Category: Corporations

The Corporate Transparency Act: Understanding New Federal Reporting Requirements of Company Ownership

New anti-money laundering legislation was included as part of the National Defense Authorization Act (NDAA) enacted by Congress on January 1, 2021 through the override of a presidential veto. The NDAA is a series of federal laws primarily specifying the annual budget and expenditures of the United States Department of Defense. The NDAA for Fiscal Year 2021 includes the expansive Anti-Money Laundering Act of 2020 (AMLA) with the purpose of updating and amending the country’s anti-money laundering laws. It has long been acknowledged that the United States lags behind other developed countries in its safeguards designed to prevent the flow of illicit money—so much so that the Tax Justice Network, an independent institution that indexes countries’ financial secrecy, currently ranks the United States as the second most financially secretive jurisdiction, ranking behind only the Cayman Islands and just ahead of Switzerland1. Together with the AMLA, Congress also enacted the Corporate Transparency Act (CTA), which directs the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) to establish and maintain a national registry of beneficial owners of entities that are deemed “reporting companies.”2 In so acting, Congress stated that bad actors seek to conceal their ownership of business entities through the use of shell companies in order to facilitate illicit activities including money laundering, the financing of terrorism,...

Cafeteria Plan Provisions of the Consolidated Appropriations Act, 2021

The Consolidated Appropriations Act, 2021 (the “CAA”) provides employers with the ability to adopt optional relief provisions for participants in cafeteria plans with healthcare and dependent care flexible spending accounts (“FSAs”). These provisions are aimed at preventing forfeiture of unused account balances at the end of the 2020 and 2021 plan years. The unused amounts have often arisen due to the COVID-19 pandemic triggering extended medical provider, school, and daycare closures, and remote work arrangements. Grace Period Extensions and Unlimited Carryover Amounts The CAA provides employers with two options for the use of leftover FSA amounts. First, an employer can extend the grace period to use these amounts in the following plan year from two months and fifteen days to twelve months after the end of the plan year. Accordingly, unused FSA amounts as of the end of the 2020 plan year may be used for qualifying medical and dependent care expenses through the end of the 2021 plan year, and unused FSA amounts as of the end of the 2021 plan year can be used for qualifying medical and dependent care expenses through the end of the 2022 plan year. It is important to note that participants cannot contribute to health savings accounts while healthcare FSA funds are available during a grace period. Thus,...

IRS Allows Use of Pass-Through Business Alternative Taxes to Bypass 2017 Tax Act’s Limitation on SALT Deductions – Effectively Blessing New Jersey Statutory Work-Around

On Monday, November 9th, the IRS issued Notice 2020-75 stating that it intended to issue proposed regulations to clarify that state and local income taxes imposed on and paid by a partnership or an S corporation would be deductible by such entity regardless of whether the liability for such taxes is the result of an election by the entity or whether the partners or S shareholders receive a partial or full state or local deduction, exclusion, credit, or other tax benefit that is based on their share of the amount of such taxes paid by the entity. Taxpayers will not need to take such tax payments into account in applying the 2017 Tax Act’s $10,000 cap on state and local taxes. Notice 2020-75, effective immediately, appears to directly support the efficacy of New Jersey’s work-around (S-3246/A-4807) adopted early in 2020 to address the federal 2017 Tax Act’s $10,000 cap on state and local taxes (SALT). Because that cap applies predominantly to real property taxes and sales taxes in addition to income taxes, business taxpayers who can use the work-around and remove business income taxes from the $10,000 cap will effectively be allowed to deduct an additional amount of other SALT taxes under the cap. The New Jersey law, commonly called the Pass-Through Business Alternative Income Tax,...

Financial Disaster Relief for Start-Ups – Yes, It Is Possible!

The specific challenge we are addressing here is for start-ups and other early-stage businesses. Gibbons attorneys are heavily involved in advising businesses in all industries and of all sizes on the full range of state and federal coronavirus disaster relief programs available to them. Start-ups and other early-stage companies face particular challenges in obtaining governmental relief. Gibbons understands this and is here to help. With our strong commitment to start-ups and other early-stage businesses, we recognize your dire need for funds for survival, as well as growth, at this critical period. We also recognize that the federal and state application requirements seem staggering. Founding teams are confronted with overwhelming requests for tax returns, current financial statements, monthly sales figures, and similar requirements. Which aid program(s) should you pursue? How do you decide? How does a pre-revenue or newly launched start-up demonstrate to federal and state agencies substantial economic injury? How do you determine the best route for disaster assistance with the highest chance of short-term success and without being overwhelmed by red tape? What is its most recent pre-coronavirus valuation, and how was it justified – for example, thought independent third party investments or a verified order pipeline? How much economic loss has now occurred due to the crisis? How do you complete the forms...

NJEDA Steps Up With Funding for Approved Accelerators and Their Qualifying Cohorts With Exciting New $2.5 Million “NJ Accelerate” Program

On February 11, 2020, the New Jersey Economic Development Authority (“NJEDA”) approved a $2,500,000 pilot program labeled NJ Accelerate (“NJ Accelerate”). The NJEDA expects to attract more accelerator and start-up activities to the State by encouraging the increased participation of New Jersey based entrepreneurs in accelerator programs that provide specialized expertise, mentorship, and technical assistance. The NJ Accelerate program will be organized in a two-step process: (1) accelerator operators will be pre-qualified (“Approved Accelerators”) and, (2) financial assistance will be provided from the NJEDA to domestic New Jersey early-stage companies that complete a program at an Approved Accelerator. With a $2,500,000 pilot program budget, the NJEDA anticipates that approximately 10-15 companies will be supported in the NJ Accelerate pilot program in addition to the support and engagement of at least five Approved Accelerators. Domestic companies from an approved accelerator and meeting certain requirements are eligible to receive direct loan support from the NJEDA up to $250,000 in the form of a 10 year convertible promissory note and will be in the same amount of investment dollars funded into the start-up by the Approved Accelerator. There will be no repayment obligation for the first seven years. Domestic companies are also eligible to receive rent support up to $25,000. Additional benefits include funds for Approved Accelerator programmatic...

New Jersey Corporate Reforms Become Law

A package of bills that reform the New Jersey Business Corporation Act (“NJBCA”) were signed into law on January 16, 2018. We previously wrote about this legislation which was modeled upon provisions of the “Delaware Business Corporation Law” and was recommended for enactment by the “New Jersey Corporate and Business Law Study Commission.” These revisions generally benefit corporate boards of directors and modernize provisions of the NJBCA. Inspections of Corporate Books and Records (P.L. 2017, c.364) Assembly Bill 2975 (Diegnan/Pinkin) modifies the NJBCA to allow corporations to impose reasonable limitations or conditions on the use or distribution of requested corporate books and records. While the law does not define such “limitations and conditions,” the legislative statement provides an example of conditioning the receipt of requested materials on the demanding shareholder agreeing to customary confidentiality obligations. The measure preserves the ultimate authority of a court to decide and order relief in actions brought by shareholders for inspection of materials. Derivative Proceedings and Shareholder Class Actions (P.L. 2017, c.362) Assembly Bill 2970 (Diegnan/Pinkin) gives corporations greater flexibility to vary the applicability or effect of commencing and maintaining a derivative proceeding and shareholder class action. This new law deviates from the prior standards and requires that the NJBCA’s provisions shall apply to a corporation unless that corporation chooses to vary the...

New Jersey Legislature Considers Corporate and Business Law Reforms

A series of bills that would reform the New Jersey Business Corporation Act (“NJBCA”) are slowly churning their way through the New Jersey State Legislature. The pending legislation is modeled upon provisions of the “Delaware Business Corporation Law” and the recommendations of the “New Jersey Corporate and Business Law Study Commission.” In sum, the proposed revisions would generally benefit corporate boards of directors and modernize provisions of the NJBCA. Inspections of Corporate Books and Records Assembly Bill 2975 (Pinkin)/Senate Bill 2238 (Diegnan) modifies the NJBCA to allow corporations to impose reasonable limitations or conditions on the use or distribution of requested corporate books and records. While the bill does not define such “limitations and conditions,” the legislative statement accompanying A-2975/S-2238 provides an example of conditioning the receipt of requested materials on the demanding shareholder agreeing to customary confidentiality obligations. The bill preserves the ultimate authority of a court to decide and order relief in actions brought by shareholders for inspection of materials. On January 23, 2017, A-2975 passed the General Assembly by a vote of 69-0. On June 19, 2017, S-2238 passed the Senate Commerce Committee by a vote of 4-0. This bill is now awaiting a vote in the full State Senate. Derivative Proceedings and Shareholder Class Actions Assembly Bill 2970 (Pinkin)/Senate Bill 2236 (Diegnan) gives...