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Texas Law Update: Statute Of Limitations, The Discovery Rule, And Fraudulent Concealment

On January 13, 2023, the Texas Supreme Court issued its opinion in Marcus & Millichap Real Estate Investment Services of Nevada, Inc. v. Triex Texas Holdings, LLC, __ S.W.3d __, 2023 WL __ (Tex. Jan. 13, 2023) (per curiam) (“Triex”). The opinion addresses the discovery rule and fraudulent concealment, being legal principles used by litigants to extend the statute of limitations for what would be a stale claim. Importantly, the Triex opinion adds color to the Texas Supreme Court’s opinion of Berry v. Berry, 646 S.W.3d 516 (Tex. 2022) (“Berry”). In Berry, the Court brought Texas law back to plumb on the subject of limitations and the discovery rule. In Triex, the Court leans on Berry and reaffirms its key principles of law. This Insights blog aims to capture the key points from both.

A. Purposes, Burdens of Proof, and Accrual of Statutes of Limitation

Statutes of limitations exist to compel the assertion of claims within a reasonable period. “‘It is based on the theory that the uncertainty and insecurity caused by unsettled claims hinder the flow of commerce.’” Computer Assocs. Int’l, Inc. v. Altai, Inc., 918 S.W.2d 453, 455 (Tex. 1996) (quoting Safeway Stores, Inc. v. Certainteed Corp., 710 S.W.2d 544, 545 (Tex.1986)).

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Employer Liability for Acts of Employee

Employer Liability for Acts of Employee | Texas Supreme Court Revisits Vicarious Liability, the “Come-And-Go” Rule, and the “Special-Mission” Exception Share this Article

On December 30, 2022, the Texas Supreme Court issued its opinion in Cameron International Corporation v. Martinez, __ S.W.3d __, 2022 WL __ (Tex. Dec. 30, 2022) (per curiam) (“Cameron”). The opinion addresses vicarious liability, the “coming-and-going rule”, and the special-mission exception to that rule, all being important legal concepts for any employer to appreciate.

The issue in the case was whether an oilfield worker acted within the course and scope of his employment when he was involved in a deadly car accident on the way back to a worksite after having dinner with his supervisor and stopping to purchase personal necessities for the worksite.

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Yeah, Science! IRS Issues Guidance Section 501(c)(3) Scientific Organizations

In the Netflix series, Breaking Bad, character Jesse Pinkman exclaimed, “Yeah, Science!!” as his meth-lab mentor, Walter White, displayed how chemistry can be used to hone their joint venture. While the activity in which they were engaged may have been “scientific,” I doubt that activity would qualify as “scientific” as that term is used in section 501(c)(3), Title 26 of the Internal Revenue Code.

Under section 501(a) of the Code, an organization described in subsection 501(c) shall be exempt from federal income taxation. Organizations qualified under section 501(c)(3) include organizations organized and operated exclusively for, among other listed things, religious, charitable, educational, and scientific purposes.

The Treasury Regulations (26 C.F.R. § 1.501(c)(3)-1(d)(5)) provides a lengthy definition and explanation of the term “scientific” as used and intended in section 501(c)(3). In a nutshell, a scientific organization must be organized and operated in the public interest. Research, for example, must be for the public interest and not the type ordinarily carried on as an incident to commercial or industrial operations. Research may qualify under section 501(c)(3) if: (a) the results are made available to the public on a nondiscriminatory basis; (b) the research is performed for the United States, or any of its agencies or instrumentalities, or for a State or political subdivision thereof; or (c) the research is directed toward benefiting the public.

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Correction to APA Non-Compliance | IRS Issues Proposed Regulations for Syndicated Conservation Easements

We have been heavily involved in advising on and defense of conservation easement charitable contributions authorized under section 170, Title 26 of the Internal Revenue Code. Whether in formation of compliant arrangements or in defense of allegedly tax non-compliant transactions, Freeman Law has seen or reported on just about every issue that can be dug up from the Code or the related Treasury Regulations. See Freeman Law Insights blog archives for Conservation Easements or search “conservation easements” on our Insights blog.

In early November 2022, Freeman Law—in its ever-timely Tax Court in Brief blog—provided a focused report on the pivotal syndicated conservation easement opinion from the U.S. Tax Court in Green Valley Investors, LLC v. Comm’r.

Since I manage the Tax Court in Brief blog for the Firm, I can report that my colleague, Matthew Roberts, enthusiastically accepted the blog assignment (as he does any time I submit a Tax Court blog assignment to his care). Based on review of Green Valley, Mr. Roberts concluded that the Tax Court found that the IRS Notice 2017-10 is a legislative rule that was improperly issued by the IRS without notice and comment as required under the Administrative Procedures Act, 5 U.S.C. §§ 551-559. Mr. Roberts keenly noted that, according to the U.S. Tax Court, Notice 2017-10 must be set aside under the APA, thus rendering the penalties that the IRS was assessing pursuant to 26 U.S.C. § 6662A unlawful.

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Taxation Of IRA Distributions | The 60-Day Rollover Requirement And A Fraud Exception

On October 2022, I blogged about What happens to a loan taken against a qualified retirement plan when the plan terminates or employment is terminated? That blog addressed recently-effective Treasury Regulations that provided some breathing room for taxpayers with loans outstanding on a qualified employment retirement plan when the plan or the taxpayer’s employment terminates.

In a Private Letter Ruling issued by the IRS on November 4, 2022, the IRS addressed a situation where a taxpayer failed to comply with the 60-day rollover rule for excluding from gross income distributions received from an individual retirement account (IRA). The taxpayer requested a waiver of the 60-day requirement because the taxpayer’s failure was allegedly due to fraud.

Private Letter Rulings, Generally. A private letter ruling is a written statement issued by the IRS to a particular taxpayer that interprets and applies tax laws to the taxpayer’s represented set of facts. A PLR is issued in response to a written request submitted by a taxpayer. PLRs are specific to the issues presented, and usually, the PLR will include a disclaimer of application to any issue or statute not specifically addressed by the PLR. PLRs are directed only to the taxpayer who requested it. Thus, under section 6110(k)(3) of the Code, a written determination may not be used or cited as precedent. See also IRS Procedures, Frequently Asked Questions under Code, Revenue Procedures, Regulations, Letter Rulings, “How would I obtain a private letter ruling?

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Some Good Deeds Do Go Punished: Private Foundation Self-Dealing Tax Consequences and Considerations

Over 15 years of advising nonprofit organizations, I have learned that, sometimes, “good deeds do go punished.”  This can be especially true when a private foundation, or those in its management, engage in transactions intended and designed to advance an exempt purpose but in reality constitute an act of self-dealing as technically defined by the Internal Revenue Code.

Earlier this year (good ol’ 2022), I published a blog about the IRS-issued Guidance on Self-Dealing Rules for Private Foundations. That blog provides the what-is and why-is for self-dealing matters. This Insights blog dives deeper into and hits on a number of tax and governance consequences and considerations for the private foundation that may have engaged in (and that the foundation’s managers may have authorized) one or more self-dealing transactions in a particular tax year.

Self-Dealing Taxes. Each payment involved in a transaction that constitutes a self-dealing transaction may be treated as a separate act of self-dealing. Section 4941 of the Code imposes four separate and distinct taxes on each act of self-dealing.

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What Happens To A Loan Against A Qualified Retirement Plan When The Plan Or Employment Is Terminated?

This blog provides an overview of potential financial and tax options or consequences to a participant of a qualified retirement plan when the participant has an outstanding qualified plan loan from the account when the plan or employment terminates.

Plan Loan Offset, Generally. A plan loan offset occurs when, pursuant to the plan loan terms, a participant’s benefit is reduced to repay the qualified plan loan.  The terms governing the plan loan to a participating employee may provide that, upon termination of the plan, employee’s account balance is automatically offset by the amount of any unpaid loan balance to repay the outstanding loan. “[T]he term ‘plan loan offset amount’ means the amount by which the participant’s accrued benefit under the plan is reduced in order to repay a loan from the plan.” See 26 U.S.C. § 402(c)(2)(C)(iii).

Tax Cuts and Jobs Act of 2017 (eff. Jan. 6, 2021). These final regulations (26 C.F.R. § 1.402(c)-3) extended the deadline to repay a qualified plan loan offset when an employee’s employment is terminated or if the plan terminates. Previously, there was generally a 60-day window to pay the outstanding balance. The Treasury Regulations extend that time frame until the due date of the employee’s federal income tax return, including filing extensions, but a 60-day period still exists for plan offsets that is not a qualified plan loan offset amount.

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Church Status: Can (And Should) Your Religious Nonprofit Seek Church Status With The IRS?

Can and should your religious organization seek church status with the IRS? A look at a few pros, cons, and due diligence considerations.

Through over 15 years of representing nonprofit organizations, one thing is for certain–there are infinite exempt purposes that may be served within the confines of section 501(c)(3) of the Internal Revenue Code. No matter how similarly situated for tax purposes, every tax-exempt or nonprofit organization has unique attributes of governance, operations, and focus. The same is certainly true in the religious organizations space. As my long-time religious law mentor once said, “God loved us so much there is a church, synagogue, mosque, temple, or other place of worship available for every individual to pray and seek peace.”

Some of my nonprofit clients exist primarily to advance religious purposes—religion is a core and fundamental focus of all things organizational and operational for those organizations. That focus does not, however, make those organizations a “church,” as that term is defined (or considered) by the Internal Revenue Service. As in any organization structure, there are advantages and disadvantages to church status.

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E Pluribus Unum – A Child’s Question Leads To A Silent Courtroom

In 2018 I prosecuted a criminal contempt action in a state court civil proceeding. The contempt action was very difficult for my clients, my law firm, my family, the courts, and opposing counsel. For the first time in my career, I received legitimate threats of harm from an opposing party, and the animosity among some who were involved had reached a tipping point the likes of which I had never seen before.

Somehow, and with cooperation from opposing counsel and the courts, a resolution was reached. I insisted that all terms, including testimony from opposing party (after being informed of and waiving 5th Amendment Miranda Rights), be placed on the record in open court. So, a final hearing was scheduled.

Two of my children accompanied me on the train from Grapevine, Texas to Fort Worth for the final hearing in the proceeding. While on the train, and as I was wondering what I wanted to say at that final hearing, one of my kiddos asked, “Daddy, what does E Pluribus Unum mean?

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Arbitration | A Look-Back On An Arbitration Effort to Remember

A Look-Back on an Arbitration Effort to Remember

On July 15, 2022, Jason Freeman and I concluded a five-day long arbitration. Not between ourselves; rather, we served as counsel for long-time clients in a business dispute that, by agreement with an opposing party, required resolution of disputes by private, confidential arbitration. Thus, the details of the dispute and proceeding are, well, private and confidential and so shall they remain. But, my high-level thoughts on the process involved are ripe for an Insights post.

Arbitration is a form of alternative dispute resolution. Arbitration is a way to resolve disputes outside the public eye that looks upon the courts of law. A dispute submitted to arbitration is usually decided by one or more persons who are selected by the parties to serve as the arbiters or arbitrators. Basically, the parties to the dispute consent to allow the arbiter—usually an attorney or expert in the matter in dispute—to render an award in arbitration, just like a judge might enter in a court of law.

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Adverse Rulings From The IRS Exempt Organizations Division. How Can Your Organization Learn From Others’ Mistakes?

On July 1, 2022, the IRS, Director of Exempt Organizations issued an array of final adverse determinations with respect to organizations seeking exemption under 26 U.S.C. sections 501(c)(3), 501(c)(4), and 501(c)(7). In these Private Letter Rulings, the IRS Exempt Organizations Division denied tax-exempt status to the organizations. A common theme runs through all the Rulings: The organization applying or under review for tax exemption failed the organization test and/or the operational test applicable to the requirements for the exemption sought.

Private Letter Rulings are not binding on any taxpayer except the taxpayer to whom the Ruling is directed. But, the Rulings are instructive and give an idea of the organizational and operational criteria that the IRS Exempt Organizations Division needs or wants to see in order to grant tax exemption. Due care should be taken with applications for tax exemption. The exemption, if available, is a privilege, not a right, and the IRS is not shy to deny that privilege when appropriate based on the organization or operations of the applying entity.

For additional information on legal and tax issues facing tax-exempt and nonprofit organizations, search this Freeman Law Insights blog for topics such as:

Three-Part blog on Tax Exemption and Unrelated Business Income Rules

Can Nonprofits Fundraise for Other Nonprofits?

What is a Section 509(a)(3) Supporting Organization?

Representing Texas Nonprofit Corporations

Below is a Freeman Law Insights Summary of those recent IRS Private Letter Rulings:

 

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What Is A Section 509(a)(3) Supporting Organization?

What is a Section 509(a)(3) Supporting Organization? Can a Section 501(c)(3) organization avoid private foundation status by supporting other than a charity, such as a Section 501(c)(6) organization?

Under Title 26 of the Internal Revenue Code, all organizations described in section 501(c)(3) are considered private foundations, unless one of four exceptions applies. See 26 U.S.C. § 509(a)-(a)(4) (defining “private foundation”).

Those exceptions are, briefly: (1) organizations described in 26 U.S.C. § 170(b)(1)(A) and to whom charitable contributions may be given; (2) publicly supported organizations, as described in paragraph (2) of section 509(a); (3) organizations organized and operated exclusively for the benefit of, to perform the functions of, or to carry out the purposes of one or more specified organizations described in paragraph (1) or (2) of section 509(a); and (4) an organization which is organized and operated exclusively for testing for public safety. See 26 U.S.C. § 509(a)-(a)(4).

This Freeman Law blog focuses on supporting organizations, being those described in paragraph (3) of section 509(a).

Section 509(a)(3)—Supporting Organization.

Section 509(a)(3) is an exception to private foundation status. Section 509(a)(3) describes an organization which:

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