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After a summer hiatus, our law blog returns for an announcement about a special event to be hosted by David J. Lynam and the Entrepreneur Group of the Union League Club. Please join us for “Angel Investing, What It Is, How it Works, and Recent Trends” on November 16 at 11:30 am. This event will feature a panel discussion by the Chicago angel investing group, The Chicago Archangels, who will share their inside perspective on angel investing. To sign up please use the Eventbrite link https://angelinvestingprogram.eventbrite.com. See you there!

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Please join us for a special luncheon on Thursday, June 2, from 11:30 AM to 1:30 PM hosted by the Union League Club Entrepreneur Group, David Lynam, Chair, where Professor Craig Wortmann of the University of Chicago’s Booth School of Business will present a workshop based on his award winning course “Entrepreneurial Selling.”

In this special ULCC Entrepreneur Group workshop, Professor Wortmann will lead discussions on applying selling skills in different contexts, acquiring and keeping customers, engaging with powerful stories (how and when to use them), and managing and measuring the sales process. Professor Wortmann designed, developed and teaches the University of Chicago business school course “Entrepreneurial Selling,” which is ranked by Inc. Magazine as one of the top ten business courses in the country.

The ULCC Entrepreneur Group represents a diverse gathering of professionals, academics, entrepreneurs, government officials, and business leaders who engage in issues of interest to entrepreneurs, provide a forum where entrepreneurial ideas can be exchanged, and celebrate the spirit of the Chicago entrepreneur community.

This event is open to everyone. ULCC Members may sign up at ULCC.org or call Member Events. Non-members, please register by using the special Eventbrite link here.

The leadership of the Union League Club Entrepreneur Group was highlighted in the Winter 2015 edition of The State of the Union, the official magazine of the Union League Club of Chicago. The Entrepreneur Group is chaired by David Lynam of Lynam & Associates, and vice-chaired by Laurel Rundle, Partner at Aha! Marketing and CEO of All for Schools. The Group, a panel of professionals, business owners, executives and members of the startup community, meets monthly to engage in issues of interest to entrepreneurs, provide a forum where ideas can be exchanged, and engages in activities that celebrate the spirit of the Chicago entrepreneur community.Entrepreneur Group Highlight

On Thursday, May 28, 2015, David J. Lynam of Lynam & Associates presented a breakfast program for the Union League Club of Chicago Entrepreneur and Real Estate Groups. The program featured a presentation on Creating Private Investments Using Qualified/IRA Funds.

For more information on how to unlock the power of self directed investments in real estate, private equity, and startups and on truly diversifying your investment choices, please see the presentation slides available here.

Our firm has recently updated our national survey of paid sick leave laws, and it is clear that these laws have both advanced and retreated nationwide.
From 2006 to 2014, eighteen localities have passed mandatory paid sick leave laws, including San Francisco, Oakland, Seattle, Portland, Washington D.C., Philadelphia, and New York City. The three states that have passed mandatory paid sick leave laws are California, Massachusetts, and Connecticut. However, other states have refused to endorse mandatory paid sick leave, adopting laws that prohibit local governments from establishing the right to paid sick leave, such as Florida, North Carolina, Arizona, and Pennsylvania.
Perhaps the biggest challenge for our clients, once laws are passed, will be dealing with their various requirements. Many of the laws differ in key areas, such as which employees are covered, how much sick time employees accrue, what sick leave can be used for, and whether sick leave can carry over from year to year. For instance, covered employees in Connecticut accrue one hour of paid sick leave for every forty hours worked, while covered employees in California and Massachusetts accrue one hour of paid sick leave for every thirty hours worked. We will advise our clients if any of these proposals actually become law in Illinois or in the metropolitan area with local units of government, and how they should best address them.

With New Years Day quickly approaching, it is important to keep in mind several laws that are changing or taking effect as of January 1, 2015.

Charitable IRA Transfers:

Affects: Individual Retirement Account owners

Action Required: If desirable, make non-taxable transfers to eligible charities before January 1.

The Tax Increase Prevention Act of 2014 extends a host of individual tax provisions, including non-taxable IRA transfers to eligible charities. Individual Retirement Account (IRA) owners who are age 70 ½ or older can make tax-free direct distributions of up to $100,000 per year from an IRA to a charity.  These distributions are outside the charitable contribution percentage limits because they are neither included in gross income nor claimed as a deduction on the taxpayer’s return.  The Act retroactively extends the provision allowing these transfer for one year so that charitable IRA transfers are non-taxable until January 1, 2015.

Pregnancy in Employment:

Affects: All Illinois employers with one worker or more

Action Required: Display new lunchroom poster, modify employee handbook, schedule confidential discussions with pregnant workers on the effect their pregnancy has on performance of the essential functions of the job.

The Pregnant Workers Fairness Act requires all employers to provide reasonable accommodations to women on account of pregnancy, childbirth, or medical or common conditions related to pregnancy or childbirth. Essentially, for reasonable accommodation purposes, employers must treat pregnancy and pregnancy-related conditions “like a disability.” An employer must provide a requested reasonable accommodation to a pregnant applicant or employee (full-time, part-time, or probationary), absent a showing of undue hardship on the ordinary operations of the employer. However, the law specifically prohibits an employer from requiring an individual to accept an accommodation the individual either did not request or chooses not to accept.

Examples of Accommodations: An employee and employer must engage in a timely, good faith, and meaningful exchange to determine effective reasonable accommodations. Reasonable accommodations may include more frequent or longer bathroom breaks, breaks for increased water intake, and breaks for periodic rest; private non-bathroom space for expressing breast milk and breastfeeding; seating; assistance with manual labor; light duty; temporary transfer to a less strenuous or hazardous position; the provision of an accessible worksite; acquisition or modification of equipment; job restructuring; a part-time or modified work schedule; appropriate adjustment or modifications of examinations, training materials, or policies; reassignment to a vacant position; time off to recover from conditions related to childbirth; and leave necessitated by pregnancy, childbirth, or medical or common conditions resulting from pregnancy or childbirth.

Employers are not required to create additional positions that the employer would not otherwise have created. The employer is also not required to discharge any employee, transfer any employee with more seniority, or promote any employee who is not qualified to perform the job, unless the employer does so or would do so to accommodate other classes of employees who need it.

Notices: Employers also must post a notice, prepared by the Department of Human Rights, summarizing the requirements of the law and information pertaining to filing a charge. The notice must be in a conspicuous location where notices to employees are customarily posted. A copy of the Pregnancy Rights Notice can be found on the Department’s website. Employers must also include information concerning an employee’s rights under the Act in any employee handbook.

Criminal History NOT A Job Disqualifier:

Affects: All Illinois employers with 15 or more workers

Action Required: Except for employers required by law not to employ workers with criminal histories, do not use criminal background checks until interview or conditional offer, and modify job applications to remove questions that ask about criminal history.

The newly enacted Job Opportunities for Qualified Applicants Act prohibits private employers with 15 or more employees from considering a job applicant’s criminal background until the employer has extended an offer for an interview or a conditional job offer. These restrictions do not apply if the employer must exclude applicants with certain criminal convictions from an applied-for position under federal or Illinois law. The law does not allow applicants themselves to sue, but provides the Illinois Department of Labor authority to investigate alleged violations.

Sex Harassment Protection for Unpaid Interns:

Affects: All Illinois employers

Action Required: Interns may bring charges for sexual harassment; training of managers accordingly

Amendments to the Illinois Human Rights Act expand the definition of “employee” as it relates to sexual harassment to include unpaid interns. The Act defines an unpaid intern as a person performing work under one of three circumstances: (1) where the employer is not committed to hiring the intern at the end of the internship; (2) where the employer and intern agree that the intern will not be paid; or (3) where the intern’s work supplements educational training, provides beneficial experience for the intern, does not displace regular employees, is performed under close supervision, or provides no immediate advantage to the employer.

Payroll Debit Card Use Permitted:

Affects: All Illinois employers

Action Required: None, unless payroll debit cards desirable

Amendments to the Illinois Wage Payment and Collection Act (IWPCA) for the first time permit employers to pay employees’ wages using payroll debit cards if they follow strict requirements on their use.

By: David J. Lynam, Principal, Lynam and Associates

Published by the Illinois CPA Society’s Practice Advantage September 26, 2014

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The United States Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“the Act”), signed into law by President G.W. Bush, drastically altered the debtor/creditor landscape. It also explicitly extended the bankruptcy protection afforded to qualified retirement plans (401k, 403b) to Individual Retirement Accounts (“IRAs”) up to $1 million, inflation adjusted. (Bankruptcy Code Section 522 (b)). Left to be determined by the changes wrought by the Act was the exemption status of “inherited IRAs,” which are either traditional or Roth IRAs held by inheritors following the death of the IRA owner. There are two categories of IRA inheritors, or beneficiaries, each with distinct inherited IRA tax and distribution requirements- (1) the surviving spouse, and (2) any other beneficiary, including, but not limited to children, grandchildren, estates, and trusts.

On June 12, 2014, the Supreme Court, in Clark v. Rameker, 134 S.Ct. 2242 (2014), ruled in an case from the Bankruptcy Court for the Western District of Wisconsin that despite the Act’s exemption of traditional IRAs up to $1 million, inherited IRAs enjoy no special protection in bankruptcy, and are not exempt from creditor claims in a bankruptcy proceeding under federal law, as the funds they hold do not constitute “retirement funds” within the meaning of the Act. With Americans keeping an estimated $5.4 trillion of assets in IRAs, this decision has far reaching effects on the owners of IRAs. Many who have inherited these retirement benefits hold them in an inherited IRA form to stretch out the required distributions over their life expectancies. This structure is now subject to creditor claims in the event of the beneficiary’s bankruptcy, and also in non bankruptcy state law proceedings, depending on the residence of the beneficiary and that jurisdiction’s particular exemptions.

Instrumental to the Supreme Court’s decision in Clark was the interpretation of the federal bankruptcy exemption of “retirement funds”, with the Court drawing the distinction between inherited IRAs and traditional or Roth IRAs. The Court reasoned that, unlike a regular IRA owner, beneficiaries of an inherited IRA (1) cannot add money to the account, (2) must take out annual distributions under a life expectancy calculation or a fixed five year method (see Internal Revenue Code sections 72(q) (1) and 401(a) (9) (B)), and (3) have the ability to withdraw the totality of the funds at any time without being subject to the early withdrawal penalty. The Court found that these characteristics of an inherited IRA cause it to be more of a ‘pot of money’ rather than a retirement fund, and therefore held the inherited IRA not to be exempt from creditors.

Spousal beneficiaries are entitled to “roll over” or transfer their share of an inherited IRA into their own spousal IRA account. Once rolled over, the funds would not be subject to the claims of spousal creditors under bankruptcy law, based on the rationale utilized by the Supreme Court in Clark. With a spousal IRA, the spouse can make contributions to the spousal IRA, the spouse must take minimum distributions exactly in the same manner as would be true for that particular type of plan, and the 10% early withdrawal penalty applies to the funds rolled over in the event that the spouse withdraws funds before 59½. Generally, if the ability to make penalty free withdrawals for a 59 ½ or younger spouse out of an inherited IRA are trumped by asset protection concerns, this spousal rollover should be performed as soon as practicable in order to obtain the asset protection of the spousal IRA.

For non-spousal beneficiaries holding inherited IRA’s, the states in which they reside have the power to opt out of the federal exemptions listed in section 522(d) of the Bankruptcy Code and either mandate that a debtor select the state exemptions, or allow him to choose between state and federal exemptions. Several states have expressly exempted inherited IRAs from bankruptcy proceedings, although inherited IRA’s may still be subject to creditors in non-bankruptcy state court proceedings in those states.

Illinois requires bankruptcy debtors with IRAs to use state law exemptions covering “retirement plans, including an individual retirement annuity or account” 735 ILCS 5/12-1006(a). Presently, there is little authority on whether this exemption includes inherited IRAs in a bankruptcy proceeding or in non-bankruptcy proceedings under state law. Litigation is now pending in the United States Bankruptcy Court for the Northern District of Illinois (In re Taylor, No. 12-16471 (Bankr. N.D. Ill.)) where a debtor is seeking an exemption for an inherited IRA under 735 ILCS 5/12-1006(a), arguing that the plain language of the applicable Illinois exemption is broader than that of the federal exemption circumscribed by the Supreme Court in Clark.

Owners of IRAs wishing to plan for protection of the beneficiaries of their IRAs from creditors can create a so called “see through” inter vivos or testamentary trust as the IRA’s beneficiary, pursuant to Regulations Section 1.401 (a)(9)-4. If valid under state law, irrevocable at death, individual beneficiaries are identifiable from the trust instrument, and certain provisions are present prohibiting the assignment or transfer of the beneficiaries’ interests, such a trust can act to shield inherited IRA funds from creditors, and the beneficiaries of the trust will be treated as the beneficiaries of the IRA. If the trust beneficiaries are treated as beneficiaries of the IRA, the trust may be able to stretch IRA distributions out over the oldest beneficiary’s life expectancy. Certain documentation must also be timely provided to the custodian or plan administrator. Such a trust can be designed as a fully discretionary trust, thereby providing the maximum protection from creditors.

The Supreme Court’s decision in Clark v. Rameker should provide a special impetus to planning for asset protection where significant estate wealth is concentrated in IRAs.

UPDATE 10/16/14: The United States Bankruptcy Court for the Northern District of Illinois has rejected the debtor’s claim in In re Taylor, No. 12-16471, that Illinois’ inherited IRA bankruptcy exemption from creditors is broader than the federal exemption. The judge, however, provided no reasoning for his decision. Thus the issue of whether inherited IRAs are exempt from creditor collections in a bankruptcy proceeding in Illinois remains undecided until a higher court issues a ruling.

Disclaimer: This article is designed to provide information in regard to the subject matter and has been prepared with the understanding that neither the Illinois CPA Society nor the author of this article is providing accounting, tax or legal advice or is performing any legal, accounting or other professional service. If accounting, tax or legal advice or other expert assistance is required, the services of a competent professional person should be sought.