March 2021

Thomas D. Rees | March 31, 2021

Offensive Social Media Posts by Pennsylvania Employees Justify Termination

“If you can’t say anything nice, don’t say anything at all,” our parents told us. Two recent Pennsylvania employment termination cases give this same advice to adult social media users. In both cases, courts upheld terminations for employees’ mean-spirited off-duty social media comments.

In Carr v. Commonwealth, 230 A.3d 1075 (Pa. 2020), a PennDOT employee (Carr) encountered a poorly driven school bus while driving to work. She posted to a Facebook group, “School bus drivers don’t give a flying s**t about those babies” and said she would “gladly crash into a school bus”. She added, “You’re (sic) kids are your problem. Not mine.” Carr disclosed that she worked for PennDOT. Facebook users sent Carr’s post to PennDOT, which terminated her for misconduct.

Carr filed a civil service appeal , claiming First Amendment free speech rights. PennDOT argued that Carr’s off-duty conduct undermined PennDOT’s traffic safety goals and harmed PennDOT’s reputation. The Civil Service Commission upheld PennDOT’s action.

Surprisingly, the Pennsylvania Commonwealth Court overturned Carr’s dismissal. Commonwealth Court viewed Carr’s comments as protected speech about a matter of public concern, despite the reprehensible tone.

The Pennsylvania Supreme Court reversed Commonwealth Court and upheld Carr’s dismissal. The Court held that Carr’s Facebook rant interfered with PennDOT’s highway safety mission. PennDOT therefore had reasonable concerns about adverse effects on PennDOT’s ability to carry out its duties. Commonwealth Court therefore was wrong to hold that Carr’s interest in commenting on bus safety outweighed PennDOT’s broader public safety interest. In short, Carr’s personal rant had limited public importance but caused significant detriment to PennDOT.

Justice Wecht concurred, stating that Carr’s comments raised no public concern at all. He also discussed social media platforms’ potential to disrupt agency operations, suggesting that public employees consider possible employment consequences before making off-hours social media comments.

Ellis v. Bank of NY Mellon Corp., 2020 WL 2557902 (W.D. Pa. May 20, 2020), affirmed, 2021 WL 829620 (3rd Cir. March 4, 2021) (not precedential) also mentioned vehicular violence in a Facebook post. Ellis was a white at-will employee in BNY Mellon’s Pittsburgh wealth management department. During an East Pittsburgh street protest after police killed an African-American teenager, a local councilman drove a car through the crowd. Ellis commented on her public Facebook page, “He should have taken a bus to plow thru.” Her Facebook account disclosed that she was a Mellon employee.

Public reaction was immediate. The public “inundated her employer with complaints” on Facebook and the Bank’s ethics hotline, and to the CEO and Human Resource Chief. They demanded to know if the post reflected Mellon’s values.

After an emergency investigation, Mellon terminated Ellis immediately. Mellon decided that Ellis had violated Mellon’s Social Media Policy prohibiting employees from conduct harming the Bank’s reputation. This Policy warned that violations could lead to termination. The Bank told Ellis that her post was offensive, showed poor judgment and disrespect for others, and encouraged violence.

As an at-will private sector employee, Ellis lacked First Amendment protection for off-duty comments. However, Ellis filed a race discrimination claim. She complained of harsher treatment than African-American employees who posted Facebook comments on the same incident or police brutality. BNY Mellon moved for summary judgment, contending that Ellis failed to make out a prima facie case because the African-American comparators were not similarly situated to Ellis. The comparators worked in different positions with different responsibilities and supervisors. The court granted summary judgment to Mellon. The court contrasted Ellis’ posting from the comparators’ postings, holding that Ellis addressed current news and supported driving through a crowd. The Court held that the Bank had legitimate, non-discriminatory grounds to fire Ellis for a posting that “was offensive in nature, advocated violence, demonstrated extremely poor judgment, and created a reputational risk” to the Bank. In a very brief opinion, the Third Circuit recently affirmed the District Court.

Our parents’ warning was right. And before posting on social media, employees should also remember the warning given law enforcement, albeit in a different context: “You have the right to remain silent; anything you say may be used against you.”

Joel D. Rosen | March 25, 2021

Should I form an LLC for an Investment Property?

So you want to invest in real estate, possibly buying one or more investment properties, but are not certain if you should buy them in your own name, as husband and wife or through some form of legal entity. The decisions you make now regarding the purchasing of the real estate could save you time and money in the future. That's why is pays to speak with a real estate attorney near you.

Should I buy rental properties in my own name or as a corporation?

There are various forms of entity to choose from, sole proprietorship, general partnership, limited partnership, limited liability company (real estate LLC) or corporation (C-corp or S-corp). Initially, it is best not to own investment real estate in your own name or a general partnership. In both cases, the individual owner and each general partner will be personally liable for debts/liabilities arising out of the real estate holding.

It is also preferable, in Pennsylvania, not to hold title in the name of a corporation as selling it triggers additional tax liability and the need for tax clearance certificates, which can delay closing on the sale.

LP or LLC? Which entity is best to purchase a rental property?

Eliminating individual ownership and general partnership essentially leaves you with either an LLC or a limited partnership. An LLC is cheaper and easier to set up and provides the same level of liability protection as a limited partnership as well as the same pass-through tax benefits to the members of the LLC.

A limited partnership requires the creation of a general partner, typically a corporate entity or limited liability company, which remains liable for the debts and liabilities of the limited partnership. The limited partners are shielded from liability. But that necessitates the creation of a limited partnership and a general partner. A limited liability company does the same work, with half the effort.

A real estate attorney can help you decide which is best for you.

Can I transfer the rental property title to the entity after it’s been purchased?

As a preliminary matter, whatever decision you make regarding the title to the property, make your final decision before buying the property. You don’t want to buy it as an individual and then after acquiring it transfer it to an entity you create. Such a scenario can create a double payment of real estate transfer tax, which can be significant depending on where you live. Thirty-eight states, including Pennsylvania, have taxes that are paid for transferring title to real estate.

In Pennsylvania, if you buy property in your own name (and pay the transfer tax on that acquisition) and then transfer it to a company you set up to hold title to the real estate, you have to pay transfer tax a second time. To avoid that, simply choose a form of ownership and stick to it. Check out our past articles on county-specific real estate transfer tax for Philadelphia and Montgomery County, PA.

In summary, many real estate companies take the form of real estate LLC for the reasons noted above. If you need assistance in forming an LLC for an investment property, talk to one of our real estate attorneys. Our law firm serves Bucks and Montgomery counties. Call today: 610.275.0700.

High Swartz | March 23, 2021

Going Pro-Se? Why Hiring a Lawyer is Crucial to Your Case

An unfortunate fact of life is that at some point, almost everyone will become involved with the court system. Here are some reasons why hiring a lawyer will benefit you in the end.

In 2016, approximately 84 million cases filed in state trial courts, according to the Court Statistics Project. Even if you are not involved in a ‘traditional’ lawsuit, wills, business arraignments, separations, and more often involve attorneys and carry heavy consequences for all involved. In these situations, many choose to hire a lawyer before moving forward.

It can be tempting, from a financial standpoint, to forego a lawyer and represent yourself (appearing “pro se”). The costs of representation by an attorney, even one without decades of experience, can range from costly, yet feasible, to prohibitively expensive in some cases – particularly when the length of representation is difficult to determine from the start.

So why should you hire an attorney?

When facing criminal charges, the local public defender’s office will appoint a lawyer for you, if you cannot afford one, in keeping with your constitutional right to an attorney. But in most cases, hiring a lawyer is the single best thing that you can do to ensure that your legal rights are protected, and that you receive the most favorable outcome in your case. Here’s why.

The Legal System is Complicated.
First and Foremost, the legal system is complicated. Besides the basics of initiating a lawsuit, a myriad of obstacles and procedures await anyone seeking to bring a case or defend against one. Even basic steps, such as figuring out who to contact and what the deadlines are, can be difficult to locate for someone not well-versed in the court rules and procedures.

Further, these are often answers that can’t be found with a quick internet search; understanding and applying the rules can be a frustrating task even for individuals with prior exposure to the legal system. The average individual faces a severe disadvantage when going against another party who has hired a lawyer; the way to avoid becoming entangled in a web of complicated rules and procedural requirements is to hire an attorney who has experience with them.
Legal Advice and Guidance is Valuable.
When faced with the pressures of a lawsuit, an individual must make choices involving not only who to sue, but often how much to sue for – or in the case of a defendant, how much to potentially settle for. These questions can be hugely influential on the outcome of a case, and are difficult at best – not to mention the smaller decisions that must be made such as which witnesses to call, and which arguments to make. A seasoned lawyer is able to guide you with advice designed to achieve the best outcome in your case or issue – even if you have experience in a particular area, having someone there to provide guidance can be crucial. In particularly personal cases, such as criminal matters or child custody, it can be especially difficult for someone to make these decisions with a clear head; the highly emotional nature of these cases can make sensible decision-making difficult, if not impossible. Hiring a lawyer will ensure that you won’t make legal decisions that could hurt you in the long run.
The Stakes are (Usually) High.
The threat of spending time in jail, and having a criminal record, is a serious risk that most would not want to take on alone. As mentioned above, a lawyer is guaranteed through the public defender’s office; but a civil case has no such guarantee of representation, and often carries with it massive financial risks as well.

In lawsuits arising out of car accidents, for example, the average settlement ranges from $20,000 to $30,000 – and that’s assuming the injuries sustained by the plaintiff weren’t serious. If you find yourself defending against a case such as this, the risk of owing this amount (or more) outweighs any short-term savings from not hiring a lawyer.

While the legal system is complicated and carries great risks, these problems can be minimized by retaining a lawyer. Besides their practical knowledge in the field, their guidance, advice, and reassurances can greatly reduce the stress that accompanies the legal system and will almost always result in a more positive outcome for you.

High Swartz | March 15, 2021

How can a business obtain trademark protection when its own name generically describes its goods or services?

In the past, a business may be out of luck if it was seeking a trademark protection for a generic name. However, in the recent Supreme Court of the United States case USPTO v. Booking.com B.V., 140 S. Ct. 2298 (2020), the Supreme Court ruled in favor of a company named Booking.com, a business which provides the service of making online travel reservations.

Let’s start with what is considered “generic” by the USPTO. A generic trademark is the good or service sought be protected, such as a soft drink company calling itself “soda,” or a bicycle company applying to register its latest product it calls a “bicycle.” These generic marks fail at distinguishing the good or service it seeks to protect from other similar goods and services in the same class.

Without further descriptive elements, the mark has no distinctiveness and the USPTO will not grant its registration. Moreover, trademarks can be cancelled/revoked if the brand name becomes generic. “Aspirin” was owned by Bayer until revoked. “Elevator” was owned by Otis until revoked.

So what happens if a business with a generic name seeks trademark registration? What can a business do to obtain trademark protection over its goods and services if it hasn’t developed any descriptive names for those goods and services?

The USPTO rejected four trademark applications filed by Booking.com. Though each mark featured different travel-related elements and images, all included the term “Booking.com.” In explaining its reasoning for rejection, the USPTO contended that the word “booking” is generic as its relates directly to making travel reservations, and the “.com” is similarly generic since it fails to add specific meaning that would distinguish Booking.com from its competitors. Combining a generic term (booking) with another generic term (.com), the USPTO argued, did not warrant trademark registration.

In an 8-1 decision led by the late Justice Ruth Bader Ginsberg, the Supreme Court agreed with lower courts’ decision to overrule the USPTO’s decision denying registration of any mark styled as “generic word.com.” The Supreme Court ruled that consumers determine whether such trademarks are generic. And, to the contrary to the USPTO’s position, by attaching the “.com” suffix to the proposed trademark, Booking.com had actually added distinctiveness.

The Supreme Court recognized that consumers did not identify the mark “Booking.com” with the entire class of the travel reservation website industry, but with that specific company known as Booking.com. Ultimately, whether consumers perceive an otherwise generic mark to identify a class of goods or services or specific exemplar of that class will determine its eligibility for trademark protection.

Current business owners, especially those who own businesses with a “.com” or other internet domain extensions in its name, should be mindful of the Booking.com decision, as they can now confidently apply for trademark registration for their company’s name. The Booking.com decision may be even more impactful in the age of the COVID-19 pandemic, when consumers conduct business—and their everyday lives—online at an ever-increasing clip. Companies which avoid traditional brick and mortar facilities for online only business may now be more inclined to include the “.com” as part of their branding.

Though its is not clear whether the Booking.com opinion has created greater opportunities for the registration of generic trademarks, businesses and individuals seeking registration of a generic mark will likely point to the new precedent when prosecuting the mark with the USPTO. Applicants will still need to demonstrate distinctive elements in the proposed mark, just as the “.com” suffix increased the distinctiveness when combined with the otherwise generic term “Booking.” Businesses and individuals looking to trademark their company name, goods, and/or services should consult an attorney to determine how successful they would be in applying for trademark registration.

High Swartz | March 8, 2021

What Happens to A Deceased Relative's Debt When They Die?

A common concern of clients during the initial estate planning process is what happens to debt when you die. This is a valid concern for next of kin and estate beneficiaries, and we'll delve into it below.

Who is responsible for paying off the debts of a loved one? Can the debt of the deceased be forgiven? What happens if the deceased estate does not have enough money to pay the debts? The answers to these questions can be found in case law, the Internal Revenue Code & Regulations and Pennsylvania statutory laws. To make it easier to understand what happens to debt when you die, let’s look at a hypothetical estate. And remember, it's in your interest to have an estate attorney to support you with any estate planning concerns.

Ester, a Pennsylvania resident, died with $50,000 in credit card debt, medical expenses from her final illness, and various utility expenses associated with her West Chester Borough home. Ester’s assets are her home, and funds of $25,000 held in her checking and savings accounts. Ester’s children are the beneficiaries of her residuary estate per her Will.

Pennsylvania law, 20 Pa.C.S.A. Section 3381, states that Ester’s debts don’t just disappear at her death. If the debts don’t disappear, who pays? Only Ester’s Estate is responsible for payment of her debts unless a third-party (family member, neighbor, etc.) co-signed a loan or credit card with Ester.

For now, let’s assume no one co-signed any loans with Ester. Ester’s credit card debt, her final medical expenses and her various utility expenses will be paid by her estate from the assets that pass pursuant to the terms of her Will. These assets are Ester’s home and the $25,000 funds from her checking and savings accounts. Ester’s Executor will need to sell the home and use the proceeds from the sale to pay off the credit card debt, final medical expenses and utility bills.

It's possible that Ester’s estate could fail to pay her credit card debts due to insolvency (inability to pay one's debts). And it's possible that the Executor's attempts to have the credit card discharged fail as well.

What happens if the estate can't pay the debts?

If you recall, Ester has used her credit cards to purchase items worth $50,000. The borrowed funds used to purchase items are not included in Ester’s gross income because at the time Ester borrowed the funds, she also created a corresponding liability to pay back the funds to the credit card companies. Ester’s overall net worth has not increased. Courts have consistently held that borrowed funds are not included in taxpayer’s income. The IRS has consistently agreed with this treatment.

Do credit card companies forgive the debt when someone dies?

It would be logical to think that if the credit card companies forgive the debt, the debt should disappear, right? WRONG! The general rule under the IRS Rules & Regulations states that the cancellation of a debt for less than adequate consideration causes the debtor to recognize ordinary income in the amount of debt that was forgiven. Section 61(a)(12) of the Internal Revenue Code states that gross income includes “[i]ncome from the discharge of indebtedness.” No matter how you slice it or dice it… “cancellation of indebtedness”, “cancellation of debt”, “discharge of debt”, and “forgiveness of debt” converts to ordinary income!

The credit card companies report the forgiveness of deceased debt to the IRS by using a 1099-C – Cancellation of Debt form. Even if the credit card company fails to issue a 1099-C form, the cancellation of debt income is still reportable on the estate fiduciary income tax return. An estate attorney can support you with any questions regarding taxes.

The $50,000 of credit card debt has been converted into income, which must be reported on the estate’s federal fiduciary income tax return, Form 1041 – US Income Tax Return for Estate and Trusts. Here, at the very least, Ester’s estate has $50,000 in reportable income to the IRS. If an estate has reportable income, it likely has income tax to pay unless the estate’s deductions wipe out income.

But what if Ester’s estate is insolvent (unable to pay the taxes)? Section 108 of the IRS Code provides exceptions for which Ester’s estate may be eligible. Section 108(a)(1)(B) excludes from gross income the cancellation of indebtedness of an insolvent debtor, but only to the extent of the amount of the debtor’s insolvency immediately before the debt was forgiven. Section 108(a)(3). So if Ester’s estate is insolvent prior to the debt being forgiven, the estate may exclude the cancellation of debt using IRS Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness.

It’s important to note that only assets that pass through probate are considered for determining insolvency. Recall probate assets are those assets that pass pursuant to the terms of a decedent’s Will. Here, probate assets would be Ester’s West Chester Borough home and the funds held in the checking and savings accounts. An estate with cancellation of debt (COD) income and very few probate assets will be insolvent if all assets pass directly to beneficiaries through beneficiary designations (life insurance, IRAs, 401(k)). Designated beneficiaries who receive these kinds of assets are not liable for paying a decedent's debts.

So who is responsible for paying the debt?

In the end it falls on the estate to pay the decedent’s debt. If the debt is forgiven, it becomes ordinary income reportable on the estate’s fiduciary income return regardless if a Form 1099-C was issued by the creditor. If the estate is insolvent, it may be able to exclude the cancellation of debt under Section 108(a)(3) of the IRC.

Before undertaking an estate administration without an estate lawyer, remember the law is complex because:

there are usually exceptions to the rules,
the law changes frequently, and
multiple areas of law can impact an estate, such as IRS Rules & Regulations, Pennsylvania statutory and case law.

Talk to Our Estate Planning Lawyers

With any estate planning matters, it's best to have an experienced estate planning lawyer on hand. They can support you with any number of concerns, including power of attorney, wills, advanced healthcare directives, and more.

Reach to our local estate planning law firm here. We have law offices in Doylestown and Norristown, PA.

High Swartz | March 1, 2021

2021 Child Tax Credit: Which Divorced Parent Gets It?

Before 2018, listing a dependent child on the federal tax return meant a per person exemption resulting in paying less federal taxes. From 2018 to 2025 the dependency exemption is suspended. For now, the issue of child dependency is still relevant but more complicated.

Let’s begin with a scenario: a married couple with two minor children separate in April 2020, and are now getting ready to file 2020 income taxes and plan to file separately. They don’t know who gets the child tax credit and other benefits when both of the children are dependents. Is it fair for each to take one dependent child? Does the splitting of dependents save the most in taxes? If one parent has served as the primary custodian since separation, how will this affect the decision?

A child is a dependent under the following criteria:

the child is under the age of 18 at the end of the tax year for which the return is being filed
the child lived with the parent(s) for over half of the given tax filing year

The latter of these criteria is called the residency test. When parents are separated it’s not unusual that one parent will be the primary custodian, in other words that parent maintained physical custody of the child for over 50% of the year. Thus, the primary custodian is entitled to take a dependency exemption for the child.

Exceptions to the Child Residency Test

There are certain exceptions to this residency test which allow for the non-primary physical custodial parent to take a dependency exemption. The non-primary physical custodian, or non-custodial parent for tax purposes, may be able to declare a child as a dependent if they are a member of one of three groups:

already divorced (keep in mind that Pennsylvania does not have a decree of separation which IRS will consider in other states)
the couple has signed a separation agreement
if the couple was never married they have been separated from July to December of the tax year

For the non-custodial parent to list the child as a dependent these rules apply:

the child must have received over 50% of her or his support from the parents
the child must have been in the custody of one or both parents for over 50% of the year
the custodial parent (the one who had custody more than the other parent) must sign a proper release that the custodial parent will not claim the child as a dependent and that release is attached to the non-custodial parent’s tax return.

While the federal tax regulations (Section 152-4) give a variety of examples of the proper form of a release or revocation of a release, the simplest form, that cannot be questioned is Internal Revenue Code Form 8332. It’s important that the parents understand a handshake agreement about this issue won’t survive an IRS audit.

Negotiating for a dependency deduction

When deciding whether to negotiate for a dependency deduction as a non-custodial parent, one should consider the value to them individually and collectively. It makes sense to minimize taxes, thereby maximizing funds available to support the child(ren). When the dependency exemption was suspended for 2018-2025, the IRS provided for a number of tax benefits related to dependents, including the child tax credit. The child tax credit is worth up to $2,000 per dependent child. For a low income parent, if that parent has little or no tax liabilities, up to $1,400 per child is refunded to the parent. Although in the past a couple would split the dependency exemptions, now the parents should more carefully consider the income level of each parent because the higher income parent may earn too much money to get the entire child tax credit. The IRS provides a formula for the decline in the tax credit based on the income of the parent.

Other Child Tax Credits

In addition to the child tax credit, there are other tax credits linked to a dependent child. The CARES Act, initially passed in response to the COVID-19 pandemic and more recently supplemented, resulted in the distribution of stimulus checks in March and December, a portion of which was directly linked to the claim of a dependent child on the 2019 tax return who qualified for the Child Tax Credit. Since the stimulus checks issued in 2020 were based on a lookback to prior tax returns, some parents are now eligible to file separately in 2020 with lower taxable income, and will claim a dependent child for the first time. The parents will be able to apply for the child tax credit on their 2020 return, and if in fact the stimulus check did not issue to that parent they may be eligible to claim the Recovery Rebate Credit.

Putting emotions aside and doing what is right for the children

For many couples the prospect of negotiating or litigating over these matters is overwhelming and often the financial benefit is outweighed by the aggravation and cost of legal and accounting fees to get to the accurate results. Here are suggestions for parents who want to minimize the aggravation and do what is right for their children:

Ask their tax preparer(s) to crunch the numbers splitting or shifting the dependents from one parent to the other and compare the results.
If the loss of a dependent means money out of pocket for the parent who owes taxes, the tax credit enjoyed by the other parent could be shared to soften the blow.
If payments like the stimulus checks of 2020 continue in some form, discuss in advance whether funds will be shared by the parties or how funds will be utilized. The parents are encouraged to primarily view these payments as funds to support the children. If they are already able to support their children, funds could be saved for the future benefit of the children.

It is the responsibility of tax advisors and legal counsel to lay out the options. It is a smart parent who will put emotions aside, take steps to pay only the taxes required, and make sure the financial relief is used for the benefit of their children.