Business Law Brief (March, 2000)

The Business Law Brief ^sm(March, 2000)

New IRS Rules Require Lawyers & Accountants to Report Corporate Tax Avoidance.
New rules issued by the Treasury Department and the Internal Revenue Service require attorneys and accountants who promote tax shelters to their corporate clients to report any transaction where the "significant purpose" of the transaction is tax avoidance. Also under the new rules, businesses are required to report to the IRS whenever their book income (earnings reported to stockholders) significantly exceeds their taxable income, and also to report every payment to a tax shelter promoter that exceeds $100,000. In addition, the Clinton administration has introduced legislation that would make the "economic substance" doctrine a part of the tax code, so that the IRS does not have to attack each tax shelter on a case by case basis. As we go to press, we are unable to locate the rules online; rules may not yet be posted.
Small Businesses Take it on Chin Because of New Tax Law.
Based on a law which took effect on December 17, 1999, taxes on the proceeds from the sale of the assets of a business using the accrual method of accounting must be paid all at once, even if the proceeds are to be received in installments over several years. Businesses using the "accrual" rather than "cash" method of accounting count expenses and revenue in the tax year the transaction took place, even if they haven't been realized yet. Under the accrual method, sale proceeds are taxed in the year of the sale, even though not paid. Previously, an exception existed for asset sales of such businesses. The new provision was part of a much larger tax bill, so it went largely unnoticed. Under the new law, the lump sum tax payment can be avoided if the buyer purchases the seller's stock rather than seller's assets, but that would mean buyer also purchases seller's liabilities - and his cost basis in the stock. A coalition of business groups have asked Treasury Secretary Lawrence Summers to repeal the "onerous" law.
First Impression: "Additional Insured" Covered Only If Written Agreement.
A subcontractor allegedly agreed to name the general contractor as an additional insured under its comprehensive general liability insurance policy, pursuant to a verbal agreement. In a case of first impression under Illinois law, the Appellate Court has interpreted the typical policy language for "additional insureds" under such policies to require a written agreement, not a verbal one. Following a similar California case, the Court found that the injured party was not an additional insured because there had been no written agreement. U.S. Fire Insurance Co. vs. Hartford Insurance Co., No. 1-00-1847 (2-23-00) Cook County. Aff'd.
Insured Corporation by Definition Cannot Have "Family Members"
A corporation maintained a business auto insurance policy, under which an endorsement provided coverage for family members. When the corporation president's son was injured, the corporation made a claim under the policy, contending that "insureds" included owners of the company and their families. Refusing to follow cases in Connecticut and other states which granted coverage in such circumstances to the shareholders of closely held corporations, the Illinois Appellate Court held that "insured" under the policy meant corporation, not President, and a corporation by definition cannot have family members. Rohe v. CNA Insurance Co., No. 1-99-1350 (2/8/00). 1st Dist. Cook Co. Aff'd.
From the European Union: EU Investigates Microsoft for Possible Violation of EU Competition Laws.
EU Competition Commissioner Mario Monti announced the European Union's investigation of Microsoft's Windows 2000 operating system after several complaints were filed by a group of end-users, small computer businesses and Microsoft rivals. The complaints charge that Microsoft has unfairly bundled the operating system with other software in such a way that only its own products are fully interoperable, while those of competitors are not. The EU will investigate whether such conduct, if true, violates the EU's competition laws.
Trademark Interests Delay New Web Names: ICANN to Meet This Month.
Although at present the only non-governmental U.S. domain name suffixes permitted are .com, .net and .org, additional domain names, such as daily.news, chevy.cars, etc. have been on the drawing board since about 1995. The delay, commentators say, is that many large businesses are concerned about dilution of their trademarks. Promoters of the new suffixes ask why Ford Motor Company, for instance, would care if someone else owned ford.store as long as they were assured of getting ford.cars. The Internet Corporation for Assigned names and Numbers (ICANN), now in charge of the U.S. domain name system, will meet this month in Cairo to determine the specifics of a new system, and how soon it might be brought into play.
Congress Argues Tort Reform - Again.
Congress has been debating tort reform again, this time in the bill named the Small Business Liability Reform Act of 1999, now renamed the Small Business Liability Reform Act of 2000. House Resolution 2366 would cap punitive damages against businesses with fewer than 25 employees to $250,000. Punitive damages would be allowed only in cases where the plaintiff shows by clear and convincing evidence that the defendant engaged in particularly egregious misconduct. There are four versions of HR 2366, but the version that has progressed the farthest is the House Engrossed bill, which has now been sent to the Senate. To track its progress, go to http://thomas.loc.gov/ and search for HR 2366.
Good News, Good News and Bad News on the Employment Law Front.
Good News #1: Employment Liability Insurance is Now Available for Small Businesses. The U.S. Chamber of Commerce has joined forces with an insurance company, broker and labor law expert to develop a insurance and risk-management program for small businesses. "Chamber Preferred" is designed for businesses with up to 250 employees, and provides protection against employment law-related claims and punitive damages. For more information, contact www.uschamber.com.

Good News #2: No Award Under the ADA Unless Employee Requests an Accommodation. Although it found that the temporary employment agency involved ill-treated an employee suffering from colon cancer, the Federal Appeals Court ruled against the man on his disability discrimination claim, saying he never asked for help. In order to enjoy the protections of the Americans with Disabilities Act, 43 USC Sec. 12101, the employee should have requested an accommodation under the Act. Martin I. Robin vs. Espo Engineering Corp., No. 98-3909.

Bad News: Private Job-Discrimination Lawsuits Tripled During 1990's
You've Heard of Dog Years? How About Internet Time?
Refusing to enforce a restrictive covenant which would have prevented a website content manager from working for his new employer for one year after leaving his former employer, New York Judge William H. Pauley III cited internet time as the reason. Given the dynamic nature of the industry, it's lack of geographical borders, and the employee's success in keeping abreast of daily changes in content on the internet, Judge Pauley said a year was simply too long. Earthweb vs. Schlack, 99 Civ. 10035.
Is FedEx's "Home Delivery" For You?
In an attempt to compete with United Parcel Service (UPS) and the U.S. Postal Service, who have increased revenues with e-commerce deliveries, FedEx has launched its new service called "FedEx Home Delivery." (Business service will be renamed FedEx Express.) But FedEx's Home Delivery may not go where you are. Selecting only the top 38 markets, where 98% of the population resides, FedEx will not deliver to Des Moines, Iowa, or Omaha, Nebraska, for instance. And that's not the only problem. The same package which FedEx would charge $6 to deliver via ground shipment within 3 days would cost only $4 with UPS. Will FedEx's Home Delivery fly?

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