Insights and Developments in the Law
David E. Hoy - Attorney and Counselor at Law
SPRING
1999 TOPICS:
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Internet Use on the Job Widespread access to the Internet in the workplace has opened up worlds of information for employees and the companies for which they work. The downside is that it is also possible for online employees to create new legal headaches for employers. Numerous variations on this theme have already occurred. A supervisor accesses sexually explicit websites and then harasses a subordinate by passing on inappropriate material. An employee takes text or images from the Internet and puts them into his e-mail, unaware that federal copyright law prohibits alteration of copyrighted material, such as by removing the author's name or manipulating images. Someone with too much time on his hands becomes a chat room regular and one day the "chat" turns defamatory. A worker without much sense of his company's privacy puts sensitive information about his employer, or worse, trade secrets, into cyberspace. To minimize the inappropriate use of the Internet, to lay the groundwork for disciplinary action when an employee acts improperly, and to minimize exposure to liability, businesses should adopt clearly written policies on Internet access on company time. The details of such an Internet "acceptable use policy" should be tailored to the specific business, and care should be taken that legal requirements are met. A few ingredients are indispensable to any policy: (1) descriptions of what is acceptable and unacceptable use of the Internet; (2) a statement that the computer system belongs to the company and that employees have no privacy interest in the information passing through it; and (3) notice to employees that their e-mails and Internet use may be monitored. In short, there is a middle ground between the extremes of placing no restraints on employees and imposing a complete ban on all personal use of the Internet. An acceptable use policy can allow personal use within "reasonable limits," but specific limits will make enforcement easier and provide more protection for the employer. For example, the employer might prohibit chain e-mails because of the space they take up in the company's computer system. Warning employees about monitoring is especially important since people tend to assume that the activities on their computers are private. Also, since federal law prohibits interception of wire communications unless one party consents, any monitoring should be preceded by having the employee give written consent to it, or by having a message to the same effect appear on computer screens when employees log on. Technological advances that created the potential for problems may also help with the monitoring. Unusually large files could suggest inappropriate employee use of the Internet, as files containing graphics, video, or audio are often sizable. Filtering software can be used to screen or block access to websites with profanity or other language that is inappropriate to the workplace. |
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As with any type of insurance, the only way for a policyholder to know with some certainty what is and what is not covered by homeowners insurance is to examine closely all of the language in the policy. With that important caveat, it is possible to make some generalizations about coverage under a typical homeowners policy. Direct losses due to lightning, tornadoes, wind storms, and hail are usually covered. In other words, with the notable exceptions of floods and earthquakes, policies cover most natural disasters, or "Acts of God" as they are sometimes called. Commonly covered man-made losses include vandalism and theft. Even when there is protection against these perils, however, the insured person should be certain that any dollar limits on the amount of coverage for specific items correspond to the value of those items. For flood insurance, including protection against mudslides, a property owner will have to get separate flood insurance provided by the federal government. If property is flooded because of a broken plumbing or heating system in a house, there generally is coverage under a standard homeowners policy. Seepage of water from the ground into a basement, however, is considered a maintenance issue and is excluded from most policies. Stolen personal property is covered, even if it was located far from home at the time of the theft. Basic coverage only entitles the policyholder to the current value of the property. For additional money, however, a replacement cost endorsement for personal property will take care of the full replacement cost, less any deductible. Apprehension about being sued is as big an issue for many homeowners as repairing or replacing their own property. The typical policy will pay for damages caused by a homeowner's negligence, as well as the legal costs of defending the homeowner. If the standard $100,000 limit on liability protection is not enough to make the policyholder comfortable, a higher limit can be purchased. Even the most carefully drafted homeowners policy can leave room for different interpretations, resulting in litigation. For example, Bonnie hired a worker to do some ordinary maintenance on her home. When he jumped from a ladder onto the side porch of her home some support beams gave way on impact. Further inspection revealed extensive, although previously hidden, carpenter ant damage to the side porch, a front porch, and a garage. Bonnie's insurer denied coverage, except for damage in the area that had collapsed under the worker. The policy covered losses from hidden insects only if they involved the "collapse" of all or part of a structure. Bonnie argued that the term "collapse" was ambiguous enough that it should extend to any substantial impairment of a building's structural integrity. The court disagreed, reasoning that "[t]here are no degrees of collapse." The policy covered only a collapse, not an "imminent" collapse.
THE HOME OFFICE TAX DEDUCTION The Internal Revenue Service has issued new rules affecting the income tax deduction for the business use of a home. A "home" means a house, apartment, condominium, mobile home, or boat, including other structures on the property, but the term does not include any property used exclusively as a hotel or inn. The rules apply to individuals, trusts, estates, partnerships, and S corporations, but not to other corporations. Certain tests must be met to qualify for the home office deduction. Nature of the Use The use of the business part of the home must be exclusive, regular, and for a trade or business. "Exclusive use" means that a specific area of the home must be used only for business, not for personal purposes. The space does not need to be marked off from the rest of the home by a permanent partition, however. There are two exceptions to the exclusive-use requirement: storage of inventory or product samples for a wholesale or retail business located in the home; and operation of a day-care facility in part of the home. "Regular use" of part of the home as a business means that such use must be on a continuing basis, not occasional or incidental. The use of part of the home must be for a trade or business, not simply for any profit-seeking activity, such as working on personal investments. If the taxpayer uses part of the home for business in the capacity of an employee, the deduction is available only if two additional conditions are met. First, the business use must be for the convenience of the employer. Second, the taxpayer must not rent all or part of the home to the employer while using the rented portion to perform services as an employee. Nature of the Place To qualify for the deduction, part of the taxpayer's home devoted to business must be one of the following: the principal place of business; a place where the taxpayer normally meets or deals with patients, clients, or customers; or a structure not attached to the home that is used only for the trade or business. The primary consideration in determining whether a home office is a principal place of business is the nature and importance of the activities performed there, especially as compared with activities done elsewhere. If the relative importance of the activities does not clearly point to one location, the taxpayer should consider whether most of the time devoted to the business is spent at the home office. If it is, this weighs in favor of taking the deduction. New Rules Beginning in 1999, a home office will qualify as a principal place of business for deduction of expenses if it is used exclusively and regularly for administrative or management activities of the trade or business and if there is no other fixed location where the taxpayer conducts substantial administrative or management activities. Examples of such activities include billing, recordkeeping, ordering supplies, making appointments, and writing reports. The new rules make it easier to qualify for the deduction. Some circumstances that used to disqualify the home office as a principal place of business no longer do so. For example, without losing the deduction the taxpayer can: have others do administrative or management activities outside the home; conduct such activities at non-fixed locations, such as cars or hotel rooms; and even carry on such activities at fixed locations outside the home, but only occasionally. Also, the deduction will not be lost when the taxpayer chooses to use a home office despite having suitable space outside the home for business activities. If the home office is not the principal place of business, it may still qualify for the deduction if it is where the taxpayer meets with patients, clients, or customers in the normal course of business, and their use of the home office is substantial and integral to the conduct of the business. Sporadic telephone calls and occasional meetings at home will not satisfy this test. The third way for a home office to qualify is if it is a separate free-standing structure, such as a studio, garage, or barn, that is exclusively and regularly used for the business. Such a structure need not also be a principal place of business or a meeting place for patients, clients, or customers. Information and Readiness Disclosure Act President Clinton recently signed into law the Year 2000 Information and Readiness Disclosure Act (IRDA). The statute's broad purposes are to promote the disclosure and exchange of information related to Year 2000 (often referred to as Y2K) readiness, to assist consumers, businesses, and local governments in responding to Year 2000 problems, and to establish uniform legal principles concerning disclosure and exchange of Year 2000 information. Although a primary goal of the IRDA is the alleviation of concerns about litigation exposure that have inhibited the free flow of information, the law offers only limited protections. It also does not apply to actual failures that may arise from systems or devices that are unable to handle the change to the Year 2000. Since the IRDA is directed at information exchange between entities, it does not cover statements made to individual consumers in marketing products for personal use. Even within its intended sphere of coverage, the IRDA's protections are carefully tailored and are limited by exceptions and exclusions. To receive the full measure of the protections afforded by the IRDA, a company should clearly identify its communication of Year 2000 information as a "Year 2000 Readiness Disclosure." To this end, a company is well advised to adopt a policy requiring that all Year 2000 statements be coordinated and disseminated through a centralized point, so that the company speaks with one voice on the subject. A Year 2000 Readiness Disclosure will not be admissible in court against its maker to prove the accuracy or truth of any statements in it, except where the maker is being sued for repudiating a contract or where the maker's use of the readiness disclosure is in bad faith, fraudulent, or unreasonable. In addition, even if a company's Year 2000 statement is not labeled as a Year 2000 Readiness Disclosure, the IRDA generally shields the company from liability for any allegedly false, inaccurate, or misleading information in the statement. Since qualifying for protection under the IRDA brings only a limited level of security, companies should consider negotiating protection for themselves in contractual provisions. This may allow for more definite protection that is also more closely tailored to particular businesses. The IRDA does not diminish the ability of parties to enter into such agreements. Wetlands Regulation A federal appellate court has struck down a permit requirement for wetlands development that had been a major headache for many developers, including small landowners. The case has added significance because the court's injunction against the regulation was expressly given nationwide application. Under the Clean Water Act, the United States Army Corps of Engineers has the authority to require and issue permits for the "discharge" of dredged or fill materials into navigable waters at specified disposal sites. For purposes of the Act, "navigable waters" has been interpreted to include wetlands. "Wetlands," in turn, is basically defined to include areas that normally have enough surface or ground water to support vegetation suited to such conditions. Prior to 1993, the Corps operated under a regulation that required permits for the addition of dredged material into wetlands, but which expressly excluded de minimis, incidental soil movement that happens during normal earthmoving operations. In 1993, as part of a settlement of a case in which a developer sought to drain and clear 700 acres of wetlands, the Corps changed its regulation by dropping the de minimis exception and bringing within the permit process "any redeposit" of dredged material. A redeposit occurs whenever material moved from water is returned to it, including "fallback" of material that is virtually unavoidable for any excavation or dredging done in wetlands. What may have seemed like minor amendments to the rule at the time had far-reaching consequences. The combination of a broad definition of wetlands and the addition of incidental fallback to regulated conduct meant that a host of new activities were subject to the expensive and time-consuming process of getting the Corps' stamp of approval. Suddenly, federal permits were required for some previously unregulated activities, such as digging wells, removing trees and vegetation, creating drainage ditches, grading roads, and digging foundations. Trade associations whose members engage in dredging and excavation were able to topple the regulation, commonly known as the "Tulloch Rule," on the basis of an elementary principle of law. No regulation issued by an administrative body can exceed the reach of the statute under which it was created. When the Corps adopted the Tulloch Rule, it outran its authority derived from Congress in the Clean Water Act. The Act gave the Corps permitting authority over the "discharge" of material into wetlands, such as occurs when a landowner fills in a marsh to create a residential lot. In the court's view, no reasonable construction of "discharge" could include incidental fallback from earthmoving activities. In that situation there is, in fact, a net withdrawal of material from wetlands, not an addition. CHANGES IN THE FEDERAL ESTATE TAX EXCLUSION Year Exclusion 1999 $650,000 2000 & 2001 $675,000 2002 & 2003 $700,000 2004 $850,000 2005 $950,000 2006 $1,000,000 ESTATE PLANNING IRA Conversions As part of the passage of the Taxpayer Relief Act of 1997, Congress established a new type of individual retirement account, the Roth IRA. The traditional IRA has long been a popular way for an individual to save for retirement by contributing up to $2,000 of compensation per year to the IRA and deducting that amount from income. The contributions are taxed upon later distribution. The primary differences between a Roth IRA and the traditional IRA are that contributions to a Roth IRA are not deducted from income, but qualified distributions from a Roth IRA are not taxed as income. Unlike the case with a traditional IRA, contributions to a Roth IRA can be made after the owner has reached age 70 1/2. As is true with a traditional IRA, the assets of a Roth IRA grow tax free while they are held in the trust. A recent IRS advisory, known as an "interim guidance," has placed a limit on a maneuver that had provided taxpayers with flexibility in regard to converting a traditional IRA into a Roth IRA. Such a conversion, known as a rollover contribution to the Roth IRA, results in the tax liability that must normally be faced upon a distribution from a traditional IRA. The IRS, however, has allowed taxpayers to "unconvert" to the traditional IRA in order to lessen the tax impact where the value of the fund declined after the initial conversion to a Roth IRA. For instance, if the fund were worth $100,000 at the time of conversion to the Roth IRA, the tax would be paid on that amount. If the fund decreased in value to $80,000 following the conversion, however, the unconversion to a traditional IRA would erase the tax liability on the $100,000, and such liability would be on the lesser value, $80,000, upon a subsequent reconversion to a Roth IRA. No limit was placed on the number of unconversions/reconversions. Under the new guideline, however, a taxpayer will be allowed only one unconversion/reconversion to a Roth IRA in 1999. If the taxpayer's initial conversion to a Roth IRA occurred in 1999, he will still be allowed an unconversion/reconversion this year. The problem is that, with only one more opportunity for an unconversion/reconversion, it becomes difficult for the taxpayer to know when such action would be most beneficial. The luxury of unlimited unconversions/reconversions thus becomes a guessing game. |
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Actual resolution of legal issues depends upon many factors, including variations of facts and state laws. This web publication in not intended to provide legal advice for specific subjects, but rather to provide insight into legal developments and issues that we feel could be useful to our clients and friends. Do you have a question for the Lawyer? Use this contact form at: http://www.hoyweb.com/dh/contact.asp or if you live in the Chicagoland area call Mr. Hoy for a consultation at 1-708-386-8030. |
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