Payroll Tax Rules to Change. Currently, if a taxpayer's business misses a payroll deposit, the IRS applies the payment to the earliest period for which a payment was due, resulting in multiple "failure to deposit" penalties, instead of just one. But for deposits due beginning January 19, 1999, taxpayer can designate the period to which such payment should apply, if the designation is made within 90 days of the date of the penalty notice. Code Section 6656(e), IRS Restructuring &Reform Act of 1998.
UFTA Does Not Apply to Transfer Into Tenancy by the Entireties. A federal District Court has ruled that the Illinois Uniform Fraudulent Transfer Act (UFTA) did not apply to a debtor-husband's transfer of property form a land trust in which he and his wife were beneficiaries, into a tenancy by the entireties. Whether debtor husband's creditors could reach his interest in the entireties property was governed exclusively by the fraudulent transfer provision of the Illinois entireties statute, providing that property is not subject to sale upon judgment entered against a single tenant unless the property was transferred into tenancy by the entireties with the sole intent of avoiding the payment of certain debts. In re Stacy, 1998 WL 437401 (N.D. Ill.).
Place of Debtor's Major Business Decisions Determined Venue in Bankruptcy. For purposes of determining venue in a Chapter 11 case, the Illinois Judicial District in which debtor made his major business decisions determined venue, even though the sole asset of the business was an apartment building located in Texas, and day-to-day operations took place in Texas. The Seventh Circuit ruled that this reasoning was particularly appropriate in a reorganization case, where the proceedings primarily involve the financial management of the debtor, rather than its day-to-day operations. Matter of Peachier Lane Associates, 1998 WL 430366 (C.A.7-Ill.).
Badgering Employee About Suggestive Clothing and Behavior Not Sexual Harassment. Male executive's alleged frequent badgering of female employee asking that she refrain from suggestive behavior and provocative dress did not equal sexual harassment. Employee's defiant response that problem was his and not hers, even though no dress code was in place, did not fairly come under Title VII's prohibition against sexual harassment. Schmitz vs. ING Securities, Futures & Options, Inc., 1998 WL 388961 (N.D. Ill.).
Violation of Uniform Fraudulent Transfer Act Found for Transfer of Corporate Assets. Where corporation's assets, valued at approximately $1.65 million were transferred to principal shareholder in return for forgiveness of prior indebtedness of $750,000.00, constructive fraud found. Adequacy of consideration measured by value of corporation, not debt. Musetter vs. Lyke, 1998 WL 352939 (N.D.Ill.).
Insured's Failure to Read Disability Policy Did Not Bar Recovery from Broker. Insured's suit alleging breach of fiduciary duty to obtain a disability policy providing for cost-of-living increases not barred by insured's failure to read and understand terms of disability policy received. Although failure to read precludes recovery from insurer, rule is different where insured sues broker for failure to provide requested coverage. Perelman vs. Fisher., 1998 WL 540961 (Ill.App. 1 Dist.).
Settlement of Loan Guaranty Was Not Business Expense or Bad Debt. Former officer/director/shareholder of corporation who paid $750,000 to settle liabilities arising out of his guaranty of corporate debt could not deduct payment as a business expense or a business bad debt. Taxpayer failed to prove that guaranty was related to business, since he worked for no salary, which demonstrated a desire for capital appreciation rather than income from the business. Stephen F. Scofield, TC Memo 1997-547.
Proposed Regs Issued on S Corporation Subsidiary Rules. Proposed regulations have been issued to interpret the provisions of the Small Business Job Protection Act of 1996 which permit an S corporation to own 80% or more of the stock of a C corporation, and to elect to treat a wholly-owned subsidiary as a qualified subchapter S subsidiary (QSSS). The proposed regs will change the election procedures set forth in Notice 97-4, and a new form will be developed. The proposed regulations will be effective when published as final regulations.
Legal Fees Paid to Recover Control of Corporation From Ex-Spouse Were Tax Deductible. While sole shareholder was hospitalized, wife filed for divorce, and under ex parte order of protection seized control of corporation, taking cash, equipment, books and records. When shareholder recovered, he commenced legal proceedings to recover corporate assets, with corporation paying legal fees. IRS said these were nondeductible personal expenses incurred because of divorce. The Tax Court ruled that shareholder could deduct that portion of legal fees paid to regain possession of corporate assets and resume normal business operations. Liberty Fending, Inc., TC Memo 1998-177.
Automatic 40l(k) Enrollment Approved by Internal Revenue Service; "Simple" Plans Automatically Pass the Tests. In Revenue Ruling 98-30, I.R.B. 1998-25(June 22, 1998),the IRS approved of automatic enrollment in 401(k) plans, and provided that the employee's failure to make the election will not disqualify the employee's deferred amounts from being treated as "elective" payments. This should make it easier to pass the ADP and ACP tests for non-discrimination. In Rev. Proc. 97-9 I.R.B. 1997-2 (January 13, 1997), the IRS provided model amendments that an employer may use in adopting a SIMPLE 401(k) plan, which automatically meets the tests of non-discrimination. See Notice 98-4, I.R.B. 1998-2 (January 12, 1998) for guidance on SIMPLE plan provisions.