Due Date to Preserve Tax-Exempt Status: October 15, 2010

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On July 26, 2010, the IRS instituted a one-time relief program under which that small nonprofit organizations at risk of losing their tax exempt status because they failed to file required returns for 2007, 2008 and 2009 can preserve their status by filing returns by October 15, 2010. The IRS also posted on its website the names and last-known addresses of these at-risk organizations, along with guidance about how to come back into compliance.

There are two types of relief available for small exempt organizations. First, filing an extension for the smallest organizations required to file Form 990-N. An organization simply needs to go the IRS website, supply the information items required by the Form 990-N, and electronically file it by October 15, 2010.

Second, IRS has a voluntary compliance program (“VCP”) for small organizations eligible to file Form 990-EZ (Short Form Return of Organization Exempt From Income Tax). Under the VCP, tax-exempt organizations eligible to file Form 990-EZ must file their delinquent annual information returns by October 15, 2010 and pay a compliance fee. More details are available on the IRS website.

The relief announced today is not available to larger organizations required to file the Form 990 or to private foundations that file the Form 990-PF.

Once an organization loses its exemption, it has to reapply with the IRS to regain its tax-exempt status. Any income received between the revocation date and renewed exemption may be taxable.

Fee Agreement Arrangements with Tax Lawyers in St. Paul: 5 Most Important Issues

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In this article, I will discuss five most important issues that you need to know before you sign a fee agreement with tax lawyers in St. Paul.

1. How is the lawyer’s fee paid? There are three main models of payment that lawyers use: hourly fee, contingency fee, and flat fee. The hourly fee is the most common form of tax lawyer compensation and it is fairly simple – the tax attorney is paid only based on the time he spends on the case. If you’re paying your tax lawyer by the hour, the agreement should set out the hourly rates of the tax attorney and anyone else in this attorney’s office who might work on the case. The contingency fee arrangement, where the tax attorney takes a percentage of the amount the client wins at the end of the case, is almost never used by tax attorneys in St. Paul. In the unlikely case that this latter type of fee arrangement is used, the most important issue to understand is whether the tax lawyer deducts the costs and expenses from the amount won before or after you pay the lawyer’s percentage. Obviously, you will pay more in attorney fees if your tax lawyer deducts the litigation costs based on the latter scenario (i.e. after you pay the lawyer’s fee). Finally, in a flat fee arrangement, you pay an agreed-upon amount of money for a project. For example, you pay $3,000 to your tax attorney to file delinquent FBARs (Reports on Foreign Bank and Financial Accounts) for the past five years. While a flat fee arrangement is possible in a small project, it is generally disliked by tax lawyers in St. Paul because it often lacks the necessary flexibility to account for the client’s individual legal situation. Usually, some sort of an additional payment arrangement is built into such fee agreements to make sure that the balance between the client’s legal needs and the tax attorney’s fees is maintained.

Remember, usually, you will have to pay out-of-pocket expenses (e.g. long-distance calls, mailing costs, photocopying fees, lodging, etc.) and litigation costs (such as court filing fees) in addition to your tax lawyer’s fees.

2. Does the agreement include the amount of the retainer? Most tax lawyers in St. Paul require their client to pay a retainer. Retainer can mean two different fee arrangements. First, retainer may be the amount of money a client pays to guarantee a tax attorney’s commitment to the case. Under this arrangement, the retainer is not a form of an advance payment for future work, but a non-refundable deposit to secure the lawyer’s availability. Second, a retainer is simply the amount of money a tax attorney asks his client to pay in advance. In this scenario, the lawyer usually deposits the retainer in a client trust account and withdraws money from it for the work completed according to the fee agreement. The fee agreement should specify the amount of the retainer and when the lawyer can withdraw money form the client trust account (usually, on a monthly basis).

3. How often will you be billed? Most tax attorneys in St. Paul bill their clients on a monthly basis. Sometimes, however, when the project is not large, the fee agreement will specify that you will be billed upon completion of the case. In a flat-fee scenario, it is likely that the client will be obligated to pay either a half or even the whole amount immediately as a retainer. It is wise for a client to insist in paying some part of the fee upon completion of the case to retain a degree of control over the case completion.

4. What is the scope of the tax attorney’s representation? Most tax lawyers in St. Paul will insist on defining their obligations in the fee agreement. The most important issue here is to state what the tax attorney is hired for without defining it either too narrowly or too broadly. Usually, a fee agreement should specify that a new contract should be signed if you decide to hire this tax lawyer to handle other legal matters.

If you are hiring a large or a mid-size law firm, beware that the partners in a law firm often delegate some or all of their obligations to their associates or even their staff. While the partners retain full responsibility for the case, there is a danger that important parts of it may be delegated to far less experienced associates. Besides the potential quality issues, there is also a concern that you would be paying a large hourly fee for a first-year associate’s work. It is important to insist that the fee agreement specifies what, if any, type of work is being delegated to the associates, the corresponding billing rate of each associate involved, and who carries the responsibility for the whole case.

5. Who controls what decisions? Whether this information should be included in the fee agreement really depends on a case and on an attorney. Generally, tax attorneys in St. Paul let their clients make the important decisions that affect the outcome of the case (such as: acceptance or rejection of the IRS settlement offer, commencement of a lawsuit, business decisions, et cetera). All of the decisions with respect to the legal issues (such as: where to file a lawsuit, what motions should be filed, what negotiation tactics should be employed, how to structure a business transaction from a tax perspective, etc.) are usually taken by the tax lawyers. If there are any changes to this arrangement (for example, you want your lawyer to make certain decisions with the respect to the outcome of the case), you should insist that these modifications be reflected in the fee agreement.

Generally, before you sign the fee agreement, tax lawyers in St. Paul will discuss with you many more topics than what is covered in this article. The five issues explained here, however, are crucial to your understanding of how the tax relationship with your tax attorney will work. Before you sign the fee agreement with your tax lawyer, you should ask at least these five questions and make sure that the answers are complete and to your satisfaction.

Franchise Agreements: Typical Structure

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Over the past fifteen to twenty years, the franchise agreements have grown tremendously in complexity and size. They also tend to be more and more favorable toward the franchisor. Therefore, if you are a potential franchisee, you must read the franchise agreement very carefully to make sure that you fully understand what the agreement is saying. While it is imperative to hire a business attorney to advise you before you sign the agreement, this essay will sketch the typical structure of most franchise agreements in order for you to be able to better navigate your franchise contract.

1. Recitals. The recital provisions usually attempt to describe the franchisor’s system, its potential to contribute a great variety of proprietary information, and the reputation of the franchisor in the industry. Be careful: these provisions are generally not repeated as commitments of the franchisor and are typically disclaimed later in the franchise agreement (otherwise, the franchisee may have a breach of contract claim later).

2. Term of the Franchise and Exclusive Territory (if any). This part of the franchise agreement describes the longevity of the franchise agreement, whether any renewals are available, and what territory is granted exclusively to the franchisee against the same-brand competition.

3. Payment Obligations. Most of the agreements set out the payment obligations of the franchisee separately, while others merge this part of the contract with the rest of the franchisee’s duties.

4. Franchisor’s Duties. This part of the franchise agreement describes the franchisor’s duties toward the franchisee. Usually, however, these obligations are riddled with exceptions and references to the franchisor’s discretion. For examples, phrases such as “in its discretion” or “upon written request” are very common. Be careful: this part of the franchise contract may actually be used to impose obligation on the franchisee. Your attorney needs to review this section of the agreement very closely.

5. Franchisee’s Duties. The provisions regarding franchisee’s obligations may be especially numerous. Many modern franchise agreements may contain a very detailed list of duties imposed on the franchisee, and incorporate by reference the entire content of additional manuals and “any subsequent changes and additions thereto.” Additional covenants in separate articles may also be included in the franchise agreements.

6. Transfer, Assignment, and Termination. This part of the franchise contract sets forth how the franchisee may transfer (including through death, incapacitation, and sale) the franchise to another party. A right of first refusal in favor of the franchisor is often included. Also, be on the lookout for additional substantial fees paid by the franchisee to the franchisor in case of a transfer.

7. Miscellaneous: Choice of Law/Forum, Dispute Resolution, Disclaimers, Indemnification and Exculpatory Clauses. This part of the franchise agreement usually contains a mandatory arbitration clause and unfavorable choice of law provisions which may attempt to deprive the franchisee of the existing statutory protections. Here, you will also find various disclaimers and the indemnification requirements. Finally, various “no representation”and “no reliance” clauses (admitted by the franchisee upon execution of the franchise contract) are often included here. Despite the extreme pro-franchisor bias of many of these provisions, state and federal courts have a tendency to enforce them. Therefore, you must study these provisions with your attorney in order to make sure you understand what types of claims against the franchisor you are giving up by signing this agreement.

A typical franchise agreement is about 40-50 pages of dense legal language. Usually, it contains more information in addition to what is described above. Some agreements do not follow the above-described structure at all, but, rather, adopt their own format which may divide, omit or merge the sections described above into more or fewer articles and sub-sections. Therefore, it is highly advisable to retain services of a franchise attorney to review your franchise agreement to make sure you understand all of the provisions of this contract.

Sherayzen Law Office can help you review and analyze your franchise agreement so that you can understand your rights and obligations before you sign the contract.

Call NOW to discuss your franchise agreement with a business lawyer!

Business Litigation: Definition

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While its definition varies, most attorneys would agree that “business litigation” is a complex area of law which includes a variety of contractual and tort claims. Examples of such claims include but not limited to: breach of contract, fraud, tortious interference with contract, breach of fiduciary duty, infringement of intellectual property rights, and unfair competition. Often, when these types of business disputes arise, the parties are unable to resolve them through negotiation or arbitration proceedings. In these cases, business litigation can be used as a way to resolve the disputes.

Business litigation is not limited exclusively to businesses suing other businesses. In certain cases (such copyright and trademark violations), individuals may asset claims against businesses and vice-versa.

Corporate litigation constitutes an important part of business litigation. Corporate disputes often arise as a result of a breach of fiduciary duty. For example, shareholders in a closely-held corporation may recover against a corporate director if he breaches his fiduciary obligations.

Commercial insurance litigation is another frequent source of business litigation. For example, where a commercial insurance company undervalues or denies a fair claim, then the victimized business may sue to recover the amount it believes it is entitled to. Often, these situation deal with contract litigation where an insurance company relies on a particular wording in the contract to avoid fully paying an otherwise legitimate claim.

These are just some of the countless areas in which a business may have a need for a Minnesota business litigation lawyer to resolve a dispute against another business. A good Minneapolis business litigation attorney or a St. Paul business litigation lawyer can be invaluable in protecting your rights and your company’s business interests.

Sherayzen Law Office can help you deal with a business litigation claim, whether defending against another business or enforcing your business rights against other parties.

If you or your company is in need of representation in a business litigation matter, please call NOW to discuss your case with a business litigation lawyer!

IRS Statute of Limitations: Tax Collections

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The statute of limitations limits the time for the IRS tax collection activities. Generally, there is a ten-year statute of limitations for the IRS collection of owed taxes. Thus, for assessments of tax or levy made after November 5, 1990, the IRS cannot collect or levy any tax ten years after the date of assessment of tax or levy. See 26 U.S.C. §6502(a)(1). Court proceedings must also be started by the IRS within the 10 year statute of limitations. Treas. Reg. Section 301.6502-1(a)(1).

For assessments of tax or levy made on or before November 5, 1990, the IRS cannot either collect or levy any tax six years after the date of assessment of tax or levy. See 26 U.S.C. §6501(e). However, if the six-year period ends after November 5, 1990, the statute of limitations is extended to ten years. Hence, in order to come under the six-year statute of limitations, the six-year period must end prior to November 5, 1990.

The ten-year statute of limitations can be extended by agreement between the taxpayer and the IRS, provided that the agreement is made prior to the expiration of the ten-year period. See 26 U.S.C. §6501(c)(4).

Thus, in figuring out the applicable statute of limitations, you must understand: the starting date for the running of the statute of limitations, any exceptions to the tolling of the statute of limitations, the last day that the IRS can audit a tax return, and the last day that the IRS can collect overdue tax on a tax return.

Sherayzen Law Office can help you understand all of these issues and represent your interests in your negotiations with the IRS.

Call NOW to discuss your case with a tax lawyer!