Subject to the origin of the claim test, most judgments or settlements paid by a business are fully deductible as ordinary and necessary business expenses under Section 162(a). However, one exception is in Section 162(f), which provides “no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.” This fine or penalty exception is defined broadly to include almost any payment made to a governmental plaintiff. It prevents a subsidy in the form of tax deductions for payments to governmental entities for violations of law.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00TAXhttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngTAX2025-01-17 14:52:332025-01-17 15:08:36Disallowance of Deduction of Fines and Penalties Versus Restitution
North Carolina high school student-athletes can lawfully commercialize their personal brands. With this shift in the legal landscape in favor of students, parents are engaging more in the legal process.
For example, in 2024, we saw parental advocacy in action with Rolanda Brandon, a North Carolina mom, whose son, Faizon, is a talented football player. When the North Carolina Board of Education attempted to ban high school NIL activities, Mrs. Brandon sought judicial relief against the Board of Education and the NC Department of Public Instruction in August, challenging the Board’s authority to restrict Faizon’s opportunities to monetize his name, image and likeness.
In October 2024, a Superior Court judge signed an order striking down the Board of Education’s rules that banned public high school athletes from entering any NIL agreements and profiting from those agreements. In reaching that decision, the Court inferred that Senate Bill 452 was intended for public high school athletes to have an opportunity to use their NIL, even though Bill 452 invited the Board to impose guardrails related to that use. However, despite its authorization of guardrails, the judge ultimately ruled it was an overreach for the Board to ban fully any use of the athletes’ NIL and ruled in favor of Mrs. Brandon. Winning!
Parenting is hard. I am the last parent to pick up my children from daycare.
Parenting as an attorney is hard. I miss my children’s activities to meet work obligations.
Parenting with a partner who travels for work is hard. I must scramble when school is out to make sure I have care so I can work.
And this is my life. Does this sound familiar to any of you? Even though I have an invaluable partner who shares most of the domestic responsibility (thank you, Fair Play!), it is hard for him to help when he is traveling for work. I have found it challenging, frustrating, and isolating to be a mom and an attorney. I wanted to share – and/or complain – about my personal experiences, hoping that others in a similar situation may find some solidarity. On a regular basis, I experience one or more of the following dilemmas.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00womenintheprofessionhttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngwomenintheprofession2025-01-16 13:39:272025-01-16 13:39:27How to Survive Practicing Law While Being a Caregiver – Part 2
My last post on AI focused on simple and practical ways that artificial intelligence can make everyday tasks in the legal field more efficient. In this post, I will give more examples and introduce specific AI tools other than large-language models (LLMs) to utilize in legal practice. While I no longer work in a traditional paralegal role, I am still working in the legal field in a nonprofit with a focus on operations and program management. I look back on the years when I did work as a paralegal and can identify ways that AI could have enhanced my work.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Paralegalshttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngParalegals2025-01-15 11:20:062025-01-15 11:20:06Ethical and Practical Uses of AI for Paralegals: Part 2
Life as a lawyer can be a battle. Clients are demanding. Opposing counsel can be adversarial. And sometimes the greatest burden we carry is the one we put on ourselves: to work harder, be better, and achieve more. Years ago, I learned knowing how to practice law was not enough. In order to thrive – to be not only successful, but happy – a lawyer’s skill set had to include mental focus, and yes, professional vitality.
How do we do that in a profession filled with adversity and risk, where one slip can spell doom, both for your clients and your career? For the answer, indulge me in a lesson I learned from my past career as a journalist.
In the spring of 2016, I spent several weeks at the United States Naval Academy reporting a story about the boxing program there. Boxing is not only embedded in the culture of the Naval Academy, it’s a core requirement: all Midshipmen – male and female – are required to learn to box as soon as they arrive at Annapolis. Why? The Naval Academy uses boxing as a laboratory where they can put students in an environment of controlled stress forcing them to draw on their own resources and capabilities to think, strategize, and plan, all while withstanding an opponent trying to knock you down.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Professional Vitality Committeehttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngProfessional Vitality Committee2025-01-14 13:53:382025-01-14 13:57:30Everybody Has a Plan . . .
The first time a general contractor client mentioned, matter-of-fact, that North Carolina law required general contractors to provide a one-year construction warranty on their work, I was worried. As a construction lawyer who frequently negotiates and drafts construction contracts and warranty clauses for a living, I should know that. How could I have missed it?
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Constructionhttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngConstruction2025-01-09 12:09:082025-01-09 12:09:08The Myth Behind North Carolina’s Mandatory Construction Warranty
At the United States Supreme Court building, there are statues of tortoises at the bottom of several lampposts. These tortoises symbolize the slow, deliberate pace of the justice typically delivered by the nation’s highest court. As the Court’s emergency applications attorney, Robert Meek, recently shared with members of the North Carolina Bar Association’s Appellate and Criminal Justice Sections, there also is a statue of a hare, located on the East Pediment at the back of the building.
Your company has just been sued by a competitor for patent infringement, deceptive advertising, unfair competition, or any number of other business torts. The news spreads quickly across industry publications and blogs, leading to a flood of inquiries from concerned customers wanting to know if the stories have any merit. You feel compelled to issue a press release to reassure them and challenge the claims against your company.
While a press release can be an effective way to communicate your position, it’s crucial to consider the potential risks to your attorney-client privilege. A poorly worded press release can inadvertently waive this privilege, exposing confidential communications to your legal opponents.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Litigationhttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngLitigation2025-01-06 12:29:292025-01-06 12:39:14Think Twice – Avoiding Waiver of the Attorney-Client Privilege Through Issuance of a Press Release
The North Carolina Bar Association is proud to launch the “Opt-Inspire Initiative,” a new pro bono program that empowers seniors with critical digital literacy skills to safeguard themselves from scams and bridge the generational digital divide. Designed by Alexandria (Lexi) Lutz, Senior Corporate Counsel at Nordstrom, where she focuses on privacy, cybersecurity, and artificial intelligence, this initiative addresses the dual challenges of preventing scams and fostering digital connection among seniors.
https://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.png00Privacy and Data Securityhttps://ncbarblogprod.wpengine.com/wp-content/uploads/2018/06/Blog-Header-1-1030x530.pngPrivacy and Data Security2025-01-06 11:49:482025-01-06 11:49:48Empowering Seniors Through the Opt-Inspire Initiative
I. Sections 453 and 1042 Deferral Provisions Can Apply in the Same ESOP Transaction; Berman vs. Commissioner, 163 TC No. 1 (2024).
In 2002, Mr. and Mrs. Berman sold their closely held C corporation stock to an ESOP for promissory notes. They did not receive any sale proceeds in 2002. They purchased qualified replacement property (“QRP”) in an amount equal to or exceeding the gain on the sale of stock to the ESOP. However, some of the QRP purchases did not occur until after the 12-month QRP replacement period. The Bermans elected pursuant to Section 1042 to defer recognition of the entire gain on the ESOP sale. They reported no taxable income from the stock sale to the ESOP.
In 2003, each of Mr. and Mrs. Berman received approximately $450,000 under the ESOP promissory notes. The Bermans used their QRP as collateral for a 90% loan, allowing the lender to keep the remaining 10% as a loan fee. The Bermans later conceded the cash-out loan they collateralized with their QRP was a disguised sale of the QRP. The IRS took the position the cash-out loan caused the Section 1042 deferred gain to be fully recognized in 2003 under the recapture rule of Section 1042(e). The Bermans took the position their 2003 gain should be limited to the $450,000 payments under the installment notes.
The Tax Court agreed with the Bermans. The court stated Sections 453 and 1042(a) are not mutually exclusive. Section 1042 acts to defer gain that otherwise would be recognized under the installment method. By not reporting any of the gain in 2002, the Bermans did not elect out of Section 453, thus allowing the deferral of gain until future note payments were received.
Disallowance of Deduction of Fines and Penalties Versus Restitution
Tax SectionSubject to the origin of the claim test, most judgments or settlements paid by a business are fully deductible as ordinary and necessary business expenses under Section 162(a). However, one exception is in Section 162(f), which provides “no deduction otherwise allowable shall be allowed under this chapter for any amount paid or incurred (whether by suit, agreement, or otherwise) to, or at the direction of, a government or governmental entity in relation to the violation of any law or the investigation or inquiry by such government or entity into the potential violation of any law.” This fine or penalty exception is defined broadly to include almost any payment made to a governmental plaintiff. It prevents a subsidy in the form of tax deductions for payments to governmental entities for violations of law.
Read more
Practice Tips for NIL Counsel: Supporting Parents of Student-Athletes
Sports & Entertainment Law SectionNorth Carolina high school student-athletes can lawfully commercialize their personal brands. With this shift in the legal landscape in favor of students, parents are engaging more in the legal process.
For example, in 2024, we saw parental advocacy in action with Rolanda Brandon, a North Carolina mom, whose son, Faizon, is a talented football player. When the North Carolina Board of Education attempted to ban high school NIL activities, Mrs. Brandon sought judicial relief against the Board of Education and the NC Department of Public Instruction in August, challenging the Board’s authority to restrict Faizon’s opportunities to monetize his name, image and likeness.
In October 2024, a Superior Court judge signed an order striking down the Board of Education’s rules that banned public high school athletes from entering any NIL agreements and profiting from those agreements. In reaching that decision, the Court inferred that Senate Bill 452 was intended for public high school athletes to have an opportunity to use their NIL, even though Bill 452 invited the Board to impose guardrails related to that use. However, despite its authorization of guardrails, the judge ultimately ruled it was an overreach for the Board to ban fully any use of the athletes’ NIL and ruled in favor of Mrs. Brandon. Winning!
Read more
How to Survive Practicing Law While Being a Caregiver – Part 2
Women in the ProfessionParenting is hard. I am the last parent to pick up my children from daycare.
Parenting as an attorney is hard. I miss my children’s activities to meet work obligations.
Parenting with a partner who travels for work is hard. I must scramble when school is out to make sure I have care so I can work.
And this is my life. Does this sound familiar to any of you? Even though I have an invaluable partner who shares most of the domestic responsibility (thank you, Fair Play!), it is hard for him to help when he is traveling for work. I have found it challenging, frustrating, and isolating to be a mom and an attorney. I wanted to share – and/or complain – about my personal experiences, hoping that others in a similar situation may find some solidarity. On a regular basis, I experience one or more of the following dilemmas.
Read more
Ethical and Practical Uses of AI for Paralegals: Part 2
Paralegal DivisionMy last post on AI focused on simple and practical ways that artificial intelligence can make everyday tasks in the legal field more efficient. In this post, I will give more examples and introduce specific AI tools other than large-language models (LLMs) to utilize in legal practice. While I no longer work in a traditional paralegal role, I am still working in the legal field in a nonprofit with a focus on operations and program management. I look back on the years when I did work as a paralegal and can identify ways that AI could have enhanced my work.
Read more
Everybody Has a Plan . . .
Featured PostsLife as a lawyer can be a battle. Clients are demanding. Opposing counsel can be adversarial. And sometimes the greatest burden we carry is the one we put on ourselves: to work harder, be better, and achieve more. Years ago, I learned knowing how to practice law was not enough. In order to thrive – to be not only successful, but happy – a lawyer’s skill set had to include mental focus, and yes, professional vitality.
How do we do that in a profession filled with adversity and risk, where one slip can spell doom, both for your clients and your career? For the answer, indulge me in a lesson I learned from my past career as a journalist.
In the spring of 2016, I spent several weeks at the United States Naval Academy reporting a story about the boxing program there. Boxing is not only embedded in the culture of the Naval Academy, it’s a core requirement: all Midshipmen – male and female – are required to learn to box as soon as they arrive at Annapolis. Why? The Naval Academy uses boxing as a laboratory where they can put students in an environment of controlled stress forcing them to draw on their own resources and capabilities to think, strategize, and plan, all while withstanding an opponent trying to knock you down.
Read more
The Myth Behind North Carolina’s Mandatory Construction Warranty
Construction Law SectionThe first time a general contractor client mentioned, matter-of-fact, that North Carolina law required general contractors to provide a one-year construction warranty on their work, I was worried. As a construction lawyer who frequently negotiates and drafts construction contracts and warranty clauses for a living, I should know that. How could I have missed it?
Read more
Appellate Insights Recap: Navigating Urgency with U.S. Supreme Court Emergency Applications Attorney Robert Meek
Appellate PracticeAt the United States Supreme Court building, there are statues of tortoises at the bottom of several lampposts. These tortoises symbolize the slow, deliberate pace of the justice typically delivered by the nation’s highest court. As the Court’s emergency applications attorney, Robert Meek, recently shared with members of the North Carolina Bar Association’s Appellate and Criminal Justice Sections, there also is a statue of a hare, located on the East Pediment at the back of the building.
Read more
Think Twice – Avoiding Waiver of the Attorney-Client Privilege Through Issuance of a Press Release
Litigation SectionYour company has just been sued by a competitor for patent infringement, deceptive advertising, unfair competition, or any number of other business torts. The news spreads quickly across industry publications and blogs, leading to a flood of inquiries from concerned customers wanting to know if the stories have any merit. You feel compelled to issue a press release to reassure them and challenge the claims against your company.
While a press release can be an effective way to communicate your position, it’s crucial to consider the potential risks to your attorney-client privilege. A poorly worded press release can inadvertently waive this privilege, exposing confidential communications to your legal opponents.
Read more
Empowering Seniors Through the Opt-Inspire Initiative
Privacy and Data SecurityThe North Carolina Bar Association is proud to launch the “Opt-Inspire Initiative,” a new pro bono program that empowers seniors with critical digital literacy skills to safeguard themselves from scams and bridge the generational digital divide. Designed by Alexandria (Lexi) Lutz, Senior Corporate Counsel at Nordstrom, where she focuses on privacy, cybersecurity, and artificial intelligence, this initiative addresses the dual challenges of preventing scams and fostering digital connection among seniors.
Read more
Federal Income Tax Update
Tax SectionI. Sections 453 and 1042 Deferral Provisions Can Apply in the Same ESOP Transaction; Berman vs. Commissioner, 163 TC No. 1 (2024).
In 2002, Mr. and Mrs. Berman sold their closely held C corporation stock to an ESOP for promissory notes. They did not receive any sale proceeds in 2002. They purchased qualified replacement property (“QRP”) in an amount equal to or exceeding the gain on the sale of stock to the ESOP. However, some of the QRP purchases did not occur until after the 12-month QRP replacement period. The Bermans elected pursuant to Section 1042 to defer recognition of the entire gain on the ESOP sale. They reported no taxable income from the stock sale to the ESOP.
In 2003, each of Mr. and Mrs. Berman received approximately $450,000 under the ESOP promissory notes. The Bermans used their QRP as collateral for a 90% loan, allowing the lender to keep the remaining 10% as a loan fee. The Bermans later conceded the cash-out loan they collateralized with their QRP was a disguised sale of the QRP. The IRS took the position the cash-out loan caused the Section 1042 deferred gain to be fully recognized in 2003 under the recapture rule of Section 1042(e). The Bermans took the position their 2003 gain should be limited to the $450,000 payments under the installment notes.
The Tax Court agreed with the Bermans. The court stated Sections 453 and 1042(a) are not mutually exclusive. Section 1042 acts to defer gain that otherwise would be recognized under the installment method. By not reporting any of the gain in 2002, the Bermans did not elect out of Section 453, thus allowing the deferral of gain until future note payments were received.
Read more