Wisconsin Business Law Blog

How Long Should I Keep Records, and What Should I Keep?

Tom Schober — Tue, 08 May 2012 13:57:31 -0600

Even in the age of computers, our society is far from "paperless." In fact, the computers have managed to print enough paper to bury every human being hundreds of times over!

So the question arises: what records do I need to keep and what records can I destroy? While there are no hard and fast rules, here are some guidelines.

There are several reasons to keep records:

fear of an IRS Audit
concern that there will be a dispute with a creditor
fear of identity theft
as proof of ownership
various other reasons, such as divorce alimony and child support

With these reasons in mind, let's take a look at some of the basic records and see what makes sense with respect to the "keep or toss" decision.

Income Records. Check stubs should be reviewed to make sure they adequately reflect the pay, deductions, benefits and contributions contained thereon. Once that is done, monthly stubs may be destroyed, and once the final year end stub is compared against the W-2 form that is received, it may be destroyed, unless the final stub contains tax deduction information that is not on the W-2. It may then be kept with tax records for that year.

Expense Records. If your expenses relate to your tax return, keep them for at least 3 years from the due date of a return, for federal purposes, and 4 years from such date for Wisconsin purposes. If you file a fraudulent return, you must keep such records forever, since there is no statute of limitations on fraudulently filed returns. If you have under-reported income by more than 25%, you will need to keep both the income and expense records for 6 years.

If the expense records are not for tax purposes, you may want to keep them 3 years anyway, since most creditor disputes would come up during this period, and most identity theft issues are discovered fairly quickly.

Tax Returns. Because tax returns contain information relating to the cost basis necessary to determine future gains and losses, and since many returns contain carryover losses, gains and other items, it would probably be a good idea to keep the returns themselves forever. However, much of the supporting documentation could be destroyed pursuant to the guidelines above.

Basis Evidence. Most people keep financial records showing their cost basis in everything from stocks and bonds to home improvements. This is done to accurately calculate gains when such items are sold, or basis to a donee if such items are gifted. While that is important, new laws will make some of this easier. Starting in 2011, brokerage firms will now start keeping cost information on stock purchases, and in 2013 for options, bonds and other securities. Some firms keep this information already, but are not required to do so. Consequently if your broker has such information, and if you stay with this broker, you may not need to keep such records. If in doubt, keep your purchase records until at least 3 years after the due date of the return upon which a sale is noted.

Credit Card Bills. These are actually no different than the expenses listed above: if they relate to taxes or basis, follow the rules above. If they relate to personal expenses, consider destroying such information after 3 years.

Other. Again, unless such items as bank statements, canceled checks, deposit slips and ATM advices have anything to do with a tax deduction or evidence of basis, they may probably be tosses after 3 years.

If you have any concerns about the retention of any documents, we are always willing to discuss your situation. Please contact us at Schober Schober & Mitchell, S.C. at (262)785-1820 or (262)569-8300.

Use of LLC Profit Interests

Rob Sullivan — Thu, 12 Apr 2012 16:47:57 -0600

The owners in many new business ventures bring different assets to the table. Often one partner may have significant cash and another has certain skills that are essential for the success of the new venture. In these situations, it is important to consider tax issues when granting the service provider with an owneship interest in the new entity. If the business is organized as an LLC, one option is to grant the service provider a profits interest. Structured appropriately, the service provider will not recognize income on the grant of the profits interest, will share in the future growth of the business, and will be taxed at favorable capital gains rates upon the eventual sale of said interests. For these reasons, profit interests are also useful in retaining or incentivizing key employees to help grow the business.

Voluntary Quit for Unemployment Compensation Purposes

John Bruce — Wed, 11 Apr 2012 11:00:37 -0600

Generally, an employee who voluntarily terminates employment is not eligible for unemployment compensation. However, this is not the case where an employee quits due to "good cause attributable to the employer."

In Kierstead v. LIRC, 2011AP938 (April 3, 2012), the Court of Appeals clarified the law regarding what constitues such "good cause." In that case, the employee quit because he refused to sign a form acknowledging receipt of a disciplinary warning. He was told by his supervisor he would have to sign the form, or he would be fired.

The employee quit. He filed for unemployment compensation benefits. He testified that he had not been told that signing the form would constitute an admission of the facts stated in the warning or of its appropriateness, and the form contained no language indicating that was the case. He testified he quit because he thought his supervisor was "bluffing" when he told the employee he would be fired if he refused to sign.

The Court of Appeals held that the employee under the circumstances had quit without good cause attributable to the employer. The court stated that a requirement that an employee sign acknowledging receipt of a warning or complaint in and of itself would not create such good cause in the event the employee quit due to such requirement. However, the court further indicated that if an employee quits because he is required to sign and that act constitutes an admission of the accuracy or propriety of the warning, the employee would be deemed to have quit for good cause attributable to the employer.

Searching for Assets

Rob Sullivan — Tue, 03 Apr 2012 18:45:47 -0600

Obtaining a court judgment against a debtor corporation is only the first step in the collection process. Finding assets to satisfy that judgment is generally the more time consuming and difficult step. Often, the first step in the search is having a representative of the debtor corporation testify under oath at a supplemental hearing to provide information on where assets may be. In Crown Castle USA Inc. v. Orion Construction Group LLC, 2012 WI 29 (March 22, 2012), the Wisconsin Supreme Court described who may, and may not, be forced to testify in such a hearing. The Court held that corporate officers, employees, former employees, and similarly situated individuals may be forced to testify regarding the debtor corporation’s assets. However, the Court found that other “third parties” cannot automatically be forced to testify at a supplemental hearing even if said third party corporation is wholly owned by the same person that owns the debtor corporation

Important Changes to Zoning Law

John Bruce — Mon, 19 Mar 2012 14:37:04 -0600

The Wisconsin Legislature in its last session made significant changes to the ability of municipalities to regulate commercial and other buildings.

Senate Bill 472 prohibits municipalities from imposing cost requirements on repair or remodeling of legal nonconforming structures. Such structures are not compliant under currrent zoning regulations, but were compliant at the time the current regulations were adopted. Such structures cannot be made to comply with current regulations, but municipalities have long provided that if costs of repairs or remodeling of a structure exceed 50% of a structure's assessed or fair market value, the structure must become completely compliant with the zoning code. They can no longer do so, once the Bill is signed into law by the Governor.

Senate Bill 300 authorizes municipalites to impose time limits on variances granted from zoning code requirements. Therefore, if a municipality allows by variance a change in use of property or an exception from area requirements such as setbacks for a structure, it may not provide that variance applies only for a given period of time. Previously, it was necessary for a municipality to revoke a variance.

Payroll Tax Cut Extension Signed into Law

Todd Goodwin — Sun, 04 Mar 2012 21:27:24 -0600

PAYROLL TAX CUT EXTENSION PASSES

On February 22, 2012, the President signed into law the Middle Class Tax Relief and Job Creation Act. Under this new law, the payroll tax cut was extended until the December 31, 2012 which means that:

· For employees: the Social Security portion of the payroll tax will stay at 4.2% through the end of 2012

· Self-Employed persons: Self-employed individuals will pay 10.4% (4.2% employee portion plus 6.2% employer portion) on all self-employment income.

· For Both Employees and Self-Employed: Both will share in the 2% payroll tax cut extension up to the earnings cap of $110,000 for Social Security earnings.

· Recapture Provision repealed. The recapture provision included in the original 2 month extension has been repealed.

How to Delete Your Google "History"

Tom Schober — Fri, 24 Feb 2012 09:57:55 -0600

We have had numerous clients ask whether what they do on the internet may become public at some point. Our answer is always the same: "consider that anything you do on the internet is equivalent to putting something up on a billboard; at sometime, someone could take your digital history and plaster it up for everyone to see." Consequently,

most people would like to keep their internet activity, and in particular, their browsing history, as their own private business. That becomes even more critical as Google changes its privacy policy to share search histories between its products.

In order to remove all browser history from your Google account, you must first login. If you have gmail, just log in to it. Then put the following link in your browser url window: https://www.google.com/history and hit "enter." This will take you to your Google History Page. You may then browse through years of your search history, deleting specific items, or you can click on the button entitled, "remove all Web History."

We believe in your First Amendment Rights and believe that neither vendors providing services on the internet nor our government have a right destroy or violate such rights.

Happy and safe browsing!

Judge Sets Expert Witness Rates

Tom Schober — Mon, 16 Jan 2012 18:06:03 -0600

wislawjournal.com recently reported that "Milwaukee County Circuit Court Chief Judge Jeff Kremers issued a directive Monday morning that reimbursement of court-appointed expert witnesses should not exceed $2,800 at a maximum rate of $150 per hour." How is this likely to affect businesses involved in litigation in Milwaukee County?

Business disputes often arise over what the "value" of something is, whether it be the value of a business or the value of a contract. So, when the court is perplexed, the court often seeks advice from an expert, appointed by the court, to help the court decide. Now, in Milwaukee County, the courts are limiting the charges such experts can charge for their services to $2,800 and $150 per hour. Many such experts often are paid double or triple that amount to perform their services. Do judges think that just because they appoint such experts that they are going to be willing to work for a lesser payment? And if they do, will their work be of the same quality as that for which they get paid in full?

The parties to litigation have to bear the costs of litigation, even the costs of experts appointed by the judge. Consequently, it is no cost to the court, the county, or the taxpayer if the court pays experts an appropriate fee for their services.

If a judge relies on an expert's opinion and the expert is all wrong, will an appeals court overturn a judge based upon such discount basement pricing?

All this remains to be played out, and only appellate decisions will give us the answers to these questions. However, I think this will get business litigants thinking hard as they consider settlement negotiations and ultimately may be overruled by a judge using his or her own experts.

Worried About How You've Classified Workers as Independent Contractors or Employees?

Tom Schober — Wed, 04 Jan 2012 14:34:45 -0600

Many employers worry about how they classify workers. While it seems less costly to classify many workers as "independent contractors" rather than "employees," the IRS can generally make a wrong decision in this area very costly to the employer. This all stems from the collection of taxes associated with payments to such workers.

If a worker is classified as an employee, the employer does all the withholding, matching, and payment of all payroll taxes, including federal and state withholding, medicare and social security, and federal and state unemployment. If a worker is an independent contractor, the worker is responsible to report the income earned on an appropriate tax form, may claim business expenses against such income, and then must pay in appropriate estimates to cover federal and state income taxes and both halves of medicare and social security taxes. Unemployment taxes most likely will not be due. Consequently, employers would probably go the route of classifying all workers as independent contractors, if they could.

IRS is not happy with this situation, and congress has passes laws to stop abuses. When someone is "caught" misclassifying an employee as an independent contractor, the results can be disastrous. First, by the time an employer is audited for the payment of such taxes, several years may have passed, and the IRS may go after all the past due taxes. Second, there is usually a significant penalty associated with such unpaid tax. Finally, there is interest due on the late payments. This can often add up to three or four times the amount originally due.

Even with such laws, there are not enough agents to adequately police the situation. In comes project "Fresh Start." Under this IRS program, qualifying businesses may avoid most of the taxes, penalties and interest associated with such situations by filing form 8952, Application for Voluntary Classification Settlement Program, at least 60 days prior to the start of treating such workers as employees. In addition, qualified applicants must:

have treated such workers as nonemployees on a consistent bases
have filed 1099's for all such workers for the three most recent years
not be under audit by the IRS
not be under audit by the Department of Labor or the Wisconsin Department of Workforce Development concerning how to classify such workers

If you have this problem and can get accepted into this program, all you have to pay is about 1 percent of the workers' wages for the prior year. You avoid all further costs and expenses. For more details, you can view this IRS site.

IRS Computer Glitsch Halts Issuance of FEIN's Until Next Year

Tom Schober — Fri, 30 Dec 2011 10:47:07 -0600

Murphy's Law, "If something can go wrong, it will," has picked in inopportune time to strike the IRS. Just as we head into year-end, trying to cram one last transaction into 2011, the IRS computers have gone down, making it impossible to obtain Federal Employer Identification Numbers (FEIN). Without such numbers, entities cannot open bank accounts and transfer monies into and out of such accounts.

This will cause many transaction to fail or fall into a "no man's land" as far as determining whether matters have closed for tax purposes.

It is beyond comprehension as to how the IRS could have a system designed to issue ID numbers that would fail. Such a system should have so much redundancy built in that it would be failsafe.

Perhaps taxpayers could now use as an excuse for late filing, that "my computer broke." I wonder how the IRS would accept that?

Santa should have brought the IRS a new computer for Christmas!

Oconomowoc Attorney Opinion: New Law Limiting Legal Fees Will Fail

Tom Schober — Wed, 14 Dec 2011 13:34:30 -0600

On December 7, 2011, Wisconsin's Governor, Scott Walker, signed into law a provision that will limit the amount of attorney fees that can be awarded to three times the amount of compensatory damages awarded. While the new law was designed to protect those who create jobs from facing unduly harsh legal fees, the most common area cited by those discussing the law came in the area of what is known as Wisconsin's Lemon Law.

Under that statute, one who purchases a vehicle that turns out to be a "lemon" can not only recover the cost of the vehicle, but also the attorney fees involved in making the recovery. Now, with a limit of three times compensatory damages, many buyers of a "lemon" vehicle will find it hard to find an attorney who is willing to handle the matter on a contingent fee basis and accept the amount of fees awarded by the court.

If that were the end, it would be a pretty limited statute. However, as pointed out in a recent article by the State Bar of Wisconsin, the new law affects 280 different statutes and laws.

Wisconsin has tried things in the past to protect various classes of people. When in 1975, it enacted the Patients' Compensation Panel and limited the recoveries patients may obtain from their negligent doctors, it was said that this law was needed to keep good doctors in Wisconsin and to keep the cost of medical care and insurance down for the average Wisconsin citizen. Wisconsin has not benefitted from lower medical costs or lower insurance premiums, and I doubt that this new law which protects another class from having to pay for their mistakes will have any beneficial effect upon job creation, as well.

If you face a decision as to whether to sue, and you are facing the limitations of any of the 280 laws so affected, please don't hesitate contacting us for assistance in making a fully informed decision.

Ten Important Short Sale Tips and More by Guest, Karen G. Courtney

Tom Schober — Fri, 04 Nov 2011 13:59:18 -0600

I have been writing Title Insurance on Real Estate Closings for a number of years. My underwriter is Attorneys' Title Guaranty Fund, Inc. ("ATG"), which only writes title insurance through its attorney-members.

In the past year or so, I have received dozens of inquiries about people considering either buying or selling under conditions of a "short sale," where the proceeds of the sale will not be sufficient to cover the balance of the underlying mortgage. Fortunately, for buyers, sellers and lenders, there is a way to do a transaction when such conditions exist. It is difficult, but it can be done.

Most recently, Karen G. Courtney, Managing Attorney, ATG Short Sale Coordination Department, wrote an article with tremendous insight as to tips which could improve a client's chances of having a successful short sale. Please consider going to Karen's article to read more about this interesting and important topic.

"Ask the Attorney" to Air on 11/22 and 12/20

Tom Schober — Thu, 03 Nov 2011 08:59:07 -0600

I will be hosting two call in talk shows on WTKM, 104.9FM and 1510AM, starting at 10:00am, on Tuesdays, November 22 and December 20. WTKM is located in Hartford, Wisconsin, but reaches listeners from Racine to Madison to Sheboygan. Listeners are encouraged to call in with their legal questions. Callers in Hartford may dial 262-673-3550, from Oconomowoc may dial 262-567-7588, from the Milwaukee metro area may dial 262-252-4567, or from beyond may dial 800-924-9856. Callers calling from a US Cellular phone may dial *105.

I would love to have you join us for an hour of interesting legal discussion!

New IRS Notice on Tax Treatment of Employee Cell Phones

John Bruce — Thu, 22 Sep 2011 16:24:23 -0600

On September 14, 2011 the IRS issued Notice 2011-72, intended to provide "guidance on the tax treatment of cellular telephones or other similar telecommunications equipment (hereinafter collectively 'cell phones') that employers provide to their employees primarily for non-compensatory business purposes."

The Notice states that when such a cell phone is provided to an employee primarily for non-compensatory business reasons, the IRS will treat use of the cell phone for reasons related to the business as a working fringe benefit, the value of which is excludable from the employee's income.

Solely for purposes of determining whether the working condition fringe benefit provision of I.R.C. Section 132(d) applies, the substantiation requirements which would have to be met for a deduction under Section 162 to be allowable are deemed satisfied. Also, the IRS will treat the value of any personal use of the cell phone as excludable from the employee's income as a de minimis fringe benefit.

The Notice is effective for all taxable years after December 31, 2009 and the rules of the Notice apply to any use of a cell phone provided by an employer after that date.

Corporate Agents Found Personally Liable for False Representation

Tom Schober — Tue, 16 Aug 2011 07:44:23 -0600

The Wisconsin Court of Appeals, Second District, on August 10, 2011, in the case of Ferris v. Location 3 Corp., 2010AP2203, found that agents of a corporation, even when acting within the scope of their corporate authority, could be found personally liable for tortious conduct in the nature of false representation.

In Wisconsin, corporate agents can therefore become personally liable when they make misrepresentations relating to the corporation, even if they are acting within the scope of their authority. In this case, it was alleged that agents of a corporation failed to note on a Property Condition Report that the adjoining property was a contaminated Superfund site. While the trial court found that such agents were acting within the scope of their authority, and thus were protected by the corporate veil, the Court of Appeals reversed, and as Judge Brown put it, “Wisconsin case law has firmly established that individuals are liable for their own tortious conduct.” Judge Brown concluded, “ the defendants in the case cannot hide behind the corporate veil.”

Following Judge Brown's words, it would appear that corporate agents are responsible for all tortious conduct they commit, regardless as to whether it relates to false representation or other torts.

Is It a Mistake for Wisconsinites to Use Online Will Forms?

Tom Schober — Mon, 15 Aug 2011 13:02:12 -0600

In a recent post, Findlaw, a large web-orientated legal business, suggests that "FindLaw's estate planning content covers the range of options for our users to find the plan that fits them best." and that "FindLaw's estate planning content includes....do-it-yourself forms." Is it a good idea to try to do one's will by oneself, using online forms, without consulting an attorney?

Wisconsin is a "Marital Property" state and has been since 1986. Forms that are put online often fail to take that into consideration. As a result, forms that may be highly effective in many other states fail to perform properly in Wisconsin.

Under Wisconsin law, property acquired during a marriage is marital property. As such, each party owns one-half of it. If either party dies and attempts to give such property away, all they are effectively giving is one-half of the property. This can easily be remedied by a knowledgeable attorney who can draft other documents, including a Marital Property Agreement. You will note that most online form companies fail to include Marital Property Agreements in their form packages. Why, you ask? Because this is a very complicated area, and people grabbing online forms would make lots of big mistakes and sue the online companies for failing to provide the necessary advice.

That is only one simple but adequate reason why people, especially those in Wisconsin, should be wary of using online forms without consulting with a local attorney.

In Findlaw's defense, they do mention in their article that, "anyone who has specific concerns or plans as to how they would like their estate distributed in the event of their death should consult with an attorney about whether a will is appropriate." They also provide links to local attorneys. One then wonders, why do they also provide the online forms????

Obama Health Care Far from a "Done Deal"

Tom Schober — Mon, 15 Aug 2011 12:47:22 -0600

Atlanta's 11th Circuit Federal Court of Appeals recently struck down a key requirement of Obamacare that would have required all Americans to pay for health insurance from birth through age 65 or face tax penalties.

This action comes amidst a number of other contradictory court decisions relating to the new law, all of which make it likely that this matter will only finally become resolved if and when the U.S. Supreme Court agrees to take and decide the case.

Keep posted.

New Decision on Corporate Officer Liability and Direct Action Against Insurer

John Bruce — Fri, 29 Jul 2011 14:42:14 -0600

A recent Wisconsin Supreme Court decision has significant implications regarding liability of corporate officers for negligence, and direct actions against insurance company.

Casper v. American International South Ins. Co, 2011 WI 81 involves an automobile accident caused by an employee of trucking companies who was under the influence of prescription drugs at the time of the accident. The CEO of one of the companies was named as a defendant He was not involved in the hiring or supervision of the driver, but had approved the trucking route used by the driver, which allegedly violated federal trucking safety regulations. The argument was made he could not be held personally liable for negligence committed with the scope of his employment.

The unanimous court refused to accept this argument, in effect acknowledging that there could be circumstances when a corporate officer can be held personally liable for such negligence. The court noted that the even the business judgment rule, which provides protection for corporate officers acting in the course of their duties, protects officers and directors only for negligent acts harming shareholders, not third parties.

The majority decided that the negligence was too remote from the injuries to impose personal liability in this case. However, this case stands for the proposition that corporate officers may be personally liable in certain circumstances, thus increasing the possibility corporate officers and directors will be named as individual defendants and subject to liability in tort actions.

The court also held that the Wisconsin Statute allowing actions to be brought against insurance companies directly did not limit actions to those involving policies which were delivered or issued for delivery in Wisconsin. Direct action was found to be appropriate so long as the accident or injury occurs in Wisconsin, regardless of whether the policy was delivered or issued for delivery in this state. Thus foreign insurers issuing policies for delivery outside the state or delivering them outside the state may be sued directly for accident or injury in Wisconsin.

Electronic Signatures in Wisconsin and Beyond

Tom Schober — Tue, 26 Jul 2011 14:44:01 -0600

This entry was co-authored by Thomas Schober & Jackie Messler:

Have you ever wondered, "Is my electronic signature binding?" As law catches up to technology, we are finally getting an answer to this question.

As a result of new laws, more and more can be accomplished electronically. Both federal and Wisconsin laws provide for the validity of documents and transactions completed electronically. The federal law, E-SIGN, provides that a signature, contract, or other record relating to a transaction may not be denied legal effect, validity, or enforceability solely because it is electronic. 15 U.S.C. § 7001. The Wisconsin law, E-Commerce, provides that a record, signature, or contract may not be denied legal effect or enforceability solely because it is in electronic form. Wis. Stat. § 137.15.

With the increased ability to complete transactions electronically comes increased concern about the genuineness of the documents and signatures. Lawmakers were also concerned with providing protection to consumers. According to the federal law, when an electronic transaction involves a “consumer,” three requirements must be met:

the consumer must be provided with information about the electronic format,
the consumer must consent to the electronic format, and
the consumer’s consent must be completed electronically.

“Consumers” are those who obtain products or services primarily for personal, family, or household purposes. 15 U.S.C. § 7006. However, there is no additional consent requirement for any transaction that is strictly commercial or between two businesses.

What ramifications do these laws have for Wisconsin businesses? As many more transactions will be able to completed electronically, businesses and persons involved in transactions should be cautious to complete the proper consent requirements with consumers. For example, with the proper consent, buyers and sellers may complete the Wisconsin Form WB-11, Residential Offer to Purchase, electronically.

Knowledgable attorneys will seek to use electronic signatures to speed up transactions and save their clients money.