Thursday, April 26, 2018

What employers are doing about #RedForEd teacher walkout in Phoenix

Jennings Strouss attorney John J. Balitis is quoted in the Phoenix Business Journal article, "What employers are doing about #RedForEd teacher walkout in Phoenix. "He discusses the  laws employers need to consider for employees who have requested leave as a result of the teacher walk-out, particularly for parents of children with special needs and health conditions. 

Mr. Balitis counsels private sector clients as well as government agencies, including the Arizona legislature, on a broad range of employment law and labor relations matters. Over his 30 years of practice, he has represented clients in administrative proceedings before the Equal Employment Opportunity Commission, U.S. Department of Labor, National Labor Relations Board, Arizona Civil Rights Division, Arizona Industrial Commission, Arizona Department of Occupational Safety and Health, and the Arizona Department of Economic Security. Recognizing that some issues need to be resolved at the legislative level, Mr. Balitis has participated in drafting and testifying on Arizona employment-related legislation.

In addition to the administrative and transactional aspects of his practice, Mr. Balitis litigates employment-related disputes in federal and state courts, where he has both bench and jury trial experience, and has appeared and argued before the Arizona Court of Appeals. He has considerable experience prosecuting and defending employment claims in preliminary injunction proceedings, and representing union employers in labor arbitrations involving disputes under collective bargaining agreements.  Mr. Balitis also is experienced in training, investigating, writing, speaking, publishing, and interacting with the media on employment-related topics and developments.

Mr. Balitis can be reached at 602.262.5928 or

Monday, April 23, 2018

FERC Initiates Review of Its Long-Standing Pipeline Certificate Policy Statement

Last Thursday, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued a Notice of Inquiry (“NOI”) seeking comment on possible changes needed to its 1999 Policy Statement 
on certification of new interstate pipelines. The NOI notes the almost two decades since the 1999 Policy Statement was approved and acknowledges that the Commission may have to reconsider how it balances project benefits against adverse consequences in light of the shale gas revolution, technological changes, global warming, and other environmental concerns, as well as increasing concerns raised by land owners and communities affected by the projects.

While all five commissioners welcomed an in-depth review of the Policy Statement, Chairman McIntyre cautioned that the Commission’s issuance of the NOI does not mean FERC will ultimately change its current procedures. The Commission will consider only generic issues and will not consider any comments that refer to open, contested proceedings currently before FERC.

The NOI identified four general areas of examination: (1) potential adjustments to the Commission’s determination of need; (2) the potential exercise of eminent domain and landowner interests; (3) the Commission’s evaluation of alternatives and environmental effects under the National Environmental Policy Act and the Natural Gas Act; and (4) the efficiency and effectiveness of the Commission’s certificate processes. These four areas will frame a debate over whether and how the Commission should take into account new environmental and social considerations – such as evaluating greenhouse gas impacts of new pipelines or requiring that applicants work with landowners and communities affected by proposed projects – while at the same time expediting pipeline approvals in response to President Trump’s Executive Order #13807.

Currently, the Commission does not look “behind” or “beyond” precedent agreements when making a determination about the need for new projects or the needs of the individual shippers. The Commission appears willing to consider changes in how it determines whether there is a public need for a proposed project. The NOI seeks comments as to the types of additional or alternative evidence that the Commission should examine to determine project need as well as the litigation risk that may arise in considering such new evidence. The Commission further questions whether evidence of need, in general, should be examined on a regional basis, particularly where there are multiple pipeline applications in the same geographic area. With respect to the precedent agreements themselves, the NOI seeks comments about additional factors that may need to be taken into account when considering these agreements, such as the counterparty to the precedent agreement (affiliates or non-affiliates), the duration of the precedent agreement, or the need for state approval of the precedent agreement.

To address increasing concerns expressed by landowners and affected communities in recent cases, the NOI seeks comments about ways to improve the current certificate process to adequately take into account landowner interests and encourage landowner participation in the certificate process. Among other things, the Commission inquires whether: (1) the use of eminent domain should be considered in reviewing each application against the need for the project; (2) the Commission should take additional measures to minimize the use of eminent domain; and (3) there is a need to evaluate alternatives beyond those currently evaluated (i.e. no-action alternative, system alternatives, design alternatives, and route alternatives).

Environmental assessment is a key issue in the NOI. One of the main questions is whether the Commission should take into account the cumulative environmental impacts at the regional level instead of on a project-to-project basis and, if so, how to define the relevant region. New types of environmental impacts — such as the social cost of carbon — are also addressed in the NOI. The Commission seeks comments as to how to quantify, monetize, and assess these impacts against the need for the project.

Finally, the NOI seeks to streamline the Commission’s certification process in compliance with Executive Order #13807, which encourages agencies to make timely decisions with the goal of completing all federal environmental reviews and authorization decisions for major infrastructure projects within 2 years. To that end, the NOI inquires whether certain aspects of the Commission’s application review process (i.e., pre-filing, post-filing, and post-order-issuance) should be shortened, performed concurrently with other activities, or eliminated to make the overall process more efficient. And, to the extent that the process is streamlined, the Commission inquires as to how it can ensure that interested stakeholders have an adequate opportunity to participate in the evaluation process, and whether efficiency gains can be achieved by improving the Commission’s interactions with other federal agencies and the states.

Overall, the NOI signals a consensus that the 1999 Policy Statement may be outdated. However, with four new Commissioners, it is difficult to gauge the direction any review might take. Comments on the NOI are due 60 days after its publication in the Federal Register. (FERC Docket No. PL-1-000.)

For more information about the issues discussed in this post, please contact us.

Thursday, April 5, 2018

Deducting Attorneys’ Fees Under the Tax Cuts and Jobs Act of 2017

By Otto S. Shill, III, Member, Jennings, Strouss & Salmon, P.L.C.

The Tax Cuts and Jobs Act of 2017 (the “2017 Act”) purports to bring broadly lower tax rates to most U.S. individuals and companies; however, it does so at the expense of clear tax policy objectives in many areas. That lack of a comprehensive, policy-based approach will now have consequences related to the deductibility of costs associated with controversies for both businesses and individuals. Business defendants in sexual harassment suits will not be allowed to deduct the cost of settlements that contain confidentiality requirements, potentially making settlement a less attractive option. Individual plaintiffs in cases that are not related to unlawful discrimination or whistle blowing will not be permitted to deduct attorneys’ fees, making such lawsuits potentially less attractive. Also due to ambiguity in the statutory language prohibiting non-disclosure agreements, individual plaintiffs in sexual harassment cases now face greater uncertainty concerning the deductibility of their litigation costs.

Deductibility for Businesses
Litigation has become an all too common part of doing business in the United States. In most cases, expenditures for business-related litigation are deductible under section 162 of the Internal Revenue Code of 1986, as amended (the “Code”). Section 162 generally governs which expenses may be deducted as ordinary and necessary expenses of operating a trade or business. The 2017 Act added new section 162(q) to the Code, which provides that, “no deduction shall be allowed for any settlement or payment related to sexual harassment or sexual abuse if such settlement or payment is subject to a non-disclosure agreement; or attorneys’ fees related to such a settlement or payment.” Thus, a trade or business that includes confidentiality obligations as a condition of settlement of sexual harassment cases will be denied a deduction both for any settlement payment and for related attorneys’ fees. In addition, the new provision does not address the deductibility of expenditures where sexual harassment or abuse is only one of several claims. Because the new statutory language references “settlement or payment,” it is possible that a deduction could be denied for all costs of litigation when a case, which contains an allegation of sexual harassment or sexual abuse, ends in a resolution other than a final judgment. Apparently intended as a response to the current social reaction to recently-publicized cases in which people were paid for silence concerning sexual relationships with, or sexual harassment by, high-profile figures, this statute may now give employers less incentive to settle cases where liability is questionable. This means the impact of the new law may be very different from what its drafters intended.

Deductibility for Individuals
While businesses are allowed to deduct ordinary and necessary business-related expenses, individuals who are not engaged in a trade or business historically have been compelled to deduct personal litigation expenses, including attorneys’ fees, as miscellaneous itemized deductions. Now, the 2017 Act has suspended deductions for miscellaneous itemized deductions through December 31, 2025. Thus, most plaintiffs will no longer be able to deduct the costs and attorneys’ fees associated with non-business related litigation. However, plaintiffs engaged in litigation concerning whistle blowing or unlawful discrimination enjoy an exemption from this new rule. In 2004, Congress added section 62(a)(20) to the Code, which allows plaintiffs in cases involving unlawful discrimination to deduct fees and expenses directly against gross income in computing adjusted gross income, and not as miscellaneous itemized deductions. New Code section 62(a)(21) added the same protections for whistle blower plaintiffs. The 2017 Act did not make any changes to Code section 62(a)(20) and so, going forward, plaintiffs may continue to deduct litigation expenses related to unlawful discrimination. The 2017 Act expanded the deductibility of expenses related to whistleblower litigation to include (i) claims under section 21F of the Securities and Exchange Act of 1934, (ii) state false claims act statutes, including those with qui tam provisions, and (iii) claims under section 23 of the Commodity Exchange Act. Such deductions are limited to the amount of the overall award includible in a plaintiff’s gross income for the year in which the award is made, and may not be taken more than once. This deduction is expressly coordinated with the 20% deduction available to certain pass-through entities allowed under new section 199A of the Code.

Some commentators have speculated that the language of new Code section 162(q), which references “attorneys’ fees related to such settlements or payments,” may jeopardize this deduction for plaintiffs, as well as for defendants, because of the breadth of the statutory language. However, this result seems unlikely because, both before and under the 2017 Act, section 162 of the Code applies only to expenses of a trade or business. Individual plaintiffs who are not engaged in a trade or business generally cannot deduct expenses under section 162 of the Code. Prior to the 2017 Act, individuals could deduct a very limited range of expenses related to the production of income (such as unreimbursed expenses required for one’s employment) as miscellaneous itemized deductions. Under the 2017 Act, personal litigation expenses are deductible only if related to unlawful discrimination or the whistle blower type cases discussed above. Thus, although the new limitations on deductions under section 162(q) should not affect the non-business claims of individual claimants, the issue is not entirely clear at present.

The 2017 Act provisions regarding the deductibility of legal fees are likely to make certain types of litigation more expensive for both plaintiffs and defendants. Plaintiffs in cases involving unlawful discrimination may still deduct related attorneys’ fees and costs, but the defendants in those cases may be less willing to settle because of limitation on trade or business deductions for costs associated with settlements of sexual harassment cases involving confidentiality requirements. Plaintiffs with claims other than those related to unlawful discrimination or whistleblower claims will not be able to deduct fees and costs, which may discourage some plaintiffs from pursuing those claims. Only time will tell what financial impact the 2017 Act will truly have on individuals and businesses, particularly those involved in litigation.

For more than 30 years, Mr. Shill has helped businesses and business owners comply with government regulations, navigate government investigations, and build wealth through business transactions and long-term planning. He has significant experience in federal and state tax compliance and tax controversies; compensation, benefits, and employment regulation; and government contracting compliance and disputes.

Mr. Shill regularly represents clients before federal and state government agencies, including the Internal Revenue Service, the Equal Employment Opportunity Commission, U.S. Department of Labor (DOL), the National Labor Relations Board, Arizona Attorney General's office, Arizona Industrial Commission, Arizona Department of Revenue and other Arizona regulatory boards. Mr. Shill also drafts and lobbies for the passage of legislation to address client issues.

Friday, March 30, 2018

FATCA and FBAR: The IRS is discontinuing its Offshore Voluntary Disclosure Program

by Otto S. Shill, III, Member, Jennings, Strouss & Salmon, P.L.C.

The Internal Revenue Service (IRS) announced last week that it will terminate its Offshore Voluntary Disclosure Program as of September 28, 2018. Taxpayers who have not reported foreign bank accounts and income now have only six months to do so.

In the mid-2000s, the IRS began aggressively pursuing foreign financial institutions for information concerning deposits held by those institutions on behalf of U.S. taxpayers. That effort has resulted in an unprecedented period of world-wide intra-governmental cooperation to identify unreported accounts and untaxed income. The Bank Secrecy Act and the Foreign Account Tax Compliance Act require both foreign financial institutions and U.S. taxpayers to disclose the non-U.S. assets of U.S. taxpayers. Compliance failures can result in both civil and criminal penalties and interest charges. The IRS reports that its programs have gathered approximately $11 billion in delinquent tax, penalties, and interest, and more than 1,500 indictments in recent years.

In 2009, the IRS instituted voluntary compliance programs because some taxpayers either inadvertently or “willfully” failed to comply with disclosure requirements. The IRS’ primary voluntary compliance programs are the Offshore Voluntary Disclosure Program and the Streamlined Filing Compliance Procedures, which the IRS says, together have helped more than 100,000 taxpayers come into compliance. In particular, the Offshore Voluntary Disclosure Program has helped taxpayers whose nondisclosures could be classified as “willful” avoid even more stringent penalties and potential criminal prosecution.

Now, because of waning participation, the IRS is ending the Offshore Voluntary Disclosure Program. Taxpayers who are willfully concealing foreign assets may want to consider taking advantage of the program before the September 28 deadline. For now, the IRS apparently will retain its Streamlined Filing Compliance Procedures for those whose failures are non-willful; however, establishing a lack of “willfulness” is difficult under applicable legal standards, especially in light of the IRS’s efforts to publicize its compliance programs over the last few years. In addition, where potential criminal liability exists, care must be taken in determining how to come into compliance. To protect their interests and avoid potential penalties and criminal prosecution, taxpayers should seek knowledgeable legal counsel to assist with choosing the voluntary compliance alternative that is best for their individual circumstances.

The tax attorneys at Jennings Strouss are experienced in assisting clients with the reporting of foreign accounts and assets and in using the IRS’s voluntary compliance programs. If you have assets or bank accounts overseas and have postponed compliance, we encourage you to consult with your tax advisors about the Voluntary Offshore Disclosure Program while it is still available.

NOTE: This client alert has been prepared by Jennings, Strouss & Salmon, P.L.C. for informational purposes only. These materials do not constitute, and should not be considered, legal advice, and you are urged to consult with an attorney on your own specific legal matters. Transmission of the information contained in this client alert is not intended to create, and receipt by the reader does not constitute, an attorney-client relationship with Jennings, Strouss & Salmon or any of its individual attorneys.

For more than 30 years, Mr. Shill has helped businesses and business owners comply with government regulations, navigate government investigations, and build wealth through business transactions and long-term planning.

He has significant experience in federal and state tax compliance and tax controversies; compensation, benefits, and employment regulation; and government contracting compliance and disputes.

Mr. Shill regularly represents clients before federal and state government agencies, including the Internal Revenue Service, the Equal Employment Opportunity Commission, U.S. Department of Labor (DOL), the National Labor Relations Board, Arizona Attorney General's office, Arizona Industrial Commission, Arizona Department of Revenue and other Arizona regulatory boards. Mr. Shill also drafts and lobbies for the passage of legislation to address client issues. Mr. Shill can be reached at 602.262.5956 or 

Thursday, March 1, 2018

FERC Issues Final Rule Requiring RTOs to Provide for Participation of Electric Storage Resources in Organized Markets

On February 15, 2018, the Federal Energy Regulatory Commission (“FERC”) issued Order No. 841, Electric Storage in Markets Operated by Regional Transmission Organizations and Independent System Operators. Order No. 841 requires tariff reforms in order to facilitate the participation of electric storage resources in capacity, energy, and ancillary services markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).

After soliciting public input on its Notice of Proposed Rulemaking (“NOPR”), FERC concluded that existing market rules designed for traditional generation resources create barriers to entry for many electric storage resources. Order No. 841 requires each RTO and ISO to propose tariff revisions (the “participation model”) that properly recognize the physical and operational characteristics of electric storage resources, and to allow those resources to participate in organized markets.

Each tariff’s participation model must ensure that a resource using the model: (1) is eligible to provide all capacity, energy, and ancillary services that it is technically capable of providing; (2) can be dispatched and is a price maker in the wholesale market as both a seller and buyer, consistent with existing market rules; (3) accounts for the physical and operational characteristics of electric storage resources through bidding parameters or other means; and, (4) establishes a minimum size requirement, which may not exceed 100 kilowatts. The Final Rule also requires that the sale of electric energy from the wholesale electricity market to an electric storage resource that the resource then resells back to those markets must be at the wholesale locational marginal price.

In its NOPR, FERC also had proposed reforms related to distributed energy resource aggregation. However, in issuing Order No. 841, FERC concluded that it had insufficient information to proceed with those proposed reforms. Instead, the Commission scheduled a Technical Conference in RM18-9-000 for April 10-11, 2018 to gather additional information on distributed energy resource aggregation. This Technical Conference will also provide an opportunity to discuss other impacts of distributed generation on the bulk power system. Attendance is open to all interested persons, but those wishing to participate in the conference must submit a nomination by March 15, 2018.

Order No. 841 will take effect 90 days after publication in the Federal Register. Compliance filings by RTOs and ISOs are due 270 days after the effective date. The RTOs and ISOs then will have an additional 365 days to implement the tariff revisions.

(FERC Docket Nos. RM16-23-000 | RM18-9-000 | AD16-20-000)

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C.

Debra Roby –
Andrea Sarmentero Garzon –
Joel Greene –
Gerit Hull –
Gary Newell –
Alan I. Robbins –
Matt Ross –
Debbie Swanstrom –
Omar Bustami –

Wednesday, February 28, 2018

Contingency Fees in Arizona: Paper is Worth its Weight in Gold

By J. Scott Rhodes, Member, and Ashley M. Mahoney, Legal Intern, Jennings Strouss

Attention Arizona attorneys: to receive compensation for your contingent fee work, make sure your fee agreement is in writing and signed by the client – or, you might not get paid at all. This is the message from the Arizona Court of Appeals, announced through Levine v. Haralson, Miller, Pitt, Feldman & McAnally, P.L.C., 2018 WL 543052 (Ariz. Ct. App. 2018). The Levine case involved a dispute over attorneys’ fees between the law firm Haralson, Miller, Pitt, Feldman & McAnally, P.L.C. (“Haralson”) and attorney Jack Levine. Levine claimed to have worked over 400 hours on a contingency fee case before the clients retained Haralson to take over the representation. The clients had signed a contingent fee agreement with an attorney sharing office space with Levine; however, they did not have a written or signed fee agreement with Levine, nor was there a fee-sharing agreement between Levine and the original attorney. The clients eventually fired both the original attorney and Levine, and hired Haralson before settling the case. The court awarded Haralson attorneys’ fees. Levine then initiated an action to recover a portion of the fee in quantum meruit.

Most jurisdictions allow an attorney to recover in quantum meruit when a written agreement is invalid or does not exist. But, in Levine, the Court disregarded that general rule by declaring that neither the Arizona Ethical Rules nor the State’s “public policy is subject to meaningful analysis by applying the law of other jurisdictions.” Because the “clear and unambiguous” rules “have the same force and effect as state statutes and are equally binding,” the Court held that a violation of ER 1.5(c) renders a contingent fee agreement void as against public policy, thus barring Levine from any recovery.

Although the Levine holding is limited to contingent fee agreements, might a court extend it to other fee agreements that violate the letter of the Ethical Rules in Arizona? For example, unlike the Model Rules, Arizona’s ER 1.5(b) mandates that all fee agreements shall be communicated to the client in writing. The Levine Court reasoned that the failure to obtain a written agreement invites unnecessary litigation, as parties might attempt to alter the terms of an oral agreement after a matter’s resolution. In these situations, a court would be forced to rely on the parties’ “self-serving recollections” to reconstruct the details of the original agreement.

Does this analysis of public policy in Levine foreshadow that a lawyer’s failure to communicate a traditional (non-contingent) fee agreement in writing might mean the lawyer can receive no compensation at all for legal services as a matter of public policy? In other words, does Levine sound the death knell for quantum meruit recovery in Arizona?

As a practical matter, some of the Levine Court’s public policy concerns may not apply to a non-contingent fee agreement. A contingent fee, by definition, is settled and paid when a matter concludes. On the other hand, a traditional fee agreement typically includes periodic billing and payment, which in turn allows for an earlier opportunity to resolve any misunderstandings. That is, a client can address with her lawyer any concerns about accruing fees, and the lawyer can address a client’s inability or unwillingness to pay. By receiving invoices and submitting payments as the matter progresses, a client essentially acknowledges that the attorney is providing a service and deserves some compensation for them. Moreover, unlike ER 1.5(c), which requires a written agreement signed by the client, ER 1.5(b) contains a lesser requirement -- to simply communicate the fee terms in writing.

At the time this article was published, there was still time for Levine to be appealed to the Arizona Supreme Court, which will have discretion regarding whether to accept review. Ultimately, whether Levine will remain good law and, if so, whether it will remain tethered to its facts or will be expanded to cover other kinds of fee agreements, or similar arrangements, is yet to be seen. One thing is certain – for the present, lawyers in Arizona should assume that work performed without a written and, for some cases, signed fee agreement might turn out to be work performed with “no meaningful expectation of compensation.”

Mr. Rhodes has an extensive background in legal ethics. He regularly advises attorneys and law firms in matters relating to State Bar complaints, fee disputes, disciplinary matters, bar admission and other licensing, ethics, and professional responsibility issues. Mr. Rhodes was named The Best Lawyers in America® 2018 Phoenix Ethics and Professional Responsibility Law Lawyer of the Year.  |  602-262-5911

Thursday, January 11, 2018

FERC Terminates Rulemaking Aimed At Increasing RTO/ISO Reliance On Merchant Coal and Nuclear Resources, Initiates New Proceeding To Explore RTO/ISO Resilience Issues

On January 8, 2018, the Federal Energy Regulatory Commission (FERC or Commission) issued an Order terminating a rulemaking initiated in Docket No. RM18-1-000 in which the Commission, acting at the request of the Department of Energy (DOE), considered requiring Regional Transmission Organizations (RTOs) and Independent System Operators (ISOs) to establish tariff mechanisms ensuring appropriate compensation to “baseload” generating units with a ninety-day supply of onsite fuel storage when they participate in regional electricity markets, including full recovery of allocated costs and a fair return on equity. The Proposed Rule on Grid Reliability and Resilience Pricing (Proposed Rule) was submitted to the Commission by Secretary of Energy Rick Perry last fall pursuant to a rarely used procedure under section 403 of the DOE Organization Act, 42 U.S.C. § 7173. The criteria included in the Proposed Rule were interpreted largely as favoring merchant coal and nuclear resources over other resources.

The Commission terminated the proceeding after reviewing extensive industry comments, finding that neither the Proposed Rule nor the record evidence met the threshold statutory requirement under section 206 of the Federal Power Act showing that the existing RTO/ISO tariffs are unjust and unreasonable. The Commission also found that the proposal would guarantee compensation to owners of certain resources regardless of the need or cost of those resources to the system, rendering the proposed remedy unduly discriminatory or preferential.
Commissioners Richard Glick, Cheryl LaFleur, and Neal Chatterjee each issued separate, concurring opinions supporting the termination of the Proposed Rule. Commissioner Glick noted that the Department’s own study concluded that “changes in the generation mix, including the retirement of coal and nuclear generators, have not diminished the grid’s reliability or otherwise posed a significant and immediate threat to the resilience of the electric grid,” and that the record failed to support the proposed remedy of a “multi-billion dollar bailout targeted at coal and nuclear generating facilities.” Glick observed that RTOs and ISOs should consider how best to mitigate resiliency challenges within their markets and without prejudging what technology or fuel-type provides the best solution. Commissioner LaFleur wrote separately that the transformation of the nation’s resource mix is ever-evolving, noting that the Department of Energy’s proposed remedy would “freeze yesterday’s resources in place indefinitely rather than adapting resilience to the resources that the market is selecting today or toward which it is trending in the future.” Commissioner Chatterjee highlighted his concern that existing RTO/ISO tariffs may not adequately compensate resources for contributions to bulk power system resilience, and expressed his expectation that exploring resilience issues within RTOs/ISOs is the first step in a more systematic effort to ensure the resilience of the nation’s bulk power system.

In its Order terminating the Proposed Rule, the Commission acknowledged allegations of the existence of grid resilience or reliability issues due to the retirement of particular resources. Although the Commission concluded that such concerns do not demonstrate the unjustness or unreasonableness of the existing tariffs, it found that the record developed to date warrants further examination of the risks to the bulk power system and ways to address those risks in the changing electric markets. To that end, the Commission initiated a new proceeding (Docket No. AD18-7-000) and directed each RTO and ISO to submit information concerning resilience within their respective footprints. 

The stated goal of the new proceeding is to: (1) develop a common understanding among the Commission, industry, and others of what resilience of the bulk power system means and requires; (2) understand how each RTO and ISO assesses resilience in its geographic footprint; and (3) use this information to evaluate whether additional Commission action regarding resilience is appropriate at this time. Each RTO and ISO must submit within 60 days of the date of this Order (i.e. March 9, 2018) specific information explaining how it currently addresses resilience of the bulk power system within its footprint, highlighting any specific or unique resilience challenges it faces. Each RTO and ISO may also propose resolutions to any identified gaps or exposure on the resilience of the bulk power system. Specific questions posed by the Commission begin on page 12 of the Order. These questions generally seek information regarding how RTOs/ISOs define resiliency, measure resiliency of the system, and evaluate options to mitigate resiliency risks. Those wishing to comment on the RTO/ISO submissions will have 30 days following the RTO/ISO submissions to do so (i.e. April 8, 2018).
(FERC Docket Nos. RM18-1-000 | AD18-7-000) 

For more information on this topic or other energy matters, please contact any of the following attorneys at Jennings, Strouss & Salmon, P.L.C. :

Debra Roby –
Andrea Sarmentero Garzon –
Omar Bustami –
Joel Greene –
Gerit Hull –
Gary Newell –
Alan Robbins –
Debbie Swanstrom –

Thursday, November 9, 2017

Storm On The Horizon: Amend Your Partnership Agreement Before The IRS Does It For You

By: Otto S.Shill, III

As we approach the end of 2017, many uncertainties prevail in the United States tax system. Late last week, Congressional leaders proposed extensive tax reform legislation that has sparked sharp debates about rates, deductions, eliminating some taxes, and frankly, whether any of it can be actually passed into law. There is, however, prior legislation that goes into effect in just 8 weeks that may require the prompt attention of certain businesses and individuals. Effective January 1, 2018, key changes will apply to all entities that are taxed as partnerships (including limited liability companies); therefore, it is imperative that all impacted entities evaluate partnership and operating agreements to determine whether amendments may be required to address the changes.

The Bipartisan Budget Act of 2015 significantly changes the landscape for the way the Internal Revenue Service (IRS) audits partnerships. These changes are not just administrative details, but rather they (i) potentially change how economic risk is shared between partners in the context of a tax audit, and (ii) imbue a single partnership representative with absolute power to effect those changes. In addition, all partnerships continue to be subject to prior audit rules for tax years prior to 2018. Available elections may be different, the powers of those representing the partnerships may be different, and the rights of partners to participate in, and affect the outcome of, audits may be different, depending on which audit regime applies. For example, audits of small partnerships (less than 100 partners) have historically resulted in adjustments at the individual partner level. But after January 1, all adjustments are at the partnership level unless the partnership is eligible to make, and in fact makes, an election every year to be exempted.

The IRS is increasing audit activity and the changed partnership audit rules are part of the IRS strategy to improve its ability to examine more entities in less time. In the past, the tax matters partner had to notify partners of key audit developments and partners had the right to participate in any phase of administrative proceedings. Now, because a partnership representative has no statutory duty to keep partners informed, and partners have no statutory right to participate in the audit, partners and partnerships that do not address these important rights and responsibilities in partnership organizational documents may experience unwelcome economic results with little or no warning. In addition, partnerships must now be prepared to operate under two sets of audit rules, depending on which years are under audit. The law is designed to increase IRS efficiency, but can negatively impact the interests of individual partners. This means that a partner’s most important protection against an unexpected audit result is a well-drafted partnership or operating agreement that addresses any required changes to a partnership’s ownership structure, how audit-related decisions will be made, what role individual partners will have in decision-making, and how economic consequences of audits will be shared among current and historic partners.

The Tax and Estate Planning department of Jennings, Strouss & Salmon, P.L.C. has significant experience in assisting our clients with such partnership issues. In order to be ready for the coming partnership audits that could encompass past as well as future years, we suggest that partnership and operating agreements be evaluated and updated in the near future. Appropriate changes to organizational documents should be accomplished long before the IRS issues the first audit notices. Although we expect partnerships to begin to receive audit notices under the new rules after the 2018 tax year, it is appropriate to begin the discussions now because some of the changes to governing documents may affect critical partnership governance ownership, and economic issues that will require more than perfunctory attention from the partners. We are available to discuss and review your existing partnership or operating agreements and provide guidance on the best way to address this new regulatory environment.

Please note that this client alert has been prepared by Jennings, Strouss & Salmon, P.L.C. for informational purposes only. These materials do not constitute, and should not be considered, legal advice, and you are urged to consult with an attorney on your own specific legal matters. Transmission of the information contained in this client alert is not intended to create, and receipt by the reader does not constitute, an attorney-client relationship with Jennings, Strouss & Salmon or any of its individual attorneys.