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What Is A Speculative Builder And How Can Speculative Builders Pay Lower Real Estate Development Taxes?

Posted Wednesday, November 29, 2017 by McKean J. Evans

Seattle is in a construction boom and many firms are engaged in large scale real estate construction projects. That often entails tax liability under Washington and Seattle sales tax and business and occupation (“B&O”) tax. But certain real estate developers may obtain a tax advantage by structuring their venture as a “Speculative Builder.”

Basically, an entity developing real estate the entity already owns may qualify as a Speculative Builder. Washington tax law provides a Speculative Builder owes no sales tax or B&O tax on the value of construction services performed on real property the Speculative Builder owns. This is in contrast to a conventional builder who constructs improvements on real property for consumers; such a builder pays B&O tax and must collect and remit sales tax. Depending on the nature of the construction work, operating as a Speculative Builder may reduce a real estate developer’s tax liability considerably.

This tax advantage only applies if the entity seeking to qualify as a Speculative Builder is the genuine, bona fide owner of the property being developed. The most obvious attribute of ownership is holding title to the property, so it is critical that any entity seeking Speculative Builder tax advantages obtain title to the property before construction begins. Additionally, Washington’s Department of Revenue applies a multi-factor test to determine whether a Speculative Builder’s ownership of property is bona fide. The factors are: (1) the parties’ intentions when the land was acquired; (2) who paid for the land; (3) who paid for improvements to the land; and (4) how all parties, including financiers, deal with the land.

This means that if a putative Speculative Builder’s ownership of property is a mere formality, with another entity retaining ownership of the property as a practical matter, the Department of Revenue may conclude that the would-be Speculative Builder does not genuinely own the land for tax purposes. Such a determination would deprive the entity of the Speculative Builder tax advantage. Similarly, the Speculative Builder tax advantage may not apply if the property being developed is transferred away from the putative Speculative Builder immediately after construction becomes complete. Further, selling the property in the midst of construction might disqualify the would-be Speculative Builder from the tax advantage.

Pivotal Law Group attorneys McKean Evans and Mike Larson advise Washington entities regarding business, construction and tax matters. Please contact Pivotal Law Group today for a free consultation.

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Happy Thanksgiving from Pivotal Law Group!

Posted Wednesday, November 22, 2017 by Christopher L. Thayer

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What to Expect When You’re Expecting To Make An Insurance Claim – A Cheat Sheet

Posted Wednesday, November 15, 2017 by McKean J. Evans

So you’ve had a loss – perhaps a tree fell on your house, your car was wrecked or you became injured or disabled – and it’s time to dust off that insurance policy to see if you’re covered. Maybe you already made a claim but your insurer denied it for reasons that don’t make sense – or, perhaps even more frustrating, the insurer refuses even tell you whether they’re going to pay your claim or not. Or maybe you’ve just recently purchased a policy and want to know your rights.

This cheat sheet is a list of some issues you may want to consider. It tells you (1) the basic information you need; (2) some of your basic rights under Washington law; and (3) some helpful tips and “best practices.”

This is only a summary – your rights and obligations depend on the specific circumstances. If you think you might have a claim or dispute involving insurance, it’s wise to consult a lawyer. Insurance is complex and it is easy to accidentally put yourself in a disadvantage or even lose your rights entirely.

Basic Information You Need

Do I Have The Policy Documents? The insurance policy is absolutely critical. It states your coverage, your rights, and the insurer’s rights. It likely includes provisions requiring you to take certain action – like notifying your insurer of a claim within a certain period of time – in order to preserve your rights.

Many people are surprised to learn that their declarations page, summary plan description, or brochure explaining their coverage isn’t the policy. An insurance policy virtually always consists of a collection of multiple separate documents. For instance, a life insurance policy might consist of an application, a policy contract, and several addenda, riders or attachments. There are often additional documents such as annual statements that are also critical to understanding your rights under the policy.

Did I Get The Policy Through My Employer? Insurance policies you acquired through or in connection with your employer are different from regular policies. Employer-related policies are subject to a federal law called the Employee Retirement Income Security Act (ERISA for short). ERISA can apply even if the policy was issued by an insurance company that’s not your employer, and even if your employer doesn’t pay your premium. ERISA is very different from the law governing normal insurance policies; it’s complex and imposes special rules and deadlines. If you think your policy might be subject to ERISA, it’s important to pay extra close attention and consult a qualified attorney.

Do I Have All The Facts? If you have a claim or think you might want to make a claim, it’s crucial you know the facts. Make sure you obtain all the documents that are potentially relevant. If it’s a health or disability claim, have all the relevant medical records. If it’s a car crash, have the police report.

Know Your Rights

Here are some of the basic rights you have as a Washington policyholder:You Have The Right To Be Treated Fairly. Washington law imposes a duty on insurers to act in “good faith.” Good faith generally means the insurer must treat you honestly, made decisions on your claim based on adequate information, and never put their interests over yours. Remember that policyholders also have to act in good faith, so be sure you’re always honest when dealing with your insurer.

You Have The Right To Have The Insurer Follow The Policy. The policy is a contract between you and the insurer. The insurer has to follow it. The insurer can’t try to re-write the policy after you make a claim.

You Have The Right To Prompt Claim Responses. Washington law requires your insurer to respond to your claim within a specific time – often ten days – and acknowledge that they received your claim. Beyond the initial claim, insurers generally have to respond to your communications about the claim in a reasonable time. The insurer must also tell you whether or not they will pay the claim within a reasonable time after you provide the documentation they need to made a decision.

You Have The Right To A Full Investigation. Insurers have to decide whether to pay claims based on a reasonable investigation. That means your insurer has to make a reasonable effort to look for evidence that’s relevant to your claim. They can’t just consider the evidence that supports denying the claim.

Best Practices

Below are some helpful best practices to keep in mind when dealing with a possible insurance claim.

Keep A Paper Trail. Make sure you document everything that’s relevant to the policy or your claim. It’s especially critical to document all your communications with the insurer or with third parties (doctors, mechanics, potential witnesses, etc.). Communicate via email or hard copy mail when practical. If you have a phone call or in-person meeting with an adjuster, take notes, then send them an email summarizing your understanding of the discussion and inviting them to correct you if they think you got it wrong. If you lose money or have other harm because your insurer isn’t doing what they’re supposed to, document it. If it’s not on paper, it never happened.

Cooperate With Reasonable Requests. If your insurer makes a reasonable request for information or similar assistance with your claim, comply promptly. Remember you have a duty to act in good faith, and your policy may affirmatively require you to cooperate in making a claim. That doesn’t mean bending over backwards, but you should comply with reasonable requests. If you wind up in court, you want to be sure that it’s your insurer and not you who the judge sees as being unreasonable.

Be Proactive. Procrastination will never improve your position and it can make you lose your rights entirely if you miss a deadline. Promptly notify your insurer if you think you have a claim. Include as much information about the claim as possible. Follow up with the adjuster if they are slow in getting back to you. Reach out to third parties who might have relevant information. Generally, delay in processing your claim benefits your insurer – not you.

McKean Evans has represented policyholders in disputes with their insurers for over five years and has experience with a broad variety of insurance. If you have an insurance question, contact McKean at (206) 805-1493 or mevans@pivotallawgroup.com for a free consultation.

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Case Law Update – Employee or Independent Contractor?

Posted Wednesday, November 8, 2017 by McKean J. Evans

Whether a worker is an employee or an independent contractor is a critical distinction for employees and employers alike. For employees, the distinction can affect entitlement to overtime, breaks, legal protections and additional benefits. The distinction’s importance to employers is underscored by the Washington Court of Appeals’ recent decision in Swanson Hay, et al. v. Emp’t Sec. Dep’t., in which several Washington employers were found liable for six figure back tax penalties for unemployment insurance on employees the employers mistakenly treated as independent contractors.

In Swanson Hay, three motor carriers challenged the State’s assessments of unemployment insurance taxes on amounts the employers paid for services provided by their “owner operators.” The “owner operators” were workers who owned trucking equipment, leased it to a carrier, and then used that equipment under contract to haul freight for the carrier. While the motor carriers hoped this relationship relieved them of responsibility for paying unemployment insurance tax, the court disagreed.

Washington’s Employment Security Act was enacted in 1937 based on drafts of similar federal legislation. The Act authorized taxes in order to provide unemployment benefits to individuals “unemployed through no fault of their own” under an insurance program. The Act defined employment broadly with very limited exceptions. Only workers falling into the narrow exception were exempt from the unemployment insurance tax. Washington revised the Act substantially in 1945, further broadening its definition of employment.

The motor carriers in Swanson Hay made several arguments against having to pay the unemployment tax. First, they argued that, even if their “owner operators” really were employees under Washington law, Washington’s unemployment insurance law was preempted by federal long haul trucking regulations. The court rejected this argument because Washington’s requirement that truckers’ employers pay unemployment insurance tax was sufficiently narrow that it did not disrupt federal law governing truckers. Nor did paying the tax destabilize the motor carriers to such a degree as to affect prices or services that the federal law was intended to govern.

Second, the motor carriers argued that their “owner operators” should be treated as independent contractors rather than employees, which would permit the motor carriers to refrain from paying unemployment tax on those workers. The court again disagreed, finding the motor carriers possessed sufficient control over the “owner operators” to render the “owner operators” employees for purposes of Washington unemployment tax.

Describing “the right to control the methods and details of the worker’s performance” as “the crucial issue,” the court considered the motor carriers’ control over their “owner operators.” Among other things, the motor carriers had exclusive control and possession of their “owner operators’” equipment, required the “owner operators” to use the motor carriers name, address and operating authority number, and required the “owner operators” to keep scrupulous records.

This decision underscores the practical importance of getting the employee-independent contractor distinction right.

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Court of Appeals Rules on Case of Business Collapse and Attempted Murder

Posted Wednesday, November 1, 2017 by McKean J. Evans

In a recent unpublished decision, the Court of Appeals ruled on a business dispute between two former partners involving the business’ loss in the 2008 crash and one partner’s attempt to murder the other to collect insurance money.

Dr. Michael King and Dr. Michael Mockovak successfully owned and operated multiple Lasik eye surgery clinics in the United States and Canada. The business venture was successful until the 2008-2009 recession, when demand for elective eye surgeries dropped. Despite selling several practices, the business was more than $2.8 million in debt by the end of 2009. The businesses became unable to pay both King and Mockovak.

In late 2009, King and Mockovak decided to part ways. Before they could divide up the business however, the FBI arrested Mockovak for trying to arrange King’s murder. The plan was to kill King and collect on a $4 million key-man life insurance policy on King’s life. A jury ultimately convicted Mockovak of attempted murder and attempted theft and sentenced him to 20 years in prison. Thereafter, King formed a new business and continued practicing.

King and Mockovak sued each other over the losses to the business as well as Mockovak’s attempt to solicit King’s murder. The jury found mostly in favor of King. On appeal, Mockovak made several unsuccessful arguments.

Mockovak argued the trial judge should have dismissed potential jurors who stated Mockovak’s attempt to murder King would make them less likely to find in Mockovak’s favor in the lawsuit. Although some jurors indicated Mockovak’s attempted murder might make them hesitate to award him money, every juror represented to the judge that they were nevertheless able to be fair and impartial. Thus, the Court of Appeals found no error.

Mockovak also argued that the trial judge erred in not instructing the jury that it could not consider testimony regarding the attempted murder. The Court of Appeals ruled that the jury should not have been told it could not consider any argument or testimony regarding Mockogak’s crimes because those crimes could have had an effect on the businesses. The Court of Appeals also noted the trial judge was appropriately concerned with Mockvak’s attempts to refuse to answer questions regarding the criminal activity in the context of the business dispute.

The Court of Appeals also ruled King’s lawyer’s statements to the jury regarding Mockovak’s crimes did not deprive Mockovak of a fair trial. In closing arguments, King’s lawyer commented to the jury regarding Mockovak’s failure to take responsibility for the business’ debts, as well as his character and the harm to King. The Court of Appeals determined that these statements were insufficiently flagrant to warrant a new trial.

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