Walter | Haverfield’s Alexis Kim explained the Bipartisan Budget Act of 2018 in the Cleveland Metropolitan Bar Journal. The act provides an exception to the excess business holding rules for certain philanthropic businesses.


Walter | Haverfield partner Gary Zwick was quoted extensively in an article in Tax Notes, which is a premier national publication in tax law. Gary discussed the benefits of family limited partnerships and the tax ramifications when those partnerships are liquidated.


Individuals and businesses have until February 15 to pay unreported or underreported tax liabilities and avoid penalties, reduce interest costs

Individuals and businesses that owe unreported or underreported tax liabilities as of May 1, 2017, have an opportunity to avoid all tax penalties and cut the interest they owe in half if they act by February 15, 2018. The special offer is part of the new tax amnesty program announced by the Ohio Department of Taxation in November. The program takes effect January 1, 2018, and only applies to tax liabilities that are unknown to the Department of Taxation.

Residents, as well as nonresidents of Ohio, are eligible as long as they have not already received a notice of assessment and are not currently under audit.

Types of taxes covered under the amnesty program include:

  • Individual income tax
  • School district income tax
  • Employer withholding tax
  • Employer withholding for school district income tax
  • Pass-through entity tax (primarily for out-of-state businesses)
  • Sales and use taxes
  • Commercial activity tax
  • Financial institutions tax
  • Tobacco and alcohol tax

In some cases, nonresidents and out-of-state businesses may not have been aware of their Ohio tax obligation. It’s important to note that most income, purchases or commercial transactions that originate in Ohio are subject to Ohio taxes. Such previously unknown liabilities are covered under the new amnesty program.

On September 15, 2017, Gary A. Zwick will address the topic, “Handling Common Business Tax Issues,” at the NBI Seminar (“Business Law: Start to Finish“), in Akron, Ohio.

In the August 2017 issue of The Tax Adviser, Alexis J. Kim authored an article titled, “Contributions to quasi-governmental public-private partnerships.” Through this article, donors may gain a better understanding of how a Sec. 115(1) organization can receive tax-deductible donations without having an IRS determination letter, and quasi-governmental agencies may secure a framework to use, in conjunction with tax counsel, during formation and ongoing operations, to comply with Secs. 115 and 170.

In an article published in the July/August 2017 issue of Ohio Township News and titled, “Private Letter Rulings Help Six Ohio Land Banks Aggressively Pursue More Land Donations,” Alexis J. Kim explained Walter | Haverfield’s role in securing IRS private letter rulings for six Ohio land banks.

In an article written by reporter Dan Shingler and published in both Crain’s Cleveland Business and Crain’s Akron Business, Alexis J. Kim discussed a letter issued recently by the IRS, which essentially guarantees a tax deduction for donors to the Summit County Land Bank.

In a Crain’s “Legal Guest Blog,” published on June 16, 2015 and titled, “Renting out your home during the 2016 Republican National Convention: windfall or tax liability?,” Alexis J. Kim advised homeowners to be aware of the tax consequences of renting their homes during the RNC next year, and to consider these consequences when negotiating rental agreements.

Clients frequently seek legal advice when they are considering the start-up of a new venture or investing in an existing business. Challenging aspects of these deals include the tax issues that arise by virtue of different investors contributing different mixes of resources to the venture.

Consider that some clients are the idea people who hold a patent or copyright or perhaps just have an idea in the conceptual stage. Others will provide tangible capital needed for the new business in the form of cash, real estate, equipment, etc. Others may contribute knowledge or other assets, such as a customer base, industry know-how and experience, a great “Rolodex” of contacts, or even an existing business with goodwill value. Then there are the service providers–those who contribute no property or capital but who will bring the “sweat equity” needed to convert tangible and intangible property into profits.

All of these clients could incur tax burdens differently, depending somewhat on the form of entity being created in order to conduct the venture. Selections include different types of corporations, limited liability companies, limited partnerships, or perhaps no entity at all in certain situations. In planning the formation of the entity, each participant must be careful not to trigger immediate income tax liabilities when contributing the property or services.

Federal tax law contains many intricate and detailed provisions governing the tax treatment of receiving an ownership interest in a new venture. The rules differ somewhat depending on whether the venture is in the form of a corporation or an entity taxed as a partnership (which includes limited liability companies). However, certain general principles apply to both.

For example, if an investor is awarded an ownership interest by contributing only services to the venture (whether the services were already performed or are to be performed in the future), that person will probably have to include the value of the ownership interest in taxable income. This is rarely a desired result. This treatment differs dramatically from that of a person who contributes property to the venture, whether that property is tangible (real estate, equipment, cash) or intangible (intellectual property, patents, copyrights). Generally a contribution of property to a new venture, in exchange for an ownership interest, is a non-taxable event.

There are, of course, exceptions to these general rules, including a couple of common techniques for the “service partner” to avoid suffering immediate taxation on the receipt of the ownership interest. One way is to subject the ownership interest to a “substantial risk of forfeiture.” For example, the shareholder or partner in the venture may have to wait for a period of years until free control of the interest is granted. The ownership interest might be contingent on continued employment or the venture achieving certain profitability goals. If the contingencies are not met, the ownership interest might be subject to partial or total forfeiture. Until that restriction is lifted, the holder of the interest is not taxed on the value of the interest.

Another method to avoid immediate taxation applies to members of LLCs and partners of partnerships. The owner could receive a “profits interest” in the venture, rather than a full ownership interest. Immediate income taxation is avoided when receiving a profits-only interest. However, there is a trade-off in that the holder of the profits interest will not fully participate in distributions upon a capital event such as the complete sale of the business or liquidation of the venture.

Even further complications must be addressed when a restricted ownership interest is granted to a participant in the joint venture that is taxed as a flow-through entity (such as an S corporation or a partnership). During the restriction period, there is an issue of who is allocated income on the IRS Form K-1 from the venture. A recent U.S. Tax Court case addressed this issue where an individual executive received a 2% interest in a joint venture, conditioned on continued employment in the venture. The tax advisors of the venture prepared the partnership tax return for the first two years and issued a Form K-1 to the executive, causing him to pay personal income tax on 2% of the profits of the venture. He later contested this result, arguing that as a restricted owner he should not be allocated any profits during that period. The Tax Court agreed with the executive and concluded that, under federal tax law, he was not to be treated as a partner of the partnership for income tax purposes during the period when he could forfeit the ownership interest.

This discussion touches the surface of the types of tax issues that participants will face in the formation stage of a joint venture. There are more in-depth issues that will need analysis to ensure that each participant does not receive an unpleasant surprise when it comes time to report the tax results of the business ownership.

An article co-authored byandnbsp;Gary A. Zwickandnbsp;and published in theandnbsp;Journal of Financial Service Professionalsandnbsp;was recently awarded one of three Kenneth Black, Jr. Journal Author Awards for best article of the year. This article, titled “Why Tax Minimization is Overrated in Estate Planning,” appeared in theandnbsp;Journalandnbsp;in March 2013 and was co-authored by James Jurinski, a professor at the University of Portland and a practicing attorney in Oregon.

Byandnbsp;Gary A. Zwickandnbsp;and Lacie L. O’Daire.

On December 30, 2013, the Internal Revenue Service issued its long-anticipated “Safe Harbor” guidance for transactions in which federal Historic Tax Credits are employed to raise capital for real estate redevelopment projects. The guidance was issued in the form of Revenue Procedure 2014-12. To access the full text of Revenue Procedure 2014-12, please follow the link at the bottom of this Client Alert.andnbsp;

The guidance was issued in response to requests for clarification of the IRS position taken in the case ofandnbsp;Historic Boardwalk Hall, LLC v. Commissioner, decided in 2012 by a federal court of appeals. Theandnbsp;Historic Boardwalkandnbsp;case had a chilling effect on pending and new projects which would utilize federal historic tax credits to aid in capital formation for redevelopment of historic structures. It has been anticipated that the guidance would bring stability and certainty to this segment of the real estate industry, which was thrown something of a curve ball in the 2012 decision.andnbsp;

Generally speaking, the IRS re-emphasized a key outgrowth ofandnbsp;Boardwalk Hallandnbsp;- HTC deal structures must ensure that “investors” (owners who are not developers or do not manage the project) share in both the upside and downside risk associated with the project. In IRS-speak, investors should have “a reasonably anticipated value commensurate with the Investor’s overall percentage interest.”andnbsp;

The guidance provides a road-map for HTC-structured transactions to utilize in the future. Among other things, the Safe Harbor guidelines: (i) provide clear minimum equity interest requirements for the developer/sponsor and the investor; (ii) define minimum investor contribution percentages and related timeframes as to when such contributions should be advanced; (iii) create categories of permissible and impermissible guarantees; and (iv) set forth a strict prohibition against developer/sponsor calls (as to the purchase of the investor’s interest).andnbsp;

The Safe Harbor applies to allocations of HTCs on or after December 30, 2013. If transactions which closed prior to this date meet the Safe Harbor guidelines, then the IRS will not challenge the later allocations of HTCs to the extent of the subject matter contained in the guidelines.andnbsp;

This Client Alert is intended to give only a brief overview of the Safe Harbor guidelines. There are other requirements not summarized above that will require detailed analysis for each transaction. It is too early to predict how investors, in particular, will seek to change the structure, pricing and other terms of Historic Tax Credit-related transactions given the guidance provided by the IRS, but deal changes seem likely. Please consult us to provide further advice.andnbsp;

“Drafting Formulas Based on EBIDTA,” The Practical Tax Lawyer

“Intra-Family Loans,” Probate Law Journal of Ohio

Byandnbsp;David E. Schweighoefer andandnbsp;Lacie L. O’Daire

The laws requiring changes to health care and benefits provided by employers are either already in force or will be in force in the next year or two. The impact upon you and your business will be greatly dependent on the actions you take in 2013.

If you have fewer than 50 full-time employees (counting certain part-timers as full-time equivalents), then the new law does not affect you, except for changes that medical insurance companies will be making to all of their health plans which may impact your coverages and costs. However, if you do not currently provide health insurance, or it does not currently comply with new law requirements, you may choose to provide health insurance to your employees and receive tax credits from the federal government, through 2014, in order to reduce your costs. Regardless of what path a small employer chooses, however, the tax penalties and the requirement to offer health insurance will not apply to you. However, if you grow in the future and begin nearing that level of employment, there are some decisions which you will need to make, so it’s important to remain vigilant.

If you employ over 50 full-time employees, you need to pay attention and take immediate action. For this purpose, even if you don’t feel large, you are referred to as a “Large Employer” or an LE. If you are an LE and currently provide health insurance to your employees, you will be exempt from many of the new law requirements if you make no changes to your current plan. Your plan will be “grandfathered.” If you have a plan and you do not do any of the following, you can maintain your grandfathered status. The prohibited changes are:

  • You may not increase the employee cost over certain inflation-adjusted amounts, including co-pays, co-insurance and deductibles;
  • You may not reduce the employer contribution to the cost by more than 5%;
  • You may not significantly cut or reduce benefits; and
  • You may not add a new annual limit on benefits or tighten an existing annual limit (with at least one exception).

If you qualify as a grandfathered plan, you are exempt from some – but not all – of the new law requirements. You are exempt from the requirement to provide preventative care coverage, the additional patient protections in the selection of medical providers and in preauthorization, the requirement that premiums must not discriminate in favor of the highly-paid, the guaranteed coverage requirement, and the new non-discrimination rules on coverage under the plan for fully-insured plans.

However, even if you are grandfathered, you still must comply with the following requirements:

  • Extension of coverage to dependents (not spouses) up to age 26;
  • Elimination of lifetime and annual limits by 2014;
  • Elimination of pre-existing conditions exclusions;
  • Limits on rescissions of coverages in the case of fraud or intentional misrepresentations.

Therefore, you may find it important that you qualify to be grandfathered. We understand, though, that many insurers are telling their clients that they cannot be grandfathered, or that it will be too costly. If grandfathered status is important to you, we recommend that you shop carefully and be wary of some of the information which you are receiving. If you qualify as a grandfathered plan, be sure to avoid making the changes that are outlined above, since they could jeopardize your grandfathered status.

If you are an LE and do not have a grandfathered plan, your plan – beginning in 2014 – must meet all of the requirements set out above (there are 9, in case you are counting). If it does not, there are two sets of tax penalties that could potentially apply to you. In addition, even if you do comply, but at least one of your full-time employees seeks coverage from one of the exchanges, you could be subject to a penalty. One of these penalties is not onerous; in fact, some employers will choose to incur the penalty instead of paying for the coverage. The other could be quite onerous and needs your full attention.

There are a number of time-sensitive considerations that employers must monitor:

  • You could reduce the number of people who must be offered medical insurance under your health plan by strategically selecting a period of time – at least three months and not more than 12 months before 2014 – to test for full-time or part-time status. This is known as the “look-back” safe harbor.
  • A second consideration – if you are considering a merger, acquisition or re-structuring, and the principal purpose of the restructuring is to cover individuals under a grandfathered plan – is that the health plan you offer will lose its grandfathered status.

So what actions should be taken? Here are our recommendations:

  • Determine if you are an LE; if yes, go further;
  • Determine if you have a grandfathered plan, whether that is advantageous to you, and how to maintain grandfathered status;
  • If you are not, or will not, be grandfathered, then determine the cost of upgrading your current plan to meet the new law requirements; compare that with the penalty for not doing so and determine if you will comply;
  • If you are going to comply, then you still need to take steps to be sure that no employee who is offered comparable coverage goes to an exchange;
  • If you are not going to comply, determine how to pay the penalties;
  • Regardless of what action you take, you will have additional payroll reporting requirements; make sure that you understand and comply with them;
  • Check with your insurer to see if they are prepared to issue the new Statement of Benefits and Conditions; the format has been changed extensively, and all insurers must comply;
  • Review all notices to employees as they pertain to insurance plan changes well in advance of the new notice requirements, and remember to think of required board-level meetings or other decision-making processes that need to occur in time for proper notice of changes to employees.

The new law is extensive and there is no one-size-fits-all approach. Please contact us if we can assist you in making your decisions.

“Why Tax Minimization is Overrated in Estate Planning,” Journal of Financial Service Professionals, co-authored with James John Jurinski, JD, CPA

The year 2012 presents U.S. taxpayers with a gift planning dilemma. As the law stands today, and at least until December 31, 2012, every person may transfer up to $5,120,000 (“Estate Tax Exemption”) of assets to any one or more persons (excluding spouses) without incurring estate or gift tax obligations. For a married couple, that amount doubles, up to $10,240,000. This is in addition to the $13,000 that each person can gift annually to as many individuals as he or she desires ($26,000 for a married couple). The Estate Tax Exemption is reduced dollar for dollar for any annual gifts in excess of $13,000 ($26,000 for a married couple).

In addition, transfers to grandchildren and younger generations in trust are subject to a second layer of tax at the grandchild’s death, known as the generation-skipping tax. The generation-skipping tax system also exempts up to $5,120,000 of assets per transferor (also reduced for prior gifts exceeding $13,000 per year, per person to those who are in the grandchildren’s generation or younger).

President Obama’s proposed budget would reduce these amounts to $3.5 million ($7 million per couple). In addition, his budget would make dramatic changes to the use of unique planning opportunities offered by grantor trusts and grantor retained annuity trusts. It is highly likely that nothing will change before the November elections. After that, anything may happen – including nothing – which would take us back to the law as it was in 2001. This would reduce the $5,120,000 exemption to $1 million (with indexing, this is about $1,130,000). We have also been advised that even if these exemptions are reduced in 2013, taxpayers who take advantage of the higher exemption amount now will retain the full benefit of the current exemption, notwithstanding the fact that there may be a lower exemption at the time of their deaths.

For this reason, there is already a flurry of activity in the estate planning area for clients with significant wealth. Many are making outright gifts of significant amounts to children and grandchildren. Some are doing so using irrevocable trusts, in order to regulate distribution and protect trust assets from dissipation caused by divorce and creditor claims. People are living longer and the prospect of second marriages raises concerns for the senior generation. Trusts provide the grantor with the ability to preserve family wealth for the grantor’s bloodline.

Still others are employing leveraging transactions such as grantor trusts or grantor retained annuity trusts, which are specially crafted trusts that effectively increase lifetime gifting. Family limited liability companies continue to serve as valuable planning vehicles for both wealth transfer and asset protection. There are any number of powerful estate planning techniques that can be used to take advantage of the increased exemption in the most tax-efficient manner.

What if you cannot afford, though, to give up control of the wealth you transfer, but wish to lock in the $5,120,000 exemption? If you are married, one possibility is for each spouse to set up different trusts so that the other spouse has use of the gift during his or her lifetime and that, upon death, the property goes to the lineal descendants. If both spouses live to their “life expectancy” ages, the income and principal of the trust, within limits, will be fully available to the spouses making the transfer, for most of the rest of their lives. At the same time, the full exemption is used and the transfer could be exempt from estate taxation forever. Here is an example:

Rick and Leslie are married. Rick’s net worth is $20 million, consisting almost entirely of the value of the family business owned by Rick. Leslie’s net worth is $10 million, which includes the principal residence, a second home in California, about $4 million of investable assets and about $4 million of stock in the family business. Rick and Leslie expect their estates to pay an estate tax, at the death of the survivor, of at least $10 million. They want to take advantage of the current $5,120,000 per person exemption in 2012 and also remove appreciation in assets from their estates.

In February 2012, Rick established an irrevocable grantor trust. It provides that Leslie gets all of the income and principal, as needed, to support her lifestyle. Rick transferred his non-voting shares of the family business to the trust with a value of $5,120,000. A bank was selected as trustee.

In May 2012, Leslie decided to do something similar to Rick, except that her trust may, at the discretion of the trustee, accumulate income. In addition, the principal may be distributed to Rick, again at the discretion of the trustee, and his will contains a power of appointment which enables him to affect the relative ownership of shares of the trust by the next generation. One of Leslie’s trusted friends is the trustee.

Until the death of either Rick or Leslie, they will have the full benefit of the income and, potentially, the principal as needed from both trusts. When one dies, the survivor must be able to live without the income from 1/2 of the property, although life insurance can be purchased to protect against a premature death. In the alternative, certain limited powers of appointment may be used to prevent the loss of income on the first death.

There are also many other leveraged ways to take advantage of the current law. Do not be lulled into a false sense of security based upon the current $5,120,000 exemption. As noted above, we do not know what Congress will do, and there is a possibility that the exemption may revert to $1,130,000. Although no one can tell what will happen in the future, there are ways to lock in today’s law without giving up full control over the property you gift. For more information, please contact any of our Tax and Wealth Management Attorneys:

James Mackeyandnbsp;- 216-928-2921
Lacie O’Daireandnbsp;- 216-928-2901
Robert Horbalyandnbsp;- 216-928-2934

Executive Editor, 15th ED.andnbsp; Tools and Techniques of Estate Planning, published by National Underwriter Company

In the August 2010 issue ofandnbsp;The Tax Adviser,andnbsp;John E. Schillerandnbsp;discussed the potentially sensitive issue of trustee compensation in his article, “Trustee Compensation: Proceed with Caution.”

“Property Received in Exchange for Services,” Lexis Nexis On-Line Tax Encyclopedia

“Transferring Interests in the Closely Held Family Business,” Legal Treatise, published by ALI/ABA; 316 pages, co-authored with James J. Jurinski

“Tax and Financial Planning for the Closely Held Family Business,” Legal Treatise, published by ALI/ABA; 586 pages, co-authored with James J. Jurinski

“Golden Opportunities in Retirement Funds,” The Ohio Lawyer, co-authored with Armond and Amy Budish


June 12, 2020

The Ohio House of Representatives has unanimously approved a new tax amnesty proposal (HB 609), would raise revenues for the state and provide relief for taxpayers while Ohio’s economy recovers from the COVID-19 pandemic. This program, which is now under review by the Ohio Senate’s Ways and Means Committee, presents opportunities for our clients to minimize the costs of unreported and underreported tax liabilities.

Tax amnesty programs relieve taxpayers who owe past-due taxes and fees while raising revenue for the taxing authority. This creates a win-win situation. Without such programs, taxpayers who owe must pay penalties and accrued interest.

In economic downturns, tax planning is critical to ensure the long-term health of a business. Therefore, it’s important that our clients avail themselves of voluntary disclosure programs and tax amnesty programs offered by federal, state, and local taxing authorities to minimize the impact of delinquent or unpaid tax liabilities.

Details of the bill are as follows:

The Amnesty

The tax amnesty bill would establish an amnesty period during which taxpayers with unreported or underreported taxes could discharge their tax debts by paying the delinquent tax without paying the penalties and interest (the “amnesty”). The three-month, temporary amnesty period would run from January 1, 2021, to March 31, 2021.

Under this proposal, the Tax Commissioner must waive penalties and accrued interest if an eligible taxpayer pays the full amount of included taxes or fees during the amnesty period. The tax amnesty bill also authorizes the Commissioner to require a taxpayer to file returns or reports, including amended returns or reports.

In addition to the waiver of penalties and interest, the taxpayer would be immune from criminal prosecution or any civil action concerning the taxes paid. Further, no assessment may be issued against the taxpayer for that tax or fee.

Covered Taxes under the Proposed Tax Amnesty Bill

The amnesty only applies to covered taxes and fees and does not apply to local taxes.  Covered taxes include:

  • Ohio income tax
  • Commercial activity tax
  • State sales and use taxes
  • Financial institutions tax
  • Public utility excise taxes
  • Kilowatt hour tax
  • MCF (natural gas) excise tax
  • Insurance premium taxes
  • Cigarette/tobacco/vaping excise taxes
  • Alcoholic beverage taxes
  • Motor fuel excise tax
  • Fuel use tax
  • Petroleum activity tax
  • Casino wagering tax
  • Severance taxes
  • Wireless 9-1-1 charges
  • Tire fees
  • Horse racing taxes

The amnesty does not apply to school district income taxes or county and transit authority sales and use taxes. Further, the amnesty only applies to unreported or underreported taxes that were due and payable as of the bill’s effective date. It does not apply to any taxes if the Ohio Department of Taxation has issued a notice of assessment or audit, issued a bill, or if an audit has been conducted or is pending.

Past Tax Amnesty Programs

Ohio has conducted several general tax amnesty programs in the past. Ohio’s most recent tax amnesty program, conducted from January 1, 2018, through February 15, 2018, raised $14.3 million for Ohio’s coffers while it decreased the cost of compliance for taxpayers with delinquent or unreported taxes. Ohio also conducted tax amnesties in 2002, 2006, and 2012.

Utilizing tax amnesty and voluntary disclosure programs is one of several strategies to minimize the impact of falling behind on tax obligations, and Walter | Haverfield’s attorneys are monitoring all such opportunities. Let our attorneys apply their experience, passion, and attention to detail to help develop the best strategies to minimize the impact of tax liabilities.

To read more about this topic, click here for a Law 360 article titled “Ohio Oks Tax Amnesty To Boost Pandemic Recovery”

Vince Nardone is Partner-in-Charge of Walter | Haverfield’s Columbus office. He serves as a business advisor to owners and executives of closely-held businesses, counseling them on business planning, tax planning and controversy, cash-flow analysis, succession planning, and legal issues that may arise in business operations.

Mike Sorice is a law clerk in the Columbus, Ohio office of Walter | Haverfield. He recently graduated from the Ohio State University Moritz College of Law.