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You can reach the Bismarck office directly at (701) 354-4878.

2022 Gift and Estate Tax Changes

Please call with any questions.

Corporate Transparency Act

Corporations and LLCs Required to Report Owners and Members

Certain entities will soon be required to report to a federal agency information that until now has been largely private, thanks to criminals from around the world and every walk of life who use anonymous shell companies to hide their stolen funds and property in the United States.

The Corporate Transparency Act, part of the National Defense Authorization Act, was enacted by Congress on January 1, 2021, as a new anti-money laundering provision. It requires “reporting companies” to identify the “beneficial owners.” Reporting companies include for-profit and non-profit corporations, limited liability companies, limited partnerships, and similar entities that file with the respective secretaries of state. (For now, general partnerships and trusts are not included.) The reporting companies must report the names, dates of birth, addresses, and identification numbers of their beneficial owners. A beneficial owner is a person who, directly or indirectly, exercises substantial control over the entity or owns or controls 25% or more of the equity in the entity.

If information previously reported changes, reporting companies have 30 calendar days to file an updated report, and if information filed is inaccurate, the company must file a corrected report within 14 calendar days of discovering the inaccuracy.

The reports must be filed with FinCEN (the United States Treasury Department’s Financial Crimes Enforcement Network). New federal regulations for the reporting requirements are due on January 1, although some delay is expected. The proposed regulations were published in the December 8, 2021, Federal Register (86 Federal Register No. 233 at page 69920).

Corporate Transparency Act Continued

Existing entities are expected to file the report within one year of the effective date of the final regulations and thereafter update ownership and address information within a year of any change to beneficial ownership. Newly formed entities must provide the information within 14 calendar days of creation or registration.

Exceptions to the reporting requirements will include entities already subject to beneficial ownership reporting (such as non-profits and financial institutions), regulated public utilities, publicly traded companies, and “large operating companies” with 20 or more employees, whose previous year tax returns report more than $5 million in gross receipts or sales (including receipts or sales of subsidiaries through which the entity operates) and has an operating presence at a physical office within the United States. Entities claiming exemption must file an exemption and identify the filing officer or director.

Reporting companies must keep these reports throughout their existence and for five years following their dissolution. Exempt companies will want to retain their filings claiming exemption.

The reported data will not be publicly available but will be provided if requested by federal law enforcement, national security, intelligence agencies; state or local law enforcement with a court order; a federal agency on behalf of a foreign country; or a financial institution with customer consent to verify certain customer information; and federal regulatory agencies.

Substantial financial penalties or imprisonment may apply in the event of willful failure to provide complete or updated information or knowingly providing false or fraudulent beneficial owner information, including:

FinCEN may waive the penalties for reasonable cause, and no penalties will result if a negligent violator voluntarily and promptly corrects a report within 90 days. If the filer acts purposefully to evade the requirements and knew the information filed was not accurate, the filer is not within the Act’s safe harbor.

The Act also provides for penalties in the event of unauthorized use or disclosure of all this private information. Penalties of up to $500 per day and up to two years in prison per violation will be doubled if the unauthorized use also violates other laws and shows a pattern of illegal activity.

Congratulations to Eli!

BECE welcomes Eli Earich as an associate attorney, following his successful completion of the Ohio bar exam. Eli graduated in May 2021 from Capital University Law School. He grew up in Pickaway County, Ohio, and is still heavily involved in his family’s Angus cow-calf operation.

Eli earned his B.S. in agricultural economics at the University of Kentucky, where he was actively involved in Alpha Gamma Rho fraternity and Block and Bridle. Prior to law school, Eli worked full-time as a commodity merchandiser for Archer Daniels Midland in Des Moines, Iowa. While in law school, he has worked as a research fellow for the National Agricultural Law Center and spent time in Washington, D.C. as a Public Policy Law Clerk for the National Cattlemen’s Beef Association.

Contact Eli at [email protected].

Thank You, Mary Cay & Jackie!

Serving our clients well is important to us, and Mary Cay Pelot and Jackie Factor are the glue that holds BECE together day to day.

If you’ve called us, you have probably spoken with Mary Cay, and if you’ve visited, she is likely to have greeted you. She has been the constant presence that has helped sustain us through this pandemic. She quietly does so many things, lots of which we don’t even realize until she is out of the office for a well-deserved break!

We are thrilled to have Jackie back with us after she moved back to Ohio this past summer. Some of our clients will remember her able assistance as a probate paralegal. She is assisting us with bookkeeping and billing and assisting with her paralegal skills as time allows. We are grateful for her attention to detail and experience with office procedures.

Upcoming Speaking Engagements

January 7

Carolyn Eselgroth will be joining society director Michelle Kuhlwein and CPA Michael Denoewer at the Ohio Fair Managers Association’s 97th Annual Convention and Conference in Columbus for a discussion of the Union County Ag Society’s IRS audit.

January 10

Troy Callicoat will be speaking at the Michigan Agri-Business Association Winter Conference in Lansing, Michigan at both the Grain Issues Session on current issues in grain contracting and the Fertilizer Issues Session on overall crop input contracting issues.

January 17

David Barrett will be speaking at the North Dakota Grain Dealers Association Convention in Farbo, North Dakota on “Grain Contracting Practices for Good Times and Bad.”

January 26

Russell Cunningham will be speaking at the Ohio Chapter of the American Society of Farm Managers and Rural Appraisers on Tax Law Updates and Planning Opportunities.

OHIO UPDATES LLC LAW

Did you know that the state of Ohio recently enacted a massive overhaul to its limited liability company (LLC) statutory provisions? Ever since Ohio limited liability companies came into existence in 1994, determining who the actual members were and who had authority to act on the entity’s behalf could be a difficult challenge. Limited liability companies could be member managed or manager managed, which presented a whole host of problems when it came to transacting business with an LLC.

With the recent changes to the Ohio LLC Act, the Ohio General Assembly attempted to make it easier for parties to transact business with an LLC. One of the main purposes behind the revisions was to make more obvious who had authority to act on behalf of the entity. For new limited liability companies, the form filed with the Ohio Secretary of State will provide for notice of who has authority to act on the new LLC’s behalf.

The new statute also provides new protections against actions of other members of the company. Regarding liability, R.C. §1706.26 states:
A person who is a member of a limited liability company is not liable, solely by reason of being a member, for a debt, obligation, or liability of the limited liability company or a series thereof, whether arising in contract, tort, or otherwise, or for the acts or omissions of any other member, agent, or employee of the limited liability company or a series thereof. The failure of a limited liability company or any of its members to observe any formalities relating to the exercise of the limited liability company’s powers or the management of its activities is not a factor to consider in, or a ground for, imposing liability on the members for the debts, obligations, or liability of the limited liability company.

Under the old statutory provisions, a member could be liable for the actions of a fellow member depending on how the LLC was structured within the operating agreement. With this new provision, the Ohio General Assembly created blanket protection for members, so a member, simply by being a member, is not liable for another member’s missteps or the company’s liabilities.

The new act became effective April 12, 2021. The old act remains in effect until January 1, 2022. For those LLCs with older operating agreements, consider asking your attorney to review the operating agreement to better take advantage of the new statutory provisions, as well as to make any changes based upon how the LLC’s business has evolved over time.

BARN CASE

Barn used for events not exempt from building and safety codes

A renovated barn used for paid events was not exempt from building code and safety regulations under the agricultural exception in state law, according to the Court of Appeals in the Fifth Appellate District in the judgment released on June 28. The Court affirmed the Stark County Common Pleas Court’s decision in Michael Gainer, et al., v. Angela Cavanaugh et al.

Michael and Brenda Gainer and Storybrook Barn, LLC had sued the Start County Building Inspection Department’s chief building official and the Lawrence Township fire chief after the county officials cited the Gainers and their business for changing the use of the barn to “public assembly” without complying with building and fire codes. The Gainers’ position was the barn’s use for events was incident to the agricultural use of the property and was therefore exempt from the local regulations under Ohio Revised Code § 3781.06. The Gainers appealed through the administrative process, where they were unsuccessful, and then appealed to the Court of Common Pleas.

The Gainers “provided unrebutted evidence” that they used the barn for agricultural activities on the property. Livestock, hay, and other agricultural tools and supplies were stored in the barn on an ongoing basis.

After using the loft in the barn for some years as a “man cave” and event space for family, friends, and church gatherings, the Gainers decided to rent the space to groups to supplement their income. A bar and restrooms were installed, as well as a sound system, filtered water, an ice machine, emergency lighting, smoke alarms, and panic bars on exit doors. The Gainers promoted the barn on a website for wedding events with up to 200 guests.

The township board granted a conditional use permit with conditions:
(i) Use local off-duty officers if alcohol was to be served;
(ii) Cut off music at 11 p.m.;
(iii) Use only a temporary sign of no more than 3-by-3 feet, to be posted near the driveway the day of the event and removed the next day;
(iv) Refrain from on-site cooking or frying inside the barn (using an outside grill or roasting a pig outside was “OK”);
(v) Follow all fire code regulations and inspections and maintain fire extinguishers and exit signs as required by inspections;
(vi) Follow all Ohio, Stark County, and Lawrence Township health, safety, and occupancy regulations;
(vii) Provide and regulate sound equipment to keep noise levels acceptable, with the warning that three event-related police complaints would trigger automatic review of the conditional use;
(viii) Provide adequate and safe parking; and
(ix) Provide assistance at the street for traffic exiting events.

Within several days of obtaining the conditional use permit, the local inspectors arrived to check compliance.

The legal issue was “whether a building that advertises for, and entertains, private functions attended by numerous people – events such as wedding receptions, parties, reunions, and the like – may operate in dangerous conditions lacking adequate fire precautions for the patrons and lacking the structural integrity to ensure the safety of those patrons” because its use was “incident to the use of the land for agricultural purposes.” If “incident to the use of the land for agricultural purposes,” the barn would not be subject to Ohio Revised Code 3781.06.

The Court’s analysis for deciding whether the barn was “incident to the use of the land for agricultural purposes” is described in the 1969 case State v. Huffman from the Third District Court of Appeals. The use of the barn must be “directly and immediately” related to agricultural use and either “usually or naturally and inseparably” dependent upon agricultural use. The Court found the entire building needed to be considered, and the agricultural exemption did not apply “in the context of the risk to sanitation and safety of the guests.”

The Common Pleas Court found the barn was “not exempt from regulations by the Stark County Building Department…. The Barn was not ‘incident to the agricultural use of the land’ but used for event purposes close to 18 years and was promoted on a website as an event and wedding venue.”

The Court specifically noted safety concerns, particularly the many combustible items stored in the barn, such as hay and straw, exposed wood and timbers, grain, kerosene fuel cans, gasoline- and diesel-powered implements, acetylene and oxygen tanks for welding. Safety concerns also included rodents, a refrigerator and ice maker in the same vicinity as drugs and chemicals for the animals.

Wrote the appeals court: “While we acknowledge that the prohibition on restriction of agricultural uses serves an important policy of encouraging agriculture, the trial court concluded, and we agree, that in the context of this case, the building and fire code serve the more pressing need to protect the health and safety of the public.”

VERIFY EMPLOYMENT ELIGIBILITY WHEN HIRING

Federal law requires all U.S. employers to use the U.S. Citizenship and Immigration Services Form I-9 to establish employment eligibility of each new employee. Form I-9 must be completed and signed no later than the first day of employment, but not before the new employee accepts a job offer.

The current form can be found at the following website link: https://www.uscis.gov/sites/default/files/document/forms/i-9-paper-version.pdf.
The current instructions for Form I-9 can be found at: https://www.uscis.gov/sites/default/files/document/forms/i-9instr.pdf.

The form contains a list of acceptable documents for establishing employment eligibility. The employer is responsible for making sure all parts of Form I-9 are properly completed. The employer should make copies of documents presented for the employer’s records.

The completed Form I-9s are not filed with the federal government. However, the employer must retain each completed Form I-9 for as long as the individual works for the employer and for a specified period after employment has ended. The specified retention periods are as follows:

Several federal government agencies are authorized to inspect Forms I-9 and copies of employees’ documents retained by the employer. Substantial penalties can be assessed against the employer for failure to have completed Forms I-9 for each employee, for improperly completed Forms I-9, and for unlawful discrimination, as well. For some violations, the penalties can include criminal fines and imprisonment.

WELCOME, ELI EARICH

We are pleased to welcome Eli Earich as a new employee. Eli graduated in May 2021 from Capital University Law School. He grew up in Pickaway County, Ohio, and is still heavily involved in his family’s Angus cow-calf operation.

Eli earned his B.S. in agricultural economics at the University of Kentucky, where he was actively involved in Alpha Gamma Rho fraternity and Block and Bridle. Prior to law school, Eli worked full time as a commodity merchandiser for Archer Daniels Midland in Des Moines, Iowa. While in law school, he has worked as a research fellow for the National Agricultural Law Center and spent time in Washington, D.C. as a Public Policy Law Clerk for the National Cattlemen’s Beef Association.

Eli strives to give back to agriculture through his involvement with trade groups and industry associations, such as the American Agricultural Law Association. After graduation, he intends to use his J.D. to advocate for agricultural interests in Ohio and across the country.

CONGRATULATIONS, TROY!

Congratulations to BECE Partner Troy Callicoat on being admitted as a member of the Michigan state bar. This will allow our firm to better serve clients located in Michigan. Troy has been a member of the Ohio bar since 2003 and is admitted to practice in federal courts in Ohio and Michigan.

UNDUE INFLUENCE CASE

Undue Influence Invalidates Last Will and Testament

It is not unusual for potential or actual heirs of a deceased person to be surprised or upset if they have been disinherited or their inheritance is not what they expected. In a case out of Huron County, Ohio, the trial court and then an appellate court enforced a jury verdict invalidating the last will and testament of Rita Rose Justi (“Rita”).

Rita had three daughters: Roberta, Pamela, and Bonnie. The last will and testament at issue in the case was dated October 23, 2014. Rita died on November 26, 2016. Rita’s husband and the father of the daughters died on September 1, 2013.

When both parents were alive, Pamela visited every day and helped her parents with various tasks. The parents’ condition was described as “feeble” during their final years. After the father’s death, Roberta started visiting more often. Roberta and Pamela didn’t get along, and eventually Rita moved into Roberta’s home. At trial, testimony was given that Roberta told Pamela to stay away from Rita at that point.

Eventually, Rita moved into a nursing home. Rita executed a new last will and testament, which named Roberta as her sole heir and disinherited Pamela and Bonnie. Rita, however, already suffered from dementia and a host of other problems at the time of execution of the new last will and testament.

While witnesses gave a mix of testimony at the jury trial, the jury found that the last will and testament was not valid. The probate court then issued a judgment entry invalidating the October 23, 2014 last will and testament.

While Rita had been diagnosed with dementia prior to execution of the last will and testament, she had not been legally declared mentally incompetent. The appellate court noted that “[t]he issue of competency is determined by reference to the mental condition of the testatrix at the time of execution of the will” and that “[i]ncompetency may be established by a lay witness who observed the mental state of the testatrix and could assess whether the person was of sound mind to make a testamentary disposition.” The appellate court, however, found that the trial court record did not contain “clear and convincing evidence that Rita lacked testamentary capacity.”

The appellate court did find sufficient evidence of “undue influence” to invalidate the will. In other words, enough evidence was provided for the jury to conclude that: (1) Rita was a susceptible party; (2) another (Roberta) had an opportunity to exert influence over Rita; (3) improper influence was exerted or attempted; and (4) evidence of the results showing the effect of such influence (i.e., Bonnie and Pamela were disinherited and Roberta became the sole beneficiary).

If you want a copy of the case (Yurkovich v. Kessler), call 614-210-1840 or send an email request to [email protected].

NEW CLIENT PORTAL AVAILABLE

BECE began using a new software platform for client contact information and management at the end of last year, and we continue to make use of more features available to clients. Many of you have experienced our new billing process. A few of you have begun to use our client portal to exchange documents back and forth in a more secure manner than ordinary email.

As you need to send documents to us or need copies of documents from your file, you may want our firm to set up this new feature for you. If so, please let us know, and we will send you an email with the link for setting up a username and password. We just need to know the email address to which you would like the link sent.

For those of you who have already set up client portals and need to re-access the portal, the web address is https://client.cosmolex.com/#/login. We also added a link to the login page on our Contacts page on our website immediately below our address and telephone number.

FARMLAND AND HISTORIC BARN PRESERVATION

barn

On September 26, 2020, more than 100 people, including the donor, a U.S. Congressman (Bob Gibbs of Ohio’s 7th District), other elected officials, Ashland County Park District officials, park district volunteers, and other friends and family, gathered as the Ashland County Park District held a dedication of its newest park, Avian Acres Farm Park.

Louaine Leisching, along with the unanimous support of her family, donated approximately 300 acres in Ashland County to be used as a public park with a working farm and public agricultural education facility. The extremely generous gift will preserve farmland, educate the public on farming practices, and provide an opportunity for the public to escape to the beautiful outdoor setting for recreation and enjoyment.

The Park District will continue to farm approximately 120 acres of cropland and will continue maple syrup production. The Park District expects to create miles of trails for hiking and horseback riding through 100 acres of woods, some of which include majestic great white oaks that could be as much as 300 to 400 years old. The new park also includes 80 acres of wetlands.

Unfortunately, Avian Acres Farm Park is not yet open to the public. The Park District needs to build a new access road and begin some of the planned enhancements of the property for public use. The Park District hopes to have an opening in 2021.

The centerpiece of much of the public education portion of the park will center around the historic barn. The oldest portion of the barn was constructed beginning in 1820 and is the oldest documented barn in Ashland County. The barn was later raised in the 1880s. The Park District plans to preserve the barn and continue farming. Part of its mission is to preserve our agricultural heritage.

ESTATE PLANNING UPDATES

The end of 2020 could bring a close to significant gifting opportunities depending on the results of the November 2020 elections. The federal applicable exclusion amount for both gift and estate tax is currently $11,580,000, with a 40% estate tax rate for any transfer that exceeds that exclusion amount. This exclusion amount is indexed for inflation each year and is set to reduce by half in 2026 if Congress does not enact any additional changes. However, some candidates for Congress and some members of Congress have proposed a reduction of the exclusion amount to $3,500,000 for estate tax purposes and $1,000,000 for gift tax purposes.

Joe Biden has proposed to repeal the step-up in basis (as part of his $4 trillion tax increase), with some commentators believing his plan would tax the unrealized capital gains on any transfer, including gifts, occurring during life or at death. This could create an additional layer of tax that does not normally apply at the time of gift or death. He also plans to almost double the tax rates on gains for those with income over $1,000,000 (20% to 39.6%). Most individuals reading this do not have over $1,000,000 of income annually, but an estate with a 200-acre farm that has appreciated $5,000 per acre over the last 20 years will have $1,000,000 worth of income in that hypothetical situation. Likely many of you reading this would face this situation with a farm, family business, or investment portfolios. Including the Obamacare tax, it appears those gains could be taxed for federal purposes at 23.8% and gain in excess of $1,000,000 at 43.4%.

Repeal of the step-up in basis has failed in the past because it is administratively cumbersome and expensive to administer. Most recently in 2010 when the estate tax was repealed, the government repealed the full basis step-up but provided a limited basis step-up for lower valued estates. Congress restored the full basis step-up (and the estate tax) for 2011.

The details of what might be enacted in 2021 are not known at this time, but this could be a good year to make large gifts before changes are enacted. The uncertainty for planning in 2020 is similar to the uncertainty we faced in 2010 and 2012. Significant gifts were made in those years, and that may be the case this year. If you have any desire to make gifts yet this year, we encourage you to not wait until the very end of the year to start the process. For example, you may want to get on the schedule of an appraiser so you know there will be time to complete the appraisal before the gift.

If you have any questions about gifting or estate planning, contact Russell Cunningham at [email protected].

CONGRATULATIONS TO GARY GEARHARDT

Congratulations to Larry Gearhardt on his selection as a 2020 inductee to the Ohio Agricultural Hall of Fame!

Larry serves of counsel at Barrett, Easterday, Cunningham and Eselgroth and volunteers with Ohio Northern University’s Agricultural Law program - the only one of its kind in Ohio and one which Gearhardt was a driving force in establishing.

You can find more information about Larry and his honor on the Ohio Agricultural Council’s website at: http://www.ohioagcouncil.org/hall-of-fame-inductees/. When you go to the website, you also can link to the Hall of Fame video featuring Larry.

COMING SOON: BECE OFFICE IN BISMARK, NORTH DAKOTA

As many of our clients know, BECE works with firms and local counsel throughout the U.S. on transactional and dispute resolution issues. Within the next several months, BECE will open a branch office in Bismarck, North Dakota. BECE Managing Partner David Barrett will be located in Bismarck and will remain involved in our Dublin office using all of the electronic communication methods now in place. More information will be posted on our website when the new office officially opens.

David devotes the majority of his practice to serving the needs of agribusiness clients (primarily grain, feed, and processing firms) throughout North America, including corporate governance, commercial transactions, commercial civil litigation, mediation and arbitration. He is a frequent speaker on agricultural contract and business legal issues at industry meetings throughout the U.S.

David is admitted to practice in all state and federal courts in North Dakota and Ohio, along with federal courts throughout the U.S. including the U.S. Supreme Court. He also has been appointed by the U.S. Surface Transportation Board to its 11-member Roster of Arbitrators eligible to address rail rate and practice complaints.

DID YOU KNOW

Ohio law requires that all leases exceeding three years be both signed and notarized to be enforceable. Long-term leases often are recorded as well to protect the tenant should the landlord die (if an individual), cease to exist (if an entity), or should the property be transferred to someone else during the lease term. The parties often agree to record a summary memorandum of lease rather than the full lease.

Leases of three years or less generally are enforceable without notarization, but it is still a good practice to have a well-written and properly executed lease regardless of the length of the lease term.

Contact us if you have questions or need assistance with agricultural or other business leases.

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