Margrave Celmins, P.C. Scottsdale, AZ
November 2016 Bimonthly Newsletter
 
 
 
Route 66 celebrates its 90th anniversary in November. This photo was taken of an old gas station along Route 66 in Arizona (read more in an historical recap below)

Ah, temps have finally come down, allowing everyone to get outdoors more comfortably. Maybe you can go on a Fall exploration and find parts of the old Route 66. Be sure to read Lat’s article on an update of his “Defense of Serial Arizona ADA Lawsuits,” as well as our main article by Laura about IRS regulations on business valuations.

One of our photos this month features Michael Margrave with Warren Lucas in Winslow, AZ. Another photo features Lat in the Margrave Celmins theater box at the Talking Stick Resort Arena and its identifying marker. If you are the winner of one of our lotteries for concert or sports tickets, please take a photo and email it to me with the names of the persons pictured. I’ll be happy to run it in our newsletter.

Get ready for holiday madness and enjoy our lovely weather.

Patty Copeland, Editor
pcopeland@mclawfirm.com
 
 
 
A significant portion of Route 66 still runs through Arizona

U. S. Route 66, the Main Street of America, was one of the original highways within the U.S. Highway System. Established November 11, 1926, Route 66 covered a total of 2,448 miles (401 miles in Arizona) and ran from Chicago to Santa Monica. It became known in pop culture by both the hit song (Get Your Kicks on) “Route 66” and the 1960s television series Route 66.

U.S. 66 served as a major path for those who migrated west, especially during the Dust Bowl of the 1930s, and the road supported the economies of the communities through which it passed. U. S. 66 underwent many improvement and realignments over its lifetime and was officially removed from the U. S. Highway System in 1985, having been replaced in its entirety by segments of the Interstate Highway System.

Portions of the road that passed through Illinois, Missouri, New Mexico and Arizona have been designated a National Scenic Byway with the name “Historic Route 66,” which is returning to some maps. Much of the original route and alternate alignments are still drivable with careful planning. In Arizona, a significant portion of Historic Route 66 runs in and near Flagstaff, and from Seligman to Kingman via Peach Springs, and Winslow.

The first Route 66 associations were founded in Arizona in 1987 and other U. S. Route 66 states soon followed. The National Museum of American History in Washington, D.C. has a section on U. S. Route 66 in its “America on the Move” exhibition.
 
 
Attorney Spotlight
 
 
Taken at the 11th Annual Standin’ on The Corner Festival in Winslow, AZ. Right to left: Warren Lucas, Michael Margrave and an unidentified friend of Warren Lucas
 
 
Lat Celmins in the Margrave Celmins theater box at the Talking Stick Resort Arena
and its identifying marker
 
 
Lat Celmins with clients taken at an annual golf outing in the White Mountains
 
 
 
IMPACT OF PROPOSED REGULATION CHANGES TO SECTION 2704
AND BUSINESS VALUATION DISCOUNTS
 
On August 2, 2016, the IRS introduced proposed regulations that would “close a tax loophole that certain tax payers have long used to understate the fair market value of their assets for estate and gift purposes” according to Mark Mazur of the Treasury Department. Specifically, the proposed regulations would impact the valuation discounts of fractional or restricted ownership interest in family owned business entities for gift, estate and generation-skipping transfer tax purposes.

BACKGROUND

           Section 2704 was originally enacted in 1990 as part of Chapter 14 of the Internal Revenue Code. The intent of enacting Section 2704 was to limit discounts for certain transfers of ownership interests in business entities between family members.

           Currently, Section 2704(a) treats certain lapses of voting or liquidation rights as deemed transfers if the family controls the entity both before and after the lapse.  Section 2704(b) provides that any “applicable restriction” is disregarded in valuing an interest in a corporation or partnership that is transferred to a family member if (i) the transferor and the family members control the entity, such as a restriction that effectively limits the ability to liquate a business entity; or (ii) lapses, either entirely or partially, after the transfer or can be removed by the transferor or family member. However, an “applicable restriction” does not include any restriction imposed, or required to be imposed, by Federal or State law. This Regulation exception means that default restrictions on the ability of an owner to withdraw from an entity could be considered for valuation purposes and would not be disregarded, even though the family members could have overridden those restrictions in the governing documents.  Many states have adopted statutes that provide for a default rule that restricts a limited partner or member to liquidate and thereby circumventing Section 2704(b).

PROPOSED CHANGES
The proposed regulations would:
 
1.     Expand Covered Business Entities: Expand the business entities covered to include corporations, partnerships, limited liability companies and other entities and business arrangements.
  2.     Three-Year Look-back: Treat as an additional transfer the lapse of voting and liquidation rights for transfers made within three years of transferor’s death;
3.     Assignees: Eliminate any discount based on the transferee’s status as an assignee;
4.     Unrelated Owners: Disregard the ability of a non-family owner’s ability to block the removal of covered restrictions unless the non-family owner has (a) held the interest for more than three years, (b) owns a substantial interest in the business entity, and (c) has the right to be redeemed or bought out; and
5.     State Law Default Restriction: Disregard restrictions under State law in determining the fair market value of the transferred interest.
 
IMPACT ON TAXPAYERS

If the final regulation is similar to the proposed regulation, many taxpayers whose succession plans include the transfer of ownership interest in a family owned business will have lost a valuable tax saving tool. If you are considering transferring an interest in your business to a family member, you may want to consider making such transfer before the year ends. However, there is no guarantee that such gift would be exempt from the proposed three-year look-back. You should speak with an estate planning attorney before making any final decisions.

Laura M. Trumillo
ltrujillo@mclawfirm.com
480-994-2000
 
 
 
 
DEFENSE OF SERIAL ARIZONA ADA LAWSUITS UPDATE
 
In an update of a blog posted August 29, 2016, I can report the following on the progress of these lawsuits. This office represents a number of property owners who have been targets of litigation by Advocates for Individuals with Disabilities Foundation, Inc. (“AID”) for the property owners’ alleged violations of federal and Arizona American Disabilities Acts (“ADA”). The lawsuits relate to technical parking and parking sign issues: (1) the requirement that handicapped signs must be at least 60 inches above the ground; (2) the parking spots must be van accessible and properly signed; and (3) the international handicap icon signage must be on the sign. These requirements became effective in 2010 as a result of rules being adopted by the Federal government. Properties constructed before 2010, while complaint with the earlier ADA requirements, may now not be compliant with the 2010 requirements, thus subjecting property owners to risk.

There are approximately 1200 AID cases pending in Maricopa Count. The Arizona Attorney General has intervened in these cases and has filed a motion to consolidate the cases and stay further actions. As a result of those motions and the positions taken by individual defendants, all of the cases have now been consolidated before Judge Talamante in Maricopa County Superior Court, who has issued a stay order, meaning that further actions by the Plaintiff against the defendant property owners are on hold until further notice of the Court.

Interestingly, a number of cases filed by the Plaintiff have been removed from state court to Federal court, where Federal Judges are looking askance at the Plaintiff’s claims. For instance, on October 13, 2016, U. S. Federal Judge Snow concluded that Plaintiff did not allege “a concrete and particularized” injury and therefore lacked standing, and sent the case back to state court for consideration as one of the consolidated cases.

It has been estimated that prior to the most recent wave of filings in 2016, Plaintff settled more than 300 cases with individual property owners paying approximately 1.2 million dollars in settlement. It is expected that the Arizona Attorney General’s office will soon file a motion to dismiss some or all of the cases due to lack of standing by Plaintiff and may even seek sanctions against Plaintiff and perhaps its counsel.

At this time because of Judge Talamante’s stay order, no further proceedings are required to be filed in any of the cases. The consolidated case will be monitored for further judicial developments.

Lat J. Celmins
lcelmins@mclawfirm.com
480-994-2000
 
 
 
 
 
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About Our Law Firm
 
Margrave Celmins is a member of LawPact®, which is an association of independent, business-oriented law firms in the U.S. and overseas. Currently, there are 53 member firms. This is a terrific resource for clients who have legal matters in other states and abroad. There are 32 states and 24 countries represented by member firms throughout Canada, Mexico, Central and South America, as well as Europe and India.
 
 
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This newsletter is for informational purposes only. Legal advice is provided only through a formal, written attorney/client relationship agreement.