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Banking and Financial Services

A Primer on Record Retention

By Emily White

Emily White

Emily White

These days, it’s hard to imagine holding on to paper copies of every paid bill, invoice received, or other financial document. Today’s society has moved from paper copies of documents to digitized, searchable files — all within the click of a mouse or stroke of a keyboard. Many practices even have copies of important documents secured by fingerprints or facial recognition on iPhones or tablets.

However, while the methods of retaining documents have changed, having a record-retention policy is still important and should serve as a guide within a practice, no matter where or how files are kept.

Retention of specific documents should be easily identifiable in a practice’s record-retention policy. A basic record-retention policy should include a listing of recommended retention periods for specific financial items. The length of time certain records should be maintained depends on services offered by the practice, types of files, and any specific regulations that may determine the holding period.

“While the methods of retaining documents have changed, having a record-retention policy is still important and should serve as a guide within a practice, no matter where or how files are kept.”

The retention policy should be reviewed by a practice’s legal counsel to ensure proper compliance with all laws and regulations.

Records retention generally falls into four general time-specific categories: two years, three years, seven years, and permanently. Documentation to be retained for two years includes items such as bank reconciliations and general correspondence. Typical three-year retention-policy items include bank statements, insurance policies, internal reports, and employment applications. Records to be kept for seven years include items such as payroll records, personnel files (for terminated employees), sales records, and subsidiary ledgers. Items to be retained indefinitely include audit reports, active contracts, legal correspondence, meeting minutes of board of directors and stockholders, retirement and pension records, and union agreements.

In addition, specific guidelines provided by the IRS govern retention of income-tax returns and related documents. Generally, income-tax returns are kept indefinitely, along with related depreciation schedules, financial statements (audited or unaudited), and year-end trial balances.

As the world becomes more technologically advanced, it is becoming easier for practices to store files on the ‘cloud.’ Cloud-based storage has become the newest method of storing records and files. Keeping files on the cloud not only frees up physical space, but also significantly reduces the risk of potential for loss of work and crucial documents. Medical practices are recommended to back up their computerized files to the cloud daily, at a minimum.

Record retention on the cloud is a secure and paperless way to keep all required files. Many practices opt to scan in all paper copies of files, support, or related documents and keep these files on the cloud. This method of record retention is a great way to reduce physical paperwork but remain in compliance with applicable laws, regulations, and company policies on record retention. As e-mails have become a significant form of communication, their storage timelines have also become important. E-mails are subject to discovery as evidence in the event of a lawsuit, so ensuring that e-mails are retained for an appropriate amount of time is crucial.

The storage of e-mails should be outlined in a practice’s record-retention policy, dependent upon the nature of the e-mails. Some may need to be kept indefinitely if they include significant legal correspondence or other agreements. Practices should refer to the general guidance for these matters.

Practices should consider the necessary requirements for record retention based on their service offerings and areas of expertise. Practices should also consult with legal counsel to develop an appropriate record-retention plan that follows all appropriate laws and regulations, including specific IRS guidance for tax-related items. In today’s digital world, it is easier than ever to engage in cloud-based storage for the purpose of complying with record retention. Additionally, a record-retention policy should be reviewed annually for possible changes and updates. After all, who knows when paper copies will come back in style?

Emily White is a senior audit associate for the Holyoke-based public accounting firm Meyers Brothers Kalicka, P.C.; (413) 322-3531; [email protected]

Banking and Financial Services

Dollars and Sense

By Steve Siebold

It is now not only the start of a new year, but also the beginning of a new decade. Maybe the last 10 years weren’t exactly your greatest, financially speaking. Maybe you are still dragging around an excess amount of credit-card debt, or you simply haven’t done a good job putting enough money away for retirement.

Whatever the case, the new decade can be different, and it starts with what goes on between your ears.

If you are really serious about taking control of your financial situation in the coming years, start by examining your relationship with money. Here are six changes to make when it comes to how you think about money.

Money Is Your Friend

If you have struggled financially your entire life, chances are you have a bad relationship with money. You may even see it as an evil force that you associate with greed or crooks. The more you see it as a negative, the harder it’s going to be to acquire any of it.

Start by changing your outlook on money, and see it for the positives it really presents, like possibility, opportunity, and freedom. Money isn’t everything, but it does make life easier.

Money Is Infinite

Sadly, most people are stuck with the limited belief that they can only make so much money in a year. They’ve been led down this path by well-meaning but misguided people their entire lives who sold them on the notion that this is the way it has to be.

This is so untrue. In a free-market economy, you can earn as much as your heart desires. The key is solving problems for people. The more problems you solve and the more value you bring to the marketplace, the more money you make.

It Starts with Your Expectations 

The majority of people believe the only way they will ever get wealthy is by guessing the lottery numbers or going to the casino. In the new decade, self-made millionaires expect to make even more money than they made in the previous decade, and there’s no talking them out of it.

“The more problems you solve and the more value you bring to the marketplace, the more money you make.”

You have to expect big things to happen, and this will make you bold, aggressive, and fearless in the pursuit of wealth. Even if you don’t know how it’s going to happen just yet, it starts with a belief that it will.

Separate Logic and Emotion 

Most people use emotion when making financial decisions, and this is one of the worst things you can do. Self-made millionaires, on the other hand, use emotion to motivate them, but stick to pure logic when it comes to money.

Logic means not buying the million-dollar mansion that you can’t afford. Emotion is dangling that big house in front of you like the proverbial carrot in front of the rabbit to make you work harder.

Focus on Your Reason

Behind any defined goal there is always a reason. Why do you want whatever it is you are after? In this case, why do you want more money? Is it for your family? Do you want to take a big trip next summer? Do you finally want to be financially free? When you focus on your ‘why,’ it’s going to push you to take action in achieving those financial goals. Figure out your why and never take your eyes off of it.

Watch Your Dialogue

Begin monitoring everything you say to yourself and others. When you talk about money, is the way you use your language programming you for success or failure? Next, begin listening to the way people around you use their language when it comes to money. Ask yourself the same question about them.

This is an eye-opening experience. What you’ll find is that the masses are always talking about running out of money. The self-made wealthy, on the other hand, are always talking about how to make more of it.  

The Takeaway

As we enter a new decade, make the decision to take control of your finances once and for all. Your thoughts and beliefs about money won’t make you rich on their own, but it all starts here.

If you are rich, keep thinking the way you are thinking. If not, it’s time to change the way you look at money in 2020 and beyond.

 

Steve Siebold is author of the book ‘How Money Works,’ and a self-made millionaire who has interviewed more than 1,300 of the world’s wealthiest people over the last 35 years; www.howmoneyworks.com

Law

2019 Employment Law Year in Review

This past year was one that saw a number of landscape-changing developments in the broad realm of employment law. From paid family leave to cannabis to overtime-threshold changes, there were a number of changes to existing laws, new measures to keep track of, and new challenges for employers.

By Maureen James, Esq.

2019 … it’s been real.

Much like politics this year, employment law has experienced quite the roller-coaster ride. So what has this year taught us? Where will we go next? Has anyone really gotten over the Game of Thrones finale? Will 2020 include more Baby Yoda? You know … the important stuff.

This year saw many changes, most of which will really be felt during 2020 and beyond. Even so, those changes have opened dialogue to new and progressive topics that are changing the landscape of employment law. Here is a summary of the new developments, both here in the Commonwealth and nationally.

Paid Family Medical Leave

We cannot write a ‘year in review’ without starting with the Massachusetts Paid Family Medical Leave law (PFML). A lot of attention was given to PFML last year, and rightfully so. This is an institutional change, and all involved have been nervous about its rollout.

As readers are likely aware, PFML is a state-offered benefit that, come 2021, will entitle most Massachusetts workers to take up to 26 weeks of paid leave for medical or family reasons. PFML is funded through a Massachusetts wage tax that is shared by employees and businesses with 25 or more employees.

Last summer, the Department of Paid Leave issued final regulations and rolled out an updated timeline for employers, which included the deadline for notification to employees of Sept. 30, 2019, the commencement of payroll withholdings on Oct. 1, 2019, and information on the application process for private-plan exemptions.

It is clear this will be a hot topic throughout 2020 as employers will start making their quarterly PFML tax contributions and begin preparing for the first round of claims beginning in January 2021.

Marijuana

Medicinal and recreational marijuana went from nowhere to everywhere this year. Commissions, taxes, licensing … there are lots of complicated issues. For employers, many have been trying to balance state and federal law, as well as existing policies and changing culture. Unfortunately, we are not yet at a place were clear policies and practices exist. Over the next year, this will likely be a hot topic as its effects continue to grow — pun intended.

National Labor Relations Board

Last summer, the National Labor Relations Board made some drastic policy shifts in three swift steps. In May, it was announced that it intended to set standards for union activity on employer property. It followed up in June 2019 with a ruling in UPMC Presbyterian Shadyside, where it overturned decades of precedent and determined that employers can ban union organizers from public areas of their private property.

In August 2019, it held in Bexar County Performing Arts Center Foundation that property owners can bar labor protests by off-duty contractor workers unless they work “regularly and exclusively” on the property and there is no “reasonable non-trespassory alternative” for communicating their message. With these large shifts, it will be interesting to see what other areas NLRB reviews and possibly enacts changes to next year.

“This year saw many changes, most of which will really be felt during 2020 and beyond. Even so, those changes have opened dialogue to new and progressive topics that are changing the landscape of employment law.”

Continuing this trend of pro-employer decisions, a few weeks ago the board released a decision overruling a prior case that held that employees have a presumptive right to use an employer’s e-mail system for non-work-related communications, which includes e-mail traffic related to forming a union. The recent decision reconfirmed that an employer has a right to restrict employee use of its e-mail system as long as it is done on a non-discriminatory basis.

Union Fees

In a recent case — Janus v. State, County, and Municipal Employees Council 31, 138 S. Ct. 2448 — the U.S. Supreme Court held that non-union workers cannot be forced to pay fees to public-sector unions. Throughout 2019, this has been a debated topic in Massachusetts. The Legislature passed a law providing Massachusetts’ public employee unions access to contact information for employees, as well as certain allowances to charge fees to non-members.

Gov. Charlie Baker vetoed the law, but in September, he was overridden. As we move into 2020, the effect this law has on union dues and relationships between members and non-members, if any, remains to be seen.

Department of Labor Overtime Threshold Changes

One of the many regulations taking effect at the inception of 2020 includes a boost to the salary threshold for the eligibility of workers to receive overtime under the Fair Labor Standards Act (FLSA). This change will extend overtime protections to currently exempt workers making less than $684 per week (or less than $35,568 per year) and highly compensated employees making less than $2,066 per week (or less than $107,432 per year). This means, before year’s end, employers who employ exempt workers will need to review their compensation (including any non-discretionary bonuses and commissions) to ensure they earn enough to qualify for exempt status as of Jan. 1, 2020.

Non-compete Law

Massachusetts’ new Noncompetition Agreement Act has changed how employers draft, use, and enforce non-compete agreements. The law makes certain types of non-competes flatly unenforceable, and restricts how long and for what reason an agreement can be used in other situations. It also requires consideration (i.e., some sort of payment) to the employee if an employer wants to enforce a non-compete provision. The law has only been in effect a year, so we have not seen the full ramifications of the statute yet.

U.S. Citizen and Immigration Services’ H-1B Visas

March 2020 will bring the official beginning of the spring season, but also the first round of electronic registration for H-1B visas under the fiscal year 2021 cap. H-1B sponsorship is offered by employers in ‘specialty occupations’ that require at least a bachelor’s degree (or the equivalent in education and experience). In this new electronic process, employers seeking H-1B workers subject to the 2021 FY cap will complete an electronic registration that requires only basic information about the company and each requested worker.

The H-1B random selection process will use those registrations, and then the selected registrations from that pool will be eligible to file more detailed petitions for the H-1B visa cap.

2020 … Bring It On

There are only a few things that are certain: death, taxes, and another terrible reality show. However, 2020 most certainly will be a year where many new laws stretch their legs and see their first moments of sun. There will undoubtedly be new issues to confront, but no matter what year it is, you can never be too prepared.

Maureen James is an attorney with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law; (413) 737-4753; [email protected]

Law

And to Keep It That Way, Businesses Can Make Use of the NDA

By Kenneth Albano, Esq.

Managing Partner Kenneth Albano

Kenneth Albano

In the legal world, we use the term ‘attorney-client privilege,’ while in the medical field, you may have heard the expression ‘doctor-patient confidentiality.’ Both terms are used in circumstances where a lawyer or doctor must maintain confidentiality to best protect a client or a patient.

In a business setting, the term ‘confidential’ can be used on many fronts, most notably in the context of a formal confidentiality/non-disclosure agreement, more commonly known as an NDA.

The use of an NDA can be seen in many different business scenarios, with the primary purpose being to protect confidential information from being revealed to the public or an unwanted third party, or from being used without the consent or knowledge of the first party.

Within the NDA document itself, the two parties are known as the ‘disclosing party’ and the ‘receiving party.’ The disclosing party is the person requesting that the receiving party sign the NDA, in order to protect the confidential information at stake.

For example, if an owner of a company were looking to retire and possibly sell the business to a competitor, he would not want to offer up proprietary information without protection. In a case like this, the retiring business owner might ask his purchaser or competitor to sign an NDA, which would protect the business owner while the two parties negotiated the terms for the sale of the business.

“You have worked long and hard to develop and grow your business, and without the protection of an NDA, loss of information could have very real financial repercussions.”

The content of an NDA can typically be broken down into five main components:

• Define the parties. This means laying out in clear terms who is the disclosing party and who is the receiving party. Typically the parties are individuals. Within the NDA document, the receiving party will be bound by numerous covenants or conditions associated with the protection of the confidential information being used or revealed.

• Describe the nature of the transaction the NDA is governing. For example, an NDA might be used to protect confidential information associated with the hiring of a new employee or executive, keeping business information private when working with independent contractors, preventing an idea or invention from being stolen or infringed upon, or protecting proprietary or secret company information that might be disclosed during a potential sale of a business.

• Include all the details. Within the NDA, it is important to specifically define, in great detail, exactly what constitutes the confidential information to be protected. In our prior example of the sale of a business, the NDA might prevent the receiving party from revealing any information about the business — whether it were oral or written information concerning the company, technical information, proprietary sales and financial data, software products, marketing strategies, customer lists, personnel records, or any information supplied by the business to the receiving party by the company or its representatives.

In another example, if the NDA were being used for the purpose of hiring a new employee or executive, the definition of the confidential information might include various proprietary information belonging to the company, about which the new employee would become aware during his or her employment. This type of protective covenant regarding confidential information can also be found in a written employment agreement or non-compete agreement as well.

• What information is allowed to be disclosed by the receiving party without violating the NDA? Under normal circumstances, confidential information does not include (a) information generally available or known to the public; (b) information that was already known by or available to the receiving party; (c) information subsequently disclosed to the receiving party by a third person, under no obligation of confidentiality to the disclosing party; or (d) information required to be disclosed as part of a judicial process, government investigation, or legal proceeding.

This type of information would normally be presented as a defense by the receiving party, if litigation alleging a violation or threatened violation of the NDA was commenced by the disclosing party.

• Define the consequences of a violation. If the receiving party breaches or violates the terms and covenants of the NDA, in most cases, the disclosing party can pursue a legal remedy via the court system. Remedies may include but not be limited to preventing further disclosure or use of the confidential information, award of damages, or other equitable relief as may be provided under the law.

Other important elements of an NDA include the length of time the agreement is to be in effect (the ‘term’), and also the governing law which would interpret the terms of the NDA should a conflict arise, and which is generally the state law for the state or commonwealth in which the disclosing party is doing business.

If your company is involved in a transaction where proprietary information could be disclosed to an independent third party, consider the use of an NDA. You have worked long and hard to develop and grow your business, and without the protection of an NDA, loss of information could have very real financial repercussions.

Kenneth Albano is managing partner for Bacon Wilson, P.C., and a member of the firm’s corporate, commercial, and municipal law departments. He represents commercial banks in all aspects of lending and workout practices and represents closely held business entities in all aspects of operations. He serves as town counsel to several Massachusetts municipalities, including Monson, Southwick, and Holland; (413) 781-0560; [email protected]

Law

Understanding the Americans with Disabilities Act

By Sarah M. Ryzewski, Esq.

Sarah M. Ryzewski

A request for time off comes across your desk from an employee. The employee is requesting additional time off to accommodate a disability she has. The additional time requested is needed to be able to attend all of her appointments, necessary for her to complete her treatment.

How an employer goes about identifying an accommodation request, and either approving or denying the request, is important in staying compliant with the Americans with Disabilities Act (ADA) and other federal and state laws. Satisfying the obligations required by employers under such laws is necessary to prevent unlawful actions and prevent disability discrimination.

Under the ADA, it is unlawful for certain employers to discriminate against individuals with disabilities; the law further requires employers to provide reasonable accommodations to individuals with a qualified disability. A disability is an impairment that substantially limits one or more life activities. A qualified disabled individual is a person who is capable of performing the essential functions of the particular job or would be capable of performing the essential functions with a reasonable accommodation.

The ADA applies only to employers who have 15 or more employers, labor unions, and state and federal government.

Employers need to be able to recognize when a request for an accommodation for a qualified disability is being made. Employees seeking accommodations under the ADA are making the request to be able to perform the essential functions of the job which they have. When making a request for an accommodation, employees are not required to use specific words such as ‘accommodation’ or ‘disability,’ but, rather, only need to explain why a change or adjustment is needed because of a medical condition.

“Under the ADA, it is unlawful for certain employers to discriminate against individuals with disabilities; the law further requires employers to provide reasonable accommodations to individuals with a qualified disability.”

This medical condition can be either mental or physical. Since key words or phrases are not required under the ADA to make accommodation requests, employers need to educate themselves on how to spot a variety of different ccommodation requests, how requests are being made, and the words being used. Take, for instance, the employee cited above, requesting time off for her appointments. She would be successful in submitting her request for an accommodation by explaining to her employer she needs additional days off during the next few months to be able to complete her chemotherapy. She would not be required to say she needs an accommodation for her disability.

Once the accommodation request has been made, employers will need to determine whether or not the accommodation is reasonable and will need to enter into an interactive discussion. A reasonable accommodation is a change to a job that will allow an individual with a qualified disability to perform essential functions of a job. The accommodation must be related to the job the employee making the request has — otherwise, it is not reasonable. Moreover, employers are not required to approve a request for an accommodation if the request made would cause the employer an undue hardship.

Undue hardships occur when it would require an employer to undertake an unreasonable expense or it would cause significant difficulty to allow the request. Reasonable accommodations usually include modified work schedules, making workplaces easily accessible, leave, and modifying work equipment, among others.

An unreasonable accommodation request would include personal items such as paying for special eyewear or hearing aids. Whether or not an employer ultimately approves or denies an accommodation request, the employer should seek out alternative accommodations to present and negotiate to the employee making the request. Employers are strongly encouraged to fulfill their duty to be compliant by researching the accommodation request and providing alternative accommodations before flat-out denying the request. Determinative on whether an accommodation decision can be reached or not, employers can provide temporary accommodations until a final accommodation has been determined.

To complicate the obligations under the ADA, additional federal and state laws may be intertwined, forcing employers to stay informed. These laws can obligate employers to adhere to additional requirements or may prevent employers from being able to approve certain accommodations.

Frequent laws which come into play with the ADA include the Family Medical Leave Act (FMLA) and state-specific medical leave acts. Medical leave acts allow employees to take a specified amount of time off for medical or family-related reasons. Employers should inform employees whether or not the leave for a disability is within an existing leave policy with the employer, or whether it will be treated as an accommodation request, and should provide information as to whether the leave will be paid or not and the amount of time an employee is allowed to take.

Employers can request documentation for a leave request before approving it as an accommodation request. Employers should provide information on how the ADA’s reasonable-accommodation requirement could be affected by other federal and state laws. Based upon the example from above, the employer would need to explain how the employee’s request for leave as an accommodation would either be within the employer’s existing leave policy or treated as an accommodation request for her disability.

Furthermore, the employer would need to provide additional information to the employee on whether or not the leave, if approved, would be paid or unpaid, and the amount of time she could take.

Although the ADA has many complex components, it is crucial to be well-educated on obligations owed by employers. Employers who fail to adhere to the requirements risk possible claims of non-compliance and potential claims of disability discrimination.

Providing information to employees on the ADA is crucial. Employers should provide employees with the procedures on how to request accommodations, provide contact information for individuals who handle accommodation requests, and document every accommodation request. Having information relating to the ADA within an employee handbook, signage, and training and orientation material is essential. Finally, employers should have a procedure in place for how to successfully oblige the law.

For more information on the ADA and employer obligations, seek clarification from an attorney.

Sarah M. Ryzewski, Esq. is an associate attorney at Royal, P.C.; (413) 586-2288; [email protected]

Accounting and Tax Planning

Complicating Matters

By Kristina Drzal Houghton, CPA, MST

Year-end tax planning in 2019 remains as complicated as ever. Notably, we are still coping with the massive changes included in the biggest tax law in decades — the Tax Cuts and Jobs Act (TCJA) of 2017 — and pinpointing the optimal strategies. This monumental tax legislation includes myriad provisions affecting a wide range of individual and business taxpayers.

Among other key changes for individuals, the TCJA reduced tax rates, suspended personal exemptions, increased the standard deduction, and revamped the rules for itemized deductions. Generally, the provisions affecting individuals went into effect in 2018, but are scheduled to “sunset” after 2025. This provides a limited window of opportunity in some cases.

Kristina Drzal Houghton

Kristina Drzal Houghton

The impact on businesses was just as significant. For starters, the TCJA imposed a flat 21% tax rate on corporations, doubled the maximum Section 179 ‘expensing’ allowance, limited business interest deductions, and repealed write-offs for entertainment expenses. Unlike the changes for individuals, most of these provisions are permanent, but could be revised if Congress acts again.

For your convenience, this article is divided into two sections: individual tax planning and business tax planning. Be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recommended that you review your personal situation with a tax professional.

INDIVIDUAL TAX PLANNING

Age-old Planning

Postpone income until 2020 and accelerate deductions into 2019 if doing so will enable you to claim larger deductions, credits, and other tax breaks for 2019 that are phased out over varying levels of adjusted gross income (AGI). These include deductible IRA contributions, child tax credits, higher-education tax credits, and deductions for student-loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. In some cases, however, it may pay to actually accelerate income into 2019. For example, that may be the case where a person will have a more favorable filing status this year than next (e.g., head of household versus individual filing status), or expects to be in a higher tax bracket next year.

“Generally, the provisions affecting individuals went into effect in 2018, but are scheduled to ‘sunset’ after 2025. This provides a limited window of opportunity in some cases.”

If you believe a Roth IRA is better than a traditional IRA, consider converting traditional-IRA money invested in beaten-down stocks (or mutual funds) into a Roth IRA in 2019 if eligible to do so. Keep in mind, however, that such a conversion will increase your AGI for 2019, and possibly reduce tax breaks geared to AGI (or modified AGI).

It may be advantageous to try to arrange with your employer to defer, until early 2020, a bonus that may be coming your way. This could cut as well as defer your tax.

Capital-gain Planning

Long-term capital gain from sales of assets held for more than one year is taxed at 0%, 15%, or 20%, depending on the taxpayer’s taxable income. The 0% rate generally applies to the excess of long-term capital gain over any short-term capital loss to the extent that it, when added to regular taxable income, is not more than the maximum zero-rate amount (e.g., $78,750 for a married couple).

YEAR-END ACTION: If the 0% rate applies to long-term capital gains you took earlier this year. For example, if you are a joint filer who made a profit of $5,000 on the sale of stock bought in 2009, and other taxable income for 2019 is $70,000, then before year-end, try not to sell assets yielding a capital loss because the first $5,000 of such losses won’t yield a benefit this year. And if you hold long-term appreciated-in-value assets, consider selling enough of them to generate long-term capital gains sheltered by the 0% rate.

Itemized Deductions

Among the most prominent tax changes for individuals, the TCJA essentially doubled the standard deduction while modifying the itemized-deduction rules for 2018 through 2025. For 2019, the inflation-indexed standard deduction is $12,200 for single filers and $24,400 for joint filers.

YEAR-END ACTION: With the assistance of your professional tax advisor, figure out if you will be claiming the standard deduction or itemizing deductions in 2019. The results of this analysis will likely dictate your tax planning approach at the end of the year.

Some or all of these TCJA provisions on itemized deductions may affect the outcome:

• The deduction for state and local taxes (SALT) is limited to $10,000 annually. This includes any combination of SALT payments for (1) property taxes and (2) income or sales taxes.

• The deduction for mortgage interest expenses is modified, but you can still write off interest on ‘acquisition debt’ within generous limits.

• The deduction for casualty and theft losses is eliminated (except for disaster-area losses).

• The deduction for miscellaneous expenses is eliminated, but certain reimbursements made by employers may be tax-free to employees.

• The threshold for deducting medical and dental expenses, which was temporarily lowered to 7.5% of adjusted gross income (AGI), reverts to 10% of AGI, beginning in 2019.

TIP: Depending on your situation, you may want to accelerate deductible expenses into the current year to offset your 2019 tax liability. However, if you do not expect to itemize deductions in 2019, you might as well postpone these expenses to 2020 or beyond.

Charitable Donations

Generally, itemizers can deduct amounts donated to qualified charitable organizations, as long as substantiation requirements are met. The TCJA increased the annual deduction limit for monetary contributions from 50% of AGI to 60% for 2018 through 2025. Any excess is carried over for up to five years.

If you are age 70½ or older by the end of 2019, have traditional IRAs, and particularly if you can’t itemize your deductions, consider making 2019 charitable donations via qualified charitable distributions from your IRAs. Such distributions are made directly to charities from your IRAs, and the amount of the contribution is neither included in your gross income nor deductible on Schedule A, Form 1040. But the amount of the qualified charitable distribution reduces the amount of your required minimum distribution, which can result in tax savings.

YEAR-END ACTION: Absent extenuating circumstances, try to ‘bunch’ charitable donations in the year they will do you the most tax good. For instance, if you will be itemizing in 2019, boost your gift giving at the end of the year. Conversely, if you are claiming the standard deduction this year, you may decide to postpone contributions to 2020.

For donations of appreciated capital-gain property that you have owned longer than one year, such as stock, you can generally deduct an amount equal to the property’s fair market value (FMV). Otherwise, the deduction is typically limited to your initial cost. Also, other special rules may apply to gifts of property. Notably, the annual deduction for property donations generally cannot exceed 30% of AGI.

If you intend to donate securities to a charity, you might choose securities you have held longer than one year that have appreciated substantially in value. Conversely, it usually is preferable to keep securities you have owned less than a year.

TIP: If you donate to a charity by credit card late in the year — for example, if you are making an online contribution — you can write off the donation on your 2019 return, even if you do not actually pay the credit-card charge until 2020.

Alternative Minimum Tax

Briefly stated, the alternative minimum tax (AMT) is a complex calculation made parallel to your regular tax calculation. It features several technical adjustments, inclusion of ‘tax preference items,’ and subtraction of an exemption amount (subject to a phase-out based on your income). After comparing AMT liability to regular tax liability, you effectively pay the higher of the two.

YEAR-END ACTION: Have your AMT status assessed. Depending on the results, you may then shift certain income items to 2020 to reduce AMT liability for 2019. For instance, you might postpone the exercise of incentive stock options (ISOs) that count as tax preference items.

Thanks to the TCJA, the AMT is now affecting fewer taxpayers. Notably, the TCJA substantially increased the AMT exemption amounts (and the thresholds for the phase-out), unlike the minor annual ‘patches’ authorized by Congress in the recent past.

TIP: The two AMT rates for single and joint filers for 2019 are 26% on AMT income up to $194,800 ($97,400 if married and filing separately) and 28% on AMT income above this threshold. Note that the top AMT rate is still lower than the top ordinary income-tax rate of 37%.

Education Tax Breaks

The tax law provides tax benefits to parents of children in college, within certain limits. These tax breaks, including a choice involving two higher-education credits, have been preserved by the TCJA.

YEAR-END ACTION: If you pay qualified expenses for next semester by the end of the year, the costs will be eligible for a credit in 2019, even though the semester does not begin until 2020.

Typically, you must choose between the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The maximum AOTC of $2,500 is available for qualified expenses of each student, while the maximum $2,000 LLC is claimed on a per-family basis. Thus, the AOTC is usually preferable. Both credits are phased out based on modified adjusted gross income.

The TCJA also allows you to use Section 529 plan funds to pay for up to $10,000 of K-12 tuition expenses tax-free. Previously, qualified expenses only covered post-secondary schools.

TIP: If your student may be graduating in 2020, you may want to hold off and pay the spring 2020 tuition in early January 2020. The student can usually use this credit to offset their own 2020 tax liability even if the parent’s income exceeds the thresholds.

Estimated Tax Payments

The IRS requires you to pay federal income tax through any combination of quarterly installments and tax withholding. Otherwise, it may impose an ‘estimated tax’ penalty.

YEAR-END ACTION: No estimated tax penalty is assessed if you meet one of these three ‘safe-harbor’ exceptions under the tax law. These exceptions consider the timing of quarterly estimates as well as your withholdings. You should review your payments with a tax professional prior to year-end.

BUSINESS TAX PLANNING

Depreciation-related Deductions

Under the TCJA, a business may benefit from a combination of three depreciation-based tax breaks: (1) the Section 179 deduction, (2) ‘bonus’ depreciation, and (3) regular depreciation.

YEAR-END ACTION: Acquire property and make sure it is placed in service before the end of the year. Typically, a small business can then write off most, if not all, of the cost in 2019.

1. Section 179 deductions: This tax-code section allows you to ‘expense’ (i.e., currently deduct) the cost of qualified property placed in service during the year. The maximum annual deduction is phased out on a dollar-for-dollar basis above a specified threshold.

The maximum Section 179 allowance has been raised gradually over the last decade, but the TCJA gave it a massive boost. In 2017, the deduction limit was $510,000, and the phase-out threshold was $2.03 million. Those figures rose to $1 million and $2.5 million in 2018, and $1.02 million and $2.55 million in 2019.

However, note that the Section 179 deduction cannot exceed the taxable income from all your business activities this year. This could limit your deduction for 2019.

2. Bonus depreciation: The TCJA doubled the previous 50% first-year bonus depreciation deduction to 100% for property placed in service after Sept. 27, 2017. It also expanded the definition of qualified property to include used, not just new, property.

Note that the TCJA gradually phases out bonus depreciation after 2022. This tax break is scheduled to disappear completely after 2026.

3. Regular depreciation: Finally, if there is any remaining acquisition cost, the balance may be deducted over time under the Modified Accelerated Cost Recovery System (MACRS).

TIP: A MACRS depreciation deduction may be reduced if the cost of business assets placed in service during the last quarter of 2019 (Oct. 1 through Dec. 31) exceeds 40% of the cost of all assets placed in service during the year (not counting real estate). Additionally, many states, including Massachusetts and Connecticut, do not recognize bonus depreciation. This should be included in your planning considerations.

Travel Expenses

Although the TCJA repealed the deduction for entertainment expenses beginning in 2018, you can still deduct expenses for travel and meal expenses while you are away from home on business and in other limited situations. The primary purpose of the expense must meet strict business-related rules.

If you travel by car, you may be able to deduct your actual expenses, including a depreciation allowance, or opt for the standard mileage deduction. The standard mileage rate for 2019 is 58 cents per business mile (plus tolls and parking fees). Annual depreciation deductions for ‘luxury cars’ are limited, but the TCJA generally enhanced those deductions for vehicles placed in service in 2018 and thereafter.

TIP: The IRS recently issued a ruling that explains when food and beverage costs are deductible when those costs are stated separately from entertainment on invoices or receipts.

QBI Deductions

The TCJA authorized a deduction of up to 20% of the ‘qualified business income’ (QBI) earned by a qualified taxpayer. This deduction may be claimed by owners of pass-through entities — partnerships, S corporations, and limited liability companies (LLCs) — as well as sole proprietors.

YEAR-END ACTION: The QBI deduction is reduced for some taxpayers based on the amount of their income. Depending on your situation, you may accelerate or defer income at the end of the year, according to the figures.

First, however, it must be determined if you are in a ‘specified service trade or business’ (SSTB). This includes most personal-service providers. Then three key rules apply:

1. If you are a single filer with income in 2019 below $160,725 or a joint filer below $321,400, you are entitled to the full 20% deduction.

2. If you are a single filer with income in 2019 above $210,700 or a joint filer above $421,400, your deduction is completely eliminated if you are in an SSTB. For non-SSTB taxpayers, the deduction is reduced, possibly down to zero.

3. If your income falls between the thresholds stated above, your QBI deduction is reduced, regardless of whether you are in an SSTB or not.

TIP: Other rules and limits may apply, including new guidelines for real-estate activities. Consult with your tax advisor for more details about your situation.

Business Repairs

While expenses for business repairs are currently deductible, the cost of improvements to business property must be written off over time. The IRS recently issued regulations that clarify the distinctions between repairs and improvements.

YEAR-END ACTION: When appropriate, complete minor repairs before the end of the year. The deductions can offset taxable business income in 2019.

Estimated Tax Payments

A corporation (other than a large corporation) that anticipates a small net operating loss for 2019 (and substantial net income in 2020) may find it worthwhile to accelerate just enough of its 2020 income (or to defer just enough of its 2019 deductions) to create a small amount of net income for 2019.

YEAR-END ACTION: This will permit the corporation to base its 2020 estimated tax installments on the relatively small amount of income shown on its 2019 return, rather than having to pay estimated taxes based on 100% of its much larger 2020 taxable income.

Bottom Line

These are just some of the year-end steps that can be taken to save taxes. As previously mentioned, be aware that the concepts discussed in this article are intended to provide only a general overview of year-end tax planning. It is recommended that you review your personal situation with a tax professional.

Kristina Drzal-Houghton, CPA, MST is the partner in charge of Taxation at Holyoke-based Meyers Brothers Kalicka, P.C.; (413) 536-8510.

Law

Breaking Up Is Hard to Do

By Amelia J. Holstrom

On Nov. 3, 2019, news broke that the McDonald’s board of directors voted to terminate CEO Steve Easterbrook for having a consensual relationship with an employee.

Early reports indicate that, after a three-week internal investigation, McDonald’s board found the relationship to be inappropriate and in violation of its policies, including its standards of business conduct, which prohibits employees with “a direct or indirect reporting relationship” from “dating or having a sexual relationship.” McDonald’s makes clear in its policy that “it is not appropriate to show favoritism or make business decisions based on emotions or friendships rather than on the best interests of the company.”

Amelia J. Holstrom, Esq.

Amelia J. Holstrom, Esq.

McDonald’s is not the first large corporation to find itself in this type of predicament. Companies like Boeing, in 2005, and Best Buy, in 2012, have parted ways with chief executives based on alleged relationships with employees. The decision to remove an employee at any level involves consideration, but to remove an employee at the top of the ladder should be no different.

You may be asking, can companies do that? Can they fire someone for a consensual relationship? Yes, they can — and so can you.

Love Hurts

It isn’t any secret that people spend most of their waking hours at work. Not surprisingly, office romances sometimes bloom. What better place to meet your soulmate, right?

From the employer’s point of view, dating in the workplace can spell trouble. Office romances create many problems. Because employers cannot prevent their employees from developing emotions, it is important to address workplace romances well in advance of any potential problems.

Workplace dating is a recipe for disaster in more ways than one. In addition to decreasing morale and productivity, when true love goes sour, employees often cannot work with each other anymore, or worse, workplace romances can ultimately lead to sexual harassment and/or discrimination and retaliation claims.

“The decision to remove an employee at any level involves consideration, but to remove an employee at the top of the ladder should be no different.”

Assume, for example, that a superior and subordinate have been dating for some time. Their romance fizzles, and things end. What if the subordinate now claims to have felt pressured into the relationship? A supervisor’s relationship with a subordinate is most damaging to the company because of the legal consequences.

In Massachusetts, when a supervisor engages in harassment of a subordinate, even if there is no direct reporting relationship, a business is automatically liable for that harassment.

I Would Do Anything for Love, but I Won’t Let Supervisors Date Subordinates

How should you combat workplace romances? Employers can adopt policies on personal relationships in the workplace that specifically prohibit supervisors and managers from engaging in any romantic relationships with employees at the company, including direct and indirect subordinates.

If you choose to adopt such a policy, it should state that such relationships raise ethical and fairness issues and problems with favoritism and morale, and that they will not be tolerated. Employers should also spell out what will happen if such a relationship is discovered.

Some employers confront the couple, indicate that, if they wish to continue the relationship, one must resign, and let the employees decide who will resign. Other employers confront the employees and terminate the employment of one or both of them effective immediately. It depends on the stance your business wants to take.

Love Rules

What if you don’t want to prohibit such relationships at your workplace? Another approach used by some employers is to have employees in a relationship enter into a ‘love contract.’

Such a document essentially memorializes, in writing, the consensual nature of the employees’ relationship. Be careful here, though. Love contracts are not prospective, as they will not limit the company’s liability for future sexual harassment and/or discrimination and retaliation claims. They may only be helpful to demonstrate that there was a consensual relationship between the employees before and at the time the employees signed the contract.

You Oughta Know

All employers can learn a valuable lesson from the situation involving McDonald’s. Each employer should consider how it wants to handle workplace romances before one becomes an issue for its business. Having a plan or policy in place could save you a lot of heartaches … I mean, headaches.

(The author wishes to thank Neil Sedaka, Nazareth, Meat Loaf, Don Henley, and Alanis Morissette for their wise lyrics about love.)

Amelia J. Holstrom is a partner with Skoler, Abbott & Presser, P.C., one of the largest law firms in New England exclusively practicing labor and employment law. Holstrom specializes in employment litigation, including defending employers against claims of discrimination, retaliation, harassment, and wrongful termination, as well as wage-and-hour lawsuits. She also frequently provides counsel to management on taking proactive steps to reduce the risk of legal liability; (413) 737-4753; [email protected]

Law

Cannabis, Marijuana, and Hemp

By Chris St. Martin and Sarah Morgan

Late last month, the U.S. Department of Agriculture published regulations on domestic hemp production. However, there remains significant confusion surrounding the legality of cannabis, marijuana, and hemp.

Chris St. Martin

Sarah Morgan

This confusion comes from state and federal governments’ shifting approaches to regulating these industries. It is even more difficult to understand the legal framework surrounding retail sales, which include hemp and CBD products, as well as marijuana products sold by state-licensed dispensaries. In this article, we hope to provide some clarity regarding what the laws say about cannabis and how they are being enforced.

What Is Cannabis?

Cannabis is a plant genus, or family, composed of three species: Cannabis sativa, Cannabis indica, and Cannabis ruderalis. The species have physical variations between them that allow them to grow in different environments, flower at different periods during the growth cycle, and contain different chemical properties (see discussion on cannabinoids below) that produce different sensations when ingested.

Strains (think, ‘flavors’) produced from the Cannabis sativa species tend to incite feelings of euphoria, boost energy and creativity, and lead to a more head-focused high. Cannabis indica, alternatively, primarily affects the body, and is often helpful in reducing muscle aches and pains and inducing sleep. For these reasons, strains cultivated from indica plants tend to be more useful for medicinal purposes.

“THC, or tetrahydrocannabinol, is the cannabinoid responsible primarily for producing the psychoactive effect, or the ‘high,’ commonly associated with ingesting cannabis.”

Cannabis ruderalis is somewhat between sativa and indica, and has lower yields, but can often be cross-bred with other species to create medicinal strains. The stems of this species can also be used to make clothing and textiles.

The flowering buds of the cannabis plant produce a resin that contains cannabinoids, which are unique chemical compounds found only in cannabis and interact with different receptors in the user’s central nervous system to produce the effects described above.

The ratio of the cannabinoids in a particular strain depends on the genetics of the plant from which it is derived — in other words, how the plant has been bred by selectively combining sativa and indica plants to emphasize particular cannabinoids over others and create a unique strain with individualized characteristics.

More than 100 cannabinoids have been identified, most notably THC and CBD.

THC, or tetrahydrocannabinol, is the cannabinoid responsible primarily for producing the psychoactive effect, or the ‘high,’ commonly associated with ingesting cannabis. Although THC is most notable for its psychoactive properties, it has also been purported to have medical benefits on the user and can be used to treat a variety of conditions, including seizures, inflammation, pain, nausea, depression, and anxiety.

CBD, or cannabidiol, has anti-anxiety effects on the user and is utilized primarily for its purported medicinal benefits. It does not produce psychoactive effects (in fact, it may lessen the psychoactive effects of THC), and, for this reason, although CBD and THC have similar medicinal benefits, some people may choose to ingest only CBD to avoid feeling the ‘high’ brought about by THC.

CBD can be extracted from the resin of the cannabis plant and can be processed into essential oils, tinctures, and other non-smokable forms. CBD can even be added to body-care products and applied topically.

Marijuana or Hemp?

The term ‘marijuana’ is generally used to identify cannabis that is cultivated for its intoxicating effect on a user. Marijuana was made effectively illegal under federal law with the passage of the Marijuana Tax Act of 1937.

The Legislature later classified, and criminalized, marijuana as a Schedule 1 narcotic under the Controlled Substance Act of 1970, during the nascent ‘war on drugs’ declared by President Nixon. Classification as Schedule 1 — alongside heroin, LSD, and ecstasy — means that marijuana is deemed to have no currently accepted medical use and a high potential of abuse.

Public sentiment has recently begun to reject this classification of marijuana and the total federal prohibition. Although, at this writing, marijuana remains illegal at the federal level, 11 states, including Massachusetts, and the District of Columbia, have passed laws legalizing marijuana for recreational use, and 23 others have legalized the use of medical marijuana. Since 2016 in Massachusetts, individuals age 21 or older may possess up to an ounce or more on their person and up to 10 ounces in their homes without violating Massachusetts law.

The Cannabis Control Commission (CCC), the agency tasked with regulating the state’s marijuana industry, provides further information regarding the Massachusetts law on its website.

Cannabis that is selectively bred for non-intoxicating properties is considered ‘hemp.’ Industrial hemp is one of the oldest cultivated crops in the world and is useful in formulating textiles, rope, paper, plastics, insulation, oil, and body-care products. Because of this selective breeding, hemp plants contain only trace amounts of THC, but their CBD levels are unchanged.

“State and federal legal developments have created a confusing CBD marketplace. Stores everywhere are selling CBD products intended for human consumption and making health claims about such products. However, both types of sales are illegal, according to state and federal agencies.”

Hemp is cultivated to enhance its distinctively versatile qualities, such as longer, more fibrous stalks and shorter leaves, rather than for the leaves and flower buds for which marijuana plants are cultivated. Because of this, hemp cannot be consumed as an intoxicant. Nevertheless, the Controlled Substances Act did not distinguish between marijuana and hemp (since both are technically cannabis) in classifying marijuana as a Schedule I substance; therefore, hemp was swept up in the heyday of the war on drugs and made illegal.

Changing Legal Framework

Under the Farm Bill of 2018, the U.S. Congress, for the first time, legalized the production and sale of hemp at the federal level, eliminating its status as a Schedule I narcotic. The Farm Bill and regulations define hemp as cannabis containing not more than 0.3% THC. Cannabis plants containing any quantity of THC above that amount are classified as marijuana, and remain illegal under federal law. In late October, the USDA published interim regulations on hemp production, which means they are subject to change after a public comment period but were effective immediately.

These regulations also set forth licensing requirements, procedures for testing THC levels and disposal of non-compliant plants, and rules governing other aspects of the industry.

The FDA has taken a more cautious approach, citing concerns about whether CBD is safe to consume in food and supplements. In an April 2019 statement, the agency sought to clarify its position on hemp products. The statement indicated that enforcement resources are directed toward illegal sales of CBD products that claim to prevent, diagnose, treat, or cure serious diseases, such as cancer.

However, it also stated that it is unlawful to introduce CBD-containing food into interstate commerce or to market CBD products as dietary supplements.

This means that effectively all CBD food products, including those derived from legally grown hemp, are unlawful, according to the FDA. The only hemp products that can be legally added to foods are hulled hemp seed, hemp-seed protein powder, and hemp-seed oil, because the seed of the hemp plant contains neither CBD nor THC.

The FDA has undertaken to develop CBD regulations, but despite repeated urging from the USDA and members of Congress, the former FDA commissioner indicated that that the rule-making process around CBD food products would be more complex than conventional products and could take years.

Massachusetts legalized hemp production as a component of the same 2016 law that legalized recreational cannabis. However, after the change of law at the federal level, both the state Department of Agricultural Resources and Department of Public Health issued policy statements on the same day imposing strict rules on hemp products. These two statements echo the FDA’s prohibitions on adding CBD to food products and making health claims about CBD.

What Can We Buy and Sell?

These state and federal legal developments have created a confusing CBD marketplace. Stores everywhere are selling CBD products intended for human consumption and making health claims about such products. However, both types of sales are illegal, according to state and federal agencies. Consumers, retailers, growers, and other stakeholders are looking for information about what is legal, what is not, and why there is so much ambiguity.

CBD derived from marijuana remains illegal under federal law. However, the U.S. attorney in Massachusetts has indicated he will not direct his office’s resources to federally prosecute cannabis companies that are permitted under state law, a move that has allowed the cannabis industry in Massachusetts to flourish. Under this state’s regulatory regime, marijuana products containing CBD, as well as THC, can be bought and sold at cannabis dispensaries that are licensed by the CCC.

Retailers in Massachusetts sell cannabis flower, edibles, concentrates, and other forms of marijuana containing both THC and CBD. CCC regulations do not classify edible marijuana products as food, allowing dispensaries to sell CBD-infused edibles without contravening the state Department of Public Health’s policy.

In contrast, despite the federal and state legality of producing hemp, some of the most popular hemp-derived CBD products — food and supplements — cannot be sold under either state or federal law. Nevertheless, the CBD industry may avoid total extinction, since CBD can be added to topical lotions and other cosmetics without defying the laws.

Non-food CBD products, however, represent a small percentage of the potential uses of CBD, and the loss of a valuable opportunity for introducing additional, more profitable products containing CBD into the marketplace adds further demand for the FDA to promulgate its promised CBD rules. Furthermore, hemp can be legally sold for rope, clothing, building material, and other non-ingestible uses, but hemp farmers have stated that Massachusetts currently lacks the manufacturing infrastructure necessary to process the plant for these purposes.

Chris St. Martin and Sarah Morgan are both litigation associates at Bulkley Richardson; (413) 781-2820.

Law

A New Type of Relief

By Rebecca Mercieri Rivaux, Esq.

Rebecca Mercieri Rivaux

Small-business owners will soon have a more affordable option to reorganize their companies. In February 2020, the Small Business Reorganization Act (SBRA) will go into effect, providing a new type of relief to small-business debtors.

The SBRA creates a new subchapter within Chapter 11 of the U.S. Bankruptcy Code. While Chapter 11 bankruptcy generally provides for business reorganization (usually involving a corporation or partnership), it can be an unappealing option for many small-business debtors, due to complex procedural requirements and high legal and administrative costs. The SBRA will expedite reorganization for small-business debtors by streamlining the burdensome requirements of Chapter 11 bankruptcy.

The SBRA is, in fact, very comparable to a Chapter 13 bankruptcy, the kind used by individuals. Just as with Chapter 13 filings for individuals, an SBRA debtor can expect to have a trustee appointed by the bankruptcy court. The court-appointed trustee will aid the small business in developing a reorganization plan, but is not likely to be involved in any operational aspects of the business. This essentially allows the debtor to remain in possession and control of their own business during the bankruptcy process. The trustee is responsible for disbursing payments to creditors under the reorganization plan.

In order to take advantage of the new SBRA, a debtor must first qualify as a small business. To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

This is in keeping with the general practices of Chapter 11, where a debtor usually proposes a plan of reorganization to keep its business in existence and pay creditors over time.

SBRA debtors must produce a copy of the business’ most recent balance sheet, a statement of operations, a cash-flow statement, and a federal income — or file a sworn statement that such documents do not exist.

The SBRA allows the small-business debtor to repay its creditors within a payment plan of three to five years, as the bankruptcy court determines. The SBRA also allows small-business debtors a greater opportunity to retain their ownership interests in their business, even when claims have not been repaid in full (in contrast with a typical Chapter 11 bankruptcy, where a shareholder cannot retain equity in the business unless creditors are paid in full).

To qualify, the debtor must be a person or entity engaged in a commercial or business activity. If such a business has secured and unsecured debt totaling less than $2,725,625, the business may propose a reorganization plan under the SBRA — so long as they use net income to repay creditors.

Another significant benefit to the SBRA is a specialized restructuring strategy offered to individual debtors. An individual who qualifies as a small-business debtor can modify the mortgage on his or her principal residence, provided that the mortgage loan was not used to acquire the real property, but was used primarily in connection with the debtor’s business — such as an individual who is borrowing against the equity in their home for the purpose of supporting their business. This individual small-business debtor would then be able to reduce the loan to the value of the secured claim, propose a lower interest rate, or extend the maturity date of the loan. Once the small-business debtor has completed all payments to creditors, a discharge is granted.  

Under the SBRA, the only excluded activity for the small business debtor is operating “single-asset real estate,” a term that describes a debtor who receives substantially all of its gross income from the operation of a single real property.

Despite this restriction, for many small business debtors, the SBRA will offer relief and a realistic means to reorganize and restructure their businesses under the Bankruptcy Code.

Rebecca Mercieri Rivaux is an associate with Bacon Wilson, P.C., and a member of the firm’s bankruptcy and business/corporate practice groups; [email protected]

Features

Another Step Forward?

By Jodi K. Miller, Esq.

Jodi K. Miller, Esq

Massachusetts has been a leader in healthcare system reform.

In 2006, Massachusetts passed a first-in-the-nation, comprehensive healthcare-reform law that sought to achieve near-universal coverage for all individuals in the Commonwealth. The 2006 reforms became a model for the federal Patient Protection and Affordable Care Act passed in 2010. In 2012, after making significant gains in healthcare coverage, Massachusetts enacted additional reforms, with a key aim of controlling healthcare costs.

Among other things, the 2012 reforms set statewide benchmarks to limit the growth of healthcare costs and created a new agency, the Health Policy Commission, which is responsible for monitoring increases in healthcare spending and market activity.

Last month, seeking to further overhaul the healthcare-delivery system in Massachusetts and build upon past reforms, Gov. Charlie Baker introduced new healthcare-reform legislation, titled “An Act to Improve Health Care by Investing in Value.” The legislation seeks to tackle challenges in the current healthcare system by improving access and care delivery, further containing costs, and protecting consumers from high out-of-pocket costs.

As a former healthcare executive and former Massachusetts secretary of Health and Human Services, Gov. Baker has a particular interest in healthcare. According to the governor, his “legislation supports holistic approaches to care, provides consumers and employers with affordable care options, promotes behavioral-health parity, and ensures everyone has access to the services they need.”

Preventive Measure

The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits. Specifically, the legislation requires that providers and insurers increase spending on primary care and behavioral-health services by 30%, while at the same time staying within spending-growth limits required by the 2012 healthcare-reform law. The new legislation introduces new penalties for failure to stay within those limits.

As a means to increase access to primary care, the legislation reforms the requirements for mid-level practitioners, such as nurse practitioners. States like California that have expanded the scope of practice for nurse practitioners have seen an increase in the use of, and access to, primary-care services. The new legislation would allow nurse practitioners and psychiatric nurse mental-health specialists to prescribe medications without a supervising physician.

“The governor’s proposal prioritizes investment in primary care and behavioral-health services with the goal of keeping patients healthier and avoiding more expensive services, like emergency-department visits.”

Similarly, the bill creates a mid-level dental-provider position to provide basic dental services, and expands the scope of practice for optometrists and podiatrists. To address the shortage of nurses in Massachusetts, the legislation makes it easier for nurses to move to the Commonwealth by allowing nurses licensed in another state to practice in Massachusetts without having to obtain a new license.

The bill also seeks to expand access to, and coverage of, mental and behavioral-health services through various measures, including provisions to encourage behavioral-health providers to accept insurance and to develop and grow the number of providers. The legislation establishes a Board of Registration of Recovery Coaches — a recommendation of the Recovery Coach Commission formed as part of the opioid legislation enacted in Massachusetts last year — which will credential recovery coaches who provide addiction-recovery services.

The legislation includes new consumer protections to manage healthcare spending and reduce consumers’ out-of-pocket costs. For example, it seeks to curb the practice of ‘surprise billing’ that consumers receive for emergency and unplanned services from out-of-network providers by establishing a default, out-of-network rate for such services. The bill also imposes limits on when a hospital can charge a fee for services delivered at an outpatient or satellite site and prohibits such fees for certain types of evaluative and diagnostic services.

The legislation also seeks to contain healthcare costs by addressing the high costs of prescription drugs. In addition to requiring pharmacists to inform consumers about the lowest cost options for the drugs they purchase, the legislation creates a review process for certain high-cost drugs and imposes financial penalties on manufacturers for increases in drug prices that exceed certain set percentages. Drug manufacturers also would be required to participate in annual cost-trend hearings before the Health Policy Commission.

Relatedly, the legislation imposes new oversight authority over pharmacy benefit managers, companies that negotiate contracts with drug manufacturers and manage pharmacy benefits and payments for health plans. Pharmacy benefit managers would be required to be certified with the Mass. Division of Insurance and report financial data to the Massachusetts Center for Health Information and Analysis.

In addition to cost controls, the legislation includes provisions aimed at improving access to appropriate, coordinated healthcare, including access to urgent-care centers and telemedicine services. According to a 2018 analysis by the Massachusetts Health Policy Commission, there has been a sharp increase in the use of urgent-care centers, where services are less expensive than those provided at hospital emergency departments.

The governor’s proposal seeks to improve access to, and to eliminate confusion regarding, urgent-care centers. For example, the names of clinics operating as urgent-care centers would have to include the term ‘urgent care’ or otherwise suggest that urgent-care services are provided. The bill also requires urgent-care centers to be licensed by the state Department of Public Health, and, as requirements of licensure, such centers must accept MassHealth (the Massachusetts Medicaid program), provide behavioral-health services, and meet standards for coordinating with patients’ primary-care providers.

The legislation also seeks to expand access to care by improving and increasing the use of telemedicine (healthcare services provided via telecommunication services such as videoconferencing). Telemedicine can be a cost-effective form of care, and it eliminates the requirement of travel, which can be significant for individuals living in rural areas. In an attempt to increase the use of telemedicine in the Commonwealth, the legislation creates a regulatory framework for such services and requires insurance-coverage parity for such services (i.e., if there is coverage for the services if provided in person, there must be coverage if the services are provided via telemedicine).

The legislation seeks to support community health centers and hospitals by investing in the Health Safety Net Trust Fund, which pays hospitals and community health centers for services provided to low-income residents who are uninsured or underinsured. The governor’s proposed investment – $15 million – constitutes less than 5% of the total amount paid out by that trust fund to hospitals and community health centers in 2018. The legislation also provides for additional funding to the Community Hospital and Health Center Investment Trust Fund through the penalties that the legislation imposes on drug manufacturers and providers for failing to meet cost-containment requirements.

Along with efforts to control healthcare spending, the legislation also seeks to control the price of insurance premiums, particularly those paid by small and mid-size employers and their employees. An October 2019 report from the Massachusetts Center for Health Information and Analysis found that premiums and cost-sharing obligations for private-sector employees in Massachusetts are continuing to increase at a faster rate than wages and inflation. Among other things, the legislation includes provisions which are designed to give small employers (50 employees or fewer) greater access to health-plan options.

Finally, on Oct. 18, the same day he filed his healthcare-reform bill, Gov. Baker issued an executive order to create a commission to study the combined individual and small-employer group health-insurance market. This unique market — known in Massachusetts as the ‘merged market’ — was established in 2007 with “the intention of increasing and stabilizing its risk pool to provide greater access to affordable health-insurance coverage,” according to the governor’s executive order.

The commission is tasked with analyzing the merged market in light of the legislative reforms and changes to the healthcare market that have occurred over the past 12 years and reporting recommendations to the governor by April 30, 2020, with the objective of “ensuring that all residents have access to affordable health-insurance coverage.”

Bottom Line

Gov. Baker’s proposed reforms are just that — proposals. Lawmakers at the State House are working on their own healthcare-reform legislation, including bills supporting a Medicare-for-all, single-payer system. What will follow are negotiations among legislators and the Baker administration, with the goal of passing comprehensive healthcare-reform legislation in Massachusetts before the Legislature’s formal session ends on July 31, 2020.

Jodi K. Miller, Esq. is a partner at Bulkley, Richardson and Gelinas, LLP, in Springfield, where she represents clients in commercial and other civil-litigation and regulatory matters, with a focus on health law.