How the “Taxpayer’s First Act” Helps Entrepreneurs

By: Mari Boyle

Following an instance of bipartisan congressional action, the Taxpayer First Act of 2019 (TFA) was signed into law on July 1, 2019. While TFA aims to strengthen all taxpayer rights, the legislation has significant tax-related benefits for small business owners. The TFA not only addresses key issues afflicting ordinary taxpayers such as identity theft and customer service concerns but also those affecting small business owners such as enforcing the independent appeals process, notice requirements for third party contact, and cybersecurity concerns. Below are highlights of some provisions you should be aware of as a small business owner or entrepreneur:

Greater Enforcement of the independent appeals process

An important provision within the TFA for small business owners is the codification of the “Internal Revenue Service Independent Office of Appeals.” This allows an individual to resolve tax discrepancies without incurring costly litigation and court fees. The TFA implements the Independent Office of Appeals statutorily along with procedures the IRS must follow in the process. Some procedures the TFA puts into place include requiring the IRS to make the dispute case file available to the taxpayer and inform individuals denied an appeal on how to protest the decision. The TFA also requires the IRS to report all independent appeal denials and reasoning to Congress.

third party contract notice requirement

Of relief to small business owners is the third-party notice requirement implemented by the TFA. A practice of the IRS of particular annoyance to small businesses is when the IRS reaches out to third parties for information on the taxpayer, as opposed to settling the issue directly with them. This often occurs during a business’s tax audit or for nonresponsive taxpayers. These third parties can include banks, creditors, and even customers. The TFA requires the IRS to provide 45-days’ notice before contacting someone other than the taxpayer for purposes of their tax liability. This gives the taxpayer the opportunity to resolve the issue with the IRS before involving third parties.

updated cybersecurity and identity protection – Tax Information

Amid growing concerns about identity theft and cybersecurity, the TFA enacted several reforms to curb the prevalence of the issue. Included among them is a requirement that the IRS provide an Identity Protection Personal Identification Number (IP PIN) to anyone who requests it. IP PINs are a six-digit number used as a substitute for identity verification to minimize the likelihood of fraud and misuse of identification information associated with tax returns (such as a business’ EIN or a person’s SSN). The reforms also allow for greater information sharing with the Identity Theft Refund Fraud Information Sharing and Analysis Center (ISAC), a partnership between the IRS, state tax agencies, and private sector, so ISAC can better detect and prevent fraud and identity theft.

The TFA also requires the IRS to notify a taxpayer when suspicious identity theft actions occur, inform them of how to file a report, and suggest identity protection measures the taxpayer should take. The act also implements an IRS single point of contact for identity theft victims. While this does not necessarily mean a taxpayer will have one specific individual committed to communicating with them, it does provide for greater continuity in assisting identity theft claims.

These reforms provide enhanced protection and notification procedures for small business owners looking to minimize cybersecurity threats as well as simplified preventative actions owners can take to avoid security breaches.

improvements to customer service

An issue most can agree on is that customer service calls are usually a painful experience. In response, the TFA requires the IRS to submit a comprehensive customer service plan to Congress within one year. Within two years, the IRS must provide updated and easily understood training materials for customer service employees. The TFA directs plan to adopt common best practices provided in the private sector, such as online and call back services and customer service employee training. Additional requirements for the plan include short term and long term proposals to improve taxpayer satisfaction with customer service and a method for measuring the plans progress.

strengthening the national taxpayer advocate

The Office of the National Taxpayer Advocate is an independent office representing taxpayer interests. When a common taxpayer issue arises, the office issues Taxpayer Advocate Directives asking the IRS to resolve the problem. Prior to the enactment of the TFA, the IRS had the ability to modify or rescind the directive largely without oversight. The TFA eliminates that possibility by mandating compliance with the directive within 90 days. If the IRS decides to modify or rescind a directive, the IRS must inform the National Taxpayer Advocate of the reason and notify Congress of all unaddressed directives.

low-income exceptions for offer-in-compromise payments

An offer-in-compromise is an agreement between the IRS and a taxpayer to settle the tax debt for less than full liability. When applying for an offer-in-compromise, the taxpayer is required to pay an application fee and a non-refundable initial payment. The TFA waives those fees for low-income taxpayers applying for an offer-in-compromise. The TFA defines low-income taxpayers as those whose income is less than 250% of the applicable poverty level. While you may think this only applies to individuals without businesses, this can be of some assistance for individuals who are part of the gig economy or have sole proprietorships.

To read the legislation in its entirety, go here.

Sources:

https://www.congress.gov/bill/116th-congress/house-bill/3151/text?q=%7B%22search%22%3A%5B%22taxpayer+first+act%22%5D%7D&r=1&s=1#toc-HE9D7A5E20D3F400AADE9086B1B0A2E4F

https://www.currentfederaltaxdevelopments.com/blog/2019/7/6/taxpayer-first-act-of-2019-summary-of-key-provisions

https://www.forbes.com/sites/deanzerbe/2019/07/02/congress-expands-taxpayer-rights-with-taxpayer-first-act-of-2019/#4fc79ef31729

https://tax.thomsonreuters.com/news/special-study-on-taxpayer-first-act-of-2019/

Pictures:

https://rsmus.com/what-we-do/services/tax/federal-tax/tax-controversy/highlights-of-the-taxpayer-first-act-of-2019.html

https://www.kiplinger.com/slideshow/taxes/T055-S001-how-the-irs-will-be-more-taxpayer-friendly/index.html

Tax Scam Alert: IRS Issues New Cybersecurity Warning


Mari Boyle, at the time of this post, is a second year law student at Penn State Dickinson Law. Mari is from Pittsburgh, Pennsylvania and is interested in corporate law and litigation. Mari currently serves as Treasurer for the Business Law Society and as an Associate Editor of the Dickinson Law Review.

The Secrets behind Trade Secrets

By: Idan Ghazanfari
Pictured: You (left) Chad (right)

“I really want to own my own business one day.”  Seemingly, everyone has had at least one person in their life use this sentence as their go-to ice-breaker for some poor soul at an office water cooler for the better part of five years now.  Just do it already, Chad, so we can both move on with our lives.

So, You Want to Own Your Own Business?

The common trope of wanting to own your own business might be boring anecdotally. Still, studies have shown positive results for bold coworkers who finally take the plunge into that world.  According to a study published on entrepreneur.com,

  • About 68 percent of entrepreneurs reached profitability within the first year
  • About 16 percent did so between years one and four
  • Only 8 percent reached profitability after their fifth year in business, and
  • Only 7 percent of respondents said they still were not profitable. [1]

The overwhelming indication is that the first four years are truly make-or-break years for any new company.  However, profitability is not synonymous with success.  Sadly, breaking even into the black is not the only consideration; entrepreneurship has major risks associated with the practice as well.  A bit more than 50 percent of small businesses fail within the first four years.  In fact, of all small businesses started in 2011:

  • 4 percent made it to the second year
  • 3 percent made it to the third year
  • 9 percent made it to the fourth year
  • 3 percent made it to the fifth year.[2]

Shh, it’s a trade secret…

Given the risk of failure associated with being an independent business owner, before quitting your job to team up with Chad to start your revolutionary idea for a two-sided stapler, make sure your “new” idea is original.  One potential obstacle for new entrepreneurs to hurdle through comes in a mysterious package called trade secrets.   A “Trade Secret” is an inherently nondescript label for any confidential business information which provides an enterprise a competitive edge.[3] These secrets bring economic value because they are not publicly known and come in a variety of shapes and sizes.  Some of the most common trade secrets come in the form of a company developed list/survey method, a customer list, an algorithm/formula, or even a recipe/secret ingredient(s).  Examples include the New York Times Bestseller List, the Google search algorithm, and the Colonel’s delicious crispy fried chicken.[4]

Trade secrets have certain advantages that do not come with other well-known methods of protecting information like copyrights, patents, and trademarks.  These advantages include no requirements for publicizing your invention and, theoretically, indefinite protection.  Federal laws protecting trade secrets include the Uniform Trade Secrets Act (UTSA) and the Economic Espionage Act.  Violating these laws can also come with hefty penalties, which could be devastating to small businesses, especially in their infancy.  Potential penalties include injunctions, damages (including value lost due to misappropriation and unjust enrichment), and paying attorney’s fees.[5]

Trade secret protections also exist at a state level.  Through most of Pennsylvania’s history, individual cases shaped trade secrets law.  These cases created a “common law” authority.  Common law, however, often leads to conflicting reasoning and is sometimes difficult for others to abide by.  For these reasons and others, the National Conference on Uniform State Laws drafted the Uniform Trade Secrets Act to codify and effectively replace the common law. Effective April 19, 2004, Pennsylvania joined the growing number of states which have adopted the Uniform Trade Secrets Act.

Armed with this knowledge of trade secrets, the next logical question for aspiring entrepreneurs has to be, “How do I make sure not to violate protected trade secrets?” If you have stolen, extorted, or bribed someone for protected company information, you are in violation.  If you want to double-check you aren’t utilizing or taking protected information, look to your employment agreement to see if you are bound by a duty of confidentiality not to disclose or use trade secret information. This is particularly important if you are in a leadership position.  Additionally, check any non-disclosure agreements you may have signed. Note however that employees have a fiduciary duty not to steal company information regardless of whether or not they have an agreement.

People who discover the “secret” independently, that is, without using illegal means or violating agreements or state laws, cannot be punished. For example, it is not a violation of trade secret law to analyze (or “reverse engineer”) any lawfully obtained product and determine its trade secret.[6] The moral of the story is that authentic, independent creativity is ultimately not hindered by any legislation designed to protect trade secrets.

This all may seem daunting, but don’t worry! If you feel like owning your own business, make sure to keep trade secrets in mind.


This post was originally authored on February 4, 2019 and was reproduced with the author’s permission.

Idan Ghazanfari, at the time of this post, is a third-year law student at Penn State’s Dickinson Law. He was raised in Central Illinois where he enrolled in the University of Illinois and earned a B.S. in Finance. He is interested in leveraging his undergraduate business background into private firm work with a corporate law focus upon graduation. Idan is currently serving as President of the Phi Alpha Delta legal fraternity and as a member of the Middle Eastern Law Students Association at Dickinson.

Sources:

[1] https://www.entrepreneur.com/article/315718

[2] https://smallbiztrends.com/2016/11/startup-statistics-small-business.html

[3] https://www.wipo.int/sme/en/ip_business/trade_secrets/trade_secrets.htm

[4] https://info.vethanlaw.com/blog/trade-secrets-10-of-the-most-famous-examples

[5] https://www.rocketlawyer.com/article/uniform-trade-secrets-act-ps.rl

[6] https://www.nolo.com/legal-encyclopedia/trade-secret-basics-faq.html

To Pay Overtime or Not to Pay: FLSA Exemptions

By: Gregory Archibald

In the American workforce, all employees are afforded certain protections by the FLSA (Federal Labor Standards Act). Generally, employees are entitled to overtime pay of time and one-half their regular pay rate if they work over 40 hours in a work week. Despite being entitled to overtime, the FLSA does not limit the amount of hours per week an employee over the age of 16 may work. There are, however, certain “exempt employees” who, because of their rate of pay and type of work they do, are not eligible for overtime pay. Pennsylvania, like many other states, reflects these same exemptions and their subsequent requirements in their own statute. One should be cautioned, however, that state law is sometimes different so it cannot be disregarded.

Each exemption to the FLSA is accompanied by its own individual requirements. For an employer to claim that an employee is truly exempt from overtime pay, it must ensure that the employee meets these requirements. While a few exemptions demand additional requirements, each exemption examines: 1) minimum salary; and 2) primary duties of the employee.

The individual exemptions are not exclusive; an employee that looks like they should fit into one exemption may still meet the requirements for another.

For example, an employee that does not meet the requirements of the Executive or Computer Professional Exemptions may still meet the requirements for the Administrative Exemption. And, the result is the same regardless of which exemption an employee fits within – no overtime pay required.

In September of 2019, the Department of Labor increased the minimum salary requirement for each exemption. This increase will take effect on January 1, 2020. This post will examine the various types of exempt employees and explain the requirements necessary to establish an employee as exempt.

Executive Exemption

The Executive Exemption generally exempts employees in management roles. To qualify for this exemption, an employer must establish that the employee meets the following requirements:

  • Minimum Salary: The employee must be compensated on a salary basis at a rate of not less than $684[1] per week ($35,586/year).
  • Primary Duties: Managing the business or managing a customarily recognized department or subdivision of the business. Additionally, the employee must customarily and regularly direct the work of at least two or more other full time employees or their equivalent.
  • Authority: The employee must have the authority to hire or fire other employees, or the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.

Administrative Exemption

The Administrative Exemption generally applies to support staff employees such as Human Resources, Marketing, and Payroll.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[2] per week ($35,586/year).
  • Primary Duties: The performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and the exercise of discretion and independent judgment with respect to matters of significance.

Learned Professional Exemption

The Learned Professional Exemption generally applies to professionals in the fields of science and learning, such as lawyers, scientists, teachers, and accountants.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[3] per week ($35,586/year).
  • Primary Duties: The performance of work requiring advanced knowledge, defined as work which is predominantly intellectual in character and which includes work requiring the consistent exercise of discretion and judgment.
  • Advanced Knowledge: The advanced knowledge must be in a field of science or learning, and must be customarily acquired by a prolonged course of specialized intellectual instruction.

Creative Professional Exemption

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[4] per week ($35,586/year).
  • Primary Duties: The performance of work requiring invention, imagination, originality or talent in a recognized field of artistic or creative endeavor.

Computer Professional Exemption

The Computer Professional Exemption generally covers technology employees such as software developers, programmers, and IT staff.

  • Minimum Salary: The employee must be compensated on a salary or fee basis at a rate of not less than $684[5] per week ($35,586/year), or, if compensated on an hourly basis, at a rate of not less than $27.63 per hour.
  • Job Position: The employee must be employed as a computer systems analyst, computer programmer, software engineer, or similarly skilled worker in the computer field performing the duties described below.
  • Primary Duties:
    • The application of systems analysis techniques and procedures, including consulting with users, to determine hardware, software or system functional specifications;
    • The design, development, documentation, analysis, creation, testing or modification of computer systems or programs, including prototypes, based on and related to user or system design specifications;
    • The design, documentation, testing, creation or modification of computer programs related to machine operating systems; or
    • A combination of the aforementioned duties, the performance of which requires the same level of skills.

While there are various other FLSA exemptions, such as the Outside Sales Exemption, Highly Compensated Employees, Blue Collar Workers Exemption, and Police, Firefighters, Paramedics, & Other First Responders, the above-listed exemptions affect the largest number of American workers. It is important for employers to remember that to exempt any employee from overtime, each of the above requirements must be met. Misclassifying employees as exempt is a violation of the FLSA, and can result in overtime back-pay, federal fines, and damages. It is worth noting that small businesses are not given an exemption from the above requirements under the FLSA. If an enterprise shows an annual gross volume of sales made or business done totaling to at least $500,000, FLSA will apply to the employees of that enterprise. FLSA will also apply to employees individually covered by law. This is because both types of employees are engaged in interstate commerce or in the production of goods for commerce.

This post was authored on October 5, 2019.


Greg Archibald, at the time of this post, is a third-year law student at Penn State Dickinson Law. He is from Central Pennsylvania and is interested in corporate litigation. Greg is the President of the Business Law Society and is currently a Comments Editor of the Dickinson Law Review.

 

 

[1] Effective January 1, 2020

[2] Effective January 1, 2020

[3] Effective January 1, 2020

[4] Effective January 1, 2020

[5] Effective January 1, 2020

Mary Allen Lindemann | Entrepreneur of the Month | October 2019

By: Rachel Tunney
Dean Conway, Yves Karubu, Mary Allen Lindemann

September 20th was a busy day.

We were organizing flights. And guests. And Convocation – a ceremony where Dickinson Law officially welcomes the new 1L class into its community.

But when Mary Allen Lindemann walked into the room, an aura of calm and sweetness entered, and suddenly, the air is quiet. The room brightened. Mary Allen reminds me of a dancer with her gentle movements; her hairstyle today makes me smile, for it is braided tightly to her head like a New York City ballerina’s. The gown she is wearing, made specifically for her, is so beautiful and unusual that it quietly whispers: This is someone special. Special indeed. Mary Allen Lindemann is the co-founder and community builder of Coffee By Design: a Portland, Maine based coffee company that made an incredibly positive impact on its surrounding community which has lasted for over twenty-five years. Once we began conversing, I fell under her spell. Mary Allen makes you want to grab a cup of joe and sit with her for hours, asking about Africa or Burundi drumming.

And so we did.

Marry Allen Lindemann is the co-founder and community builder behind Coffee By Design. She received a B.A. in poetry from Brown University and was inspired to pursue a passion for coffee while out in Seattle, Washington. Together with Alan Spear, she founded Coffee By Design in 1994. She is a member of the Specialty Coffee Association of America and the International Women’s Coffee Alliance. She is also a founding member of Women Standing Together, Portland Buy Local, and the First Friday Art Walk.

why coffee?

Coffee By Design opened in 1994 as a way for the owners (Mary Allen Lindemann and Alan Spear) to share their passion for coffee with the Portland community. Most people, even those who are not entrepreneurial, have heard of the saying “location, location, location” when it comes to considering a new space as the future home of potential business. Coffee By Design considered the notion as well. But while most would run from a building that was located in the “porn district of Portland,” where the vacancy rate was 40%, Mary Allen ran toward it. The first Coffee By Design store on Congress Street hoped to not only serve its customers coffee but to serve as the local community center. Decades later, Coffee By Design is still credited with encouraging Portland’s downtown revitalization that led to the current Arts District. Currently, Coffee By Design can be found in Portland on Congress Street, Diamond Street, and India Street as well as at the L.L. Bean Flagship store.

To hear more of how Mary Allen ended up in a coffee career, click here.

a cup of joe and community 

So, how does one take a coffee shop and turn it into a community center with coffee? Mary Allen knows, because that’s precisely what Coffee By Design became. In fact, the coffee shop was a significant player in breathing life back into Congress Street by encouraging local artists to come on in and celebrate their passions. Mary Allen believes that Coffee By Design’s shops-turned-community-centers really can change the world with one location at a time. Coffee By Design infused the local community with a physical space that provided an outlet for others’ talents. That is one thing that is very clear about Mary Allen: she uses her passion for coffee at all times to enrich the passions of others. Even in her business model, she thinks of the ways her actions will be intertwined with others. Her leadership and values integrated within the company suggest that some of the most successful business leaders may also just be some of the kindest.

To hear more of Mary Allen’s tale on transforming coffee shops into community centers, click here.

want an entrepreneurial mindset? ignore the “no”

How does an entrepreneur stand out from the crowd? Simple. They don’t stop at hearing, “No.”

Mary Allen discussed the necessary sacrificing it takes to see your business succeed. Success, in the end, involves ignoring many who tell you that you cannot complete this task, including ignoring yourself. A successful entrepreneur must be willing to stand behind their idea at all times and in any circumstance. They may have to sleep on the shelves in their own shop (Mary Allen did). Give up comforts. Live frugally. They need to dedicate almost every second of the day to further their objective. Mary Allen says that some people are in the perfect spot to devote all of their energy to their ideas. But it frustrates her to see them working on it “on the side.” How  much faster could you get to the establishment of your idea if you dedicated yourself solely to your concept? Can you believe in yourself, in your concept that much? In this, Mary Allen makes a good point: if you do not believe in your business to the extent that you’re willing to sacrifice everything, how will anyone else?

Yes, there will be struggles. When you leave a career behind and begin talking about new hopes and dreams and ambitions, Mary Allen says that’s where you will find who your real friends are. It’s those people who see you to success.

Speaking of friends, it is important to note that Mary Allen had such kind remarks regarding Dickinson Law’s new dean: Dean Conway. Mary Allen described her as a strong mother with incredible speaking ability. She uses the word “extraordinary,” and we most certainly agree.  

To hear more of Mary Allen’s thoughts on the entrepreneurial mindset, click here.

gimme a “b,” B-Corp

Coffee By Design is one of the few companies that is a certified B Corporation in Maine. B Corporation Certification is a certification that measures a business’s social and environmental performance. The Certification emphasizes accountability and transparency. It assesses how the company’s operations and business model impacts its workers, community, environment and customers. Mary Allen says she wants to invest in knowing the origins of her coffee; she focuses on the product from the start by finding out who is farming the beans that bring so many people together. Food, as Mary Allen says, is universal. It creates memories that last beyond the final bites. Coffee and customers, under this model, are an investment, not as a transaction. The B Corporation Certification reflects these values of Coffee By Design.

with family, ten is the magic number 

Along with Coffee By Design, Mary Allen stays busy with her daughter, who is 15. She approaches parenthood with the same mindset that she approaches her business; the two have a solid agreement and firm terms when it comes to Mary Allen and Coffee By Design. For her business, Mary Allen travels a lot. And as many know, travel is hard on family members. So, she and her daughter agreed: 10 is the magic number. Mary Allen is permitted to travel and be away from home for up to 10 days. Mary Allen’s arrangement with her daughter is a beautiful example of communication and boundaries. We can be so much happier within our relationships when we make and follow-through on setting boundaries.

Mary Allen also made an excellent point during this discussion of family and business. A business should be designed in a way that allows its leader to leave. Mary Allen has trust in the company’s management and its employees. Because if injury should arise or a flight is delayed, Mary Allen needs to be confident that the business would still thrive.

rebel blend fund

Coffee By Design accepts art proposals from artists or small arts organizations each year. The Rebel Blend Fund allows the artists to receive grants to help them continue to pursue work they might otherwise not be able to complete without proper funding. Every pound of the Rebel Blend coffee that is sold results in a donation of a $1 to the fund.

coffee recommendation

Mary Allen’s current coffee recommendation is the African 1994 Blend, which can be found here. The blend includes notes of passionfruit and strawberry with wine-like acidity. You can select your quantity and grind level as well. The blend was introduced in honor of Coffee By Design’s 25th anniversary this year, named in honor of the year they opened at Congress Street.

Photo sources:

www.coffeebydesign.com

 


Rachel Tunney, at the time of this post, is a 2L at Penn State Dickinson Law. Formerly a professional New York City dancer/singer, Rachel is now interested in pursuing a career in corporate litigation. Rachel currently serves as the Dickinson Law Student Representative for the Pennsylvania Bar Association and is an Associate Editor of the Dickinson Law Review.