Newsletters

The Real Deal - Summer 2020 Issue

Date: June 24, 2020

LIFE IN A VIRTUAL (LEGAL) WORLD

By: Jennifer R. Busse

We all know that COVID-19 has changed many things. For both professional and personal reasons, almost everyone is now familiar with Zoom and other similar platforms. The ability to connect virtually has been critical in so many ways, and has seemingly all but replaced the now old fashioned phone conference.
 
For attorneys, not being able to physically appear in court is especially challenging. First of course, there are always the technical issues with being able to see and hear each other. And logistically, we have to get used to new ways to “handle” exhibits. One of the biggest hurdles, I have found, is the impact virtual hearings have on the ability to pick up on, provide and react to emotional cues.
 
My area of practice is land use. Most of my trial related work involves appearing before local administrative law judges and planning boards. Even more frequently, my work involves attending public meetings organized and managed by county agencies. This new virtual world has made me aware of a few things that I took for granted in pre-COVID time.
 
When the pandemic hit, it effectively shut off my ability to interact with my professional circles. No longer could my colleagues and I meet to discuss an agency’s comment on a development plan. No longer could I meet with zoning reviewers to finesse the specific language related to a client’s need for a zoning variance. Sure I have always been able to communicate with others via e-mail, but over my 20 years of practice, I have learned to appreciate the value of face to face interactions. Often, during face to face (and more often than not, on the fly) meetings, I’d figure out a potential compromise based on things said as “by the way” comments. Similarly, I’ve always recognized the value in reading someone’s body language in my deciding how far to push an issue.
 
Over the past few months, I’ve attended a handful of public meetings held by County agencies, Planning Boards and County Councils via WebEx. They were awkward but I did not sense any detrimental impact by virtue of the format. More recently I had my first virtual public hearing before an administrative law judge. Here, I definitely was out of my comfort zone. The usual small talk was gone. The ability to gauge the judge’s mood, and instinctively respond was diminished. Trying to keep a sense of the “room” felt impossible even though everyone was simultaneously, visually present. Maybe most damaging was in this virtual hearing, I could not communicate with my witnesses via slight facial gestures. This is something I definitely took for granted in the pre-COVID days. Being able to give a certain stare to a witness going off track – that is something I miss.
 
This new virtual world is, in a word, unsettling. I recognize now how much this “trial by fire” type of law benefits from physically being in the same room with the other participants. I imagine this barrier to personal interactions is even more dramatically affecting attorneys practicing other areas of litigation. What will the new normal be?  Hopefully the virtual hearing format is short lived.

MARYLAND'S SALT DEDUCTION CAP WORKAROUND

By: Jordan M. Halle

The 2017 tax law, known as the Tax Cuts and Jobs Act (the “TCJA”), imposed a $10,000 limit on individual state and local tax (“SALT”) deductions, but not on entity taxpayers. This deduction has been a particular pain point for owners of pass-through entities (“PTEs”) that pay state and local taxes to high-tax states. These potential deductions pass through to the individual owners, who are subject to the $10,000 SALT cap.

To side step this issue, several states, including Maryland, have enacted legislation imposing a pass-through tax directly on the entity, to be paid by the PTE itself, thereby side-stepping the SALT cap in the TCJA.

Under Maryland’s legislation (S.B. 523), effective for tax years beginning after December 31, 2019, Maryland PTEs will be able to elect to have the entity pay Maryland state income tax instead of the tax being paid by the entity owner(s). The goal is to allow for an entity level federal SALT deduction that is not subject to the TCJA SALT cap.

The PTE will pay a tax rate equal to the top marginal Maryland rate for individuals, plus the lowest applicable county tax rate (which is the same rate charged to nonresident members of Maryland PTEs) or the Maryland corporate tax rate for corporate owners of a PTE. PTE members are still required to report their PTE income on their federal and Maryland return; however, they could take a credit on their Maryland return for taxes paid by the PTE on their allocable share of PTE income. If the PTE owner’s local tax rate is higher than the applicable county tax rate used by the PTE, the owner would be responsible for paying the difference in tax with their individual return. Consequently, Maryland expects no revenue reduction under this new regime.

The new legislation also provides that income allocable to tax-exempt owners and REIT owners of a PTE will not be taxed under this election. Further, an owner of a PTE that is itself a PTE will not be eligible for having their income taxed at the lower tier PTE level and will need to make their own election.

The tax due under this new law is capped at the distributable cash flow of the PTE, defined at TG §10-102.1(a). It also appears that, if the PTE does not pay the tax due after making this election, Maryland can seek collection from the PTE members.

One area that has not been specifically addressed is the treatment of sole proprietorships and disregarded entities. Without definitive guidance, small companies and real estate owners may decide to reorganize their business into partnerships or S-Corporations to take advantage of this new statute.
The information contained here is not intended to provide legal advice or opinion and should not be acted upon without consulting an attorney. Counsel should not be selected based on advertising materials, and we recommend that you conduct further investigation when seeking legal representation.