
      - corp recognizes gain on distribution of appreciated property in redemption;
      - but not loss on prop that has declined in value – 311a,b
- Redemptions through Use of Related Corps
  - Overview
    - 304 prevenst SH from selling stock of one corp to another related corp in order to withdraw earnings while treating the transaction as a sale rather than a dividend.
    - 304 tests for dividend equivalency by applying 302 to determine
      - eg, SH owns all the stock in X & Y (each with lots EP – dividend). SH sells all or part of X to Y.
        
        SH has not reduced ownership in the stock while getting good cap gains rates from the exchange
        
        treated as constructive redemption and tested for equivalency under 302
    - gives another source of EP to reduce the cap gains on the transaction
  - Control
    - 50% of total combined voting power of all classses of stock or at least 50% of total value of all classes of stock.
    - 318 attribution rules apply; except
      - stock may be attributed between a corp and a 5% or more SH (instead of 50%)
  - How to Analyze
    - Does 304 apply
      - sale either a bro-sis or parent-sub;
    - if 304 applies, constructive redemption qualify for exchange treatement under 302b by comparing the SH actual and constructive ownership in the issuing corp’s stock before and after the transaction.
    - If constructive redemption is treated as a 301 distribution, determine the amnt and source of any dividend by looking to the EP of acquiring corp and then to the EP of the issuing corp.
    - Determine the effect on basis and EP
  - Brother-Sis Acquisitions – 304a1
    - Constructive Redemption
      - If one or more persons in control of each of two corps and sell stock of one corp (issuing) to the other (acquiring) in return for property, the prop is treated for purposes of 302 and 303 as a distribution in redemption of the stock of the acquiring corp – 304a1.
    - Tax Consequences
      - constructive redemption is treated as a 301 distribution
        
        amnt and source of dividend is determined by EP of acquiring corp and then EP of issuing corp.
      - Controlling SH is treated as having transferred the stock of the issuing corp to the acquiring corp in exchang efor acquiring corp stock in a tax-free transaction to which 351 applies.
      - Acquiring corp is treated as if it had redeemed the stock it was treated as issuing in the hypo 351 exchange;
      - Acquiring corp takes transferred basis from the SH in the acquired stock
      - SH increase basis in acquiring corps tock by the basis of the issuing corps stock that the SH was treated as having transferred in the deemed 351 exchange
    - Exchange
      - If treated as an exchange
        
        SH recognizes gain or loss measured by the difference between the amnt realized and the adjusted basis in the transferred stock;
        
        SH basis in the stock of the acquiring corp remains unchanged,
        
        acquiring corp takes a 1012 cost basis in the issuing corps stock
    - Examples
      - A & B each own 100X & 100Y represents all available stock;
      - Xep70 Yep40
      - A sells 30Xbasis10 to Y for $100
      - because A is in control of both corps (50%) 304a1 applies
      - Treated as constructive redemption of Y stock
        
        tested for dividend equivalence
        
        before sale A owns 50% after sale owns 42.5%
        
        70 shares actually and 15 constructively (b/c ows 50% of Y)
        
        since % of ownership of X stock after sale is not less than 80%, redemption does not qualify as substantially disproportiante under 302b2
      - Since 302b1 does not apply, the entire 100 is a dividend
        
        (if 302b1 would have applied then would be treated as a sale. 90 cap gain & Y takes 100 cost basis in 30 shares of X stock)
        
        40 from Y’s EP; and
        
        60 from X’s EP
      - A is treated as having transferred 30 shares of X corp to Y corp in echange for stock of equivalent value in a tax-free 351 exchange
      - Y is treaetd as if it redeemed the Y corp shares that it issued in that hypothetical transaction.
      - Y corp takes a 10 transferred basis in the 30 shares
      - A adds 100 to the basis of his Y stock
      - other examples p207
  - Parent-Sub Acquisitions – 304a2
    - Overview
      - If a sub acquires stock of parent (issuing) from SH in return for property;
      - property treated as a distribution in redemption of the issuing corps stock – 304a2;
      - constructive redemption is tested for dividend equivalency by reference to the stock of the aprent
      - 50% control test – 304c
    - Tax Consequences
      - If treated as a 301 distribution
        
        dividend is determined by EP of acquiring corp and then EP of issuing corp
        
        basis is treated the same as bro-sis acquisitions
        
        sub takes cost basisi of the stock of par
      - If contructive redemption is treated as a sale or exchange
        
        SH recognizes gain or loss under normal tax principles;
        
        sub takes a cost basis in par stock
    - Examples Par-Sub
      - A owns 60 of 100 shares of X
      - X owns 80 of 100 shares of Y – controling Y
      - A sells 20Xbasis20 to Y for $80
      - Transaction is treated by 304a2 as a distribution in redemption of X
        
        before the sale A owns 60% of X
        
        after the sale
        
        A owns 40 shares actually and 6.4 constructively
        
        80% of the 20 shares of X owned by Y (16) attributed to X; and
        
        40% of those 16 shares (6.4) are reattributed to A.
        
        total 46.4%
        
        reduction of 60% to 46.4% qualfies as substantially disproportionate under 302b2.
        
        A thus recognizes 60 cap and Y takes 80 cost basis.
- 304 with 351
  - 351 does not apply to any property received in a 304 distribution
- 304 and partial liquidations
  - 304 also qualifies as a partial liquidation under 302b4.
    - Eg, contraction of biz
Stock Distributions – 306
- overview
  - corp distributes its own stock to its SH;
  - stock dividend is generally not taxable if it does not increase SH proportinate ownership interest in the Corp
  - if distribution increases the interest of some SH or some SH receive property while others increase their proportionate interests
    - usually taxable
- Nontaxable Stock Distributions
  - generally not taxable unless exception in 305b
  - allocation of basis
    - if new stock not taxable
      - SH basis in old stock is allocated between new and old in proportion to FMV of each at date of distribution
        
        eg, A owns 100 shares basis of 12k.
        
        2-for-1 split A receives 100 more
        
        basis is now 60 in new 60 in old
        
        eg, same but A has common stock worth 75k & gets 25 perferred shares with value of 25k
        
        12k basis allocated 75% to common and 25% to preferred
  - holding period
    - old tacked to new
  - consequences to Corp
    - recognize no gain or loss on nontax stock distributions
- Taxable Stock Distributions
  - election of stock or property
    - the availability to take prop or stock makes it taxable – 305b1
    - treated as 301 distribution
      - dividends to the extent of EP
  - disproportionate distributions
    - some SH receive prop while others get stock
      - those who get stock are taxed on the value of the increased interest.
- Not covering 225-236
Complete Liquidation
- overview
  - corp distributes all of its assets or the proceeds of their sale, subject to any liabilities to SH in exchange for all their stock. Corp then disolves
- Complete Liquidations under 331
  - consequences to the SH
    - Recognition of Gain or Loss
      - treated as full paymen tin exchange for SH stock
      - difference between amount realized and SH basis in stock is gain or loss.
        
        FMV – liabilities
      - different blocks of stock
        
        amount received is pro-rata to the value of the different blocks
        
        then gain is calculated separately for the blocks
    - basis of distributed property
      - FMV
  - consequences to the Corp
    - corp recognizes gain or loss as if it had sold the prop for FMV
      - if property is subject to a liability then FMV is treated as not less than that liability
      - gains and losses treated separately
    - when loss is not recognized
      - related person (owns directly or indirectly more than 50% in the value of the corps outstanding stock; or
      - distribution of loss property is not pro rata in propotion ot ostock ownership; or
      - disqualified properties
        
        acquired by liquidating corp in a 351 trnasaction or as contribution to cap during the 5 y period ending on date of distribution
- Liquidation of a Sub
  - overview
    - change in form
    - neither parent SH nor liquidating sub recognize gain or loss
  - consequences to the SH
    - parent corp does not recognize gain on receipt of distribution in complete liquidation of a sub if the following requriements are met 332b:
      - cancellation of stock pursuant to plan
        
        sub distributes prop to par in complete cancellation or redemption of its stock – liquidates
      - contol
        
        par owns 80%+ total voting power 80% of total value of all outstanding stock of the sub. Nonvoting stock ignored
      - distribution must occur w/i one tax year
  - basis and holding period
    - transferred basis and tacked holding period
  - treatment of minority SH
    - SH recognize gain or loss & take a fair market value basis in any distribute prop
  - Consequences to Liquidating Sub
    - distributions to Par
      - no gain or loss
    - distributions to Minority SH
      - recognize gain but not loss
Tax-Free Reorgs
- Overview
  - change in ownership structure
  - tax free to corp and SH
  - readjustment
  - deferred gain & loss
  - statutory and judicial requirements
- Types
  - Acquisitive
  - Noncquisitive, nondivisive
  - divisive
- Judicial Requirements
  - Continuity of SH proprietary interest
    - substantial part of the proprietary interest in T preserved through an equity interest in P
      - P must acquire T by using P stock as consideration
  - Continuity of Biz Enterprise
    - P must continue T’s biz or use T’s asets in biz.
  - Biz Purpose
    - motivated by biz purpose
Acquisitive Reorgs
- Type A (statutory merger or consolidation
  - Continuity of SH proprietary Interest Requirement
    - requires that at least 50% of the consideration paid by P must consist of P stock (common or preferred)
      - Some T shareholders can receive only prop or debt as long as group maintains continuity of interest.
    - Eg, T merger into P, T SH receive 50% cash & 50% prop – good
  - Postacquisition continuity
    - T SH who receive P in exchange for the A reorg
      - SH can later sell the P stock even if binding agreement
  - Preacquisition continuity by Historic T SH
    - probably not important
- Type B Reorgs (Stock for Stock)
  - overview
    - P acquires T stock soley in exchange for P voting stock (or P’s parent)
    - P must be in control of T immediately after
      - control is 80% or more of T voting power and 80% or more of the total shares of each class of T’s nonvoting stock 368c
    - T remains alive as a sub of P
    - eg, P transfers voting stock to Ts SH in exchange for 90% T stock – good
  - solely for voting stock
  - creeping acquisitions
    - P must be in control of 80%
      - smtz P already has some T stock that it bought for cash
        
        if that T stock is old and cold then counts toward the 80%
- Type C Reorg (stock for assets)
  - overview
    - P acquires substantially all of Ts assets solely in exchange for P voting stock (or Ps parents)
    - T does not disolve but later liquidates
    - T transfers everything from P to Ts SH
  - substantially all of the properties
    - 90% of net or 70% of gross
      - eg, T has 100 assets and 20 liabilites;
        
        70% of 100 or 90% of 80
  - boot relaxation
    - P must acquire at least 80% of the FMV of all Ts assets soley for voting stock
      - Ts liabilities are treated as cash consideration
      - eg, T has 100 assets
        
        P acquires Ts assets for 80 P stock and 20 Cash – good
  - Creeping Acquisitions
    - prior stock acquisition by P of T (even for cash) is not considered
      - then not applied to boot relaxation rule
        
        eg, already own 60% of T stock. Then P gets Ts assets using 80% stock – good
- Forward triangular Mergers
  - overview
    - P wants T assets
    - P forms new S, by transger P stock for S stock in an exchange under 351
    - T is merged into S
    - T SH receive P stock
    - Ts assets and liabilities are transferred to S
    - P still owns S (now all of Ts assets)
  - requirements
    - S must acquire substantially all of propeties of T
      - same reqirement as Type C
    - No stock of S may be used as consideration in the merger
    - Transaction must have qualified as a Type A reorg if T had merged directly into P.
      - judicial continuity of interest
        
        P must acquire T using at least 50% of P stock
    - eg, T merge with S. T SH receive 100P and $100 – good
- Reverse Triangular Mergers
  - overview
    - P forms S, by transferring P voting stock and other consideration for S stock in a tax free 351
    - S merges into T
    - T shareholder reveive P voting stock and other consideration
    - P exchange its S stock for T stock
    - S disappears
    - T is a wholly owned sub of P
    - simmilar to a Type B
  - qualification requirements
    - T must hold substantially all of its properties and properties of S (other than the stock of P distrributed in the transaction and any boot used by S to acquire shares of minoirty SH)
    - P must acquire 80% control of T in exchange for P voting stock. Remaining 20% can be by cash or boot. Old T stock owned by P cannot be used.
    - Eg, S has P voting stock and cash. Powns no T. S merges into T. T SH woning 90% of T stock receive P voting stock and the other 10% SH of T get cash. – good
- Consequence to T SH
  - recognition of gain or loss
    - no gain or loss in exchange of T stock for P stock
      - except to the extent of boot reveived.
  - Character of gain
    - dividend to SH ratable EP
      - determine if dividend under 302
      - 318 attribution applies
      - eg, page 311
- consequences to T
  - T does not recognize gain when it distributes P stock or debt obligations received by T in the reorg.
  - T recognizes gain on boot received and then transferred to T SH as if T had sold the property
- consequences to P
  - if P transfers boot property, it recognizes gain or loss under general tax principles
- Failed Reorgs
  - taxable acquisition of Ts assets or stock
  - T recognizes gain or loss on the transfer of its assets
  - T SH are treated as receiving a distribution in complete liquidation under 331
  - P obtains a cost basis in Ts asets
Corporate Divisions
- overview
  - Corp is divided into two or more separate corps that remain under the same ownership
  - distribution to SH stok of controlled sub
  - fi jud and stat req met, tax free
- Spin-Offs
  - Pro rata distribution of S stock by P to SH.
  - S may be preexisting sub or a corp formed immediately before
  - dimilar to dividend
- Split-Offs
  - non pro rata distribution of S stock by P to SH in exchange for all or part of their P stock
  - similar to redemption
- Split-Ups
  - P divides into S1 and S2;
  - distributes S1 and S2, either pro rata or non to SH
  - complete liquidation
- Summary of Requirements
  - P must control S immediately before distribution
    - 80% of S voting power & 80% of each class of outstanding nonvoting stock
  - P must distribute either all of the S sock held by P immediately before the distribution or distribute an amount of stock representing control of S
  - After P & S must be enganged in the active conduce of trade or business.
  - Each postdistribution trade or biz must have been actively conducted troughout the 5y period preceding the distribution, must not have been acquired during that period in a taxable transaction, and must not have been conducted by a corp the control of which was acquired by P or any corporate distributee SH of P, in a taxable transaction during 5y pre-distribution period
  - Ps distribution of S stock must not have been used principally as a dividce for the distribution of EP of P or S or both
  - Bona fide corporate biz purpose
  - SH of P prior to distribution must maintian sufficent continuity of proprietary int in both P and S followin distribution
- Quit

Formation of a Corporation – 351
- transfer to new or 80% control
- Requirements
  - Property
  - Transfer
  - Solely in Exchange for Stock
  - Control
    - 80% voting & 80% non-voting
  - Immediately after
    - no binding agreement transfers
- Stock for services
  - OI
  - Stock & services
    - all count to control
- Basis
  - exchanged
    - if more than one stock, allocated in propo FMV of stock classes
  - If trans prop with loss
    - limit to FMV
    - corp may elect to reduce SH basis
- Boot
  - gain on FMV
  - allocated among tranferred assets to determine gain
    - ie, one cap & one OI
  - basis in boot FMV
  - tacked holding period
- Liabilities
  - if liabilities assumed > aggregate adjusted basis of all prop transferred
    - excess is gain from sale
Non-Liquidating Distributions – 301
- amnt of distribution
  - cash or prop minus debt
- dividend to extent made out of EP – GI
  - rest is return of basis then gain from sale
- corp recognize gain on prop distributed
- SH basis
  - FMV
Stock Redemptions & Partial Liquidations – 302
- Constructive ownership – 318
- Treated as 301 distribution unless:
  - SH (att) now owns less 50%;
  - reduced 20%
Complete Termination of SH interest
- exchange
- waiver of 318 attribution
- must meet:
  - no interest
  - no interest w/i 10y from dist
  - no portion acquired from 318 person before distribution
- redemptions Not Essentially Equivalent to Dividend
- Partial Liquidations
- If redemption qualify for exchange
  - treated as sold to outsider
- if not qualify for exchange
  - 301 distributions
- Corp recognizes gain on distribution
Redemptions Through Related Corps – 304
- Brother-Sis
  - Person(s) in control of two corps sell stock of one corp to the other.
  - Property treated as distribution in redemtption of the acquiring corps stock and is tested for dividend equivalence under 302
    - reference to the stock of the issuing corp
  - If constructive redemption is not treated as exchange
    - dividend to the extent of EP of both Corps
- Parent-sub
  - Sub acquires stock of its parent from SH
  - treated as distributed in redemption of parent’s stock
  - tested for dividend equivalency by reference to that stock
  - If redemption is not treated as exchange,
    - dividend to the extent of EP of issuing and acquiring
Complete Liquidations and Taxable Corp Acquisitions
- treated as sale of stock
- basis in prop acquired is FMV
Liquidation of a Subsidiary
- 80% owned by Parent
- No gain if
  - S distributes assets to P and liquidates completely
  - Time limits
- can redeme to get to 80% and then liquidate
- Transferred basis
- Minority SH recognize gain/loss
Tax-Free Reorganization = 368
- tax treatment
  - T’s SH
    - no gain or loss on exchange of T stock for P stock (or securities for securities)
    - boot must be recognized
      - tested under 302 to determine if boot is an exchange
        
        if not, dividend to EP and reduce basis and gain
  - T
    - No gain on transfer of asets to P pursuant to a reorg plan
    - No gain when distributes P stock to T SH;
    - maybe gain on distribution of appreciated T assets not acquired in reorg or appreciated boot
- TYPE A (Statutory)
  - 50% of consideration paid by P to acquire T must consist of P stock
- TYPE B (stock-for-stock)
  - T stock solely in exchang efor P voting stock
  - P has control 80% after
  - No boot for the 80%
  - old & cold stock ok for cash to 80%
- TYPE C
  - P acquires substantially all Ts assets solely in exchange for P voting stock followed by liquidation of T
    - P’s assumption of liabilities not considered
  - Must acquire at least 80% of assets with voting stock
    - here liabilities assumed by P are treated as cash consideration
  - Old and cold count toward 80% and do not count as “cash consideration” for boot relaxation
- Forward triangular Merger
  - T into a S of P
    - reqs
      - S acquires substantially all of properties of T;
      - No stock of S is used as consideration;
      - transaction qould have qualified as a Type A reorg if T had merged into P
        
        ie, T SH collectively must receive at least 50% of P stock in the merger
- Reverse Triangular Merger
  - Merger of S into T
    - reqs
      - After the merger T holds substantially all of its properties and the properties of S (other than P stock and boot distributed to T SH);
      - In the merger P acquires control (80%) of T in exchange for P voting stock.
Corporate Divisions
- Types’
  - Spin-Off
    - similar to dividend
    - pro rata distribution of S stock by P to its SH
  - Split-OFF
    - similar to a redemption
    - distribution of S stock by P to some of its SH in exchange for all or part of their P stock
  - Split-Up
    - similar to complete liquidation
    - liquidating distribution by P of stock in to or more subsidiaries
  - Type D
- requirements
  - P controls S immediately before ddistribution – 80%;
  - P either distributes all of Ss stock or distributes control and establishes that the retention of stock or securities is not motivated by tax avoidance;
  - After P & S must be enganged in the active conduce of trade or business.
  - Each postdistribution trade or biz must have been actively conducted troughout the 5y period preceding the distribution, must not have been acquired during that period in a taxable transaction, and must not have been conducted by a corp the control of which was acquired by P or any corporate distributee SH of P, in a taxable transaction during 5y pre-distribution period
  - Ps distribution of S stock must not have been used principally as a dividce for the distribution of EP of P or S or both
  - Bona fide corporate biz purpose
  - SH of P prior to distribution must maintian sufficent continuity of proprietary int in both P and S followin distribution
- Active Trade or Biz
  - trade or biz is a specific group of activities carried on with a profit motive
- Active Conduct
  - requires performance of acttive and substantial management and operational functions – not passive
- Divisions of a single Integrated biz
- 5y Biz History
  - the active post-distribution trade or biz must have been actively conducted throughout the 5-year period preceding the distibution and may not have been acquired by P or a distributee corp in a taxable transaction during that period. If P expands a preexisting trade or biz during the 5y period, the new branches or locations are considered part of that older biz
- Disposition of Recently acquired Biz
  - Ps distribution of S stock will fail the active biz test if a controlling interest in P was acquired by a corporate SH within the 5y preceding the distribution
- Device limitation
- p 43

Taxation of Property Transactions

admin — Sat, 18 Dec 2010 12:49:11 +0000

Taxation of Property Transactions 2010
Gifts
- Exclusion
- transferred basis
Discharge of Indebtedness
- Concellation of indebtedness income
  - treated as receiving cash equal to the debt
- Nonrecourse v Recourse
- Insolvency Exception
  - 108
    - cancelation of debt is excluded if discharge occurs in bankruptcy or T is insolvent
      - total liabilities – total assets
    - exceptions to exclusion
      - original seller reduces debt on property
    - Qualified Real Property Biz Indebtedness
      - Must be used in ToB
      - exclusion available only when loan > FMV
Transfers During Marriage of Pursuant to Divorce
- 1041a
  - no gain or loss b/t spouses or former spouses incident to divorce
    - incident to divorce
      - transfer w/i 1y or related to divorce
Exclusion from Gain from Sale of Principal Residence
- Exclusion of 500k (250k if not joint) of gain
- Ownership
  - applies if owned by trust
  - 2 of 5 years
  - if spouse died apply dead spouse time
- Use
  - used as principal resident 2 of 5 y
    - separate from ownership
  - gain on deprecation from biz use not applied
- Once per 2 year limitation
  - T cannot use more than once every 2 y; unless
    - sale for employment, health, etc
      - exclusion is only allowed to the lesser of the following:
        
        time since prior sale/2y; or
        
        time of own & use for 2^nd home/2
Ordinary and Necessary Biz Deductions
- defn of Ordinary & Nec
  - customary in biz
  - related to income production
- difference between deductions and capital biz subject to depreciation
  - O&N – used to repair to keep in working condition
  - Cap – Prop used to create other property
Capital Expenditures
- 263
  - new buildings and perm improvements made to increase the value
Home Office
- deductions – 280A
  - part used “exclusively and on a regular basis as one of the following
    - T’s principlal place of biz;
    - Meet or deal with customers in normal course of biz;
    - if a separate structure not attached to residence;
      - in connection with T’s biz
    - If ee – for conviencence of er
Deductions
- Type of property
  - used in trade or biz; or
  - held for the production of income; and
  - subject to wear and tear
- Lease-backs
  - As long as the lessor retains significant and genuine attributes of the traditional lessor status, the form of th etransaction adopted by the aprites governs.
- Intangibles
  - allowed deduction
    - types
      - goodwill, information based assets, licenses, trademarks, etc
    - straight line
    - 15y
- tangible Property
  - ACRS
  - half-year
  - residential rental & nonresidential real
    - mid-month
  - mid-quarter if 40% placed in servie during last 3m
  - straight-line
  - bonus depreciation?
Installment Sales
- Exception to gain recognition
  - 453
    - recognized on proportionate basis as payments are received unless T ellects out
    - loss reported in full in year of dispossession
    - gross profit ratio
      - (Amount realized – basis)/(selling price – mortgage)
      - report GPR * payment received that year as income
NonRecognition Transactions
- Overview
  - Purpose
    - defer gain
  - Attributes
    - basis, holding period, depreciation and recapture that attached to proeprty sold or exchanged will attach themsleves to the asset received
- 1031 Like Kind Exchanges
  - Exchangable Property
    - Held for Productive Use in Trade or Biz or Investment
      - exempt – stocks, securities, partnership ints, beneficial ints, choses in action.
      - Allowed – leases & patents & copyrights
  - Use of Intermediary
    - T & S will transfer prop to E. E will sell T’s prop and give cash to S and then give S’s prop to T
      - T cannot have constructive receipt of cash other than like-property
        
        right to receive, pledge, borrow or obtain benefits
        
        results in tax
    - T must ID like property 45 days after transfer; and
    - Exchange must be completed w/i 180 days of transfer of T’s prop to 3^rd party
  - Holding Period
    - tacked
  - Depreciation
    - amnt is transferred
    - method of new prop controls
  - Boot
    - recognition of Gain (not Loss)
      - recognize boot to the extent of gain
        
        if boot > gain,
        
        pay up to the gain amnt
    - increased basis
      - increase basis by the amount of gain “recognized” – payed tax on
    - Boot in transfers with a built in loss
      - basis in prop is reduced by the boot received
    - Debts on property
      - netted against each other
      - if T gives away more debt
        
        excess debt is boot
    - If T is paying the boot
      - basis is increased by amnt of boot paid
      - if paying boot prop – taxed on gain of appreciated boot property and
      - then FMV of boot property is added to the exchanged prop
- 1033 Involuntary Conversions
  - overview
    - T lose property, gets ins money and buys similar prop
      - not taxed
  - reqirements
    - property be compulsorily or involuntarily converted “as a result of its destruction in whole ore in part, theft, seizure, or requisiition or condemnation or threat or imminence thereof;
      - not voluntary
    - repacement occurs w.i 2 y of the close of the taax year of the conversion; and
      - purchased 80% stock of corp allowed
    - the repacement consist of property that is “similar or related in service or use.”
      - used for the same purpose
  - Gain Recognition & Basis
    - Any proceeds not reinvested in qualifying property is treated as boot
      - basis of converted prop
        
        decreased by money received and not expended for new property; and
        
        increased by the amnt of gain recognized
    - basis of acquired property is same
- Application of 1033 with 121
  - T does not want to use 500k primary residence exclusion on the destroyed property ]
    - perhaps using it on a property destroyed with more built in gain
Capital gains
- Individual limitation on cap losses
  - cap losses for individuals limited to cap gains plus 3k each year against OI
  - Cap Asset Requirements
    - held more than 1y
    - Not the following:
      - Inventory or prop held primarily for sale to cust
      - Depreciable property (including real estaet) used in a ToB
      - Copyrights;
      - Accounts receiable;
      - *important to determine if cap asset in business because want to net losses against cap or OI
  - Carry Back and Forward
    - Nex cap losses may carry back 3 years;
    - net capital losses of corps may be carried forward for 5 y
    - individuals may carry forward net cap losses w/o limitation
- Recapture
  - Recapture of depreciation on sale is OI
  - 1031 – first depreciation, then cap
  - installment sales
    - gain recaptured in year of sale
Passive Activity Loss
- overview
  - losses from tax shelters can only be deducted against income from other tx shelters. But tax shelter losses (in the aggregate) cannot be deducted against any oother kind of income.
    - Losses are carried forward to other passive activity losses

ERISA

admin — Sat, 18 Dec 2010 12:45:54 +0000

ERISA
Stat Structure
- title 1, 4 titles
  - Part 1 – stat report and discl req for all ee bene plans
  - Part 2 & 3 – min partic, vest, bene accrual and funding rules for pension plans
  - Part 4 – fid rules
  - Part 5 – enforce through civil lit & preemption
  - 6&7 – health care plan rules
- title III
  - DOL & DOT author to enforce I & II
    - DOL – jur over reporting & discl, fid (transact), and Title I
      - performed by the Ee Bene Security Adm (EBSA) – part of DOL
    - DOT – pension plans & independent Code
Welfare Plans
- Provide bene to ee: health, accident, disable, death, unee,
  - sometimes severance: welfare if not contingent on ee’s retirement, payments not exceed 2x annual salary of ee, and pyemnts less than 2y after retire
    - otherwise pension
Non-ERISA
- Gov
- church
- plans solely comply with work comp, unee, or disab laws
- maintained outside US primarily for bene of nonres aliens
- unfunded excess bene plans
- participants only the part of a partnership
- solos (W)
Payroll Practices
- excluded from ERISA
- paying out of er’s general assets for ee who are sick from work, vacation, jury, mil, ed sabbatical
- recreational, dining, first-aid, gifts, discounts, ed,
  - from general assets
Multiemployer plans
- plans for union members under Taft-Hartley.
- Board of trustees comprised of equal numb of reps from management and labor
Multiple ER plans
- mult Ers MEWA
What is a Plan?
- Dillingham
  - Issue: Whether a plan exists
  - Held: Yes
  - 1. plan, fund, or program
    - intended bene, beneficiaries, source of financing, and procedure to apply and collect
  - 2, established or maintained
    - writing (not req for existence but required by fid)
    - other factors considered
      - financing
      - procedure for disbursment,
      - assurances to ees that plan exists
  - 3. by er or ee org or both
  - 4. for the purpose of providing
    - medical, surgical, hospital, sickness, accident, disab, death, unee, vacation, ed, day care, choloarship, legal serv, severance
  - 5. to participants or their benes
  - (6) in addition to 5 factors, must be more than one time (severance)
  - Reasonable per can ascertain the intended bene, a class of beneficiaries, the source of financing, and proceddures for receiving benes.
    - Eg, probationary period – no reas expectation
  - Covered:
    - union members, ee org, ees, former ees, their benes
      - NOT individual ees or entrepreneurial biz
- Musmeci v Schwegmann Super Markets
  - Issue: whether a voucher program to provide groceries to retierees is a “pension” plan
  - Held: Pension plan. Purpose to provide income at retirement. Not an exempt ee discount program.
Who is an Employee
- Nat Mut Ins v. Darden
  - Whether an insurance agent was an EE or an ind contractor?
  - Test for EE
    - Hiring party’s right to control the manner and means by which the product is accomplished.
    - Skill required
    - source of instrumentalities and tools
    - location of work
    - method of payment
    - hired party’s role in hiring and paying assistants
    - whither the work is part of the regular biz of the hiring party
    - whehter the hiring party is in biz
    - provision of ee bene
    - tax treatment of hired party
Participant
- ee in, or reas expected to be in, currently covered employment
- former ee w/ reas expectation of returning to covered ee or who have a colorable claim to vested bene.
  - Colorable claim – will prevail in a suit for bene or eligibility req will be fulfilled in future
Working owner
- non-ee if solo or with W.
- ee if plan covers one other ee
Waiver to particpate in plan
- knowing and vol
Writing of Plan
- requirements of the writing
  - written instrument that provides for one or more named fids
    - can name a committee, other
  - provide procedure for establishing and carrying out funding policy
  - describe the procedure for allocating and delegating fid responsibilities for the management and admin of the plan
  - describe the procedure for amending the plan, including the ID of the person(s) who have autho to amend plan
    - Curtiss-Wright v. Schoonejongen
      - “co reserves right at any time to mod or amend any or all provisions of Plan”
        
        valid description of procedure
  - specify the basis on which payments are mand to and from the plan
- optional inclusions in writing (not required)
  - allows person(s) to serve in more than one fid capacity
  - fid may employ advisors to assist the fid
  - authorized appointment by fid of investment manager
- may include more than one doc
Reporting Requirements
- fid requirement
  - if SPD or SMM inaccurate, incomplete or misleading, a plan participant may allege that the plan and its admin are estopped from denying a claim bene, or that the plan admin has breached the fid duty to inform plan participants concerning their plan bene
- Part 1, Title 1
  - sum plan discrip
    - may need to be in Spanish
    - eligibility req
    - descr of bene
    - circs that may dq
    - collective brgaining provisions
    - procedures for filing a claim for bene & appeals
    - names & addresses of fids & service of process
    - DOL office address
    - every 5^th year
    - w/i 120 days after effective or 90 of someone new coming in
  - sum of mat mods made to plan
  - annual report
    - exemption:
      - one-participant retirement plans having less than 250k in assets; or
      - fewer than 25 participants – simplified annual report
      - if more than 100 ee, must be audited
    - penalty exemption if not receive notice of deliquency for failure to file
  - sum annual report
  - periodic benefit statement
  - advanced notice of a blackout period
  - other specific info, if reqested by a plan participant or Sec of Lab
    - plan admin to furnish to any participant of Sec of Lab who makes a written reqest the latest updated SPD, an report, any perminal report, bargaining agreement, trust agreement, contract, or other instruments under which the plan is established or operated.
      - 30 days to furnish
      - 100$/day per participant who requested.
        
        Claim for civil penalties (Glocker)
        
        prejudice is only a factor for imposing
        
        bad faith not required but considered
      - 1k to the DOL if no response w/i 30 days
- Table on p63
- Criminal sanctions
  - willful violation of reporting and disc req is subject to potential sanctions for an individual up to 100k and 10y jail
Estopple Claims
- creates an enforcement obligation in the plan
- reqs
  - Misrep of mat fact;
  - Reas reliance on misrep; and
  - Detriment to the individual from reliance
Medicare
- 65+ or disable
- second payer if covered under other ins
Insured & Self-Insured
- Self-Insured (funded)
  - provide health bene to plan participants from a fund comprised of ee or er contributions or both or out of the general assets of the er.
- ERISA preemption: supersed any and all State laws that relate to any ee bene plans 514a
  - exception
    - Insurance Saving Clause: nothing shall be construed to exempt or relieve any person from any law of any state which regulates ins, banking, or securities.
      - Exception to ISC
        
        deemer clause: no ee bene plan (exceptions) shall be deemed to be an ins co or other insurer, bank, trust co, invst co or be engaged in biz of ins or banking for the purposes of any regulating state law.
        
        Eg, ee is not an ins co.
        
        basically, state cannot regulate self-funded plans
  - Met Life v Mass
    - Issue: Is state law mandating mental health bene preempted by ERISA’
    - Held: Law regulates ins, falls w/i ERISA preemption. ER purchased ins, the ins co must follow the state law regulating it. Deemer clause does not apply b/c ER purchased ins and was not self- ins
  - FMC v. Holliday
    - Whether a self-funded ee bene plan must follow state ins law
    - Held: Self-funded ERISA plans are exempt from state regs insofar as that reg “relates to” the plan
      - basically, ee plans are not insurance, thus not saved by the savings clause that allows states to continue regulating ins.
        
        If a plan is insured, State may regulate it indirectly through reg of its ins and ins’s insurance contracts
        
        If the plan is unins, State may not regulate it;
        
        unless MEWA & uninsured
  - Am Med Security v. Bartlett
    - Self-funded ee bene plan purchased stop-loss coverage from ins co
      - stop-loss: protects the plan for claims that exceed an “attachment point”
        
        lowers risk of the self-funded plan
    - Issue: whether state law can regulate self-funded plans with stop-loss ins?
    - Held: Stop-loss cannot be regulated by the state. State law relates to (connection with) ee plan, law falls under “savings” clause but violates “deemer”
- MEWA (Multiple ER Plans)
  - if MEWA benes are fully ins, the MEWA is subject only to state ins laws that govern financial standards, such as the maintenance of financial reserves etc. If MEWA is not fully insured, then MEWA is subject to both the provisions of Title I of ERISA and any applicable state ins laws to the extent such ins laws are not inconsistent with Title I of ERISA.
Cobra
- Overview: requires that a sponsor of group health plan must provide each qualified beneficiary, who otherwis would lose coverage under the plan due to the occurrence of a qualifying event, the opportunity to continue coverage under the plan.
  - Applies to ins & self-funded
- exempt ER plan from COBRA
  - if er maintaining the plan normally employed fewer than 20 ees on a typical biz day during the prior calendar year
    - self-ee & indi contractors not counted as ees
    - part-time ee is counted as a fraction of ee (time the ee works/time required by er to be considered full-time)
- Qualified Beneficiary protected by COBRA
  - ee or er or ee’s spouse or dependant
    - child born/adopt during continuation coverage
- Qualifying Event
  - COBRA continues coverage after the beneficiary would have been denied by the plan
  - table on 325
  - Termination
    - exception
      - ee fired for gross misconduct
        
        criminal act or intentional totious misconduct
    - Includes both getting fired and quitting or other reduction
      - if leave permitted under Fam and Med Leave Act, qualifying event does not occur
  - SS extension
    - if at any time during a period of 18m of CORBRA continuation coverag due to the covered ee’s temination of ee or reduction in hours, a qualified beneficiary becomes eligible to receive disability bene under SS.
      - Max period extended to 29 m for disabled bene
  - divorce
    - can’t get er to take spouse off and then get divorced.
  - Qualifying event occurs when ee informs er
  - multiple qualifying events
    - max of 26m
- Cost of Continuation Coverage
  - max 100% cost of coverage + 2% admin fee
    - ee probably paid a discount rate before
- Penalties of ER non-complyance
  - tax penalty of 110/d per qualified beneficiary for noncompliance period
    - paid to IRS
  - Civil enforcement
    - 502a1a & 502c, fed ct may order admin to pay civil penalty to the Ps of 110/d per qualified bene, for failure to provide notice of COBRA rights.
    - Ps may also ask to award “such other relief as it deems proper” 502c1
- Notification Requirement
  - When covered EE termination, ER must notify the admin of the plan within 30d.
  - Admin then has 14d to notify the qualified beneficiary of her rights to continue coverage, and this period may be longer if the plan is a multiemployer group health plan and it so provides.
  - Notice sent to EE’s last known address
- Election
  - qualified bene may elect continuation w/i 60d of qualifying event or notice of the qualifying event, whichever is later.
OBRA
- Qualified Med Child Support Order
  - requires parent to enroll a dependent child in plan and pay premiums
  - required to accept continuation coverage
- Coverage for adopted children
- Mins for Pediatric vaccines
HIPPA
- Restrictions on Preexisting Condition Coverage Exclusions
  - Group health plan (and insurer) may impose coverage exclusion for preex health only if all 3 criteria satisfied
    - advice, diagnosis, care, or treatment was recommeded or received within 6m endin on participant’s enrollment in plan
    - exclusion does not exceed 12m. 18M if participant fails to enroll in plan when first eligible
    - preexisting condition coverage reduced by aggregate period of the individuals prior creditable coverage.
  - Summary
    - if sought care w/i 6m & enroll w/i 30 days on last job, covered for 7m and then change jobs w/o significant break in coverage, then preexisting coverage exclusion on the ee for 5m.
- Non-discrimination
  - prohibits eligibility to enroll in plan
    - health status
    - med condition (including mental)
    - claims experience
    - receipt of helath care
    - med history
    - genetic information
    - evidence of insurability
    - disability
  - may discr against
    - part-time v full time
    - geographic local
    - different bene schedules for diff collective bargaining
Amending or Teminating plans
- settlor function doctrine
  - ers or other plan soponsors may adopt, mod, or term welfare plans
- McGann v. H&H Music
  - er cuts AIDS benes
  - May discrim in creation, alteration or termination of ee bene plans. But cannot discriminate against the participants themselves
- ADA
  - prohibits discrim against individual with disability in regard to compensation and other tems and conditions of employment, which include ee benefit plans sponsered by er.
  - 15+ ees
  - ers generally can avoid violation if they show proper cost saving analysis reasons for not covering an illness
- Title 7
  - 15+
  - race & sex discrim
    - includes preggo
- Medicare
  - ee plan must be first $ out
    - unless retiree then med is first money out
- Uniformed Services Ee & Reee Rights Act
  - COBRA qualifying event occurs after 31d deployment
  - extends coverage to 24m (or return) after qualifying event
- ADA
  - 20+
Vesting
- Welfare bene vest only if the plan contract provides so
  - must state unequivocally that the er is creating rights that will not expire
  - when silence as to vesting, presumed non-vesting (bubble bursting)
    - Bland v. Fiatallis
      - “lifetime” benes was enough to bust the bubble to create a triable issue wheahter the plan vested
Who is a Fiduciary
- Every plan doc must id at least one named plan fiduciary – 402a
- if plan held in trust, must id at least one trustee 403a
- Functional test
  - does not require kn or intent to become a fid
- 3 main categories of fid functions
  - persons who have discretionary authority over admin and management of the plan
  - persons who have any authority (whether discretionary or not) over the assets of the plan; or
  - persons who render investment advice concerning assets held by the plan for compensation, regardless of whether the compensation is paid out of plan assets and whether the compensation is direct or indirect
- Exceptions to Fiduciary Statuts
  - persons who assist in plan admin or management, but who perform only ministerial functions
  - professionals such as attys, accountants, actuaries, and other consultants who assist in the admin & management of the plan by rendering professional services ordinarily are not considered
  - persons who provide investment ed (as opposed to investment advice for compensation) are not fiduciaries.
  - ER does not act as a plan fiduciary when it performs certan actions known as settlor functions
    - settlor functions: include establishing, designing, terminating, or amending an ee bene plan.
      - Varity v. Howe
        
        CO made misrepresentations to ee and convinced them to leave the plan
        
        CO both ER and plan admin
        
        Issue: was CO acting as fiduciary at the time?
        
        Conveying info about the plan is a fiduciary act
        
        Fid must discharg duties with respect to the plan soley in the int of the participants and beneficiaries.
        
        Decieving to save money is not soley in int of ee
  - HMO acting thru Physician EE making treatment decisions are not fiduciaries
    - Pegram v. Herdrich
      - incentives for Mds to ration care held ok
      - Altho HMO is not fid merely b/c it administers or exercieses discretionary authority over its own biz, it may still be a fid if it admins the plan.
        
        Mixed eligibility decisions are not fiduciary dicisions
Fiduciary Duties
- overview of 404a1a – fid duty
  - duty of loyalty to plan participants (exclusive benefit)
  - duty of prudence
  - duty of diversification of plan assets
  - duty to follow plan terms (to the extent that they’re consitent with ERISA
- Co-fid duties 405
  - liability imposed on one fid (the co-fid) for a breach of fid responsibility by another plan fid if the co-fid:
    - knowingly participates in, or undertakes to conceal, the fiduciary’s breach
    - enables the fiduciary to commit the breach through the co-fid’s own breach of the duty of prudence; or
    - kas kn of the fid’s breach and fails to make reasonable efforts to remedy the fid’s breach
  - Procedure to voluntarily correct
  - Not liable for a breach of fid duty if breach was committed before the person became a fid or after the person ceased to be a fid.
    - (probably the co-fid would have his own breach tho?)
  - Exculpatory clauses relieving fids are void
- Delegation of fid duty
  - plan may direct fid to ID someone for investment, etc
    - the fid reponsibility is then limited to determining whether the direction is proper and not contrary to the terms of the plan. 403A1
- Bonding requirement & Fiduciary Ins
  - generally require that plan fids and other persons who handle plan funds or prop be bonded 412a
    - exempt: Corp, trust co, ins, bank
    - 10% of assets
      - amount of bond: min 10k, max 500k
  - if plan purchases insurance for fid
    - must allow recourse against the fid himself
  - if fid or er purchase ins for fiduciaries
    - no recourse req
- Joint & Several liability
  - breaching co-fids are subject to joint and several liability
Fid Duty of Loyalty (exclusive Benefit rule)
- 404a1a
- fid must act solely in the int of plan part and bene and must for the exclusive purposes of providing benefits to participants and their beneficiaries
- must defray reasonable expenses of admin the plan
- Plan assets shall be held for the exclusive purpose of providing benefits to participants in the plan and their bene – 403c1
- objective
  - good faith not defense
- dual role fids
  - may act as er and fid
    - fid actions must comply but incidental benefit to employer is ok
- Improper use of plan assets
  - promote a point of view
  - cannot detrement the plan to sacrifice unrelated objectives
Fid Duty of Prudence and Prudent Diversification of Plan Assets
- 404a1b – fid must act with “care, skill, prudence and diligence under the circs then prevailing that a prudent man acting in a like capacity and familiar with such matters would use in the conduct of an enterprise of like character and with like aims
  - based on time decision was made – not results
    - good results can still be breach
  - objective
  - careful investigation
  - must use fund reasonably
  - includes mistakes in admin of plan
  - duty to monitor
- Prudent diversification
  - 404a1c
    - diversify investments to minimize risk of large losses, unless prudent
      - ex, one invest, geographic location, industry
        
        ex, invest mostly in low yeilding bonds – breach
      - if no diversification – burden on fid to show prudent
- Duty to Follow (or Disregard) Plan Terms
  - 404a1d
    - in accordance with the docs and instruments governing the plan insofar as such docs are consistent with ERISA
      - smtz must disregard plan requriments that are invalid
        
        non-diversification, eg
      - smtz must act beyond duties in plan
- Duty to Iinform
  - may have duty to provide relevant info to participants beyond the statutory disclosure requirements.
  - Serious Consideration Test
    - senario: first round takers sue for breach b/c second round offer better.
      - Fid must inform of second round of bene if under “serious consideration”
    - must inform when
      - specific proposal; and
      - discussed for implementation; and
      - by senior management with autho to implement change
  - 404a1b – inform
    - disclose info in response to participant questions
    - no mislead – silence sometimes misleading
Co-Fiduciary Duties
- allocation of duties of co-trustees
  - if duties are allocated among co-trustees in accordance with leg, a trustee to whom duties have not been allocated is not to be liable for any loss that arises from acts or omissions of the co-trustee to whom such responsibilities have been allocated.
    - However, watch for kn of the co-fid breach – liable
Prohibited Transactions And Expemptions
- makes illegal per se certain transactions
- Party in Interest Transactions – 406
  - Who is a P in Interest – 3(14)
    - plan fid, legal counsel to the plan, or ee of plan
    - provides services to plan
    - er or ee organization whose ees or members are covered by the plan
    - per who owns 50% or more of an er or ee org which itself is a party in int
      - ei, stockholders
    - relative of individual who is a PiI
    - entity which is owned 50% or more by a PiI
    - any ee, officer, dir, or 10% owner of an entity that is a PiI
    - any of the above relatives
  - Party in Interest Prohibited Transactions – 406a1
    - fid shall not cause the plan to engage in a transaction, if he knows or should know that such transaction constitutes a direct or indirect
      - sale or exchange, of any prop between plan and PiI
      - lending of money or other extension of credit between plan and PiI
      - furnishing goods, services, or facilities between the plan and a PiI
      - transfer to, or use by or for the benefit of, PiI , of any asset of the plan; or
      - acquisition, on behalf of the plan, of any er security or er real prop in violation of 407a
    - Civil Liability PiI
      - Revenue Code up to 5% of amount involved.
      - If not correctd after notice from Sec of Lab, then up to 100% of the transaction
- Fiduciary Prohibited Transactions - 406b
  - - self-dealing using plan assets
      - even without bad faith
    - conflict of intrest between fid and the plan or participants
    - kickback from third party who is engaged in atransaction involving plan assets
    - Penalty:
      - enforced by Sec of Lab
        
        civil penalty
        
        all 409a & removal
      - 409a – authorizing fid must restore losses to plan that occurred as a result, and disgorge any profits
- Prohibited Trasactions Under the Code (IRS)
  - - prohibits transactions to disqualified persons – Code 4975c
      - disqualified person = PiI
        
        except: ee who earn less than 10% of the yearly wages of an er is not a dq ee
    - Penalty
      - excise tax by IRS
- Employer Securities or Real Property
  - - 10% limitation on FMV in er prop and securities
      - exept 401k
- Exemptions To Prohibited Transactions
  - Service Provider Party in Interest Exception (including attributed):
    - Transactions allowed:
      - sale, exchange, or leasing of any property
      - lending of money or other extension of credit, or
      - the use of, or transfer of, plan assets
    - Provided that:
      - plan receives no less, nor pays no more, than “adequate consideration” in connection with such transactions
    - Exception cannot be used by Fids
  - Loans by plan to participants or beneficiaries if;
    - equally available to all;
    - made according to the plan;
    - reas rate;
    - secured
  - Payment of reasonable compensation to plan service providers using plan assets
    - reasonable – plan able to terminate service quickly w/o penalty
  - reas rental space
  - paying benefits to a fid who is also part or bene
  - DOL issued admin exemptions
    - admin feasible;
    - in the interest of the plan, part, and benes;
    - protective of the rights of plan participants and benes
  - exemptions do not apply to fiduciaries unless qualify for admin exemption by DOL
- Excise Tax on Prohibited Transactions (IRS CODE & ERISA)
  - Do not apply to fid acting in fiduciary capacity (CODE)
  - Does not require knowledge of the transaction (CODE)
    - ERISA req – kn or shd have kn
  - Disqualified persons who participate in prohibited transaction (BOTH)
    - 15% anually of amount involved
    - 100% if not corrected after notice from IRS that 5% is due
  - DOL Civil penalty – 5% due from date of transaction to date of collection or date of notice
    - inadvertance not defense
- Compare liability ERISA & CODE
  - where a prohibited transaction occurs, a prudent fiduciary who engaged in the transaction only in his fiduciary capacity will not be liable under either the Labor or Code excise tax provisions, but any other disqualified person and any fiduciary who acted other than as a fiduciary will be liable (in the absence of regulations or a special exemption providing otherwise) for the excise taxes (or equivalent civil penalty).
Civil Claims
- requirements
  - standing
    - participant – ee or former ee who is or may be eligible to receive a benefit from an ee plan
      - derivative standing – ee assigns rights to DR if plan later denies coverage. Ok unless prohibited by the plan
    - beneficiary – is or may become eligible to receive a bene
    - venue
      - all claims
        
        district where plan is admin
        
        where the breach of fid occurred
        
        where a D resides
    - no right to jury
    - must exhaust plans appeals process before claim
      - general hardship exceptions
      - DOL regs
        
        plan must provide notice and reasons for claim denail
        
        reas opp for review
  - type of claim
    - 502a1b – part or bene to recover benes under terms of plan or to clarify rights to future benes
      - both state and fed jurisdiction
        
        (fed has exclusive jur for all other ERISA claims)
        
        D may remove to fed ct
        
        Met Life v. taylor
        
        if only state tort and K claims, preempted if the also fall under ERISA & removable
        
        once removed, fed ct. generally dismisses any other state claims due to preemption
        
        Other 502a actions – split cts on whether preempted by ERISA
      - Statute of Lim
        
        whatever would be the SOL in state ct
      - Standard of Review a1b claims
        
        de novo
        
        ct may consider additional evidence
        
        unless plan give admin or fid discretionary autho to determine eligibility or contstrue terms of plan
        
        abuse of discretion
        
        ct may only consider admin record compiled by admin and used to make admin decision
        
        unless conflict of interest by plan admin
        
        no special deference by admin to treating physician (applies to all ERISA)
      - Remedy
        
        limited to a court order directing the plan to pay amount of the disputed claim.
        
        Provide benefits due
        
        no compesaory damages for injury or loss resulting from wrongly denied claim
        
        if claimant dead
        
        limited to above remedy
    - 502a2 – part, bene, or fid agaisnt a fid for breach under 409a
      - sec Labor can also under 502a2
      - 409a
        
        fid personally liable make good to the plan any losses that result from fid’s breach; and/or
        
        profits obtained by use of plan assets; and/or
        
        discretionary autho to order other appropriate equitable or remedial relief and to remove the breaching fid.
        
        No compensatory or punitive damages under 502a2 for relief under 409a
        
        only (damages) to the plan itself
        
        how to measure
        
        potential lost investment earning of the plan
        
        what would have earned – what it earned = damages
        
        disgorgement under 409a
        
        return of $ earned from breach
        
        Cts divided over whether co-fid can seek indemnity from another more responsible co-fid
        
        actual kn of fid not required for breach
      - SOL – also applies to 502a3 actions if against a fid
        
        3y from date P had actual kn of breach or violation; or
        
        for affirmative actions that constitute a breach or violation, 6y of last action that was part of ongoing breach or vio; or
        
        for omissions, 6 y of the latest date the fid could have acted to cure the breach or vio; unless
        
        concealment
    - 502a3 – part, bene or fid to enjoin any act or practice that violates either Title I of ERISA or the terms of the plan, or to obtain appropriate equitable relief to remedy such a violation.
      - Also sec of lab
        
        under 502a5 – same language
      - remedy
        
        traditional equitable relief
        
        “appropriate” equitable relief
        
        ct has autho to take prop and $ from
      - Non-fiduciaries party in interest liability under 502a3
        
        no liability for non-fiduciaries who participates in a prohibited transaction involving plan assets – a violation of 404
        
        YES liability for non fiduciaries for 406 prohibited transaction violations
        
        502a3 does not mention who can be a D but 502a3 does allow for appropriate equitable relief
      - claims by individuals for breach of fid duty permitted under 502a3
        
        ex breach of Duty to Inform
        
        misrepresentation cases
        
        better to bring breach of DTI than estopple theory b/c easier to allow oral or informal written com to show communication between er and ee
        
        if claim could have been brought under 502a1b, ct will deny de novo in the 502a3 if wouldnt’ have been allowed in 502a1b
        
        ex, discretionary clause denial benes
    - 510 – prohibits ers from interfering with the exercise or attainment of rights under an ee bene plan
      - SOL
        
        analogous to state SOL
      - claims covered for violations of the following:
        
        disruption of ee priviliges to punish the exercies of rights under an ee plan
        
        disruption of ee privileges to prevent the vesting or enjoyment of rights under ee plan; and
        
        disruption of ee privileges to prevent or punish a person who gives testimony in any proceeding related to ERISA
      - P must show that D acted with specific intent to interfere with rights protected under 510.
        
        burden
        
        if P shows actions give rise to inference of discr intent,
        
        burden shifts to er to produce legitimate non-discr reasons
        
        burden then shifts back to P to show (perpond) that reasons just pretext for discrim
      - propper settlor functions do not violate 510
        
        but cannot fire ee to avoid benes
        
        another ex, refusing to hire
    - 502a5 – similar to 502a3 but applies to sec of lab
      - Sec of Labor action
      - against fid or any knowing participation in such such breach by other person
      - civil penalty
        
        20% of applicable recovery amount
      - also Sec can bring under 502a2
  - remedy
    - atty fees
      - fed cts have broad discretion to award reas atty fees and costs to either party in action brought by a part, bene, or fid under Title I of ERISA. 502G1
        
        considerations
        
        bad faith;
        
        ability to satisfy award;
        
        deterence
        
        benefit conferred on members of the plan as a whole; and
        
        merits of positions
        
        no presumption
    - Plan enforcement of reimbursment clause
      - existence of separate and identifiable fund from which recovery is sought

Sereboff v. Mid Atlantic
- Fid sues bene for reimbursement
- reimbursement clause in plan
  - got money didn’t reimburse
- 502a3 – equitable relief
  - prelim injunction & restraining order
- LC for reimbursment
- whether the claim was equitable
  - may get claims from a constructive trust
    - differes from Knudson in that funds were not in Knud’s possession
- Qualifies as a constructive trust, entitled to equitable relief
- requires a separate and identifiable fund
Inter-Modal v. Atchison
- 510 unlawful to discharge, fine, etc for purpose of interfering with attainment of any right tow which such participant may become intitled under plan.
- Held applies to unvested rights as well
- P allege D interferred with the attainnment of rights
varity v. Howe
- 502a3 authorize remdial relief
- P suing for equitiable reief under 404a
  - depends on the nature of the holder of the money and not on whether the plan is self-funded
510 interference
- 502a1b – protects specific rights under plan provision so 510 was included to be a specific remedy.
- 510 actions are enforceable under 502a3
- 510 – prohibits retaliation against actions in the workplace when their bene have been denied
  - whisleblower remedy
- also 510 protects against ex, ee vests after 5 years. Er fires all ees that are close to 5y.
  - No 502a1b action because plan has not been violated
  - however can bring 510 action to prevet this
- any 510 has to be plead under 502a1?
- Burden shifts to er to show non-discrim
  - then burden shifts back
- Inter-Modal
  - Weather 510 actions apply to welfare plans
    - Yes, applies to welfare even though plans don’t vest
- Plants closing
  - claim 510 can be defended if legit settlor functions made for biz considerations
    - need biz justification when the burden shifts to the er to show that closure is the result of solid econ basis
    - cannot simply fire an ee to save costs
      - smtz er will try to fire ee once they find out they’re sick
Varity v. Howe
- 502a3 provides rights for individuals and individualized relief
  - as opposed 502a2 – relates only to the plan
  - equitable catch-all
  - assert claims for damages
- review of 502
  - 502a1 – no fid can sue- only partic or beneficiarie
  - 502a2 – sec Labor or part or bene or fid
    - limited to fid breach and 409
  - 502a3 – no Sec Labor, part bene fid
    - enjoin or other equi relief , and other remedies
    - can seek individual relief. Does not have to go to the plan
      - get back pay and front pay, ex
        
        not damages but similar to damages – still equitable
        
        still cant get damages under 502a3
    - Duty to inform claim
    - Loss of investment opportunity
      - admin failed to rollover and caused losses
      - 502a3 breach of fid claim for restitution for amnt would have earned – amnt actually earned
        
        restitution does NOT include investment losses
        
        strange ruling
Exam
- 70 questions open book notes no comm
- first ½ of class is 30q
- more on fid material
- know rule related to settlor v. fid functions
- responsibilities of various players in the program
  - plan sponsers – limited fids to oversee but not micro manange
  - named – big dogs – full responsibilities
  - other fids – ins co that have claims resp
  - ivest managers
  - parties of int
    - lawy
    - cpa
- req of delegation of fid responsibilities
- given ex of settlor v. fid
- fid liability exposure
- memorize fid liability ins and bonding requirements and recourse coverage
  - fid lib ins
    - not required
    - plan can pay for premiums as long as recourse available against the fid to the insurance co for a breach
      - the fid then pays the plan to waive fid duty
  - fid bond
    - required
- investment activity
  - duty of divers
  - pay for admin expenses out of plan ok
- exclusive bene rule
  - plan assets used for payment of bene and reas admin expenses
    - if fid pays unreas large atty fee, not a proper use of plan assets and breach
    - no marketing, etc
- responsibility of person who delegates investment managers
- PoI prohibited transaction examples
- short questions
- dont memorize cases
- enforcement
  - who enforces
  - what is role of agencies
- litigation questions
- 502
  - jury trials
  - damage limitations
  - venue & standing provisions
- 502a1b 502a2 503
  - very important
  - disntguish those aspects of the statute