December, 2017 | Fraser Blog

ICLE On-Demand Seminar: Employee Benefits

Continued education is a vital part in ensuring that attorneys are up to date with the greatest knowledge to be confident that they are handling their client’s cases to the highest degree.

Fraser Trebilcock attorney Brian Gallagher recently recorded a presentation for the Institute of Continuing Legal Education (ICLE) on employee benefit matters. Specifically, the seminar covers qualified retirement plans and what the employer/employee receive in tax benefits from these retirement plans.

The on-demand seminar covers multiple employee benefits topics, including qualified/non-qualified retirement plans, health and welfare plans, and other fringe benefits.

Click here for a short preview of the seminar.

Michigan’s Principal Residence Exemption and Short-Term Rentals

Concerned about losing your homestead exemption because you have been renting your home for more than 14 days per year? Fear not, as the Michigan Court of Appeals recently ruled in the taxpayer’s favor on this issue. Michigan’s Principal Residence (the “PRE”), also referred to as the Homestead Exemption, exempts “a principal residence…from the tax levied by a local school district for school operating purposes…if an owner of that principal residence claims an exemption as provided…” M.C.L.A. 211.7CC(1). An owner of such property may claim an exemption by filing an affidavit with the local tax collecting unit in which the property is located. A principal residence is defined in the statute as “the 1 place where an owner of the property has his or her true, fixed and principal home to which, whenever absent, he or she intends to return…” M.C.L.A. 211.7dd (c).

The Michigan Court of Appeals (“MCA”) recently overturned a Michigan Tax Tribunal (“MTT”) decision in which the Tribunal found “that petitioner was the owner of the property, that the property was residential, and that the petitioner had occupied the property for the majority” of the tax years in question. Rentschler v. Township of Melrose ___ Mich ___, ___ NW(20__) ___ Docket No. 336333 The MTT denied the PRE because the petitioner had rented out the residence for more than 14 days each year., relying on guidelines issues by the Michigan Department of Treasury for the PRE which states: “[I]f an owner rents his property for more than 14 days a year, the property is not entitled to a principal residence exemption.” The petitioner admitted that he had in fact rented the property for 14 or more days per year. The exact number of days the property was rented in each year is not referenced in the MCA decision.

The MCA reviewed the requirements for a PRE and noted that the statute “sets forth multiple scenarios disqualifying a property from receiving a PRE exemption, none of which applies to the petitioner in this case.” Further the Michigan PRE guidelines do not have the force of law. Various Michigan statutes provide that while a properly issued rule has force of law, guidelines do not. Accordingly, the MCA ruled “the PRE guideline provision relied on relied on by the Tribunal is erroneous and inconsistent with the GPTA (Michigan General Property Tax Act – added). Renting one’s home for more than 14 days does not disqualify a homeowner from the PRE.”

Given the widespread rental of homes in Michigan which qualify for the PRE, it is doubtful that this is the end of this controversy. Numerous Michigan homeowners utilize online service such as AirBnB and VRBO to facilitate the short-term rental of their homes, or bedrooms within their homes, as an added source of income. The MCA Opinion left open the question of how many rental days is too many, which will likely be determined by the legislature. For the time being, homeowners who have availed themselves of a PRE exemption are safe from losing it due to short-term rentals of their property.

Norbert T. Madison, Jr. is a highly regarded corporate and real estate attorney with more than three decades of experience. Primarily focused on real estate matters, Norb represents clients in all facets of the practice, including the purchase, sale, leasing, and financing of various types of real estate, as well as the development of industrial, office, retail, condominium and residential real estate. Contact Norb at 313.965.9026 or nmadison@fraserlawfirm.com.

Spousal Support Deduction: Breaking Up is Hard[er] to Do After Tax Reform

The final version of the tax reform bill was released Friday, December 15, 2017 and is set for votes this week – and it will pass and become law. Among the many changes, the final bill eliminates the tax deduction for spousal support or alimony payments.

In Michigan, the concept of alimony – the legal obligation imposed on a person to provide financial support to their spouse after marital separation or divorce – is called spousal support. Spousal support, unlike child support, is not based on a formula that dictates whether one spouse will receive and the other will have to pay support at a set amount. Spousal support is decided on a case-by-case basis and is often the product of negotiation embodied in a divorce settlement agreement. If one of the parties asks for spousal support and they cannot agree, spousal support can also be ordered by the judge based on a number of factors.

Right now, spousal support payments are tax deductible by the payer, and they’re taxed like regular income to the recipient. Since the recipient typically makes less money – and is accordingly in a lower tax bracket – this tax treatment tends to keep more money in the former family unit and away from Uncle Sam. According to the IRS, about 600,000 Americans claimed an alimony deduction on their 2015 tax returns, the most recent year for which data is available.

Under the final Bill, for any divorce or separation agreement signed after December 31, 2018, or signed before that date but modified after it (if the modification expressly provides that the new amendments apply), spousal support payments are not deductible by the payor spouse and are not included in the income of the recipient spouse. Rather, income used for spousal support will be taxed at the (generally higher rates) rates applicable to the payer spouse.

The new law generally won’t affect anyone already paying spousal support, but it will mean couples and their attorneys will need to change their thinking for divorce proceedings in the years ahead. This include existing divorces where spousal support was court ordered which, unlike where the parties come to an agreement, spousal support is modifiable. With the loss of the existing tax treatment, post effective December 31, 2018, motions to modify spousal support could become much more contentious and expensive for both parties. This is because the new law has shifted the incentives for the parties, as the tax burden by the payor spouse increases by the amount of their marginal tax rate, whereas the tax drag on the recipient spouse decreases accordingly. For couples currently in divorce negotiations or under an existing arrangement where future spousal support is modifiable, couples and their attorneys should consider adding potential alternate language in their spousal support provisions to address the specific desired tax treatment.

It’s not just future divorces that will be affected by this change in the tax law. Couples and their attorney’s working out prenuptial agreements should take notice. Prenuptial — and postnuptial — agreements typically contain clauses that outline what spousal support would look like should the couple get divorced. Until this point, those clauses have typically been drafted assuming the alimony tax deduction will be in place. Eliminating the spousal support tax deduction may also have spillover implications, complicating how property settlements are reached. This could make some divorce settlements a bit more difficult to achieve.

Wealthy individuals can usually afford higher taxes on spousal support payments although the change in the tax law will affect the negotiating dynamics. However, individuals with more limited means where $500 or $700 dollar per month is going to make a big difference in day-to-day living are going to be more adversely affected by the change.

Fraser Trebilcock attorney Paul V. McCord has more than 20 years of tax litigation experience, including serving as a clerk on the U.S. Tax Court and as a judge of the Michigan Tax Tribunal. Paul has represented clients before the IRS, Michigan Department of Treasury, other state revenue departments and local units of government. He can be contacted at 517.377.0861 or pmccord@fraserlawfirm.com.

Medical Marijuana: State of Michigan Outlines New Procedures and Requirements for Medical Marijuana Facility Licensing

In less than a week, the state of Michigan will start accepting medical marijuana license applications. The Department of Licensing and Regulatory Affairs (LARA) released emergency rules on Monday, December 4, 2017, outlining procedures and requirements for potential licensees. The emergency rules are effective for at least the next six months, and could be extended for another six months as LARA continues the promulgation process for permanent rules.

Many of the items addressed in the rules have already been discussed by the Bureau of Medical Marihuana Regulation (BMMR) during licensing board meetings occurring earlier this year. Nevertheless, and by way of background, last year the state enacted its Medical Marijuana Facilities Licensing Act (MMFLA) to regulate dispensaries and clarify the legality of edible products in Michigan. The law allows licensed dispensaries to operate in communities that choose to allow them. Growers, processers, testing facilities, and transporters are also subject licensure and regulation under the act.

While the MMFLA took effect last year – December 20, 2016 — it included a built-in delay in implementation of 360 days to enable the state to establish the licensing system required by the Act. A person cannot apply to the state for a license of any kind under the MMFLA until Friday, December 15, 2017. And, no one can apply to the state for a license of any kind under the MMFLA unless the municipality where the person is located adopts an ordinance authorizing that type of facility.

Applying for a Medical Marijuana Facilities License

First and foremost under the newly released emergency rules, those seeking a license under the MMFLA will be able to submit applications on December 15, 2017. Applicants will have to pay a $6,000 fee per license application and undergo extensive background checks for anyone who has ownership interest. The background checks will include submitting fingerprints and a handwriting exemplar to the state.

The rules require licensee to meet certain capitalization requirements. The requirements range from $150,000 to $500,000. A retail operation — called a provisioning center – carries a $300,000 capitalization requirement, which must be proven through attested financial statements.

Only 25 percent of the capital required needs to be in liquid assets, cash or cash equivalents – easily converted to cash. Up to 15 ounces of usable marijuana or 72 marijuana plants may be used toward the capitalization requirements.

LARA has broad authority to deny a license. A licensee can be denied if an applicant fails to comply with the rules or if the applicant is operating a facility after December 15 without a license. That said, facilities that are operating in a municipality that has licensed them can operate after December 15, may be permitted to continue operations, but must submit documentation showing the local municipality allowed them to operate. The rules provide no mechanism to appeal an adverse licensing decision, or to contest the imposition of fines and penalties.

Currently operating facilities with municipal licensure must apply for a state license no later than February 15, 2018. If those facilities do not have a state license by June 15, 2018, their operation will be considered unlicensed activity and could be referred to law enforcement. Although the rules do not address the situation were licensure is not met by June 15 due to government delay.

Details on Licensing

Licenses will be up for renewal annually. Applicants and licensees will be required to report a variety of information to LARA, including changes of location, contact information, members, managers and adverse reactions to a medical marijuana product. Theft or other criminal activity on the premises will have to be reported to the department within 24 hours of occurrence.

LARA has sweeping authority to inspect, examine and audit records of the licensee and enter the facility without notice to inspect. The department is allowed to charge civil fines of up to $5,000 for an individual and $10,000 or an amount equal to daily gross receipts against a licensee for violations. Given the number and various requirements regarding inventory control and the specifications for the physical facility itself, the risk of fines and penalties is no insubstantial.

During the first 30 days a state-operating license is issued to a licensee, marijuana products will need be entered into a statewide monitoring system and inventory will need to be tagged and packaged.

Class C grower licenses, which would allow 1,500 plants, for example, may be stacked under the rules. And licensed growers, processors and provisioning centers will be permitted to operate at the same location.

Security Requirements for Marijuana Facilities

Applicants will be required to submit security plans. Facilities will be required to maintain an alarm system and a 24-hour video surveillance system. Licensed-facilities will also have to maintain visitor logs.

Advertising Stipulations for Marijuana Facilities

Licensees will not be permitted to advertise any marijuana products in a way that is visible to the general public. However, that does not apply to advertisements that are not about a specific product.

Products also will be prohibited from being marketed toward minors, and edible products cannot be associated with cartoons or other things that would appeal to minors. Edible products also cannot be easily confused with commercially sold candy.

Federal Regulation of Marijuana Facilities

Of course, while specified medical use of marijuana is permitted under state law, its use is still illegal under federal law, and we don’t know for sure what the federal government will do in the future with regard to these specified uses. The status quo is that federal attention is diverted away from uses that are “authorized” by and operated in compliance with state laws. Attorney General Jeff Sessions, however, has made his view clear: “Good people don’t smoke marijuana.” On the other hand, the industry seems to be growing at a pace that exceeds the federal government’s ability (time and resources) to do much about it.

Fraser Trebilcock understands the regulatory aspects of the marijuana industry along with the legal risks. Our attorneys are available to advise you on issues related to state law and compliance.

Fraser Trebilcock attorney Michael P. Donnelly has years of experience handling matters ranging from major insurance fraud to intellectual property disputes. He formerly served three years as the President of Fraser Trebilcock and is currently the Managing Partner of the Detroit office. He can be contacted at 313.965.4968 or mdonnelly@fraserlawfirm.com.

Drivers Beware: A Seemingly Safe and Legal Driving Maneuver Could Come with Potentially Life-Changing Hazards

For more than 30 years, Fraser Trebilcock attorney Gary Rogers has handled automobile negligence litigation. Recently, he has litigated a number of claims arising out of what you might think would be a rather safe driving maneuver – turning right on a red light, after determining there is no oncoming traffic. Continue reading Drivers Beware: A Seemingly Safe and Legal Driving Maneuver Could Come with Potentially Life-Changing Hazards