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Gifts: Is There a Tax?

Posted: February 25th, 2015

The answer is one of my great attorney answers: “It depends.” In general terms, there is no gift tax in New York. So for the remaining part of the discussion, we will be focusing on federal gift and estate taxes.

It’s actually what’s referred to as a uniform gift and estate tax. That means you have a $5.43 million exemption. Whatever you don’t give away during your lifetime, you can give away (tax-free) upon your death. The IRS just wants to keep tabs on what you give away during your lifetime so they know how much of an exemption you have left when you die.

With respect to gifting, there are really two “trigger points” as far as the IRS is concerned. The first is if you give more than $14,000 in cash, property or gifts to anyone within the tax year, you must report the gift to the IRS. It doesn’t matter whether you made the gift to family members or total strangers. But whether you have to pay a gift tax will depend on the total amount of gifts that you’ve made during your lifetime. That’s trigger number two.

You also need to remember that it’s only the gift giver that may have to file the IRS form and report the gift. The person giving the gift, not the recipient, is responsible for paying the tax. And, as a side note, from the recipient’s point of view, gifts from family and friends are not considered income, so there’s no income tax. That’s true no matter how high the value of gifts you receive in a given year.

That $14,000 worth of assets each year you gift is called the annual exclusion and you don’t have to tell the IRS about it – so no gift tax form. Any gift above this amount will count against your lifetime exemption from gift or estate tax.

If you exceed this exemption amount (sometimes called the “unified credit” or the “basic exclusion”) you could wind up owing gift tax of 40% or more. Even if you don’t, remember that your lifetime gifts reduce how much you can pass tax‑free through your estate plan.

Now a great thing about married couples is that the usual limits on lifetime gifts don’t apply. If your spouse is a U.S. citizen, there’s an unlimited marital deduction for most gifts, even if they exceed the annual exclusion amount and you generally are not required to file a return.

Another important tax break is that married couples can combine both their annual exclusions. This is called gift‑splitting. By using the annual exclusion this way, they can jointly give away up to $28,000 to as many people as they want each year without dipping into the $5.43 million lifetime allotment. Ordinarily couples must then file a gift tax return and consent, on each other’s returns, to gift‑split. And because we’re talking about gifting under the federal laws, all these rules now apply to legally married, same‑sex couples.

If you pay a friend or family member’s tuition, dental or medical expenses (including health insurance premiums), it won’t count against either the annual exclusion or your $5.43 million exemption, and you won’t have to file a gift tax return. The only catch is that you must make those payments directly to the service provider, such as the school, doctor or insurance company. This is a great way for parents or grandparents to lower their estate and tax liabilities.

As far as filing the actual gift tax form, if you didn’t file gift tax returns for past tax years, it’s never too late to file one. As a general rule, you have until the IRS catches the problem. And besides, if you’re not liable for gift tax, there’s no penalty for late filing.

Keep in mind that since the $5.43 million lifetime exemption from gift tax and any gift tax you pay are cumulative, you must keep the returns indefinitely. Your heirs need them to calculate the tax, if any, on your estate. And the most likely time for the IRS to flag unreported gifts or to question the value of the gifts you made is after you die. So, do everyone a favor and make sure you leave all the documentation behind.

ABCs of Protecting Employee-Generated IP

Posted: February 25th, 2015

Tags: intellectual property, labor & employment

Most companies assume that any intellectual property (IP) created by their employees in connection with their job duties automatically become the employer’s property. This assumption, however, is often incorrect, and can lead to lengthy and costly disputes. Generally, an employer’s right to IP created by an employee depends on the circumstances of the employee’s hire and whether the employer and employee entered into an agreement that fully assigns the IP to the employer.

Companies seeking to avoid disputes and secure all IP rights to the inventions created by their employees should ensure that the employees have signed an Inventions Assignment Agreement (sometimes also known as Assignment of Inventions Agreement).

Without an agreement, although specific laws differ from state to state, the following general principles apply: (1) for employees employed to invent (i.e. engineers and scientists), the inventions are generally owned by the employer even if the employee did not sign an agreement; (2) for general employees (i.e. sales and marketing), who have not been hired specifically to invent, the general rule is that the employee owns such inventions if there is no agreement that provides otherwise; and (3) for general employees whose inventions do not relate to the business of the employer, these inventions are generally owned by the employee if no invention assignment agreement is signed.

However, the above common law rights may be superseded there is an express and enforceable Inventions Assignment Agreement. Accordingly, it is in the company’s best interest to require its employees to sign an agreement that clearly sets forth the employer’s rights in and to the inventions.

A carefully drafted Inventions Assignment Agreement would help ensure the employee-inventor’s rights are assigned to the company. Without a clear agreement on the assignment of inventions, the employer is taking a large risk which can result in a dispute over ownership.

Medical Providers Must Take Steps to Protect Out-of-Network Reimbursements under New York’s “Surprise Medical Bills” Law

Posted: February 25th, 2015

Tags: healthcare

Medical providers must plan now to comply with New York’s new “Surprise Medical Bill” law, which takes effect April 1, 2015. In short, for “surprise bills,” the law caps a patient’s financial responsibility for out-of-network medical services to an amount no greater than if the patient saw an in-network provider. Medical providers who do not comply with the mandatory disclosures under the law will find their bills classified as “surprise bills,” which means that they must pursue arbitration directly with the insurance carrier to obtain reimbursement. For surprise out-of-network medical bills, medical providers may not pursue reimbursement directly from the patients.

New York’s law, the toughest in the nation, was included as part of the Governor’s Executive Budget Bill in 2014 (S.6914, A.9205). The law is a response to endless horror stories from individuals who thought they received treatment from in-network providers, but who later received bills from out-of-network providers such as anesthesiologists, radiologists, pathologists, assisting surgeons, etc., who did not participate in a patient’s insurance plan. After receiving meager, if any, reimbursement from insurers, these out-of-network providers then send large bills to patients, who must pay out of pocket. Various consumer advocacy groups claim that surprise medical bills have been one of the largest causes of consumer bankruptcy.

The law places new requirements on insurers to ensure that they provide an adequate network of providers for members to receive medical care, as well as “fairer” out-of-network reimbursement methodologies. Insurers in many cases have moved away from reimbursing out-of-network services as a percentage of the “usual and customary rate” and have instead adopted a percentage over Medicare rate reimbursement, such as paying 140% of the Medicare rate for a particular service. Using the Medicare rate scale, out-of-network services now result in much lower reimbursements from insurers, leaving patients liable for much larger coinsurance or “balance billing” liabilities, since medical providers are required to bill patients for the balance of what insurance does not cover for out-of-network services.

In order to receive greater reimbursement for out-of-network services, medical providers must preserve their ability to seek full reimbursement from patients after insurance has paid its portion. To preserve this ability, providers must comply with the New York State Public Health Law, which added a new Section 24.
This section provides:

Providers shall disclose to patients or prospective patients in writing or through an internet website the health care plans in which the provider participates and the hospitals with which the provider is affiliated. This disclosure must be done prior to providing non-emergency services, and the information must be conveyed verbally at the time an appointment is scheduled;
Providers who do not participate in a patient’s insurance plan shall, prior to providing non-emergency services, inform a patient that the amount or estimated amount that the provider will bill the patient is available upon request; and upon such a request the provider shall provide such an estimate in writing to the patient. The provider must also identify insurance plans in which physicians at a hospital who are reasonably expected to provide services to a patient, such as anesthesiologists, radiologists, and pathologists.

While these disclosure requirements seem onerous, failure to comply will likely lead a provider’s out-of-network bill to be classified as a “surprise bill,” and thus require the provider to seek reimbursement from the insurer only.

A “surprise bill” is defined in the new Article 6 added to the New York State Finance Law. Section 603(H) provides:

“Surprise Bill” means a bill for health care services, other than emergency services, received by:

An insured for services rendered by a non-participating physician at a participating hospital or ambulatory surgical center, where a participating physician is unavailable or a non-participating physician renders services without the insured’s knowledge, or unforeseen medical services arise at the time the health care services are rendered; provided, however, that a surprise bill shall not mean a bill received for health care services when a participating physician is available and the insured has elected to obtain services from a non-participating physician;
An insured for services rendered by a non-participating provider, where the services were referred by a participating physician to a non-participating provider without explicit written consent of the insured acknowledging that the participating physician is referring the insured to a non-participating provider and that the referral may result in costs not covered by the health care plan; or
A patient who is not an insured for services rendered by a physician at a hospital or ambulatory surgical center, where the patient has not timely received all of the disclosures required pursuant to Section 24 of the Public Health Law.

Providers should prepare prior to April 1, 2015 in order to avoid having their bills for out-of-network services falling under the “Surprise Bill” definition in the new law. Proactive steps include:

Update your practice’s website and marketing materials to include all insurance plans in which a practice participates;
Prepare office staff to make required disclosures when booking appointments;
Get familiar with plan affiliations of physicians to whom you regularly refer patients;
Prepare cost estimates for commonly-treated conditions to provide to out-of-network patients.

Defamation Claim Brought By Former Employee Against Company Dismissed

Posted: February 25th, 2015

In prior months, I have discussed cases involving businesses pursuing lawsuits against former employees due to perceived violations of, among other things, non-compete and/or non-disclosure agreements, as well as alleged misappropriation of trade secrets. While the former employer is usually the one to commence the lawsuit, there are times when the former employee may also fight back with claims of his or her own. This is exactly what happened in a recent case out of the New York County Commercial Division. Luckily for the employer, certain of the former employee’s claims were dismissed.

In the case of International Publishing Concepts, LLC v. Locatelli (J. Bransten), International Publishing Concepts, LLC (“IPC”) commenced a lawsuit against one of its former salespeople, Thierry Locatelli (“Locatelli”). IPC is a company that publishes books and magazines for placement in hotels. IPC generates revenue by selling advertising within the publications themselves. Locatelli was a salesperson for IPC for approximately five years, beginning in 2007, and generated significant revenue for IPC during the time he was employed.

In mid-2012, Locatelli left IPC and allegedly began to compete against the company, which led to a significant drop in sales. IPC alleged that Locatelli used similar materials in an effort to mislead IPC’s clients to do business with him instead. IPC commenced the lawsuit against Locatelli alleging claims for breach of fiduciary duty, fraud, unjust enrichment, tortious interference, unfair competition, and theft of corporate opportunity. After IPC commenced the lawsuit against Locatelli, Locatelli served an Answer containing counterclaims against IPC for defamation, among other things. Locatelli alleged that IPC forwarded several disparaging emails and letters to Locatelli’s clients, which caused him to lose business and damaged his reputation. Locatelli also commenced a third party action against the president and CEO of IPC for the same defamation claim as alleged against IPC.

As it turns out, the letters that were forwarded to two of Locatelli’s clients by email were actually letters from IPC’s counsel in this lawsuit. The first letter was originally sent to IPC’s President and addressed the firm’s analysis of the claims against Locatelli and provided the firm’s recommendations as to what claims and relief to pursue. [As an aside, it is unclear if the law firm was okay with its client sending out an attorney-client privileged communication, but it is not something that would be recommended regardless of intent.] The second letter was a “cease and desist” letter from IPC’s counsel to Locatelli which essentially restated the legal claims against Locatelli for engaging in violative conduct. It was these letters and the emails forwarding them that formed the basis for Locatelli’s defamation counterclaim and third party claim.

IPC and IPC’s President sought to dismiss the defamation counterclaim and third party claim respectively, among other relief. In reviewing the defamation claim under New York law, the Court noted that Locatelli would have to establish that there was “(1) a false statement, (2) published without privilege or authorization to a third party, (3) constituting fault as judged by, at a minimum, a negligence standard, and (4) it must either cause special harm or constitute defamation per se.” Frechtman v. Gutterman, 115 A.D.3d 102, 104 (1^st Dep’t 2014).

The Court ultimately held that the defamation claim must be dismissed because the statements contained in the letters and forwarding emails were protected by “absolute privilege,” “qualified privilege,” and were also non-actionable statements of opinion rather that actionable assertions of fact.

The Court held that the absolute privilege applied because the statements made in the letters were made by individuals participating in a public function such as a judicial proceeding. Because the statements made were pertinent to the litigation, absolute privilege applied and the defamation claim could not stand.

The Court held that qualified privilege also applied because both parties (the communicating party and the receiving party) had an interest in the communications and Locatelli could not establish that the communications were made with spite or ill will or with knowledge that the statements were false or made in reckless disregard for the truth.

Lastly, the Court held that the statements in the letters were merely non-actionable opinions rather than actual assertions of fact. Considering that the letters merely contained statements of IPC’s lawyers’ beliefs and opinions, rather than statements of fact, the defamation claims were dismissed on that ground as well.

While the defamation claim was ultimately dismissed here, it is important that any business in this type of situation consult with its attorneys before sending out potentially inflammatory communications, especially attorney-client privileged communications. The claims asserted by Locatelli, which include tortious interference claims that were not part of the motion to dismiss, potentially could have been avoided if IPC sought the advice of its counsel before forwarding letters to Locatelli’s clients. It is unclear if IPC consulted with its attorneys here, but it does not appear so based on the facts presented by the Court.

CMM Supports Bridgehampton Teacher Raising Funds for Local Family

Posted: February 23rd, 2015

Bridgehampton Teachers Get Hair Buzzed to Benefit Local Family

By Mara Certic

Bridgehampton School seniors Jada Pinckney, Daniel Denton and Hayley Lund were called up to finish history teacher John Reilly’s new ‘do as part of a fundraising event for a family in the district. Photo by Michael Heller.

The last day of school before vacation tends to be an exciting one, as academics take a backseat to fun activities in most classrooms for the last few hours before that week of freedom. That was the case on Friday, February 13, at the Bridgehampton School where students prepared themselves for the chance of a lifetime—the opportunity to shave a teacher’s head.

In an effort to raise money for a family in the school district, Bridgehampton High School History teacher John Reilly decided that it was once again time to give schoolchildren the opportunity to pay money for the chance to shave his flowing locks in front of the entire school.

Mr. Reilly has previously allowed his students to give him a buzz, and this year, when he heard that the father of a first grader was battling cancer and unable to work, he didn’t hesitate to offer up his coiffed ‘do in order to raise some money.

“My hair is less important than their need,” Mr. Reilly said on Friday afternoon, shortly after he had been shorn.

The history teacher, whose mane looked like it belonged on the head of a Romantic poet, mysteriously went “missing” moments before he was scheduled to sit for his hair cut. Eric Bramoff, the school’s athletic director, asked the gathered students call out to Mr. Reilly to try to find him.

“I saw him in the hallway, maybe he’s nervous,” one second-grader shouted over the screams of “Mr. Reilly” punctuated by rhythmic claps that echoed throughout the gymnasium.

A mysterious character with long, flowing blonde locks ran in at one point and sat in the designated barber’s chair, much to the confusion of some of the children. It was not a golden-haired maiden, as some had believed, but in fact music teacher David Elliot, who had donned the shining wig.

After more chanting from the students, a reluctant Mr. Reilly emerged from another room.

“There’s just not enough money in the pot,” he said as he explained he had cold feet and was second-guessing his decision.

Just as disappointed groans started to become audible throughout the gym, Mr. Bramoff made an offer he couldn’t refuse.

Would he change his mind if the new athletic director bought another ticket for every student in the gym? Could that $175 sway his decision?

Apparently so, as Mr. Reilly sat down and lucky students were called up to begin buzzing his hair.

Charles Manning Jr., Janatan Braia, Franky Bonilla, Melissa Villa and Michael Smith were all called up to begin the trimming process.

The school’s three senior classmen were also called upon to participate in the haircut, which raised a total of $760.

Campolo, Middleton & McCormick donated $100 when it heard of Mr. Reilly’s plans.

In a shock last-minute decision, just as students were starting to file out of the room, Mr. Bramoff announced he was going to let his girls JV basketball team shave his head too, in order to get the total up to an even $1000.

The team, which is new this season, gleefully took up the challenge and quickly gave their basketball coach a haircut that might just as well be known as the “Reilly” at Bridgehampton School.

Purchase Order Scam Hits Long Island

Posted: February 20th, 2015

A large order comes in from a new customer – a major research university. Excited at the prospect of developing a long-term relationship with such a well known institution, you have no problem shipping out the order right away, with the invoice to follow a couple of days later.

The following week, several orders come in from an established client. Your sales reps have strong relationships with this client, who has always paid on time. Eager to showcase the customer service the client has come to expect from your company, you ship the order as soon as possible, never doubting that the client will pay the bill.

Unfortunately, what may appear to be a profitable order or a promising new customer could instead be an effort to drag your company into a complex scheme the FBI calls “purchase order fraud.”

According to a recent FBI news release, the global scam generally follows these steps:

Cyber criminals based in Nigeria set up fake websites with domain names almost identical to those of real schools, companies, and institutions. Matching e-mail addresses and spoofed phone numbers (to make a call appear to be coming from the real company and area code) are used to request price quotes from vendors, mostly small businesses, for a variety of products including electronic equipment, hard drives, and pharmaceuticals. The perpetrators do online research to obtain employees’ names and other information to make the requests appear legitimate. The companies or schools being impersonated are typically large or well known, or are existing clients of the business being targeted.
The criminals then place orders, requesting that shipments be made on credit (typically 30 days). Because the vendor believes the order is coming from an established client or well known institution – some of which even provide credit references – the vendor agrees.
A U.S. shipping address is provided, which is typically a warehouse, storage facility, or even the residence of a work-from-home or online romance scam victim. From there, the orders are shipped to Nigeria. The FBI refers to these home Internet users as “unsuspecting accomplices” in the complicated scam.
By the time the packages reach Nigeria, the vendor has billed the real institution and the fraud has been discovered – but the goods are long gone.

As highlighted in a recent Newsday article, many Long Island businesses have been the target of purchase order fraud. In October, Bohemia-based Chromate Industrial Corporation – a distributor of maintenance, repair, and operations supplies – received two orders from the University of Michigan for fluke meters, which measure voltage. The orders, totaling $40,000, were shipped to three separate locations as requested in the purchase order. After the packages were shipped, Chromate invoiced the University of Michigan. The university did not recognize the orders, and after reviewing the purchase orders, determined they were fraudulent. Eventually, with information provided by the FBI, one of the Chromate shipments was intercepted in the United Kingdom before being shipped to Nigeria and was returned to Long Island. However, $30,000 worth of goods never made it back.

Donna Galan, Vice President of Operations at Chromate, described the situation as “very disturbing, especially since we don’t know what the products are ultimately being used for.” But the experience has turned customer service into amateur FBI investigators; Chromate still receives frequent fraudulent orders, but employees now know what to look for. The FBI has published the following indications of fraud:

Incorrect domain names. In Chromate’s case, the University of Michigan e-mail addresses ended in .com, not .edu.
The shipping address on a purchase order is different from the business location, or is a residence or storage facility.
Poorly written correspondence with grammatical errors and misspellings. Phone numbers not associated with the business or institution or are not answered by a live person.
Orders for large quantities of merchandise, with a request for priority shipment and delayed billing.

The FBI has urged the business community to report any fraud to the FBI or local authorities as soon as the fraud is discovered, as the chance of recovering the shipments drops dramatically once the packages leave the country.

Ms. Galan wants local small businesses to learn from Chromate’s experience. “There were a number of things, looking back, on the e-mails that we could have picked up on,” she says. Now that Chromate’s employees are savvy to the scam, however, the scam is one step closer to being put out of business.

Malafi Named LIBN Top 50 Women Award

Posted: February 20th, 2015

Top 50 Women Awardees 2014

Launched in 2000, the Top 50 Most Influential Women in Business program has recognized the Island’s top women professionals for business acumen, mentoring and community involvement. The program’s honorees are selected by a judging committee and receive a unique crystal memento at the elegant dinner attended by more than 600 of the Island’s top business leaders, and represent the most influential women in business, government and the not-for-profit fields. Third-time recipients of the Top 50 Award are retired to The Hall of Fame and their crystal award reflects this prestigious honor.

Christine Malafi
Partner
Campolo, Middleton & McCormick LLP

Christine Malafi is a partner at Campolo, Middleton & McCormick where she is a member of the executive management team in addition to the corporate, litigation and municipal law groups. She was formerly senior corporate counsel to Leviton Manufacturing Co., Inc., where she handled corporate governance, acquisitions, routine and complex transactions, employment issues and other business matters, both nationally and internationally. In January 2004, Malafi was the first woman and youngest person ever to be appointed Suffolk County attorney. During her eight-year tenure, she was the chief legal officer of the county, supervising a legal team of more than 65 attorneys in the Suffolk County department of law.

Prior to her appointment, Malafi was a partner with Lewis Johs Avallone Aviles & Kaufman, LLP. Malafi has taught both undergraduate and law school classes on litigation, legal research and writing at LIU Post and the Touro College Jacob D. Fuchsberg Law Center. She has lectured extensively on municipal issues, insurance coverage issues and claim handling. She was appointed to the New York State pro bono scholars task force and served as a speaker and member of the state task force to expand access to legal services in New York. This year, Malafi was recognized by the Suffolk County Historical Society as the “Women in the Law: Historic Firsts in Suffolk County” honoree. She has been honored by Touro Law Center with the Paul S. Miller “With Liberty and Justice for All” award and the Alumni Association Public Service Award. She is also a past recipient of the EAC Network/Marcie Mazzola Foundation Children’s Advocate of the Year Award. She is a member of the New York State and Suffolk County Bar Associations, and was arbitrator of the Suffolk County District Court, Small Claims Part, from 1995 to 2000. Malafi received a Bachelor of Arts from Dowling College and a Juris Doctor magna cum laude from Touro Law Center, where she served as the managing editor of the Touro Law Review. She is admitted to practice in the states of New York and Connecticut, before the U.S. Court of Appeals for the Second Circuit and the U.S. District Courts for the Eastern and Southern Districts of New York.

Top 50 Women Awardees 2014

CMM Voted 2015 Best Law Firm on Long Island

Posted: February 20th, 2015

PRESS RELEASE

CMM Voted Best Law Firm and Joe Campolo Best Lawyer on Long Island

The Long Island Press has published its annual winners of the “Beth p age Best of Long Island 2015” awards, and we’re honored that Campolo, Middleton & McCormick, LLP has been named the Best Law Firm on Long Island. Additionally, Managing Partner, Jo e Campolo, Esq.
was named the 2015 Best Lawyer on Long Island.

The ‘Best of Long Island’ contest is the largest business and professional awards program in the history of Long Island. “It is an honor to be recognized by the Long Island community,” said Joe Campolo, adding that, “the awards are a tribute to our fantastic attorneys and staff who work hard every day servicing our clients.”

Having recently opened another location in Bridgehampton, our firm is committed to serving the Long Island business community. We have an established record of results for our clients, who range from individuals to global companies, and approach each matter with a unique understanding of the issues and the highest level of integrity.

More than 1 million people across Long Island vote each year and this year resulted in the largest participation in the event’s 10-year history. The Best of Long Island contest is conducted each year by the Long Island Press newspaper. The voting for ‘Best of Long Island’ runs from July 1 through August 31st. Voters were allowed to choose ‘Best Of’ in 360 total categories. The top 15-18 nominees advanced to the final voting round, which runs from October through December. CMM will celebrate with fellow “Best Of” awardees at the Official Winner’s Celebration to be held at Oheka Castle on Tuesday, February 24th from 6-9 pm.

April 8: CMM Executive Breakfast “Master the Art of Meaningful Networking”

Posted: February 13th, 2015

April 8, 2015

Featuring Terri Alessi-Miceli of the HIA-LI

Master the Art of Meaningful Networking

Join us as we discuss networking strategies to successfully market yourself and your business.

Time: 8:30 am – 10 am
Location: Clarion Hotel, 3845 Veterans Memorial Highway, Ronkonkoma, NY 11779