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Day Pitney Boston News, March 2012

Publisher: Day Pitney Newsletter
March 20, 2012

Calling All U.S. Taxpayers With Foreign Financial Assets: 
What You Need to Know About Reporting to Avoid Penalties

Article by Nancy N. Keller-Go

With tax day (April 17 this year) looming in the not-too-distant future, many taxpayers are flummoxed by the foreign financial asset reporting requirements. U.S. citizens, green card holders and U.S. income tax residents based on their number of days present in the United States must report and pay taxes on their entire worldwide income (arising from assets wherever situated in the world). In addition they must file certain forms disclosing their foreign assets -- and while there is no tax payment associated with these disclosure forms, failing to file the required forms can result in severe penalties.

Here is a brief summary to help you figure out whether you need to file disclosure forms, what forms you need to file and by when you need to file them. This summary discusses requirements for individual taxpayers only; it does not cover requirements for entities.

There are two forms to watch for:

  • U.S. Treasury Form TD F 90-22.1 "Report of Foreign Bank and Financial Accounts." This form, commonly called the "FBAR," has been in existence since the 1970s. Federal income tax Form 1040 asks the question, "Did you have a financial interest in or signature authority over a financial account located in a foreign country?" If the answer is yes, you are directed to file the FBAR, which is filed separately from your income tax returns and due June 30. There is no extension of time available for filing an FBAR.

  • IRS Form 8938 "Statement of Foreign Financial Assets." New for this year and filed with your federal income tax return; this form is due April 17 this year, but if you extend your federal income tax return, this form will also be extended.

    Who needs to file?

  • No filing. You do not need to file either form if at all times during 2011 (i) you had $10,000 or less in aggregate (combined) foreign financial accounts and less than $50,000 in aggregate foreign financial assets, and (ii) you did not have signature authority over a foreign financial account. But, beware, the definitions of "foreign financial account" and "specified foreign financial assets" are extremely broad -- so if you have foreign assets in excess of $10,000, read on.

  • The FBAR must be filed by U.S. taxpayers who owned or had signature authority over foreign financial accounts with a total value exceeding $10,000 at any time during 2011. "Foreign financial account" is broadly defined and includes not only foreign bank and brokerage accounts but also foreign insurance and annuity policies. A financial account maintained with a branch of a U.S. bank that is physically located outside the United States is a foreign financial account. By the same token, an account maintained with a branch of a foreign bank that is physically located in the United States is not a foreign financial account.

  • Form 8938 must be filed by U.S. taxpayers who hold interests in specified foreign financial assets in excess of $50,000 (or, if married filing jointly, $100,000) on the last day of the calendar year, or in excess of $75,000 ($150,000 for joint filers) at any time during the year. (Higher thresholds apply for U.S. taxpayers residing abroad.) If you disposed of specified foreign financial assets during 2011 so that the total value of your interests in such assets was less than $50,000 (or $100,000 for joint filers) as of December 31, 2011, you may still need to file Form 8938 based on asset values during the year. The definition of "specified foreign financial assets" is broader than that of the assets reportable on the FBAR. It includes not only assets reportable on the FBAR but also shares of stock in foreign corporations and securities of non-U.S. issuers (including those listed on a foreign exchange), financial instruments and contracts having an issuer or a counterparty that is not a U.S. person, and any interest in a foreign entity (including foreign trusts and estates). If any of these foreign assets are held in a U.S. account, they need not be reported. If you do not have to file a U.S. federal income tax return for the tax year, you get a free pass on Form 8938 -- regardless of the value of your specified foreign financial assets, you do not have to file Form 8938.

  • Real estate and tangible personal property outside the United States owned directly by a U.S. person are not required to be reported on these forms; however, reporting on Form 8938 is required if the real estate is owned through a foreign entity.

    Penalties.

  • Failure to file an FBAR. Civil penalties for willful failure to file an FBAR can be as high as the greater of $100,000 or 50 percent of the balance in the foreign account(s). These penalties may be assessed for every year in which there is a willful failure to file and so can easily exceed the value of the accounts themselves. Criminal penalties may also apply for willful violations. There are reduced penalties for nonwillful violations, and penalties may be waived if there was a reasonable cause for the failure to report. Generally, if a taxpayer has reported all income from foreign accounts on his or her U.S. income tax returns, this is a strong mitigating factor.

  • Failure to file Form 8938. Failure to file Form 8938 carries a base penalty of $10,000 (and additional penalties of up to $50,000 for continued failure to file after IRS notification). Underpayment of tax attributable to undisclosed foreign financial assets is also subject to an additional substantial understatement penalty of 40 percent.

    If you are unsure of whether these reporting requirements may apply to you or you have questions about complying with them, please let us know.

    We are required under IRS Circular 230 to include the following: Any tax advice provided herein is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties that may be imposed on any taxpayer.

    This communication is provided for educational and informational purposes only and is not intended and should not be construed as legal advice.





    Massachusetts Wage and Hour Laws:
    The Top 10 Violations

    Article by Claudia T. Centomini

    Many employers commit the same wage and hour violations today that were prevalent 20 years ago. Before I began working in private practice, I was a prosecuting attorney for the Massachusetts agency that enforced the wage and hour laws.[1] In that position, I quickly realized that many Massachusetts employers were unfamiliar with the wage and hour requirements in the commonwealth and found themselves in criminal court defending their pay practices.[2]

    I have developed a list of the 10 most common mistakes Massachusetts employers have made over the past two decades and continue to make, with the goal of providing guidance to employers in determining whether they need to revise their pay policies and practices.

    1. Untimely payment of wages

    It is an accepted practice for a Massachusetts employer to pay all of its employees on a semimonthly or monthly basis, but the employer is not always in compliance with the law. Massachusetts requires employees paid on an hourly basis to receive their paychecks on a weekly or biweekly basis. Salaried employees can be paid weekly, biweekly or semimonthly. Employers cannot pay salaried employees on a monthly basis unless the employee actually chooses to be paid monthly. Further, employers must pay employees within six days of the close of the pay period for which the wages were earned when the employee works five or six days/week. If the employee works seven days in a week, the employer must pay the employee within seven days. Employees who work overtime must receive their overtime pay in the same pay cycle in which the overtime hours were worked. Overtime payments cannot be delayed into the next pay cycle or paid on a monthly basis.

    2. Failure to pay wages upon termination

    An employer must pay on the final day of employment all wages owed to an employee who is terminated or laid off. When an employee leaves voluntarily, the employer can wait and pay all of the employee's wages by the next regular payday.

    3. Mischaracterization of employees as exempt or nonexempt

    Similar to the Fair Labor Standards Act under federal law, Massachusetts law establishes categories of employees who are exempt from the minimum wage and overtime laws. Massachusetts has adopted the same categories as the Fair Labor Standards Act for bona fide executive, professional and administrative exemptions. Massachusetts also has its own statutory list of employees who are exempt from minimum wage and overtime laws. Oftentimes companies categorize all of their employees as exempt from overtime laws, but in reality, the law is designed to have most employees be eligible for overtime pay.

    4. Failure to pay overtime for salaried employees

    Employees who are eligible for overtime pay must be paid one and a half times their regular rate for every hour worked after 40 hours.[3] Oftentimes, an employer will unknowingly violate the overtime laws because the employer believes overtime pay is already incorporated in the employee's salary. Massachusetts law does not allow an employer to "incorporate" overtime pay into an employee's salary. In addition, the mere fact that an employee is paid a salary does not mean the employee is ineligible for overtime pay. The employee's eligibility status is related to the type of work the employee performs as well as a threshold minimum salary of $455/week that the employee must be paid.

    5. Misclassification of employees

    Employers often attempt to, but they cannot, avoid the requirements of the wage and hour laws by classifying individuals as independent contractors when indicia state that they are employees. Massachusetts law presumes an individual is an employee unless the individual (i) is free from the employer's actual control and direction; (ii) performs a service that is "outside the usual course of business of the employer"; and (iii) is "customarily engaged in an independently established trade, occupation, profession or business of the same nature as that involved in the service performed." M.G.L. c. 149, § 148B. With respect to the second prong of this test, the Massachusetts attorney general has stated that in its enforcement actions, it "will consider whether the service the individual is performing is necessary to the business of the employing unit or merely incidental in determining whether the individual may be properly classified as other than an employee under prong two." See "An Advisory from the Attorney General's Fair Labor Division on M.G.L. c. 149, s. 148B." 2008/1.

    6. Improperly taking deductions from wages

    Without hesitation, employers deduct from employees' wages payments for, among other things, damage or losses to company property, monies stolen or embezzled from the company, school tuition, moving expenses and educational benefits. Some of these deductions are unlawful. Last year, the Massachusetts Supreme Judicial Court addressed a company policy whereby employees who were determined to be at fault for causing damage to company vehicles could accept the cost of the damage against their wages or accept disciplinary action. Camara v. A.G., 458 Mass. 756 (2011). The court determined the company's policy was an invalid setoff against the employee's wages because the company made itself the sole arbiter of the damage assessments, there was no appeal process for the employee and the damage assessment was not a "clear and established debt."

    What is a valid setoff in Massachusetts? There is little guidance on this issue.[4] The attorney general will make the determination on a case-by-case basis, evaluating the understanding between the employer and employee, the reason for the setoff agreement and the employer's overall practice for wage deductions, as well as other pertinent factors.

    7. Unlawful prepayment of wages

    An obscure court decision from 1959 that remains in effect interpreted the Massachusetts wage laws to prohibit an employer from paying wages prospectively. American Mut. Liability Ins. Co. v. Commissioner of Labor & Industries, 340 Mass. 144 (1959). An employer therefore cannot pay a week, two weeks or a month in advance to avoid the timely payment of wages requirements outlined in Section 1 above.

    8. Failure to pay earned vacation time

    Vacation time accrued or earned "under an oral or written agreement" with the employer is treated like wages under Massachusetts law, giving employees the same statutory rights to pursue vacation time owed to them that they have for their hourly pay or salary. Frequently, an employer believes it can refuse to pay earned vacation pay or establish a policy that requires employees to forfeit earned vacation time. Massachusetts law, however, does allow an employer to cap the amount of vacation time an employee may accrue or earn. An employer can also implement a "use it or lose it" policy. A "use it or lose it" policy requires employees to use all of their accumulated vacation time by a certain date or forfeit all or part of it. It is also permissible for an employer to have a policy that allows the employees to "carry over" a certain number of hours of vacation time after the period for using the vacation time has expired. The attorney general will invalidate an employer's "use it or lose it" or "carryover" policy if the employee is not provided with adequate notice of the time limitations or a reasonable opportunity to use the accumulated vacation time before it expires.

    9. Mischaracterization of commissions and bonuses

    A commission is compensation earned for services performed in accordance with the employer's policy or an agreement between the employer and employee. Commissions are usually compensation for selling a product or company service. A bonus is performance-based compensation in addition to the employee's salary. Like vacation pay, Massachusetts recognizes earned commissions as wages. Once an employee earns a commission, the employer must pay the commission to the employee. Commissions are often mischaracterized as bonuses, which are not wages under the law and not statutorily required to be paid.

    10. Requiring work on Sundays and holidays

    Massachusetts prohibits many types of businesses from opening on Sundays and certain holidays. Special provisions applying to certain retail establishments that choose to operate on Sundays require payment of premium pay and prohibit employers from requiring employees to work on Sundays.

    This checklist is intended to provide Massachusetts employers with a brief overview of Massachusetts wage and hour laws and alert employers to the common traps into which many employers fall. This checklist, however, does not provide a comprehensive review of Massachusetts wage and hour laws. Employers should review their practices and policies with counsel if they believe after reviewing this checklist that they might not be in compliance with Massachusetts law.

    __________________________

    [1] Before 1993, the Department of Labor & Industries enforced Massachusetts wage and hour laws. At the time, wage and hour violations were criminal violations and punishable by fines and incarceration in the House of Corrections. The Massachusetts Legislature expanded the wage and hour laws in 1993 by adding civil fines and a private right of action for individuals to pursue wage and hour violations in civil court. In addition, the Fair Labor Division of the Massachusetts attorney general's office became the enforcing authority for Massachusetts wage and hour laws in 1993.

    [2] Massachusetts requires that the employer pay treble damages, attorney fees and costs when a court determines that the employer has violated the wage laws.

    [3] The regular hourly rate for a salaried employee is determined by dividing the weekly salary by 40.

    [4] The attorney general presented three examples to the Supreme Judicial Court in Camara. The examples were (i) proof of an undisputed loan or wage advance from the employer to the employee; (ii) a theft of the employer's property by the employee, as established in an "independent and unbiased proceeding" with due process protections for the employee; and (iii) a judgment against the employee for the value of the employer's property.





    The New Economic Policy in Massachusetts

    Article by William M. Pezzoni and Jared P. Ross


    In August 2010, the Massachusetts Legislature passed and the governor signed into law "An Act Relative to Economic Development Reorganization," Chapter 240 of the Acts of 2010, requiring every administration to develop an economic development policy and strategic plan for the commonwealth.[1] In response, over the course of eight months, an economic development council consisting of private and public sector representatives and led by Secretary of Housing and Economic Development Greg Bialecki met to discuss economic policy for the commonwealth. In December 2011, the council released a publication titled "Choosing to Compete in the 21st Century: An Economic Development Policy and Strategic Plan for the Commonwealth of Massachusetts" (the "Plan").[2] The Plan is currently under review before a joint committee of the House of Representatives and the Senate.

    While the plan highlights the wealth of economic development resources already available in Massachusetts, it also underscores, among other things, the importance of supporting both the "innovation sector" and infrastructure/housing in growing our economy.

    Innovation sector

    The Plan emphasizes that support for the innovation sector is crucial to the development of the economy of the commonwealth. The "innovation sector" is a term used to describe the economic sector in Massachusetts that includes well-established industries such as health care, higher education, technology, financial services and tourism as well as emerging sectors such as life sciences, clean energy and the creative economy. As the Plan notes, one hallmark initiative already bolstering the innovation sector is the commonwealth's $1 billion Life Sciences Initiative, bridging industry, academia and government to bring about innovations in pharmaceuticals, medical devices, clean energy and biotechnology. The initiative is run by the Life Sciences Center and seeks to invest government funds to foster research and development efforts of academic and private organizations. New products resulting from this initiative have driven and supported the economic growth of the commonwealth and will be the cornerstone of its economic development policy for the foreseeable future. New advancements in these areas manifest as new businesses are supported by a work-force pool drawn from the quality educational institutions in the state. The primary businesses rely on supporting businesses for products and services not sourced in-house, which drives an industry composed of supporting collateral businesses and services. Primary and collateral businesses also spawn complementary organizations to provide basic individual and business services, which drives economic growth to multiply exponentially.

    The "innovation district" located in the Fan Pier area of Boston is another example of the innovation sector in the commonwealth. In 2011, The Fallon Co. broke ground on the new 1.1 million-square-foot facility that will be the global headquarters of Vertex Pharmaceutical. The area has been dubbed the innovation district owing to the number of businesses in the innovation sector that have secured space in the area, which has become an incubation hub for emerging technology. Leasing activity is rising for smaller businesses that support and complement Vertex, and also for businesses in emerging sectors such as video games, energy and other technologies.

    Activity in the Fan Pier area mirrors the increased activity in the innovation sector across the state, due in large part to state initiatives such as the $1 billion Life Sciences Initiative that provided a critical bridge in the research and development of new technologies in the academic and private sectors and allowed new products to be brought to market. Success was found in related programs such as the Nanotechnology Center at UMass Lowell; the Holyoke Green High Performance Computing Center sponsored by Cisco and EMC, which partnered with MIT, the University of Massachusetts and Boston University; and also the Massachusetts Life Sciences Center's cooperative research matching grant program. These programs have achieved measurable success in linking research and development to the creation of marketable products, driving increased economic activity. The Plan also calls for more initiatives, such as the creation of the Massachusetts Growth Capital Corp., to complement the Plan's directives and to address the need of growing small businesses across the state to access capital.

    Infrastructure/housing

    The Plan emphasizes the need to improve infrastructure and housing in Massachusetts. Infrastructure (roads, public transit, broadband, ride-share, etc.) is critical to tie the economic hubs of the state together. Already, the commonwealth has enjoyed success in this area with its innovative Accelerated Bridge Program, which aims to ensure that the deterioration of bridges is addressed more quickly and at a great cost savings. Likewise, under the leadership of the Massachusetts Broadband Institute, more than 100 cities and towns in Central and Western Massachusetts will soon be brought up to speed and linked with the rest of the state through the development of an enhanced broadband infrastructure. This has already stimulated measurable results, as seen in an increase of efficiency and activity in health care and commerce in those regions.

    The Plan also notes that steps must be taken to tie the regional industry hubs of Boston, the Metro West/495 corridor, Worcester, Springfield, the South Shore, the Cape and the South Coast together through improved infrastructure. Specifically, all business sectors require multiple transportation options, buildings, communication infrastructure, energy, etc. Since there is great interrelation between the primary, supporting, collateral and complementary businesses/services in all these regions, they must be accessible to one another, and by their employees, through well-planned infrastructure advancements.

    With respect to housing, the Plan states that all employees need accessible, reasonably priced and diverse housing located in proximity to their employers. Along these lines, it emphasizes the need to offer varied types of housing at a number of different price points.

    Boston has already made strides in this area with its so-called "innovation units." Innovation units are designed to provide housing to individuals whose income is too high to qualify for traditional affordable housing but who are priced out of the luxury units that dominate Boston's housing inventory. The innovation units are smaller than most (500-600 square feet) and will be available at a better price point than the nearby luxury units. Common space is emphasized in buildings containing innovation units, with the idea being that unit occupants will congregate and share ideas in the common areas of the buildings.

    In addition, in 2011, the Boston Redevelopment Authority (BRA) approved Phase 1 of a three-phase project called Pier 4, located at 136-146 Northern Ave. Phase 1 is a $150 million mixed-use project on the waterfront with 625,000 square feet of residential space, 20,000 square feet of public civic space and 20,000 square feet of ground-floor retail space. The project will add 383 residential units to the housing stock, with 35 designated as on-site affordable units and 50 on-site innovation units. A similar mix of housing will be located in the nearby development by Archon Group (with Gerding Edlen Development) located at 319 A St. in the innovation district. The BRA approved the $100 million project in November 2011, which will add another 202 residential units, with 22 units designated as on-site affordable. The developer will also construct five off-site affordable artist live/work units at 63 Melcher St. as a commitment to the innovation district.

    It is clear Massachusetts is facilitating steps to continue to lead the country in economic development, calling on its wealth of resources including its skilled workforce, pre-eminent educational facilities, key life science resources, health care facilities, financial services, technology and government initiatives.

    ­­­­__________________________

    [1] http://malegislature.gov/Laws/SessionLaws/Acts/2010/Chapter240

    [2] http://www.mass.gov/hed/docs/eohed/economicdevpolicystrategy.pdf 





    An Interview with Carrie Webb Olson

    "Nearly every business has at least one trademark," according to Carrie Webb Olson, and this fact may explain why the business of Day Pitney's Trademark, Copyright and Advertising practice group is booming. "A brand name -- and how companies treat their brands -- can tell a consumer the entire story of a business, good or bad. Our job as trademark lawyers is to help clients recognize and understand the value in trademarks -- taking the legal principles behind the law and applying them to real-time marketing and business decisions."

    As chair of Day Pitney's Trademark, Copyright and Advertising practice group, Carrie, along with a team of 20 attorneys, paralegals and specialists, tackles a diverse docket of client needs. Carrie and her team are constantly on the move, whether reviewing large-scale advertising campaigns for a global financial services firm, clearing trademarks for use and registration by a new apparel company, advising a well-known sports and entertainment enterprise on brand expansion, managing the international trademark portfolio of a venerable yacht manufacturer, protecting the name of a leading health and wellness company, or shoring up copyright protections for a wildly successful online gaming site.

    "The wide variety of questions that I receive is what makes the practice so exciting. We are at the forefront of rapidly evolving business models, helping our clients navigate and protect their rights in the global economy and in the boundless territory of the Internet." We were able to convince Carrie to take time out of her busy schedule to answer some questions about her trademark practice.

    1. How did you become involved in trademark law?

    I am fascinated with the "business of brands" and the extraordinary power they have in local and global marketplaces. I grew up in the hospitality industry -- this training provided the foundation for my keen focus on quality and customer service. As a consumer, I have high standards for quality and service. Every experience a consumer has with a particular trademark shapes his or her perception of what that brand and company represent. The fact is, consumer perception of a business is a significant factor in driving the value of a company and its products and services. When companies (and individuals, who also have "brands") commit to the highest standards of excellence, the brand value soars. There is a direct relationship between a brand owner's awareness and management of its trademarks and its ability to be a conscientious participant in the international economy. My work helps companies identify their assets (and liabilities), and we work together to protect and strengthen their standing in the marketplace.

    2. What keeps you interested in trademark law?

    Because trademarks are "born" out of creative minds, the work is always interesting. I enjoy being around innovative and entrepreneurial people and find it rewarding when I can contribute to their efforts.

    Most clients find this area of law interesting and want to learn more. When launching new endeavors, our basic mantra is (1) pick a name that is distinctive -- one that sets your product and/or service apart from your competitors, (2) clear the trademark to make sure that use will not infringe on another's rights and (3) understand where your rights will start and stop with respect to the proposed mark -- you don't want to invest in a brand that has little strength to differentiate itself or one that can't be protected from encroachment by third parties with confusingly similar marks. Determining whether a mark is "available" and "protectable" often feels like a form of art. Delivering the analysis to clients is a balancing act, with the law on the one hand and marketplace and business realities on the other.

    There are constantly changing opportunities and challenges in this area of the law. The Internet and electronic commerce is a big part of our practice. Ten years ago we were fighting for the rights of brand owners against "cybersquatters" who were registering trademarks as domain names; now we are counseling clients on trademark issues relating to keyword advertising and Internet search engine optimization strategies.

    The diversity of our practice has me working with numerous industries all around the world. It is fun to work with a small-to-midsize company that is just learning about trademarks and how they can be used (and need to be protected) to increase market presence. I enjoy helping business and marketing professionals understand the basic principles of trademark law, which, once learned, can be aligned with business goals, resulting in a positive experience with a new brand name.

    I also enjoy the relationships with in-house counsel of large, publicly traded companies that have hundreds of trademarks in hundreds of countries. The strategies and objectives can be more complex and involve different issues, including understanding the differences in trademark laws around the world, managing ownership interests and planning for acquisition or divestiture of the assets.

    Every day when I check my e-mail, there are inevitably unique challenges and opportunities.

    3. Has your legal practice changed your everyday (nonlegal) life?

    As a consumer, I am always assessing product names and judging, in the first instance, whether I think the mark is a "good" one and considering the challenges and opportunities for the owner with respect to effective trademark management. I can't help but take frequent note of improper trademark use.

    My children are now trademark savvy -- we eat Cheerios® cereal, buy Ugg® boots and use Kleenex® tissues. I like to develop brand awareness in our kids, not only so they can become sophisticated consumers (particularly in the online world with the proliferation of advertising directed to children), but also to introduce them to the business behind the products and/or services they consume.

    "Brand-wise consumers make informed decisions; brand-wise companies can count on their trademarks representing the real value and good will the company has worked so hard to build," Carrie concluded. And with that, she ended the interview, picking up the phone to respond to a client concerned about a potential infringement matter.

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