On November 30, 2023, the United States Environmental Protection Agency (“EPA”) issued proposed Lead and Copper Rule Improvements (“LCRI”) that will require the removal of all lead pipes from municipal water systems within 10 years. The rule is a draft and will be subject to public comments and potential revisions. However, if the rule is finalized, according to EPA it will cost an estimated $45 billion. External estimates by third parties put the cost of removing and replacing lead pipes from municipal water systems in excess of $115 billion. Lead pipes supplying drinking water have been regulated by the Safe Drinking Water Act (“SDWA”) since 1975.  In 1986, amendments to the SDWA prohibited lead pipes in drinking water systems. The rule was amended in 1991 requiring removal of lead service lines when testing revealed that lead in water systems exceeded 15 parts per billion (“ppb”). EPA has made addressing lead pipe systems a priority after drinking water in Flint, Michigan was contaminated with lead. Lead impacts in drinking water occurred after the city switched its water source, causing lead pipes to corrode. The proposed rule is a result of environmental groups legal action against the 2021 amendments to the LCRI. Last December, EPA decided to drop defense of the rule and promised to strengthen the rule by the fall 2024. This parallels other “sue-and-settle” challenges to environmental agency action brought by environmental groups in recent years in which EPA concedes challenges to existing or proposed rules and settles by making extensive concessions to litigious environmental groups. In announcing the rule, EPA Administrator Michael Reagan said that “[t]his is a public health concern that has unfortunately spanned generations and an issue that has disproportionately affected low-income communities. Our proposed improvements are a major advancement.” Additionally, EPA points to potential cognitive issues and health problems that may occur if excessive levels of lead exist in lead lines. Although lead pipes have been prohibited since the 1980s there are estimated to be about 9.2 million lead service lines in the United States. In addition to required replacement of lead pipes from the water mains in the street to houses, the rule has other components to address lead in water lines. The rule reduces the action level for lead pipes from 15 ppb down to 10 ppb for municipal testing and action to improve lead levels. The rule also changes the lead testing procedure so municipalities will have to sample the first draw and 5th liter from the tap to determine if water sitting in lead pipes has been impacted by lead. Significantly, the rule also requires municipalities to complete inventories of lead service lines by October 2024. The rule also prohibits municipalities from partially replacing lead service lines. As anticipated, environmental advocates, some of whom sued EPA over the prior version, are praising the new rule. The Natural Resources Defense Council, Senior Strategic Director Erik Olson called the rule “a ray of hope that we are approaching the day when every family can trust that the water from their kitchen tap is safe, regardless of how much money they have or their zip code.” Mona Hanna-Attisha, a Michigan State University professor and pediatrician that helped research the Flint water crisis said “[i] am overjoyed on behalf of kids everywhere-kids in Flint, in Newark, Chicago, Milwaukee, Washington DC and Jackson and places we know of and don’t know of.” The Association of Metropolitan Water Agencies (“AMWA”) said its members “are committed to providing clean and safe drinking water to all Americans” but noted that removing lead pipes required cooperation between water systems and homeowners, as well as adequate state and federal funding and technical expertise. CEO Tom Dobbins said “AMWA urges EPA to focus on providing drinking water systems with the resources and tools necessary to achieve this ambitious goal, and working toward eliminating the real barriers that exist for many utilities.” Although there has been pressure on EPA to require removal of lead pipes since the Flint, Michigan water crisis, the scope and cost has been a considerable obstacle. EPA’s announcement points to funding from the Bipartisan Infrastructure Law which dedicated $15 billion for lead pipe removal. While the proposed rule does not require municipal water systems to remove lead service lines on private property, to access the grant money the municipalities must remove both public and private lead lines. EPA also points to another $11.7 billion in drinking water funding that is available to states under the Drinking Water State Revolving Fund that can be used for this purpose. Despite EPA’s reference to funding sources, the AMWA cautioned that requiring all lead service lines to be replaced “would represent a massive unfunded mandate.” Further, that if municipalities do not receive funding under the infrastructure law it “would likely have to turn to increased customer rates.” Similarly, former EPA officials such as Brent Fewell, a Deputy Assistant EPA Administrator during the George W. Bush administration, noted that “[a]bsent more resources, it’s unrealistic and a pipe dream to think that removal of all lead service lines will be accomplished in 10 years. While it’s a laudable goal, the LCRI’s deadline is simply too aggressive with the current level of funding and technical assistance available to communities.” While some cities such as Newark, New Jersey, have made progress replacing lead pipes in the water system, the nation’s largest cities face substantial challenges meeting the ambitious proposal.  Large cities such as New York and Chicago are estimated to have more lead pipes than any other areas. Based on the level of work required, the LCRI exemptions for the 10 year deadline may be applied for water systems that must replace more than 10,000 lead service lines per year. In whatever form the final LCRI rule takes following public comments and adoption by EPA, the rule is likely to be one of the most expensive regulatory actions ever mandated by the federal government. There is little doubt that the aggressive schedule will cause financial hardship to municipal water systems and increased costs to water users. George S. Van Nest is a Partner in Underberg & Kessler LLP’s Litigation Practice Group and Chair of the firm’s Environmental Practice Group. He focuses his practice in the areas of environmental law, development, construction, and commercial litigation. George can be reached at gvannest@underbergkessler.com. Reprinted with permission from The Daily Record and available as a PDF file here.

The IRS and the New York State Department of Taxation recently announced the 2024 exemption and exclusion amounts related to Federal Estate Tax, Federal Annual Gift Tax Exclusion Amounts, and New York State Estate Tax: Federal Estate Tax Exemption Amount 2024 $13,610,000.00 per person ($27,220,000.00 for a U.S. married couple) Federal Annual Gift Tax Exclusion Amount 2024 $18,000.00 per U.S. client ($36,000.00 for a U.S. couple) New York State Basic Exclusion Amount 2024 $6,940,000 per person The 2024 exemption and exclusion amounts are at a record-setting high, providing perhaps the most favorable tax environment to date for tax planning. The continued increase to the federal estate tax exemption and gift exclusion amounts provides estate planners and clients with added planning options. Individuals looking to make lifetime gifts should consider fully utilizing their annual gift tax exclusion, and individuals who are projected to be above the federal estate tax exemption, should consider utilizing their lifetime gift tax exclusion before it is too late. Regarding annual gifts, a U.S. individual can gift up to $18,000.00 per donee in 2024. So, if a U.S. couple has four children, they can gift up to $144,000.00 tax free. Annual gifting can be a highly effective strategy to reduce the taxable estate of a person who is projected to have an estate greater than the federal estate tax exemption. Regarding lifetime gifts, while the federal estate tax exemption is at a record high, the 2017 Tax Cuts and Jobs Act included a sunset provision, which will revert the federal estate tax exemption back to where it was prior to its passage. The anticipated post 2025 federal estate tax exemption, adjusted for inflation, is expected to be somewhere around $7,000,000.00 come January 1, 2026. Consequently, in 2026, each U.S. individual is set to lose at least $6,000,000.00 of exemption. So, for high-net worth U.S. citizens, now is the time to consider making substantial lifetime gifts utilizing their unified credit toward the currently record high federal estate tax exemption. Failing to do so may result in substantial federal estate taxes, which could be as high as 40%. Further, large gifts made prior to 2026 will not be subject to IRS “clawback,” so this is a true “use it or lose it” scenario. New York State has not yet released the anticipated post 2025 state estate tax exemption, adjusted for inflation, but historically, the New York State amount has equaled or been less than the federal estate tax exemption amount. Need Help with Tax Exemptions and Exclusions? Underberg & Kessler’s Estates & Trusts attorneys can work with you to formulate the best estate planning strategy to meet your goals and to take advantage of your options. For more information, contact Joshua B. Beisker at jbeisker@underbergkessler.com or 585-258-2879.

We are pleased to announce that Patrick L. Cusato, a longtime partner with the Firm, has been elected to serve as Managing Partner. He succeeds Thomas F. Knab, who has served as Managing Partner of the firm since 2022 and who will continue to focus his practice on complex business litigation. “It has been a privilege to serve as the Managing Partner of Underberg & Kessler and to lead our accomplished team,” Knab said. “I have the utmost confidence in Pat. He is ideally suited to build on the Firm’s strong financial position, core values, and outstanding client focus.” Cusato has been with Underberg & Kessler for 36 years and focuses his practice on commercial and residential real estate, mortgage banking, and tax credit development and finance projects. He serves as the Real Estate & Finance Practice Group Chair, a member of the Executive and 401K Committees, and is the Financial Management Partner for the Firm. A strong proponent of being active in community and industry groups, Cusato is an Executive Board member of the Mortgage Bankers Association, Vice President to the Board of Directors of the Bishop Sheen Ecumenical Housing Foundation, past Chair of the Foundation's annual fundraising gala, and past Chair of the Monroe County Bar Association Real Estate Section. He also serves as the Vice President of the Board of Directors of the Lakefront Soccer Club and President of the Board of Directors of the Sports Association of Webster, Inc. Cusato has been recognized in the 2013-2024 editions of The Best Lawyers in America® for his work in Real Estate Law and he has also been selected as an Upstate New York Super Lawyers honoree from 2007-2010 and 2021-2023. In 2022 and 2023, he was recognized by The Daily Record in the Power 20 in Real Estate Law list, and he was the recipient of The Daily Record's Leaders in Law Award in 2018, honoring attorneys who have shown dedication to the legal profession and tireless commitment to the community. Cusato is also a recipient of the 2009 Rochester Business Journal's "Forty Under 40" award. "It has been and continues to be a great honor to be part of this organization, to deliver the best results for our clients, and to act as a valued advisor. I am grateful for Tom’s leadership and dedication. I look forward to building on his legacy and collaborating with my colleagues as we evolve to meet the changing demands and opportunities that lie ahead,” Cusato said.

Congratulations to Tom Knab for being selected to the Rochester Business Journal’s 2023 Power 50 Law list for the second year in a row. The Power 50 list contains a number of lawyers who are managing a Rochester law firm or the Rochester office of a law firm, and also includes judges, civil legal services leaders, and more. “The people on this list help make sure the legal needs of Rochester’s companies and residents are met, and they have helped the local legal community adapt to the changes the COVID-19 pandemic caused. They are working to push the Rochester legal community forward during a time of uncertainty and adaptation, and we are excited to see what they are able to accomplish going forward.” stated Ben Jacobs, Associate Publisher and Editor of the Rochester Business Journal. Tom served as Underberg & Kessler’s Managing Partner from 2022-2023 and is the past Chair of the Firm’s Litigation Practice Group. He has practiced in the New York State and Federal Courts for over 35 years, handling jury and non-jury trials, appeals, arbitrations, and mediations. Tom is well known in the legal community for his practical advice on negotiating and litigating contracts; construction and real estate disputes; drafting and litigating restrictive covenants and employment agreements; representing founders, owners, and executives in partnership, LLC, and corporate disputes; constitutional challenges to governmental actions; and defense of legal malpractice claims. Tom has been recognized in the 2021-2024 editions of The Best Lawyers in America® for his work in Commercial Litigation, Litigation-Construction, Litigation-Insurance, and Litigation-Labor & Employment. He was honored as the 2024 Best Lawyers® “Lawyer of the Year” for Litigation–Construction in Buffalo, NY. From 2021 through 2023, Tom was recognized by the Rochester Business Journal/Daily Record in the Power 20 Litigation list.

Q: Since the COVID-19 pandemic, I have noted an increase in the number of my patients seeking mental health and addiction treatment. However, many do not pursue care because their insurance coverage will not pay for it, including those with employee health plans.  Are there options to assist these patients? A: In late July, the Departments of Health and Human Services, Labor, and the Treasury, announced an expansive new rule to strengthen the federal government’s Mental Health Parity and Addiction Equity Act (“MHPAEA”).[1]  The rule, named “Requirements Related to the Mental Health Parity and Addiction Equity Act,” is intended to increase enforcement of MHPAEA by enhancing restrictions on insurers who provide employer group health plans from limiting coverage for addiction and behavioral health treatment.[2]  The overarching goal of the “landmark” rule is to improve and “strengthen mental and physical health parity requirements and improve mental health care access for more than 150 million Americans...with private health insurance.”[3] The new measures would allow these individuals increased access to insurance benefits for mental health and addiction treatment. The MHPAEA was enacted in 2008 to ensure that patients’ access to mental health treatment is equivalent to their ability to receive care for medical conditions.[4]  In general, MHPAEA precludes private health insurers from adding requirements or restrictions (e.g., additional copayments or authorizations) that are not required for medical care or surgical procedures, in order to receive behavioral health or addiction treatment benefits.[5] However, since the implementation of MHPAEA, patients seeking insurance coverage for mental health or substance use disorder treatment have continued to face more hurdles compared to when seeking medical treatment. Under the new rule, insurance carriers will be required to analyze and confirm that they are complying with MHPAEA. This includes mandating that insurers “analyze the outcomes of their coverage to ensure there’s equivalent access to mental health care, including provider networks, prior authorization rates and payment for out-of-network providers” and to then come into compliance with MHPAEA as necessary.[6]  In addition, the rule clarifies when carriers are precluded from using methods that limit a patient’s access to mental health care (e.g., copayments, prior authorizations). Finally, the new rule will apply to and require additional insurance carriers to come under MHPAEA compliance.[7] Along with the release of the proposed “Requirements Related to the Mental Health Parity and Addiction Equity Act” this summer, the Departments of Health and Human Services, Labor, and the Treasury published a “Technical Release”[8] which establishes principles and invites public comment.  The period for comment was recently extended to the middle of October 2023.[9] Once the comment period is closed, the agencies will analyze the comments and determine if the proposed rule requires revisions.[10]  A “final rule” will then be published in the Federal Register and made available online at  http://www.federalregister.gov.  Unless there is an exemption, the rule will go into effect no sooner than 30 days after its publication in the Federal Register.[11] If the proposed “Requirements Related to the Mental Health Parity and Addiction Equity Act” survives the Federal Register’s comment analysis without significant revisions and is published in the coming months, then care providers should be encouraged that their patients will soon have more accessible insurance benefits for their behavior health and addiction treatment needs. Reprinted with permission from the October/November 2023 issue of The Bulletin from the Monroe County Medical Society and available as a PDF file here. David H. Fitch is a Partner in Underberg & Kessler LLP’s Health Care, Litigation, and Municipal Law Practice Groups. He can be reached at dfitch@underbergkessler.com or 585.258.2840. [1] https://www.healthaffairs.org/content/forefront/new-federal-rules-seek-strengthen-mental-health-parity [2] https://www.healthaffairs.org/content/forefront/new-federal-rules-seek-strengthen-mental-health-parity [3] https://www.whitehouse.gov/briefing-room/statements-releases/2023/07/25/fact-sheet-biden-harris-administration-takes-action-to-make-it-easier-to-access-in-network-mental-health-care/ [4] https://www.dol.gov/newsroom/releases/ebsa/ebsa20230725?_ga=2.267791883.404641303.1696096499-463050911.1696096499 [5] https://www.dol.gov/newsroom/releases/ebsa/ebsa20230725?_ga=2.267791883.404641303.1696096499-463050911.1696096499 [6] https://www.politico.com/newsletters/politico-pulse/2023/07/25/biden-proposes-sweeping-mental-health-changes-00107931 [7] https://www.politico.com/newsletters/politico-pulse/2023/07/25/biden-proposes-sweeping-mental-health-changes-00107931 [8] FR Doc. 2023–21177 Filed 9–27–23; 8:45 am [9] https://www.federalregister.gov/documents/2023/09/28/2023-21177/requirements-related-to-the-mental-health-parity-and-addiction-equity-act-extension-of-comment [10] https://www.regulations.gov/learn [11] http://www.federalregister.gov

Earlier this year, the New York State Legislature passed, and Governor Hochul signed, a minimum wage increase that will take effect beginning on January 1, 2024. These statutory increases – which will impact all employers in New York State - are as follows: While nothing has yet been announced regarding new minimum wages for tipped employees, employers should note that previously required cash wages and tip credits were equal to the regular minimum wage in each of the geographic locations identified above. It is anticipated that this will be the same for 2024. The minimum wage will continue to increase by $0.50 each year in 2025 and 2026. Beginning in 2027, any increases to the minimum wage will be determined by the U.S. Department of Labor Consumer Price Index and published by the New York Department of Labor (“NYSDOL”) on October 1 each year for the rate to take effect January 1 of the following year. To that end, there will be no increase for a given year if the inflation index is negative, if New York State’s unemployment rate increases by half a percentage point from its low during the preceding year, or if the number of total non-farm state employees decreases over the prior six months. Last week, the NYSDOL published proposed regulations that are required to accompany the minimum wage increases. These proposed regulations also contained new minimum salary requirements for qualifying employees exempt from the New York Labor Law (“NYLL”) minimum wage and overtime requirements under an Executive or Administrative exemption. The proposed hourly, weekly, and yearly salary thresholds necessary to meet the Executive and Administrative exemptions are as follows: Although these proposed regulations by the NYSDOL are subject to a comment period, they are likely to be finalized without significant changes. Following the comment period, the new salary thresholds would take effect with the previously finalized minimum wage raises on January 1, 2024. Further, effective March 13, 2024, there are new minimum salary requirements for clerical and other exempt employees under Article 6 of the NYLL. Pursuant to the new requirement, the minimum salary for covered employees to be exempt from weekly pay requirements – essentially, allowing an employee to be accurately classified as a non-manual worker – will increase from $900/week (or $46,800/year) to $1,300/week (or $67,600/year). If you have any questions regarding this article, please contact the Underberg & Kessler attorney who regularly handles your legal matters, or Ryan T. Biesenbach at (585) 258-2865 or rbiesenbach@underbergkessler.com.

A new federal law taking effect in 2024 and a proposed New York State law will both require certain business entities to file reports providing information on the beneficial ownership of the entity. Frequently asked questions regarding both laws are answered below: Corporate Transparency Act: Q: What agency monitors this federal law? A: Reports will be made to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”). Q: Who will be required to make reports under this law? A: Corporations and LLCs, in addition to various other business entities. There are twenty-three categories of entities that are exempt from the reporting requirement. Examples of entities that are not required include banks, credit unions, and tax-exempt entities registered with the IRS. Q: What is a “beneficial owner”? A: A beneficial owner is an individual with substantive control over the company, owning or controlling at least 25% of the ownership interest. Q: Where will the data be stored? A: FinCEN will store the reported information in a secure non-public database. Q: When is this law effective? A: January 1, 2024. Companies created before January 1, 2024, will have until January 1, 2025, to file their initial reports. Companies created on or after January 1, 2024, will have 30 days to file their initial reports. Q: What will happen if my company does not follow this law? A: There may be civil and criminal penalties for violations, including a fine of up to $10,000. New York State LLC Transparency Act: As of the date of this article, the New York State LLC Transparency Act has not been signed into law by Governor Hochul. We will continue to monitor developments and keep you informed as the legislation progresses and any changes to the proposed law. The questions and answers below are based upon the proposed law, so remain subject to change. Q: Who will be required to make reports under this New York law? A: Only limited liability companies are required to report their owners. Q: When will this law come into effect? A: The NYS legislature passed the Act in June 2023 and Governor Hochul is expected to sign the Act into law. The law would become effective one year after it is signed. Companies formed on or before the effective date of the Act would be required to file their reports by January 1, 2025. Companies formed after the effective date will have 30 days to file their reports. Q: Can my business use the same report we filed for the federal Corporate Transparency Act? A: Yes, a reporting company may satisfy its disclosure requirements by submitting a copy of the report it submitted to FinCEN pursuant to the Corporate Transparency Act. Q: Where will the data be stored? A: In a publicly available database. Certain personal and identifying information will be kept confidential, except for the purposes of law enforcement or as otherwise required to be disclosed pursuant to a court order. What Should Companies Do to Prepare? These Acts will bring significant new reporting and monitoring burdens that will impact many businesses. Understanding your obligations and staying informed will be essential in navigating this regulatory landscape. For existing entities. Review your current business structure in consultation with your attorney to confirm your understanding of these new laws and to create a plan for filing the proper paperwork. For any new entity formed after January 1, 2024, you should consult with your attorney to ensure the new filing requirements are completed as part of the entity formation process. As noted above, we will be monitoring the progress, implementation, and compliance challenges of these new requirements. Please contact Joshua B. Beisker or any of our Corporate & Business attorneys with questions at (585) 258-2800 or visit underbergkessler.com.

Getting married is a significant turning point in life that can bring big changes for newlyweds well beyond their wedding day. After spending months (and maybe years) planning your dream wedding and after the excitement of the day subsides, it’s time to consider your newlywed estate plan. As a couple, there are new options and new concerns that you need to be aware of. Below is a summary of some of the estate planning items newlyweds should consider: Financial Accounts The following accounts can be updated to reflect a spouse as the new beneficiary or as transfer on death designated beneficiary: Existing Checking/Savings Account Life Insurance: Employer-based and stand-alone policy if you already have one Investments: Stocks, bonds, mutual funds, etc. Retirement Accounts: 401(k), IRA, Roth IRA, 403(b) Military Benefits Pension: SEP/SARSEP Property, titles, and assets that might currently name someone else as the beneficiary (e.g., you named a sibling to receive a benefit that your spouse should now be getting) Here are some other accounts that newly married individuals may consider creating or consolidating: Open Joint Banking Account/Credit Cards Health Insurance Car Insurance: Look into getting a family (a.k.a. umbrella) plan for the household Mobile Phone Plan: Look into getting a family plan for the household Re-Title Property Ownership Documents: This applies to homes, cars, or other titled assets Duplicate Accounts/Services: Consolidate accounts that each of you owned separately prior to getting married (e.g., Netflix), so you’re not paying for two separate accounts Last Will and Testament A last will and testament is a legal document that communicates a person's final wishes pertaining to their assets. It provides specific instructions about what to do with their possessions. It will indicate whether the deceased leaves them to another person, a group, or wishes to donate them to charity. If you currently have a Will, update it to account for your spouse. If there will be babies in your future, or you already have kids, this is where you designate the guardians for the minor children if you and your spouse pass away. Power of Attorney Your Power of Attorney (POA) has power over everything involving your finances. This includes paying bills, managing bank accounts, overseeing investments, signing contracts, and filing your taxes. Most spouses appoint each other as the primary agent, and it is prudent to name a successor agent as well. Health Care Proxy/Living Will A Health Care Proxy/Living Will is a document that authorizes an agent to make all health care decisions for a principal if he/she is unable to make them on his/her own behalf. This form also authorizes the agent to make decisions to remove or provide life-sustaining treatment, if you so desire. Life Insurance A spouse might already have life insurance through his/her job, but it likely will no longer be enough to support a new family if something happens to a spouse. Newly married individuals should meet with their insurance agent to discuss increasing the amount of the policy. Identification You accumulate a lot of identification and official documentation throughout your life. It is good idea to organize all documents in case you need it to buy a house, get insurance, or do other things. Here’s a rundown: Marriage Certificate Birth Certificate Social Security Card Passport Armed Forces ID/Discharge Papers Citizenship Documentation Prenuptial or Postnuptial Agreement Divorce Decree (from previous marriages) Documents related to any children you already have (e.g., adoption or legal guardianship papers) Digital Assets Sharing passcodes and passwords to the following devices and systems is extremely helpful: Mobile Phone(s) Computer(s) Tablet Home Security System WIFI Along these lines, there are many other digital accounts and online services that spouses will be sharing with each other to make sure the household runs smoothly. Here’s a handy list of such things: Password Manager: If you use a password manager, your master password is the most important one to share Home Utilities: Power, cable, phone, etc. Health/Medical: insurance provider, prescription services Financial/Money Management: Auto-payments, budgeting Entertainment: video, music, gaming Food/Shopping/Delivery Services Cloud Storage: Photos, media Travel/Ticketing/Rewards: frequent flyer miles, reward points Need Help with the Next Steps? Underberg & Kessler’s Estates & Trusts attorneys can work with you to formulate the best estate planning strategy to meet your goals — in all stages of your estate planning journey. For more information, contact Joshua B. Beisker at jbeisker@underbergkessler.com or 585-258-2879.

Merchant Cash Advances (“MCA”), which spawned from the 2008 financial crisis, offer an alternative method of short-term financing for cash-strapped small businesses who need a quick source of funds and may not qualify for a bank loan. MCA companies provide funds to struggling businesses in exchange for a percentage of the businesses’ revenue, which typically are repaid through daily or weekly automatic withdrawals from the business’s bank accounts. Frequently referred to as payday lenders for businesses, MCA companies tend to use high pressure sales tactics to entice unsuspecting small business owners into signing contracts that can be the gateway to financial ruin. These contracts of adhesion contain one-sided terms in favor of the lender, default provisions that are so restrictive a business is certain to default before ever contemplating the protections of bankruptcy laws, broad security pledges that encumber every asset and potential revenue stream, allow the lender unfettered access to the borrower’s bank accounts to monitor the financial condition of the borrower, and include mandatory personal guarantees of both performance and payment that can be invoked at any time. MCA companies employ a network of independent sales organizations (“ISOs”) who use leads purchased from online paid lead generators whose websites promise to match the consumer with reputable lenders along with website inquiries. The ISOs receive a commission or referral fee paid by the borrower from the funding proceeds. The MCA agreements mimic a traditional factoring transaction, but the reality is quite different. Factoring is a type of small business financing where a factoring company purchases accounts receivable at a discount from the invoice amount. In return for the right to collect on the invoice and retain the difference between the invoice amount and the discounted purchase price, the factoring company assumes the credit risk of the collectability of the accounts. As owner of the account, the factoring company is typically entitled to receive payment directly from the account debtor, and to undertake collection activities. In contrast, a loan is the exchange of a sum certain to a business, with a promise to repay the sum plus a rate of interest, presumably from the future operating revenues of the business. The lender does not assume the credit risk of any particular account or asset of the business and does not assume responsibility for the collection of any account. In New York, interest rates are capped at 25% and any lender who charges more than the statutory maximum will run afoul of the state’s usuary laws. Although MCA agreements state that they purchase accounts receivable and display a percentage rate that is at or below the statutory maximum, the effective rate of interest is significantly higher. The agreements do not identify any particular account purchased and require payments on a set daily or weekly schedule. Despite reconciliation provisions in the agreements that purportedly require the lenders to adjust the payments at the request of the borrower, the lenders rarely disclose how the payments are determined or under what circumstances a borrower would be entitled to an adjustment. In many cases, these lenders don’t have a reconciliation department and recent court cases have shown that certain lenders never intended to make the adjustments. With sham provisions and virtually no likelihood of adjustment, the agreements bear the hallmarks of a loan transaction: certainty of payment and a finite term. The characterization and type of the MCA transaction is critical and continues to be the subject of consternation of the New York Courts and the Bankruptcy Courts. MCA companies have a strong interest in ensuring that the agreements are interpreted as a sale of receivables and not a loan. If the agreements are said to be a loan, then the effective interest rates on the agreements, which can exceed 300% on an annualized basis, would exceed both civil and criminal usury laws and expose the lenders to the risk of criminal enterprise corruption statutes. Courts have struggled to develop any test that will uncover the true nature of MCA transactions. Civil Courts have defaulted to a three-prong test that does little to consider the overarching purpose and character of the agreements. Bankruptcy Courts fair slightly better, having developed a more fact intensive inquiry, however even that falls short of full discovery of the true nature of the predatory lending scheme. The terms and conditions of these MCA agreements are intentionally designed and/or used by the MCA companies to try to deceive courts and law enforcement into believing the agreements do not contemplate a loan transaction and thus do not trigger the usury or racketeering laws. A central component of the scheme includes pushing cash poor businesses to the point that they cannot meet their obligations under existing MCA agreements, at which point the lender offers new advances with even more onerous terms, trapping their victims into a negative feedback loop before pushing businesses (and their individual owners)towards a financial cliff. Eventually, the terms become too oppressive, small businesses default, and the MCA companies aggressively pursue small businesses and their individual owners for repayment of the amounts due under the loans. MCA companies often employ threatening, deceptive, and illegal collection tactics, impose unconscionable fees, file lawsuits in New York against businesses out of state, use unreliable methods of service designed to ensure defendants fail to answer, which then allow the MCA lenders to file uncontested default judgments. For nearly a decade, MCA companies have operated with impunity, unregulated and undeterred, compiling over tens of thousands of judgments against small businesses and their individual owners. In 2018, the tide began to slowly turn when Bloomberg News published a series of groundbreaking articles exposing the abuses of the MCA industry. The New York State Legislature enacted legislation extinguishing the lenders’ preferred weapon — the confession of judgment. On July 31, 2020, the Securities and Exchange Commission shut down an MCA company located in Philadelphia. On August 3, 2020, the Federal Trade Commission sued Yellowstone Capital, who paid more than $9.8 million to settle charges that it withdrew money from businesses’ bank accounts without permission and deceived them about the amount of financing and other features of its financing products. On December 23, 2020, New York Governor Andrew Cuomo signed into law the Small Business Truth in Lending Law, which is aimed at protecting small business owners and requires key financial terms to be disclosed at the time a credit provider or broker makes an offer of financing of $500,000 or less. In January 2023, the New Jersey Attorney General settled a case against an MCA company, awarding $27,375,000.00 in relief to its customers comprised of the forgiveness of all outstanding loan balances of those customers, as well as restitution, civil penalties, attorneys’ fees, and costs. On September 25, 2023, the New York State Attorney General struck another blow to the MCA industry with a decision against a group of lenders which deemed the agreements to be “criminally usurious loans,” ordering the recission of all of the subject agreements, a full accounting, vacating confessions of judgment, terminating liens, and compelling the return of all amounts collected by the defendant MCA companies dating back to June 10, 2014. While legislation and court decisions have begun to clamp down on MCA companies, they have done little to alter the landscape. The MCA companies and their legal counsel closely monitor court decisions and with each adverse decision they evolve, redrafting their agreements to eliminate terms found to be unlawful and add illusory “protections” for borrowers. Without sweeping reform of the MCA industry, small businesses remain at risk of falling prey to the insidious tactics of these enterprises, and until then let the borrower beware. Renee Segina Moore is an Associate in Underberg & Kessler LLP’s Litigation, Creditors’ Rights, and Tax Law Practice Groups. Drawing on her background as a CPA, Renee leverages her experience to provide clients with the unique perspective of an attorney who not only understands the legal side of disputes, but also any financial implications critical to achieving client objectives. She represents businesses and individuals in litigation, negotiation, and mediation. Renee can be reached at rmoore@underbergkessler.com. Reprinted with permission from The Daily Record and available as a PDF file here.

We were thrilled to support the Small Business Council’s (a Greater Rochester Chamber affiliate) Thanksgiving Appeal once again. This year, we doubled our goal and donated 10 boxes filled with Thanksgiving food items and gift cards. Cheers to our U&K team! Happy Thanksgiving to all - wishing you a harvest of blessings, good health, and good times!

The IRS recently published annual inflation adjustments for 2024 that relate to gift and estate taxes. Annual Gift Tax Exclusion Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2024, $18,000) per recipient tax-free without using up any of the taxpayer’s lifetime gift and estate tax exemption (in 2024, $13.61 million). For married couples, this means that they can give $36,000/year per recipient beginning next year. For example, if a married couple has three children and five grandchildren, they may transfer $288,000 in 2024 to their descendants without touching their combined $27.22 million gift tax exemption, thus allowing them to transfer further substantial assets gift-tax-free. Not only are the assets removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes. In 2023, the federal gift tax annual exclusion amount was $17,000, or $34,000 for a married couple choosing to split gifts. The new exclusions go into effective on January 1, 2024. Lifetime Estate and Gift Tax Exemption If an individual gifts an amount that is above the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption ($13.61 million in 2024) will be used. The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free. If an individual makes gifts more than the annual gift tax exclusion, a gift tax return will be due on April 15 the following year to report the gift (and track the amount of the lifetime exemption that has been used). Notably, although the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, under current law, that amount will be decreased by half at the start of 2026. Annual Gift Tax Exclusion for Gifts to Non-US Citizen Spouse Spouses who are both US citizens may usually transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple’s combined estate tax exemption ($27.22 million in 2024) will be taxed at the death of the surviving spouse, and transferring assets to the survivor only defers the tax that the IRS will eventually collect. Gifts to a non-US citizen spouse, however, are limited. Since a non-US citizen spouse may not be subject to the US estate tax, one cannot transfer unlimited assets to a non-US citizen spouse because that transferred wealth could potentially avoid US estate taxation upon the non-US citizen spouse’s death. When the recipient spouse is not a US citizen, and regardless of whether the non-US citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount. For 2024, the first $185,000 of gifts to a spouse who is a non-US citizen are not included in the total amount of taxable gifts. Underberg & Kessler’s Estates and Trusts attorneys can help you maximize these benefits and ensure you are getting the most value out of your estate and gifting plans. For more information, contact Joshua B. Beisker at jbeisker@underbergkessler.com or 585-258-2879.

Congratulations to Tom Knab for being selected to The Daily Record's 2023 Power 20 Litigation List for the third year in a row. The Power 20 list showcases power players in the Western New York legal community who are recognized as leaders in their area of practice. “The people on this list help their clients resolve complex legal matters that often have dire consequences for their financial well-being, whether the client is a business or an individual. These attorneys have also advocated for their clients during a time of unprecedented disruption due to the COVID-19 pandemic, social unrest and more. They have had to navigate new rules from federal and state government and the court system and have had to embrace new ways of practicing law,” stated Ben Jacobs, Associate Publisher and Editor of The Daily Record. Tom serves as Underberg & Kessler’s Managing Partner and Chair of the Firm’s Litigation Practice Group. He has practiced in the New York State and Federal Courts for over 35 years, handling jury and non-jury trials, appeals, arbitrations, and mediations. Tom is well-known in the legal community for his practical advice on negotiating and litigating contracts; construction and real estate disputes; drafting and litigating restrictive covenants and employment agreements; representing founders, owners, and executives in partnership, LLC, and corporate disputes; constitutional challenges to governmental actions; and defense of legal malpractice claims. Tom has been recognized in the 2021-2024 editions of The Best Lawyers in America® for his work in Commercial Litigation, Litigation-Construction, Litigation-Insurance, and Litigation-Labor & Employment. He was honored as the 2024 Best Lawyers® “Lawyer of the Year” for Litigation–Construction in Buffalo, NY. In 2022, Tom was also recognized by the Rochester Business Journal in the Power 50 in Law list.