e- NEWSLETTER

August/September 2007

Jessica M. Kirsch
Editor-in-Chief

Corporate Law

“IT DEPENDS ON HOW THE CONTRACT WAS SIGNED, OBVIOUSLY.”
LOSING YOUR PROTECTION FROM PERSONAL LIABILITY CAN BE AS SIMPLE AS SIGNING YOUR NAME… THE WRONG WAY.
By James D. Voigt

I was in court this morning when I overheard the judge say, “It depends on how the contract was signed, obviously.” She was referring to a dispute over whether an owner of a corporation should be found personally liable on a breach of contract case. The owner had intended to enter into a contract between a vendor and his corporation, never intending to be personally liable on that contract. What was obvious to the judge was that he may be personally liable depending on the way he signed his name.

As a general rule, officers of a corporation are not personally liable for the acts of the company. If the company enters into a contract, and then fails to follow through, the company could be sued. But the officer who signed the contract should not be liable, right? The officer should have signed his name over a signature block that read, “Joe Smith, as President of ABC Corporation.” If Joe signed over a signature block that simply read, “Joe Smith,” he could have a problem. Did he sign that contract in his own personal capacity, or strictly as an officer of the corporation? These are points that will be argued by the attorneys working on the case that was up in court this morning, at considerable expense and personal risk for the officer.

Whenever you sign a document intending to bind only your company, you must take care to review the way the signature block reads. It should never simply state your name alone, or the name of the officer signing. It should always state the name of the officer, along with the “capacity in which they sign”. Look for one of the following phrases: “as President”, “as Officer”, or “as Agent” followed by the name of the company. This puts the other party on notice that they only have recourse against the company, not against the person signing.

If you ever have a question or concern about a contract you are thinking of signing, our Small Business Practice Group is here for you. We can review the contract and provide a brief report on the nature of the liabilities and obligations you need to consider. We look forward to working with you to ensure that the acts of your company do not create personal liability for you, your partners, and your officers. Give us a call today to find out the other ways we can be of service to your small business.

If you have any questions regarding this article please feel free to contact Jim Voigt at jdvogit@lavellelaw.com.

Taxation

WAYS & MEANS OKS BILL REPEALING IRS AUTHORITY TO USE PRIVATE DEBT COLLECTION FIRMS
By Timothy M. Hughes

On July 18, the House Ways & Means Committee by a vote of 23-18 approved an amendment to H.R. 3056, the “Tax Collection Responsibility Act of 2007.” The bill would repeal the use of private debt collection companies to collect federal income taxes.

Background. To help facilitate the collection of taxes that are owed to the federal government, the American Job Creation Act of 2004 allowed the IRS to enter into "qualified tax collection contracts" with private debt collection agencies. The IRS then awarded contracts to three firms to participate in the first phase of its private debt collection initiative.

The House Ways & Means Committee's amendment in the nature of a substitute to H.R. 3056 makes one change to the introduced bill relating to private debt collection repeal, which would generally apply on the date of enactment. The change specifies that the repeal of use of private debt collectors does not apply to any contract which was entered into before July 18, 2007, and is not renewed or extended after such date. It also clarifies that the any private debt collection contract which is entered into on or after July 18, 2007, and any extension or renewal on or after such date of any private debt collection contract, would be void.

Do you owe Federal or Illinois taxes? If so please do not hesitate to contact me to discuss your rights in resolving your tax liability. I can be reached at thughes@lavellelaw.com or at (847) 705-9698.

Business Law

WORKERS COMPENSATION INSURANCE
By Theodore M. McGinn

     In the State of Illinois, most employers are required to obtain and maintain workers compensation insurance covering injuries sustained by workers performing duties for their employer. Although workers compensation insurance is an undesirable expense, such expense has to be factored into the business model. The State of Illinois has aggressively pursued remedies against those employers who fail to comply with the statute.

    Certain businesses have employees who sustain injuries on the job more often than other businesses. Nevertheless, the statute is very clear as to which employers are obligated to maintain such insurance. This statute applies to any business or enterprise in which goods or services are rendered to the public at large and have a payroll in excess of $1,000. That covers virtually all employers. Workers compensation insurance is a policy that provides compensation to those employees who are injured while performing duties for their employer. The insurance covers medical bills, loss wages as well as compensation for permanent injuries. Those employers who choose not to obtain the necessary insurance are subject to penalties. The statute allows the State of Illinois to assess a penalty of $500 per day for companies found to be in violation of the coverage provisions. Furthermore, the State can assess this fine against corporate employers as well as corporate officers and directors. Finally, the statute provides that the minimum penalty is $10,000.

    Workers compensation insurance, like all other types of insurance, are expenses that you hope never to have to use. However, injuries on the job do occur from time to time and workers compensation insurance provides a safety net to cover damages sustained. But a further incentive is the risk that a company and or corporate officers could be assessed a significant penalty for failure to meet decompiling under the statute.

    If you have any questions regarding this article, please feel free to contact Ted McGinn at tmcginn@lavellelaw.com.

Taxation

NATIONAL TAXPAYER ADVOCATE REPORTS TO CONGRESS
By Timothy M. Hughes

On July 19, 2007 National Taxpayer Advocate Nina E. Olson delivered a report to Congress that identified the priority issues the Office of the Taxpayer Advocate will address in the upcoming fiscal year. Among the key areas of focus will be improving taxpayer services, ensuring that taxpayer rights are protected in the IRS’s private debt collection initiative, and making the IRS’s offer-in-compromise program more accessible for taxpayers who are unable to pay their tax debts in full.

The report also addresses the challenges the IRS is facing because of pressure to close the tax gap quickly. The tax gap represents the difference between the amount of tax owed and the amount of tax collected. “For fiscal year 2008, both the IRS and the Taxpayer Advocate Service (TAS) face similar challenges,” Ms. Olson wrote. “The IRS is under scrutiny for its efforts to close the tax gap, while TAS is struggling to address taxpayer difficulties that arise as a result of these very efforts.” Ms. Olson has expressed concern that the IRS may ramp up enforcement excessively and begin to “cut corners” in its treatment of taxpayers if it is pressured to do too much too quickly.

The Office of the Taxpayer Advocate for the upcoming fiscal year intends to emphasize making the IRS’s Offer In Compromise Program accessible for appropriate Taxpayers. A taxpayer who is unable to pay his tax liability in full may seek to compromise the debt by submitting an “offer in compromise.” The offer program is a good deal for both the government and the taxpayer. The government benefits because it frequently collects more than it would in the absence of the program and the taxpayer is induced to pay taxes on time and in full in the future; a taxpayer whose offer is accepted must remain fully compliant for five years or face reinstatement of the compromised tax debt.

The taxpayer benefits because he is able to get a fresh start. Legislation enacted in 2006 requires taxpayers who submit “lump sum” offers to make a down payment of 20 percent of the amount of the offer with the submission. To determine the impact of this requirement on bona fide offers, TAS reviewed a sample of 414 offers that the IRS accepted prior to the enactment of the down-payment requirement. In about 70 percent of those cases, the taxpayer did not have access to sufficient liquid funds to make the required down payment. The National Taxpayer Advocate will work with the IRS and the Treasury Department to try to improve the accessibility of the offer program.

Do you owe back taxes to the IRS or Illinois Department of Revenue, if so please contact me at thughes@lavellelaw.com or 847.705-9698 to discuss your rights.

Estate Planning

IF YOU THINK MEDICAID IS GOING TO TAKE CARE OF YOU, THINK AGAIN

By Lauren E. Schaaf

Have you spent your entire life working so you could retire before you are too old to enjoy your retirement? If you have, you may end up losing that life savings because of a defect in Medicare. If you or your spouse become sick and require extended nursing home care, by law you are responsible for the nursing home bills. Only after you have become indigent will Medicaid offer you financial assistance. With the rising cost of nursing care, your entire life savings could be wiped out within a few months. Unless you are wealthy and can afford insurance to cover nursing care (good luck), you will need Medicaid to step in and help you with the nursing care bills that could eventually accrue.

Stop operating under the illusion that the federal government will help you out if you become ill to the point of requiring around the clock nursing care. Unless you have less than $2,000 to your name, you will be on your own. If you think that law is bad, just wait, it gets worse. If you owe money to a nursing care facility it can force your healthy spouse to surrender half of your combined countable assets, and if you have a sizeable estate, it can take more than half. Is there anything you can do to protect yourself from this financial nightmare? The answer is definitely. You can transfer your assets to an irrevocable trust. You can also begin gifting away your estate to children or trusted friends with the unwritten agreement that those persons will spend that money on your needs, beyond your basic medical care provided by Medicaid, so that you can use your life savings for things you enjoy.

Are these extreme measures to take? They can be, however, if you expect to be requiring nursing care in the next three to five years they may be necessary steps to take in order to protect your assets for your own personal benefit as well as the benefit of your heirs. If you are in this situation, contact Lauren Schaaf at Lavelle Law, Ltd., lschaaf@lavellelaw.com for advice and planning to qualify you for Medicaid without having to spend your life savings first.

Litigation

SERVICE FIRST

By Matthew J. Sheahin

    The institution of a lawsuit may involve many different aspects of pre-litigation investigation. The attorney will meet with the client and discuss the parties involved in the dispute, the conduct that forms the basis of the cause of action, necessary evidentiary materials in support of the case, key witnesses that must be interviewed, strategy going forward, and applicable state or federal statutes and/or case law. However, none of that matters unless you can serve the defendants with the lawsuit. For corporations this usually means identifying the proper entity and the location of its registered agent who is designated to accept service on behalf of the entity. For a person it means identifying the personal residence of the defendant, work address or other location where the individual can be served. Many companies may not think about their customers, suppliers or partners as targets for litigation, but they should cmpile as much information as possible for their own business records which will, in the event of litigation, help the attorney complete service of process as quickly as possible.

    In most cases, the attorney must submit the original summons to the Sheriff of the county where the lawsuit is filed and allow the Sheriff's office the first three attempts at completing service. Although the Sheriff's office is successful most of the time, sometimes, for reasons as varied as a bad address to a reluctant defendant (aka the "dodger") the Sheriff is unable to complete service. Then the attorney will bring a motion to appoint a special process server to try and succeed where the Sheriff's office failed. This is when it is important and helpful to have as much information on the defendant as possible. Such information may include social security numbers, business addresses, past residential addresses, aliases, and other information used to identify individuals or proper entities. Remember, you cannot proceed with the lawsuit until the Court has jurisdiction over the defendant. For the good of your business and in case you need to file litigation, keep current and complete information on all of your customers, suppliers, and business partners. This will allow you to move quickly when a dispute arises.

    If you have any questions regarding this article please contact Matt Sheahin at msheahin@lavellelaw.com.

For past e-newsletter articles of interest, please visit the Lavelle Law, Ltd. website at: http://www.lavellelaw.com/newsletters/newsletter.htm.

This newsletter is a publication of Lavelle Law, Ltd. We attempt to highlight and discuss areas of general legal interest that may lead to planning opportunities. Nothing contained in this Newsletter should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein.