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Archive for January, 2014

Avoid Illegal Tax shelter Scams: Corporation Sole

January 30, 2014 Leave a comment

I was recently presented with a “trust document” that I have never seen before.

 

My client asked me: does this document protect me from creditors and having to pay taxes?

 

My first thought when posed with the question was “I can’t see how

 

Then, I looked at the “trust” document itself.

 

The document contained some pretty archaic words, that I had to look up in a black’s law dictionary.

 

The “trustor” or the trust creator, was identified as a “corporation sole.”

 

My first thought when looking at this document was:

 

what is a corporation sole?

 

Corporation sole. That is a term that I was simply unfamiliar with, for good reason as I would find out.
A review of Michigan case law would show reference to that term vaguely in decisions from the 1800’s. See Joy v. Jackson & M. Plank Rd. Co., 11 Mich. 155, 173 (1863).
I could not find a single Michigan statute referencing a corporation sole.
It took a broader search of federal lawsuits initiated by the Department of Justice in order for me to find recent reference to a corporation sole.
The IRS is well aware of this Concept of a “Corporation Sole”
The Internal Revenue Service defines “Corporation Sole” in its 2004 Revenue bulletin:
“A “corporation sole” is a corporate form authorized under certain state laws to enable bona fide religious leaders to hold property and conduct business for the benefit of the religious entity.”
See the IRS Revenue Ruling here: http://www.irs.gov/irb/2004-12_IRB/ar11.html
Apparently there are some tax schemers offering plans to taxpayers intending to reduce their federal tax liability
 by taking the position that the taxpayer’s income belongs to a “corporation sole” created by the taxpayer for the purpose of avoiding taxes on the taxpayer’s income.
Such companies are fraudulent and have been subject to prosecution by the Department of Justice. See one such Opinion granting an injunction to the DOJ: http://www.justice.gov/tax/Kennedy_Complaint.pdf
Take Away:

When my client was presented with such a document, his gut feeling was that it didn’t seem right.

If it seems to good to be true, that is because it probably is. In this case, the document titled “corporation sole” does not shelter my client’s funds from federal income taxes. In fact, avoiding payment of federal taxes through such a mechanism will likely subject you to serious tax consequences.

 

 

Questions? Comments?

email: Jeshua@dwlawpc.com

David & Wierenga, P.C.

 

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Business Owners: Pitfalls of Doing Business over State Lines

January 28, 2014 Leave a comment

I have a few business clients who are out of state corporations. They have never set foot in Grand Rapids, Michigan.

However, thanks to technology so much of business can now be done virtually.

There isn’t much that can’t be done with a computer, internet and phone.

The same can obviously be said with your business and businesses in every industry.

But the ease of communication with clients in other states comes with a few pitfalls, including complying with other state and federal laws.

However, one such pitfall that was once again brought to my attention is as follows:

What happens in the event of a dispute with an out of state business relationship?

a recent ABA Journal article illustrates the potential pitfalls of doing business “virtually”. You can see the article here

An Arizona Supreme Court ruled on Friday that Arizona residents could sue an out-of-state law firm that offered them legal tax shelter advice.

“I have never met the clients, so I can’t be sued in their state- right?”

The Law firm argued that it could not be sued in Arizona, since it did not have “sufficient purposeful conduct” in Arizona to be brought into the Arizona courts.

Essentially, the firm argued – we did all the legal research in Connecticut, the legal opinion we drafted was done in Connecticut, if the former clients have a dispute with our firm, they should bring it in Connecticut.

The trial court agreed. It found that the Arizona courts did not have “personal jurisdiction” over the law firm.

The Court of Appeals overturned that ruling, and indicated the out of state law firm could be sued in Arizona.

Personal Jurisdiction – Can A Court Require an out of state defendant to show up?

“A court may acquire personal jurisdiction over a nonresident when the nonresident defendant’s relationship with the forum is such that it is fair to require the defendant to appear before the court.” Jeffrey v. Rapid Am. Corp., 448 Mich. 178, 185, 529 N.W.2d 644, 649 (1995).
There is much analysis that goes into where an out of state party can be sued. That analysis is beyond the scope of my post.
However, to avoid this jurisdiction problem, I always recommend business clients consider including a “jurisdiction and venue clause” in business contracts. Such clauses would designate a specific state and county where disputes are to be resolved.

Take Away:

Without such contract language, you are leaving it up to a court to decide whether or not you have sufficient contacts with the state for you to be sued in that state. And in many instances, if you have a dispute with your out of state business relationship, you are likely forced with considering suing them in their home state, as opposed to yours. This obviously comes with inherent costs and inconveniences.

Questions? Comments?

Email me: Jeshua@dwlawpc.com

Visit David & Wierenga, P.C.

As always, nothing contained in my post constitutes legal advice. You should  consult with legal counsel to discuss any issue concerning contract law.

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Real Estate Law Update: Crime Victims Could Sue Local Govt. for Evicting Them?

January 20, 2014 Leave a comment

A couple of Michigan real estate law updates:

 

But first, a Pennsylvania proposed law would ban municipalities from penalizing tenants or their landlords when residents make legitimate 911 calls. See the ABAJournal for more details.

Apparently this law is in response to a local ordinance that authorized police to force tenants out of their apartments after three instances of disorderly behavior within four months.

Such a law gives tenants who might be the victims of domestic violence, unneeded concern about being evicted if they call the police in response to violence against them in their apartment.

This is an unfortunate example of how statutes with generally good intent can have awful and unintended consequences.

 

 

In Michigan news,

 

Landlords can remove Squatters

I posted an article about a new proposed law that would allow landlords to forcibly remove tenants who were simply squatters. This law would essentially make an exemption to the law that prohibits a landlord’s interference with a tenant’s possessory right in certain limited circumstances.

 

The Judiciary committee on January 15, recommended this bill be given immediate effect.

This bill is moving forward with, apparently an amendment made to specify that the law would not allow the landlord to “commit an assault” on a tenant. Assault is still a crime under this bill. The latest Legislative Analysis mentions this point.

 

 

Real Estate Brokers and Salespersons – Revisions

it looks like the State Senate took another steps towards amending the Real Estate Brokers and Salespersons Act under the Occupation Code.

You can check out a summary of the revisions by going to the Legislative Analysis that was just prepared by the House Fiscal Agency on January 13th.

 

From my cursory review, it simply looks like the Act is being updated and LARA is making it easier for Brokers and Salespersons to maintain their proper licensing through the State of Michigan (a good thing, I would think).

 

 

Questions? Comments?

 

Email me: Jeshua@dwlawpc.com

http://www.dwlawpc.com

 

 

 

 

 

 

 

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Lesson for Small Business Owners: It Pays to Carefully Review Your Contracts

January 16, 2014 Leave a comment

I recently posted a guest blog article on Grand Rapids Area Professionals For Excellence about contract pitfalls that small business owners can run into.

You can check it out by clicking here

 

 

 

I’d be happy to hear – have you ever found yourself signing a contract without reading it, and then later having a problem? What did you do about it?

 

 

 

email: Jeshua@dwlawpc.com

http://www.dwlawpc.com

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Real Estate Law: What Does it Mean to Slander Someone’s Title?

January 14, 2014 1 comment

I had a client talk with me about a real estate matter he had been dealing with.

He entered into a purchase agreement to sell some real estate he owned. The buyer couldn’t  obtain financing within the time

period spelled out in the purchase agreement, and so, my client decided not to give him any more – he didn’t agree to an extension.

This made the buyer angry.

So angry, in fact, he threatened to sue my client (thus, what prompted my client’s phone call to me).

My client asked me, “what if I get a new buyer and this guy tries to hold up the sale by recording his contract with the Register of Deeds? (which the guy threatened to do unless my client sells him the Property).

I introduced my client to the legal claim of “Slander of Title

 

Slander of Title

Slander of title at common law means that a defendant maliciously published false statements that disparaged a plaintiff’s right in property, causing special damages. B & B Inv. Grp. v. Gitler, 229 Mich. App. 1, 8, 581 N.W.2d 17, 20 (1998)

 

Broken down, the elements that make up slander of title are:

 

  • Malice,
  • False statements
  • disparage your rights in property; and
  • cause special damages. (typically include costs of a lawsuit)

 

Slander of title is a common cause of action filed in response to a contractor who threatens to put a lien on property for non-payment.  However, in order to succeed on a claim of slander of title all elements must be proven, including “malice” – which asks the question – did the contractor record a lien on the property simply to force payment, even though he knew he wasn’t legally entitled to it?

 

Going back to my client’s case, if the buyer threatens to file a void purchase agreement on the property to hold up any future sale, simply because he was angry that my client did not grant him an amendment to his purchase agreement, he could have a claim for slander of title.

 

Questions? Comments?

 

Email:  Jeshua@dwlawpc.com

http://www.dwlawpc.com

 

 

 

 

 

 

Disclaimer – nothing in any of my posts should be taken to constitute legal advice. With any legal questions please seek the advice of legal counsel.

 

 

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Lessons in Estate Litigation: The Role of Mediation

January 7, 2014 Leave a comment

I recently found myself in an all day mediation.

I was sitting in a conference room for 8 hours straight.

Next to me was seated my client, across the table from me was seated my client’s brother and his lawyers.

 

The years of animosity between the siblings was obviously apparent to all in the room.

 

 

The thought crossed my mind – will this case ever get resolved?

 

Facts:

 

Father, business owner passed away at an old age, leaving his business in disarray, multiple parcels of real estate, and several bank and investment accounts.

 

Father also left six kids who did not get along with each other.

 

A recipe for disaster.

 

brother was named personal representative in dad’s will. Brother took control of dad’s estate, and did not keep his siblings apprised of his actions. He provided no accounting of his actions, receipts or disbursements, including the tens of thousands of dollars he paid himself for his time.

 

He basically failed all of his duties as a fiduciary.

 

At least one of his siblings did not appreciate brother’s actions.

 

I filed suit on behalf of one of brother’s siblings,  and raised counts of breach of fiduciary duty and action for surcharge against the brother.

 

Law: Breach of fiduciary duty

Brother did not realize that when he accepted his role as personal representative he was taking on certain responsibilities as a fiduciary to act in the best interest of the other beneficiaries.

A breach of a fiduciary obligation occurs when a position of influence has been acquired and abused, when confidence has been reposed and betrayed. Smith v Saginaw Savings & Loan Association, 94 Mich App 263, 274, 288 NW2d 613 (Mich Ct App 1979).

As a fiduciary, brother owed certain duties to his siblings based in common law and Michigan statute. Those duties include

Michigan Compiled Laws 700.3703,

  • “to settle and distribute decedent’s estate in accordance with the terms of a probated and effective will and this act” and

 

  • to provide “annually, and upon completion of the estate settlement, account to each beneficiary by supplying a statement of the activities of the estate and of the personal representative, specifying all receipts and disbursements and identifying property belonging to the estate.

 

A personal representative, is bound by the fiduciary duties of

honesty,

loyalty,

good faith, and

restraint from self-interest.  In re Green Charitable Trust, 172 Mich App, 298 (1988).

 

A personal representative  is required to “act as what a prudent person dealing with the property of another, including following the standards of the Michigan prudent investor rule.”  To be prudent means to act with care, diligence, integrity, fidelity, and sound business judgment.  In re Messer Trust, 457 Mich, 371, 380 (1998).

 

Damages may be obtained for a breach of fiduciary duty when a position of influence has been acquired and abused or when confidence has reposed and betrayed.  In re Duane v Baldwin Trust, 274 Mich App 387, 398 (2007).

 

Surcharge

 

Under action to surcharge, MCL 700.7306(2) provides that a fiduciary is personally liable for an obligation arising from ownership or control of the estate property or for a tort committed in the course of administration of the estate,  if the fiduciary is personally at fault.

 

This would require the fiduciary, brother, if found liable, to pay back to the estate any funds that he wrongfully took.

 

This is a good plug for using professional fiduciaries like Legacy Trust Chemical Bank Macatawa Bank Ameriprise or Edward Jones

 

 

Resolving Estate Lawsuits: The Role of Mediation

 

One thing was quite apparent when we began the process of mediation: whether or not the case got resolved the siblings were not going to reconcile that day.

 

But the mediator did his job: he showed both sides that they  had much more to gain by resolving the case that day, as opposed to continuing with the dispute and going through trial.

 

The truth is that despite all of the real and intense emotions that both parties felt (which is quite typical in estate/trust litigation scenarios), it was much more worthwhile to come to a resolution that day and move on with the rest of their lives.

 

It took 8 hours though to get us there.

 

Questions? Comments?

jeshua@dwlawpc.com

http://www.dwlawpc.com

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