Law & Entrepreneurship News

Proposed Regulations To Affect Corporate Conversions

On December 8th, 2004, Washington D.C. will be the site of a hearing to discuss the Treasury and IRS proposed regulations on "Last In First Out" (LIFO) recapture for S-Corporations owning partnership interests.

The proposed regulations require a corporation converting from a C-Corporation to an S-Corporation to take into account for purposes of section 1363(d) of the IRC its share of the LIFO recapture amount of any partnership in which the corporation has an interest.

The proposed regulations also require correlative adjustments to the converting corporation's basis in its partnership interest. In addition, the proposed regulations will permit a partnership to elect to make correlative adjustments to its basis in its inventory assets, which will have effect only for a converting corporation.

If/when finalized, the proposed regulations will apply to S elections and transfers made on or after August 13th, 2004.

Pension crunch worsens; legislative solutions considered

Approximately 119,000 current and former employees of United Airlines may lose their pension coverage in order for United to escape bankruptcy, as reported in this space.

Now, according to The Rocky Mountain News, the Bush administration may be considering a legislative fix. Such a solution could take several forms, ranging from a fairly mild time extension for United to fund its plans to changing bankruptcy law to make the Pension Benefits Guarantee Corporation a more powerful creditor.

Unfortunately for United and its employees, any such legislative solution is unlikely to come in time to protect even the full amount of United's current obligations. What's worse, such a decision by United could potentially ripple through other airlines, endangering benefits throughout the industry as United's rivals struggle to compete.

Patent Royalties Still Disputed as RFID Revolution Moves Forward

Radio Frequency Identification (RFID), a wireless identification technology, may replace the bar code as the primary source of retail inventory identification and organization. By January of 2005 Wal-Mart will require it's top 100 suppliers to begin RFID tagging on cases and pallets going into it's Texas warehouses. The United States Department of Defense and Target have also expressed interest in adopting the technology. Overall, spending on RFID is expected to grow from $1 billion in 2004 to $4.6 billion by 2007. However, no global standard for the technology has been reached, and Intermec IP Corporation has refused to contribute patented technology on a royalty-free basis.

The two leading standards setting organizations are on the way to establishing a global RFID standard. In July, the Electronic Product Code Group (EPC Global) and the International Standardization Organization aligned their proposed standards and have embraced similar intellectual property policies. Under the IP policy, companies contributing patented technologies have the option of submitting the technologies on either a "world-wide royalty-free or otherwise reasonable and non-discriminatory (RAND) license."

Intermec IP Corporation, inventor of Code 39, to most widely used bar-code in the world, holds 135 RFID patents and has contributed 12 of it's patented and patent pending technologies to EPCGlobal. Intermec has opted to contribute it's technologies under a RAND license. The company will require semi-conductor chip manufacturers to make a $750,000 royalty pre-payment to be applied to a 5% royalty on sales. Companies manufacturing RFID inlays, tags and labels will be required to pay $1 million in royalty pre-payments and a 7.5% royalty fee on unit sales.

RFID companies and end-users are concerned that patent royalties will increase the cost of RFID tags and slow adoption of the technology. Intermec president Tom Muller, on the other hand, takes the stance that, "You can make the cost argument for any kind of technology. It doesn't give you the right to take someone else’s intellectual property...Some sort of minor royalty is not going to hold the market back." Intermec has stated that it has no intention of licensing end users or seeking enforcement of IP rights against end users. However, the company showed how serious it is about enforcing it’s patents against competitors when it filed a lawsuit alleging patent infringement against competitor Matrics Inc. earlier this summer.

Charlie Hustle In Trouble With IRS Again

On Tuesday August 17, 2004 the Internal Revenue Service filed a federal tax lien in Broward County (FL) claiming that Pete Rose owes nearly $1 million in unpaid taxes. The lien specifically alleges that baseball’s all-time hits king owes $973,693.28 in back taxes from 1997 to 2002.

Rose’s manager, Warren Greene, declined comment, saying “it’s a private matter with Pete and his family.” Rose, 63, has already spent five months in prison in 1990 and 1991 for filing false tax returns.

IRS Wins Case Against Long-Term Capital Management

On Friday August 27, 2004 the U.S. District Court for the District of Connecticut issued an opinion in favor of the Internal Revenue Service in its case against Long-Term Capital Management, the hedge fund which collapsed in 1998.

The court upheld the IRS’s claim that Long-Term Capital improperly took $106 million of tax deductions in 1996 and 1997. This case resulted in $56 million in taxes and penalties owed to the IRS, perhaps the largest civil tax victory for the agency.

According to the New York Times, the judge, Janet Bond Arterton, effectively painted Long-Term Capital as an abusive tax shelter. She ruled that some of Long-Term Capital’s crucial transactions were conducted primarily to avoid paying taxes. She specifically pointed to Long-Term Capital’s nine cross-border lease-stripping transactions as lacking economic substance, another indication of an abusive tax shelter.

The Prescription Drug Battle

It is no secret that Americans pay the highest prescription drug costs in the world. While Americans continue to pay drastically more for their drugs than others do in Europe and Canada, state governments have begun to ignore the federal ban on reimporting drugs from other countries. Minnesota, Wisconsin, New Hampshire, North Dakota, and Washington DC already provide access to imported drugs from Canada. (Click here to view Wisconsin’s “Gateway” to Canadian Drug purchases). Note the disclaimers on these state websites explaining the illegality of purchasing from Canada.

The most fervent fight for importing drugs is being played out in Illinois.

This past week, Illinois Governor Rod Blagojevich announced that he will not only look to Canada to reimport medicine but also to the United Kingdom, becoming the first state to include European pharmacies. The move comes as a counter-punch to drug companies that have already cut supplies to Canadian pharmacies serving customers in America.

On the political front, John Kerry has campaigned on the issue saying that he would support a removal of the federal ban. President Bush opposes reimportation of the drugs. Many, along with the president, believe that permitting importation would result in a reduction in drug research spending while posing a risk to consumers.

The Food and Drug Administration, without taking any legal action to enforce the ban, opposes moves like Blagojevich’s which could potentially bring uncertified and potentially unsafe drugs into the US. They have engaged in a large campaign to warn consumers of imported drugs. The agency said terrorists may tamper with prescription drugs to launch an attack on Americans.

Given the blatant disregard by many state governments and the importance of this issue, it is likely to provide for interesting lawsuits in the near future. It seems as though the sparks are just now starting to fly.

On August 19, 2004, the State of Vermont and the Vermont Agency of Administration filed suit against Secretary of Health and Human Services, Tommy Thompson, and the acting Commissioner of the FDA. The suit stems from the FDA’s rejection of Vermont’s effort to establish a program for the importation of prescription drugs from Canada.

In a response to the lawsuit, FDA Associate Commissioner William Hubbard said in an interview that while so far the FDA has chosen “not to pick a fight” the FDA may end up suing states that import prescription drugs for their citizens.

Study Says Wisconsin Law That Protects Small Gas Station Owners Costs Consumers At Pump

The Coalition for Lower Gas Prices is lobbying Wisconsin Legislators to repeal a law intended to protect small gas station owners after a study it commissioned showed that the law creates higher gas prices for consumers, according to the Milwaukee Journal Sentinel. The Coalition, made up of the American Automobile Association, veterans groups, trucking firms and Wal-Mart Stores, wants the law repealed because it mandates a minimum mark-up of 9.18% by retailers, which prevents large operators from selling gas below cost.

According to the study, the law adds 1.3 to 1.8 cents to the cost of a gallon of gas, which adds up to $40 million a year spent by Wisconsin gas consumers. The Coalition also maintains that only 2.8% of that $40 million goes to the smallest gas stations, and that large gas stations receive most of the monetary benefit.

The Petroleum Marketers Association of Wisconsin and the Wisconsin Association of Convenience Stores, trade groups that represent 500 independently owned gas stations in the state, disagree with the study and maintain the law is necessary, pointing to an earlier study that shows long-term declines in gas prices in states with similar mark-up laws.

The Coalition is seeking a temporary one year repeal of the law and a study by the Wisconsin Department of Administration to determine if the repeal should be permenant.

European Entrepreneurship

The recently released Entrepreneurship Action Plan will provide long-term guidance for the development of capital funding programs and for fostering the entrepreneurial spirit in the European Community.

The focus appears to be on the younger generation of Europeans, with specific attention granted towards the creation of opportunities for women and ethnic minorities. The Plan is a result of a long drafting process, subject to open public consultation, with the final goal being the creation of the world's most competitive economy by the year 2010.

The Plan is to be implemented in step with the Charter for Small Enterprises, existent since the year 2000, the combined effort driving in pursuit of the Community's lofty goal.

Our Photos

In preparation for our official launch on September 1, we are sprucing up the site. Among other things, we have recently added photos from the University of Wisconsin's Campus Photo Library in the left sidebar. We selected photographs of various businesses or technologies that are associated with Madison or the University of Wisconsin. You can view a random photo from our collection by refreshing your browser, or you can view the entire gallery of photos. Enjoy!

Complaint Filed by Non-Attorney Corporate Officer a Curable Defect

The California Court of Appeals recently ruled that a complaint filed by a non attorney corporate officer on the behalf of his corporation is not automatically void although corporations must be represented by a licensed attorney under California law.

The dispute arose when CLD Construction, Inc. alleged that the City of San Ramon had breached a contract between the two for the construction of a skateboard facility. In an attempt to initiate the suit, CLD's owner filed a complaint against the City without obtaining a lawyer’s signature on the complaint. Under California common law, corporations, unlike individuals, must be represented in court by a licensed attorney. Unfortunately, by the time CLD realized the mistake it had made by not including a lawyer's signature on the complaint, the statute of limitations on its claim had passed. Because the statute of limitations had passed without a valid complaint being filed, the city requested that the case be dismissed.

While the court supported the common law that corporations must be represented by an attorney, the court felt that dismissing a corporation that initially appears via a non attorney officer or shareholder without giving the corporation an opportunity to obtain an attorney would be unfair.

In order to give CLD a second chance, the court ruled that the mistake CLD had made was a "curable defect." Because the mistake was curable, CLD's complaint was not void and the court could grant the company additional time to amend the complaint to include an attorney's signature which would allow CLD's case against the city to continue.