In latest the Weekly Wright Report:
Employer Leave Donation Programs Benefiting COVID-19 Victims (IRC §170)
On June 11th, the IRS provided guidance for employers whose employees forgo sick, vacation or personal leave because of the COVID-19 pandemic. Notice 2020-46, 2020-27 I.R.B. __ (June 29, 2020), IR-2020-119.
As a result of the COVID virus, President Trump issued major disaster declarations for each of the 50 states, the District of Columbia, and five U.S. territories. The IRS notice provides guidance on the federal income and employment tax treatment of cash payments made by employers under leave-based donation programs to aid victims of the ongoing COVID-19 pandemic in the affected geographic areas.
Under leave-based donation programs, employees can elect to forgo vacation, sick, or personal leave in exchange for cash payments that the employer makes to charitable organizations described in Internal Revenue Code (IRC) section 170(c.) Contributions made to a domestic public charity that is qualified under IRC section 501(c)(3), or made to a state or possession of the United States and the District of Columbia for public purposes all qualify under IRC section 170(c.)
The notice provides that if the payments are (1) made to IRC section 170(c) organizations for the relief of victims of the COVID-19 pandemic in the affected disaster relief areas and (2) are paid to the organizations before January 1, 2021, then the cash payments will not be treated as wages (or compensation, as applicable) to the employees or otherwise be included in the gross income of the employees. The electing employees may not claim a charitable contribution deduction with respect to the value of forgone leave. The employer may deduct the cash payments under the rules of IRC section 170 or the rules of IRC section 162 (deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business) if the employer otherwise meets the respective requirements of either section.
Judge Orders “Tiger King’s” Zoo Turned Over to Nemesis Carole Baskin
Over the past few months, the Netflix docuseries Tiger King has been must-see television for many people. When you watch the series, you see why, as it is full of interesting characters and compelling story lines. While at times it seems like it must be fiction, the fact is that the “Tiger King” story continues on even today. As an attorney, there was an interesting development a couple of weeks ago that highlights some lesser-known, but important, aspects of litigation.
As those who have seen the show know, Carole Baskin and her group, Big Cat Rescue Corp., have actively pursued litigation against the “Tiger King,” Joe Exotic and his zoo. Baskin eventually won her case against Joe Exotic and got a judgment against him. In the process, he transferred the zoo to his mother and a new business entity. Baskin later filed suit against the mother and new zoo entity. To make a long story short, the zoo’s attorney withdrew from the case, and the zoo was given 30 days to find a new lawyer. After the 30-day period and additional warnings, the Oklahoma federal court entered default judgment against the zoo.
When a judgment is entered against a party, the “winning” side then needs to collect the judgment. Many times, this does not involve the “losing” party simply writing a check. The judgment creditor (“winning” party) can place liens on property owned by the judgment debtor (“losing” party). To avoid having a lien placed on his zoo, Joe Exotic transferred it to his mother and other business entity. Generally, the law says that property cannot be transferred simply to avoid actions from judgment creditors. This is a so-called “fraudulent conveyance” or transfer. The Court found that this was a fraudulent conveyance.
The fraudulent conveyance voids the title of the owners to whom the zoo property was conveyed. As such, Carole Baskin’s Big Cat Rescue was granted a constructive trust over the zoo and its property from and after February 20, 2015. A “constructive trust” is an equitable remedy that a court will impose to restore a party that had been wrongfully deprived of its rights. Because of the constructive trust, the zoo “owners” have no right to use or possess any of the zoo property. The judge gave them 120 days to completely vacate the property to be turned over to Big Cat Rescue.
While this arises in the context of an almost larger-than-life television series, the reality of fraudulent conveyances is something that attorneys deal with in their practices. It is often a concern before litigation even arises. That is why a party initiating suit may seek preliminary injunctive relief from the court to ensure that a defending party does not dissipate or transfer any of its assets. This is probably not the last of the Tiger King drama, but, for now, it has provided a good illustration of the fraudulent conveyance and the constructive trust.
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