Four Cornerstones for a New Year

I will be the first to say that 2013 was not my best year personally, professionally, or anywhere in between. I did not live up to my own expectations, which left me wallowing in my own disappointment on New Year’s Eve. I went to bed skeptical of 2014.

The first day of 2014 is now drawing to a close, and as I sat in a wonderful, steaming hot shower at the end of the day (because shower epiphanies are the best), I reflected on what I did this first day of the new year. My activities and the categories into which they fell took me back almost 20 years to my high school alma mater’s idea of what the foundation of its students’ (and graduates’) lives should be. And I had to smile.

So what did I do today? I started the day with work. I know that doesn’t sound ideal, considering it was New Year’s Day and my office was closed, but I’m a lawyer and we’re expected to work hard. Not only that, I’m the most junior partner at my law firm, which means I need to be the workhorse (sorry associates, making partner isn’t as glamorous as you may think!). I didn’t meet that expectation in 2013, so I was happy to be at my desk at 7:30 am, engrossed in a research project. I worked until 2 pm on various items, putting in a solid 6-7 hour day. I felt good to be kicking off the year with a solid contribution to my law firm, but I was also happy to be intellectually challenged by what I was working on. I’m shifting my practice focus just slightly this year, which will involve more study on my part, and I felt that today was a good start to that. That is scholarship.

I left the office just before 2 pm to head over to Kor180, which is the new spin/pilates reformer studio I joined. Their motto is “Be committed.” I’m trying. But today I did a 40 minute spin class, followed by 50 minutes of work on the reformer machines. It was incredibly hard work, but I felt great (between bouts of feeling like I might pass out or throw up). When all was said and done, I felt I had accomplished something good for my body. I’m looking forward to being committed to their regime of good fitness, diet, and rest. I joined the studio because I am training to run a half marathon in February, and needed something to balance out my running regime. I am committed to being good to my body in 2014, being strong, and showing my children that fitness is something they should embrace for its own sake. That is athletics.

After I was done killing myself at Kor180, I drove out to our property that we bought back in August. Who knows when we’ll build on it, but for now, it’s a fun place to take the kids to run in the woods, ride bikes in the cul-de-sac, and generally explore nature. So we invited our friends Mike and Jenny, and Shannan and Chris, and their children, out for a picnic dinner, mimosas, and street races on bikes, scooters, tricycles, and plasma cars (for the kids, of course). I have known Mike since elementary school, and we reconnected a few years ago when I discovered he also lived in Austin. Shannan and Chris have been great friends of ours since our daughter was in preschool with their son, Jacob, when they were both 2 years old. While we were there, we saw some of our new future neighbors a few houses down, playing in the front yard with their kids. Not ones to be shy, Kenny and I went up and introduced ourselves and invited them to our little street party. Turns out they have a little girl who is our daughter’s age, and a little boy who is our son’s age, and a 1-year-old boy to boot. Our children became instant friends. I sat there surrounded by friends and my children’s friends, old and new and very new, and just soaked it in. It was almost too much to bear–past, present, and future were all there in one cul-de-sac, laughing and talking. My friends help make up the bedrock of my life. I love them dearly. They reflect my actions and attitudes, strengths and weaknesses, which makes me strive to be a better person. That is character.

The only thing that wasn’t highlighted today, but which I think about every day anyway, are my little “projects” that I engage in. Right now I have three. One is just an indulgence in my own desire to connect people. I’ve created a very, very small networking group with my friends Karen and Noa. Karen is a marketing executive at a very large asset management firm, and Noa owns a successful real estate brokerage firm. We each have our tentacles into different groups of highly successful women in Austin, so I figured what better way to facilitate people meeting and deriving value from networking connections than to start a dinner club! So the three of us have a monthly dinner, and invite a different friend each time, for a total dining party of 6. We eat and drink over the course of 3 hours, and the idea is that everyone makes a deeper connection with the others at the table than they would had they met at a traditional networking event. So far it has been a great success, and I look forward to how it unfolds in the new year.

My second project is focused on law students and helping them navigate the new, post-2008 legal environment. I often wonder if our generation will be as impacted by the 2008 financial crisis as our grandparents were by the Great Depression. Time will tell, but I will say that the legal job market has been forever changed. Gone are the days of large percentages of University of Texas law students being hired by large law firms at ridiculously high starting salaries. The new normal is an expectation that you may need to hang your own shingle as soon as those bar results come in. So I’m currently working on a curriculum, not sure if it’s for law students or immediately recent graduates, but its aim is to help them navigate the real world of getting a job, working as a lawyer, developing business, keeping clients happy, what to do when you screw up, managing administrative issues, and generally understanding how the various law firm business models work. I want to give them all of the little secrets I had to sort of figure out on my own. I want to help them understand the business of law and the practice of law, so that they can better help themselves and our community. I have some lawyer friends from various corners of the practice waiting to help out with this one. I’m excited about it!

Finally, my last project is the women in tech/women in entrepreneurship initiative. I live in Austin, which is a hotbed of tech entrepreneurship. But despite the welcoming reputation of our city, every tech/entrepreneurship event I attend is dominated by men. I am frequently one of the few women in the room, which is frustrating. I suspect this is an issue with multiple facets, one of which is the lack of female mentors. I hope to create a pipeline that connects aspiring and practicing female tech entrepreneurs with women who have soldiered a path in the Austin tech community. I hope to start this initiative in earnest in 2014. I have a plan and people. I just need the time.

Austin has given me much. My clients have given me much. I want to return the favor by making our community a better place. That is courtesy.

Scholarship, athletics, character, and courtesy. Four cornerstones I will admit I have not given focused thought to for 20 years. However, they are most definitely still relevant 20 years later as I try to balance my life in 2014. I often thank Hockaday for where I am in life; for shaping me from an awkward 12-year-old girl who only wanted to be a ballerina, to the wife, mother, lawyer, and citizen I am today. I thank Hockaday for the connections and friendships I have made and maintained. And now I have one more reason to thank Hockaday: without even realizing it (until today), I am trying to balance my life according to the Four Cornerstones. Thank you Ela Hockaday–you have given generations of women the tools with which to succeed in life and, most importantly, to make the world a better place.

My heart swells with this first day of 2014. I spent it engaged in everything I love. I spent it with cherished friends, and I made new friends. I read comic books with my daughter after tucking my son into bed. When I tucked my girl in, she said, “Mommy, I love you more than I did yesterday and less than I will tomorrow.” Wow. And now I’m sitting here on my couch, feet perched in my husband’s lap as we talk (and I type) and share a pastrami and brie sandwich. I have a blessed life, even when its out of balance. But thank you Hockaday, for giving me the road map to rebalance it. I will add that to the list of things I will be eternally grateful for that have come out of that school.

Happy New Year.  May your 2014 be balanced and blessed.

Where Are The Women in Tech?

I’m a tax/transactional attorney, and I represent a fair number of young Austin companies and entrepreneurs, with several in the tech industry.  All of my clients are men, and while they are all fantastic clients, entrepreneurs, and just people in general, I totally bothered by the fact that they’re all men. At any Austin technology entrepreneurship event that I attend, the room is filled with men.  I am usually one of a handful of women, if even that.  I know it is like this in other tech hubs as well—I was at a technology investment conference in LA a few months ago, and the scenario was the same: me, and a room full of dudes. While this makes business development fabulously easy for me, I don’t like it and I want to figure out how to encourage girls not only to pursue careers in technology, but also to be leaders in that industry.

I think this is so important because people with skills in programming and other high-tech, computer science- and engineering-related fields are the ones who are shaping our world.  I heard an interview on NPR the other day with Maria Klawe, the president of Harvey Mudd College, and she made the same point. Her big concern is that women are not really part of that process right now because they’re not engaged in pursuing programming, engineering, etc. as a career, and she points to our education system as one of the factors in that (there are obviously others as well).  She is taking actions at Harvey Mudd to address the education component that I thought were very interesting, like changing the structure of their introductory computer science classes to accommodate people who might not have had the pre-college exposure to programming that some of the students (mostly boys) came to college with.

There’s another problem that I see with the Austin tech community that I think is even bigger than the education one, and that is the lack of female mentors. This addresses the other issue that young women in the tech sector still (unbelievably) face, and that is hearing others tell them, although perhaps not directly, that this is a man’s field. Plus, there’s just the intimidation factor of being one of the few women in such a male-dominated space. This is apparent not only in the work space, but also at industry events like the conference I attended. In fact, I was just looking at a picture that someone tweeted from Capital Factory, an Austin-based tech start-up incubator, ahead of Obama’s visit there this afternoon, and I spotted maybe one woman in a SEA of men. This just drove the point home.  I think that establishing a good mentorship program that connects women tech entrepreneurs or aspiring entrepreneurs, including (and perhaps most importantly) college and high school women, with female mentors who have already started cutting a path through the tech communities could be encouraging to women in not only pursuing goals of getting a degree in a high-tech field like CS, but also taking the leap and leading a company in that industry if they’re so inclined, so that women are part of the momentum that’s happening in the tech industry.

Last, but certainly not least, there’s the issue of who makes up the partners and investment committees of the venture capital firms and other funding sources to which tech entrepreneurs turn when trying to raise a funding round.  I did a search of about 10 Austin venture firms a while back, and only ONE had any female partners (2 of the 4 partners were women).  The other 9 firms I searched had only male partners and investment committee members.  In the opinion of some, that leads to discrimination against female entrepreneurs (read this article by Vivek Wadhwa: http://www.pbs.org/newshour/rundown/2013/03/silicon-valley-discriminates-against-women-even-if-theyre-better.html). I can’t speak to that first hand, since all of my clients are men, but it doesn’t seem farfetched.  Even at the angel investor level, most of the players are men.  I’m not sure what to do about this prong of the problem short of lobbying VC firms to hire more women, but I’m still thinking about this.

So you may be able to see where I’m going with this now. It’s almost a supply-chain issue. We don’t have enough girls pursuing education in high-tech fields, and those that do are up against an extremely male-dominated field where they’re getting messages that it’s not a field for women. Assuming they get the education, then they find themselves in an industry that is entirely dominated by men from the employee level up through the guys who are funding these companies. It’s hard enough to just stay afloat in that environment, much less be a leader in it (i.e., found a company).

I want to put something together at the entrepreneur/investor/mentor level (i.e., women who are already out of school and are working), starting in Austin, that will give these women founders the tools to make their companies work, and then work down from there to university students in high-tech programs (starting with UT), and then hopefully bringing in elementary and secondary education. I would love for my alma mater, Hockaday, to be a part of that process when the time comes, and also the Girls School of Austin and the Ann Richards School.  There are a few female entrepreneur/female mentor programs out there (Women 2.0 comes to mind), but they only try to fix the problem at the entrepreneur/company level.  That is obviously important, but I think coming up with something that is more vertically integrated with education all the way down to the beginning—somewhere in elementary school perhaps— and certainly something that’s more local, could have a potent impact on the issue.

I just think it’s so important that women be part of this technology process that’s shaping our lives, but I see the barriers. I want to figure out a way to move them. If you have thoughts, ideas, want to help, please drop a line.

“Unless this works, I’m against it.”

In Sunday’s Mad Men episode, Ted’s partner quips, in response to Don and Ted’s seemingly-crazy plan to combine their agencies in order to win the Chevy account, “Unless this works, I’m against it.”

That phrase, and the context in which it was uttered, is a perfect microcosmic view into the relationship many attorneys have with their clients. Our job is to be the skeptic, to be risk-averse, to spot trouble coming from 10,000 miles away and lay the groundwork today to keep the client out of it down the road.  For most lawyers, this comes naturally. For those to whom it doesn’t, they either left law early on or this tendency was beat out of them in law school or in their first few years of practice.  Of course, you don’t want a lawyer who is too far in the other direction, either. You don’t want to be stuck with the lawyer who is so “creative” that he can’t even spot the risks in order to point them out to the client.

I had an experience with a client yesterday that caused me to reflect on the delicate balance that must be struck in order to be effective but not stifling. This particular client is in the finance industry. To say he is intelligent is an understatement. One of the reasons I was brought into the representation was that he wanted to do some tax structuring around an investment he is making into a fund, and the situation has some hair on it from a tax perspective.  When he came to us with what he wanted to do, I was skeptical that we could it to the full extent he wanted it done. It seemed like we’d have to work some serious tax magic, and I had my doubts.  We worked through several iterations of ideas before landing on one that we thought could work.  When we presented the structure to him, he had a series of questions and hypotheticals that really pushed the bounds of what we could do for him while still keeping him kosher from a tax perspective, but we addressed each one and explained why we needed to push back a bit on what he was requesting.

At the end of the day, we did not achieve what he set out for initially (looking to completely avoid tax on the investment income), but we ended up with a creative plan that I think will achieve the best result possible for him.  The thinking was definitely creative, and it involved a collaborative process between us and the client, rather than just us hearing an aggressive goal from the client and telling him it can’t be done, or coming to him with a solution so conservative that he ends up leaving a lot on the table.

A good lawyer is one who keeps a client out of trouble. A great lawyer is one who thinks creatively and collaboratively about solutions, and stays open to ideas that they think at first might not work. I felt like we were great lawyers here, and that felt good.

Why I love what I do

I love what I do.

I don’t love practicing law. I really don’t love parsing through a 100-page document to find every instance of a particular phrase that needs to be changed because the client has changed their mind on something, and that change ripples through the entire document (and the other four documents that are related to that one).  So let me rephrase: I really, really don’t love parsing through 250+ pages of several documents to find each instance of a phrase–that is slightly different in each document–that needs to be changed to reflect someone’s change of heart. Things like that are by far the most difficult and unnatural aspect of my job.

I don’t love business development for the sake of business development. Yeah, it’s really fun to put some effort into developing a new client and then watch that effort bear fruit in the form of large or steady fees coming in the door. It makes me feel good to know someone has met me, and is impressed enough to send business my way. But for every hit, there are also misses, and that can be frustrating. Someone once told me, “You have to kiss a lot of frogs…”

I don’t love that moment where I solve a complex issue that I’ve been gnawing on.  Ok, I lied. Yeah, I do love that part. But those moments are few and far between. Most of what I do from a technical perspective is fairly repetitive and draws on the same basic knowledge that I’ve gathered over the years and use day in and day out.

So what keeps me coming back? I love my clients and I love helping them, whether that help comes in legal or non-legal form. I love to connect with people, to listen to their story of what they’re doing or trying to do, and then to do whatever is in my power to move them forward. Part of this process involves meeting many other people who will never become clients of mine, but who may have something else of value to offer.

I am fortunate to have cultivated a collection of clients in whom I truly believe, whether I believe in their business or in them individually, or both. The vast majority of my clients have built or are in the process of building a business.  They have phenomenal vision. I love seeing that vision, and then turning my focus on what I can do to support them and it. Usually it’s something legal–they have some hurdle they need to overcome that I can help with, or they need help dealing with another person in the course of running or forming their business. But many times it’s just putting them in touch with someone else who has the specific knowledge, skill set, connection, or whatever other thing it is that they need to fill a gap or move them forward. And I get such satisfaction out of making that connection for them. Satisfaction is actually a vast understatement–I find it irresistible. When it turns out well, I feel like I’m the one who just made the gain. Sometimes it’s a bust, and one party doesn’t have what the other one needs.  But sometimes it works out in the most amazing ways for everyone.  I live for that moment.  And that’s why I love what I do–I get the opportunity to lift people up in whatever small way that I can.  And that may not involve practicing law at all.

 

Worker Misclassification: When your peeps are YOUR peeps

My friend Ben Dyer over at TechDrawl.com recently tweeted this link about classifying exempt vs. non-exempt employees: http://www.trinet.com/hub/industry_articles/exempt_vs_nonexempt.htm  It’s a good post, and hits at some very important issues relevant to any employer out there, so I recommend you take a look.

As I was reading that post, I thought about a case I recently worked on dealing with worker classification of a different sort: employees vs. independent contractors.  While this classification issue applies to all employers, it is particularly relevant to the technology industry due to the “cultural” norms of that industry.  I’ll explain what I mean by that in a bit…

First, a crash course in worker classification.  Generally speaking in the realm of tax, there are two categories of workers: employees and independent contractors (excluding business owners who are workers, of course). An employee’s compensation income is reported on a W-2, which they receive from their employer. Their federal and state income taxes are withheld by the employer, and the employer pays one half of the employee’s payroll taxes (FICA/FUTA), and the employee pays the other half (through withholding by the employer).

Independent contractors’ compensation is reported on a Form 1099.  The independent contractor is responsible for payment of 100% of his payroll taxes, and no income tax or payroll tax is withheld by the employer.  At the end of the day, employers generally like independent contractors because the employer does not have to pay its share of the worker’s payroll taxes, thus saving the employer some money. Some workers prefer to be independent contractors because they can deduct more business-related expenses than can a W-2 employee.

How do you tell an employee from an independent contractor? It’s all about control. From the IRS’s website:

In determining whether the person providing service is an employee or an independent contractor, all information that provides evidence of the degree of control and independence must be considered.

Common Law Rules

Facts that provide evidence of the degree of control and independence fall into three categories:

  1. Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
  2. Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
  3. Type of Relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must weigh all these factors when determining whether a worker is an employee or independent contractor. Some factors may indicate that the worker is an employee, while other factors indicate that the worker is an independent contractor. There is no “magic” or set number of factors that “makes” the worker an employee or an independent contractor, and no one factor stands alone in making this determination. Also, factors which are relevant in one situation may not be relevant in another.

The keys are to look at the entire relationship, consider the degree or extent of the right to direct and control, and finally, to document each of the factors used in coming up with the determination.

There is also a 20-factor test that is considered.  It’s too lengthy to include here, but here’s a nice compilation from the U.S. Chamber of Commerce: http://www.uschambersmallbusinessnation.com/toolkits/guide/P07_1115

So you might be wondering why I singled out the tech industry in this post? Well, it turns out that this industry is a repeat offender in the realm of worker misclassification, and the IRS knows this.  There may be other reasons why this is the case, but there are two factors that I’ve seen that lead to this: (1) what I’ll call “classification creep” and (2) developer/programmer demands.

Here’s an example of “classification creep”:  Hot Austin start-up Hoodiesnbeer.ly needs developers to work on their app that helps users select a beer based on the hoodie the user is wearing (“Brews based on the hoodie you use!”). HnB.ly just needs someone to put something basic together for them, and it’s really just a one-off app project.  They hire Joe Coder to do it. Joe works from his house, on his own equipment, on this one project, and he works on it any way he pleases.  His only direction from HnB.ly is to build an app that works the way they want it to, and that it be completed (relatively) on time. Joe has other clients, and he continues to work on their projects as well. Joe is clearly an independent contractor in this case.

The HnB.ly app is a tremendous success, and beer companies all over Texas are contacting HnB.ly to develop other similar products. The business grows, new products are dreamed up. Joe is tapped to provide the development work. He does so, although he’s subject to a bit more supervision from HnB.ly’s new product designer. He still works from home, and still uses his own equipment. However, the product designer is telling him to develop the new products in a specific way. It’s no longer totally up to Joe. Joe has less time to work on other clients’ work, so he isn’t really soliciting new clients at the moment. Is he still an independent contractor? Maybe.

A year later, Joe is now working full time for HnB.ly. He pulled his marketing listings advertising his services because he just doesn’t have time to take on new clients. He has an office at HnB.ly, although he still has the freedom to work from home. The founders of HnB.ly actively seek his input into new product ideas and development. For all intents and purposes (and certainly the IRS’s), Joe is likely an employee of the W-2 variety.

That, my friends, is classification creep.

Developer demands also drive worker classification, although to a lesser extent.  Being the awesome hotbed of tech innovation that Austin is, you can’t walk down the street without running into a developer. In fact, one just moved in next door to me. They’re everywhere.  But, while they might be plentiful, most are spoken for. Developer shortage = developers calling the shots (although not necessarily in an obvious way). This particular issue is what lead to my client winding up in the misclassification soup.  They had started by hiring developers through a tech recruiting agency. Those developers were all independent contractors at first. They had their own LLCs that were directly contracted with my client. After time, however, classification creep set in and they really looked more like employees, even though the client was still 1099ing them. The client wanted to move them over to employee status because she knew they were classified incorrectly, but that would require paying them less and therefore not being as competitive compensation-wise compared to what the developer could earn just making one-off apps for people (she felt she could justify higher IC compensation to her board, but not such high employee salaries, even though the dollars out would have been the same). Additionally, becoming employees meant that these workers could no longer dip into the much deeper pool of deductions available to the self-employed.  Needless to say, there was resistance on the part of these workers to converting to employee status. To make matters worse, my client’s company didn’t have any employee benefit plans to lure them in with. She was very worried that if she required them to be employees, they would just leave.  So the company chugged along this way until the CEO just got too worried about it to ignore it any longer.

Here’s a very important point: just because you hired your independent contractors via a recruiting agency, you are not off the hook.  You might even be paying them through the recruiting agency (you pay recruiting agency, recruiting agency pays contractor). Regardless of this arrangement, they still might be your employee, and if that’s the case, you, not the recruiting agency, will be responsible for their employment taxes.

So what happens if you misclassify your workers? For starters, let me scare the pants off of you: starting back in 2011, the IRS embarked on a audit free-for-all whereby they are randomly auditing 6000 businesses for worker classification issues.  They’re still doing it in 2013.

Ok, put your pants back on.  There is still hope for you if you think you’ve misclassified your workers. The IRS has three different programs to take some of the sting out of coming clean and properly classifying your workers (the sting being payment of ALL employment taxes you should have paid in past years, plus penalties and interest on those amounts).  Just warning you, it’s going to get a little bit lawerly while I describe these programs.  If you want to skip the lawyerly stuff, here’s the quick and dirty:

Section 530 relief= holy grail of audit relief. No taxpayer liability. Get it if you can. Eligibility requirements apply.

Classification Settlement Program= settle your audit and pay just 25% of one year employment tax liability. No penalties. Eligibility requirements apply.

Voluntary Classification Settlement Program= beat the IRS to it and come clean. Settle at 10% prior year’s employment tax liability, no penalties or interest. Eligibility requirements apply.

Keep reading if you want the legal details on these programs…

The first program is the holy grail of employment misclassification relief: Section 530 relief. If a company is under audit and qualifies for Section 530 relief, the IRS may not assess any back employment taxes, penalties, or interest against the company, and the IRS cannot obligate the company to reclassify the workers in question on a go-forward basis.

To qualify for Section 530 relief:

  1.  The company must have timely filed 1099’s for all workers at issue
  2.  The company must have treated other workers holding substantially similar positions as independent contractors as well
  3.   The company must have a reasonable basis for treating the worker as an independent contractor
    1. Reasonable basis includes:
      1. Reliance on court decisions, published IRS rulings, private letter rulings for the specific company, or worker classification determination letters for the specific company (“SS-8s”);
      2. Past IRS audit in which no assessment attributable, for employment tax purposes, of workers holding positions substantially similar to workers at issue
      3. Recognized industry practice
      4. Some other “reasonable basis”

Note: Section 530 relief is not available for companies that offer recruiting or staffing services for technology workers such as software programmers.

If you don’t qualify for Section 530 relief, not to worry.  The IRS also offers a Classification Settlement Program:

  1. CSP can be offered by IRS following denial of Sec. 530 relief in audit context
  2. If 1099s filed timely, and substantive consistency in treatment of workers, taxpayer may pay 25% of one year of employment tax liability, determined under reduced rates in Section 3509 (10.28% up to the social security wage base, and 3.24% for amounts above).
  3. Terminates audit risk for prior years for employment taxes
  4. Interest may be waived
  5. Penalties waived
  6. Not required to reclassify until quarter following acceptance of CSP offer

For most taxpayers, the CSP is likely a better alternative to fighting the issue in court. If the taxpayer loses in tax court, they’re responsible for 3 years of back taxes, penalties and interest will apply; they will also face steep attorney fees.

If your misclassification issues are keeping you up at night, but you haven’t yet gotten the knock on the door from your friendly IRS agent, the IRS also offers a Voluntary Classification Settlement Program to ease your troubled mind.

Details:

  1. If 1099s have been filed timely, the taxpayer is not currently under employment tax audit, and taxpayer has consistently treated non-employee workers in the past, taxpayer may pay 10% of prior year’s employment tax liability, determined under reduced rates in Section 3509 (10.28% up to the social security wage base, and 3.24% for amounts above – roughly 1% of wages).
  2.  Penalties and interest are waived.
  3. Currently, there is some temporary expansion of eligibility for employers who might not have filed all of those pesky 1099s.
  4. Additionaly, the IRS has done away with the requirement that the employer extend the statute of limitations upon signing of the closing agreement.

Drawbacks:

  1.    Immediate reclassification of workers upon acceptance of settlement offer
  2.    Possibility of information sharing between IRS and Department of Labor
  3.     Possibly considered admission of liability for purposes other than federal taxes, i.e., state tax agency, DOL, plaintiff, etc.

So now you have the relevant information on worker classification and how to get out of the soup if you’ve done it wrong. If you’re worried about your status, or you’ve been contacted by IRS, call a knowledgeable tax attorney who can walk you through your options.

The taxing problem of inheritance in Downton Abbey

I curled up on the couch last night with my husband and a glass of wine, thoroughly excited to indulge in another exciting season of the award-winning PBS series “Downton Abbey” As usual, Maggie Smith’s biting remarks did not disappoint.

I found myself quickly sucked into the Crawleys’ money woes again, apparently brought about by some iron-fisted estate planning coupled with some bad investments (and possible breach of duties by a trustee in taking such a huge investment risk at the direction of Lord Grantham…but that’s for another post). The drama surrounding Cora’s fortune derives from a feature of property law that I have not thought about since my first year of law school–or possibly when studying for the bar exam–but since it’s such an integral part of the story (and isn’t explained all that well in Season 1), I thought I’d geek out and do a little post on it.

In the first season, viewers were introduced to the Crawley family the day after the sinking of the Titanic, and are told of the resulting death of the cousin whom the eldest Crawley daughter, Mary, was planning to marry. who went down with the ship. Much of the first season is built around The Right Honourable Robert Crawley, Earl of Grantham, and his wife, The Right Honourable Cora Crawley, Countess of Grantham, trying to find a suitable husband for their single daughters. However, this is about more than parents trying to meddle in their children’s lives. This is about the Crawley’s wanting the Grantham Estate to stay in the family. You see, the Grantham Estate was devised to Lady Grantham with a specific type of “fee tail,” and as a result, the estate can only pass to a male heir. Now that their sons are dead, the Crawleys have no male heir to inherit the estate. Consequently, because much of the Crawleys wealth is tied to their real estate, the Crawley’s realize if they can’t find a husband for their daughters, most of the family wealth will be taken from their daughter’s upon the parent’s death.

Even though the producers and writers have done a good job of developing the story, because fee tails are extremely rare in the United States (they were abolished most everywhere, and are only legal in 4 states – MA, ME, DE, and RI), much of the audience may be left wondering what a fee tail is, and how it could possibly require a male heir. Well, here’s your answer.

In the early thirteenth century, property transferred to “Adams, and the heirs of his body” was construed to grant something called a fee simple conditional. Generally speaking, this effectively gave a life estate to Adams if Adams had no heirs at the time of the transfer. Then, upon Adams’ death, if he never had children, the property reverted back to the person who transferred the property to Adams (known as the “devisor”). However, the minute Adams had a living heir, Adams was treated like he owned the property in fee simple – in other words, he had complete ownership rights and could do anything he wanted with the property. Once Adams died, the property passed to his heirs. However, courts required Adams’ heirs to be bound by any contract Adams entered regarding that property. As a result, even though the person who gave Adams the property clearly wanted Adams’ heirs to also benefit from the property and to be able to use it in whatever way they saw fit, this intent was defeated by Adams if he signed a contract allowing someone else to have use of the property after his death because Adams’ heirs were required to honor that contract too.

As a result, English Parliament passed a statute called “Westminster II” and created laws trying to destroy Adams’ ability to defeat the devisor’s intent. After the passage of Westminster II, the statute redefined what happens when the phrase “to Adams and the heirs of his body” is used. After the statute, the type of property rights construed by this language became known as a “fee tail” or “entail.” Effectively, after Westminster II, these words created a life estate in any living descendant of Adams, and prevented the estate from ever leaving the family so long as heirs of Adams were alive. The rights of Adams were similar to outright ownership, but were slightly limited in that Adams couldn’t cause the property to be bound to any use that would remain effective on his death. Because outright ownership was referred to as a “fee simple,” and because this was meant to be a restricted version of fee simple ownership, this type of property right became known as “entail” (property rights in fee simple had been entailed) or “fee tail.” As time went on, these devises were tailored to meet the desires of property owners. For example, one variation of the standard fee tail stated “to Adams and all the male heirs of his body.” As a result, if your family inherited property with this type of fee tail, you needed to produce a male heir in order to keep the property in your family. Without a male heir, the property went back to the original devisor. It appears this is the kind of ownership that was passed to the Crawley’s, and that’s why they are so concerned about getting one of their daughters married off!

Leadership

We are all in the midst of being inundated with talk of leadership, and what makes a good leader.  We are, after all, only a few weeks away from choosing America’s next leader.  As I examine my own thoughts about our two choices, Romney and Obama, I find myself reflecting back to the 2008 election and remembering (and I say this at the risk of putting my own political leanings too much on display here) how inspired I was by Obama and how hopeful I was that this was the individual who would illuminate a better path forward and help us through what was unfolding to become one of the biggest crises in our nation’s history.  Despite the arguments that we are no better off than we were four years ago, I still feel that way about Obama.  I want to feel that way about Romney, too, but so far I don’t, and I’m not sure I see that situation changing.

So what’s the difference between the two? I don’t honestly know with any certainty, but I’ve distilled one piece of it down to this: I am convinced that Obama’s style is to inspire others, be they in his government, or just us ordinary folks, to take responsibility and action.  To have an active role in formulating our own solutions to these problems. To take it upon ourselves to move forward.  His goal is to give us the tools to do that, and inspire us to take those next steps on our own.  With Romney, it’s not that he’s done the opposite of this, it’s just that he hasn’t convinced me that he’ll have a similar approach or at least one with a similar outcome.  I can’t get a sense of it by watching the debates or his speeches.  The jury is still out on him.

Leaving political leadership behind, what is leadership in the business world? I read lots of blogs and articles about start-ups and listen to people who are experienced founders of businesses talk about leadership and what it looks like in the corporate context.  From what I read and what I see in my clients who have or are still operating successful businesses, and from what I’ve seen in those that have failed, it doesn’t appear to be so different from what I see in Obama.  Leadership isn’t about the leader, it’s about those he or she is leading and plugging them into the collective vision.  I’ll never forget a conversation I had with a friend of mine shortly after this person was appointed as an officer of a start-up here in Austin.  This person was genuinely excited about the company and the people, but in musing about the responsibilities of the new position, they made a comment to the effect of “heavy is the head that wears the crown.”  They implied feeling burdened by their responsibilities to their employees, but the focus was very paternalistic. As if they were single-handedly responsible for feeding their employees’ families, and I think this person might have been focusing a bit too much on that type of power that may or may not exist in the role of a leader of an organization. It struck me as a very egocentric view of what it means have the leadership role that this person had.

I think its good for executives to have a sense of personal responsibility to their employees, but in the example I mentioned, this individual was one of several other founders, each of whom presumably had different, but complimentary, leadership roles, and each of whom I’m sure felt responsibility for the others in the organization. If the focus of someone’s leadership of others is his relationship to them on the corporate organizational chart, and his actions are driven by that focus, then a huge opportunity is being missed to push those individuals to be more to the organization as a whole.

Executing a vision will ultimately involve assigning tasks in a hierarchical manner in order to move the project forward, but it can’t be only that.  Sharing a vision will give meaning to those tasks, but I think that’s still not enough.  A successful leader, through some mechanism, inspires people to adopt that vision as their own, and in doing that, causes those individuals to take responsibility for their part in executing the vision, and works with them to figure out how to accomplish that. This is growth. Leadership is collective, not individual.  Whether it’s collective horizontally, among co-founders of a company, or vertically, between an executive and her employees, if, at the end of the day, the leader has sold others on the vision and given them the tools to execute their part, they are in it together, and they are better together.

Whitney Johnson published a piece in Harvard Business Review titled “If You Want to Lead, Read These 10 Books” (http://blogs.hbr.org/johnson/2012/10/if-you-want-to-lead-read-these.html) She has a great comment in that post, where she states that leading is not just growing your own abilities, but also the abilities of those who follow you.  That, in my opinion, epitomizes the “better together” point.  Leaders have to focus on not just their growth, but the growth of the others who they have brought into their shared vision.  Leadership is following through on that.