Detroit Business and Insurance Defense Attorneys Blog

When you can count a home office as a deduction

2012-02-17T16:04:30Z

Tax time is among us and it has Michigan residents getting ready to file returns for both their personal finances and those for their businesses. Many small business owners have chosen to structure their companies as a sole proprietorship, where business finances are lumped in with personal finances. Sole proprietorships are actually the most common form of business in the country.

Both profits and losses of a business wind up on an individual's own tax return (recorded on Schedule C). This can often be a breeding ground for discrepancies as filers determine what sort of deductions might be earned through the company. The IRS tends to key in on filings from sole proprietorships because they are a big contributing factor in the United States' tax gap.

]]> One big deduction sole proprietors aim for is a home office deduction. This is entitled by individuals that have an area in their home that he or she uses as a workspace. For this reason, the filer can deduct some of their home expenses like mortgage interest and utilities. A sole proprietor that operates from home can also claim mileage as a deduction, as well.

However, when it comes to the home office deduction, you have the IRS's full attention. In fact, this is where many sole proprietors mistakenly, or falsely, make deduction claims most frequently, so it is heavily scrutinized.

One way to determine if the home office deduction truly applies is if the workspace in the home is used only for business. While it does not have to be an entire room, it does have to be used for business and business only.

The workspace must also be used consistently. These are the rough perimeters for the deduction and it may be wise to consult an expert to make sure you are accurately recording information on a tax return.

Source: The Journal, "Home office deductions can be dangerous," Brett Hersh, Jan. 29, 2012

Litigation flies after cruise ship accident

2012-02-12T12:00:51Z

Haunting images of a jumbo-sized cruise ship tipped on its side in the water after running aground recently captivated people in Michigan and the rest of the world. Now, the company behind the cruise that crashed off the coast of Italy on Jan. 13 has reached a settlement with consumers in a number of countries. However, it still faces a lawsuit that alleges breach of contract and negligence here in the U.S.

The wreck killed 16 passengers. Presumably, separate lawsuits will be filed for their wrongful deaths. But, for surviving passengers, Miami-based Carnival Corp. reached a deal with consumer groups in Italy, Spain, France and Germany over damages. The company will pay each passenger $14,500 as a settlement in the ordeal.

]]> However, Carnival Corp. for the first time ever faces a lawsuit in the United States. A crewmember of the ship recently filed the complaint in a federal court in Chicago claiming the company is guilty of negligence and breach of contract. The man is also seeking class action status in lawsuit so that fellow victims can join the legal effort.

This U.S. litigation is likely the least of the company's worries, as a criminal lawyer in Italy is preparing to file a complaint with prosecutors there over the incident. That lawyer said that his clients were not satisfied with the cash settlement.

This recent incident shines a light on how delicate operations for some businesses can be, especially when a company is in charge of overseeing the safety of its consumers. The ship that wrecked was carrying 4,200 passengers. Unfortunately, 18 passengers are still missing but have not been ruled dead.

Source: Bloomberg, "Carnival reaches consumer settlement as cruise ship wreck sparks lawsuits," Marco Bertacche and Chiara Vasarri, Jan. 27, 2012

Healthcare companies resolve contract dispute

2012-02-05T12:00:09Z

Healthcare provider Blue Cross Blue Shield of Michigan has resolved a dispute over a business contract with Beaumont Health Systems. As a result of the deal, Beaumont has signed a managed-care contract for BCBS's Blue Care Network that will last for the next five years. The five-year window of time began on January 1, 2012.

The dispute cropped up back in October 2011 when Beaumont started to seek significantly increased base pay. In October, the health system asked Blue Cross Blue Shield of Michigan to raise their base pay by 9 percent. If BCBS failed to do this, Beaumont threatened to terminate its contract early into 2012. Blue Cross Blue Shield of Michigan tried to meet Beaumont halfway, purposing a less than 5 percent increase in base pay. Even though the terms of the settlement were not disclosed by company executives, many expect, based on the evidence, that the deal included an increase in base pay of between 5 and 9 percent.

]]> Blue Cross Blue Shield of Michigan increases the base pay rate to all their Michigan hospitals by 2.6 percent every year.

The CFO for Beaumont said he was pleased with the settlement and glad that Blue Cross Blue Shield of Michigan could continue providing service to patients of the hospital.

The contract also works in measures to improve patient care, according to BCBS representatives. Blue Cross Blue Shield will issue capital payments to the hospital in order to develop a patient care disease registry for the use of primary-care doctors.

Source: Crain's Detroit Business, "Blue Cross, Beaumont end contract dispute with new deal," Jay Greene, Jan. 6, 2012

Finding the right business structure

2012-01-29T17:51:39Z

Detroit business owners have plenty to worry about during day-to-day operations. This preoccupation could lead them to overlook one very basic aspect of their business -- its structure. From sole proprietors to limited liability corporations, there are many different types of business structures, each having a potential effect on your taxes or how the company operates.

If a company has been in business for a long time, that does not mean it shouldn't worry about business structure. Just because a company started in one structure does not mean executives cannot change it later, either. By assessing a company and its needs, changing a business structure could be incredibly worthwhile.

]]> Here is a little bit about the more popular business structures in the United States:

Sole proprietorship: This structure requires no action, as an individual represents the company fully. The government taxes the individual. The worst thing about this structure is that the individual has unlimited liability. This means others can sue the business owner individually, putting their personal assets in danger.

LLC: An LLC solves the liability issues tied in with sole proprietorships and protects one's personal assets. A business owner will have to file Articles of Organization to form, but this is a much more informal structure compared to a C Corporation and S Corporation.

C Corporation: Shareholders own this very common form of a corporation, and appoint a board of directors to dictate policies. A C Corporation is taxed separately, therefore, will have to pay a corporate tax on profits. Because of these taxes, it is not wise for small business owners to structure their company as a C Corporation.

S Corporation: This is like a C Corporation, but geared more toward small business owners. A C Corporation is not taxed separately from its owners. Losses and profits are reported on the individual tax returns of the owners. The only catch is that businesses must be eligible for S Corporation status, as the government tries to limit them.

Picking a proper structure for a business is fundamental and lays the groundwork for everything else. That is why it is important to select an appropriate one.

Source: Business Insider, "Get your business structure fit for 2012 ," Jan. 17, 2012

Johnson & Johnson to pay $1 billion to settle litigation

2012-01-22T15:02:36Z

Johnson & Johnson, the largest manufacturer of health products in the world, has not been immune from a rash of recalled products and other business litigation, some of which has directly affected customers in Michigan.

The latest event in the company's legal saga came recently when Johnson & Johnson reportedly agreed to pay $1 billion to the United States government and most individual states to resolve an investigation that is examining how the company marketed one of its drugs.

]]> A drug called Risperdal is at the center of the investigation, hailed as one of the company's best-selling drugs. Between 2003 and 2010, Johnson & Johnson racked up $24.2 billion in sales of the drug. However, allegations started to fly that the company marketed Risperdal for unauthorized purposes. The United States Food and Drug Administration originally approved the drug to be used by patients to combat schizophrenia and other similar psychotic disorders.

Wanting to open up sales of the drug to a wider demographic of patients, Johnson & Johnson allegedly marketed the drug to be used to help in bipolar disorder, anxiety disorders and even dementia. The FDA did not approve these, among other uses.

Administrators for the company have not yet confirmed the settlement and there is no telling exactly when they will. What is known is that Johnson & Johnson has set aside funds to resolve the case. Each individual state involved in the settlement can choose to accept the deal struck between the federal government and Johnson & Johnson, or choose to go forward with litigation of its own.

Source: Bloomberg, "J&J said to agree to pay $1 billion in Risperdal marketing probe," Margaret Cronin Fisk, Jef Feeley, David Voreacos, Jan. 6, 2012

Small Michigan hospitals look to merge

2012-01-15T19:21:45Z

The last independent hospitals in Michigan are feeling the effects of doing business as a freestanding company. That could be why the 37 hospitals that remain independent are looking around for larger hospitals to potentially merge or affiliate with.

Merging larger hospitals with their smaller counterparts could also bring around monetary benefit. On the heels of federal health reform, the arrangement could help companies earn more money for strides in savings and improvements. While not all of them are willing to discuss it publicly, many hospitals are exploring their options on possible mergers and acquisitions. The entire landscape of hospitals in Michigan has changed dramatically over the last 20 years, when most of them were still freestanding.

]]> A merger can stand to benefit the smaller companies even more. It gives these small hospitals the resources to pay for necessary, but expensive upgrades, in addition to providing service to a wider range of the community. But such arrangement also carries with it negative effects. Smaller hospitals can become entrenched in their community, providing personalized and affordable health care. When merged with a larger hospital, the smaller hospitals no longer call the shots and this community-centric mentality might not remain.

Some smaller hospitals in Michigan are more attractive than others -- whether that is for their updated facilities or high rate of patient satisfaction. Many of these smaller hospitals are heavily scrutinizing the larger companies that are looking to acquire them to ensure they are a good fit. The Michigan Health and Hospital Association monitors these types of mergers and makes sure that the larger company that acquires the smaller one continues fulfilling their obligations to the local community.

Source: Detroit Free Press, "Last Michigan hospitals standing solo flirt with mergers," Patricia Anstett, Dec. 25, 2011

It's best to incorporate at the beginning of the year

2012-01-08T17:35:44Z

Most business planning experts will be quick to point out the benefits or incorporating your business or forming a limited liability corporation here in Michigan or elsewhere throughout the country. Taking these measures with your business will help save it money with taxes and limit your own personal liability as owner.

If you have not done either with your business, you are in luck. The beginning of the year is considered the best time to incorporate your business. One of the main reasons is the fact that an incorporation date is not retroactive. If your business started as a sole proprietorship at the beginning of the year and you later incorporated, you would have to file two tax returns -- one for the sole proprietorship and the other for the corporation. If you incorporate on at the beginning of the year, you can remain as a corporation throughout the whole year and file just one tax return.

]]> This is also the reason why Secretary of State Offices throughout the country are generally swamped around that time of year. Because this is the most logical incorporation date, many people flood to the offices to file. The process can take 40 to 60 days to complete, and with a backlog of filings submitted to a short-staffed government entity, the wait time could increase.

Luckily, business-owners can submit what is called a delayed filing, where they can submit all the paperwork and pick a date that the incorporation or LLC will kick in. Of course, this would not be a good idea if the tax benefits of incorporating were so significant that it is not worth waiting. Or, if you need the legal protection a corporation or LLC brings right away, by all means, do not wait.

But, if you are not in a rush, many small business advisors suggest that a delayed filing could be the best move.

Source: Small Business Trends, "Should you incorporate now or in 2012?" Nellie Akalp, Dec. 20, 2011

Apple to appeal decision on possible patent violation

2012-01-01T19:41:35Z

Many people in Michigan have witnessed the huge success of the iPhone and iPad over the last few years. In fact, many Michiganders are likely equipped with these state-of-the-art devices. But, because of the success by Apple -- the company that produces these electronics -- other companies have rushed production efforts to construct and market similar products.

For example, Samsung Electronics Co. has done just that -- and is looking like its product is a little too similar for Apple's taste. Apple has since introduced business litigation against Samsung over possible patent violations.

]]> Back in April, Apple filed a lawsuit stating the Samsung's line of Galaxy mobile devices --including a smartphone and tablet computer -- were essentially copies of Apple's products, which the company had patented. Smartphones are telephones with other such capabilities as checking e-mail, taking photos and video and browsing the Internet. Tablet computers are small, slim, handheld computers.

Apple attempted to stop Samsung from selling these devices, claiming they violated patents that Apple held. A U.S. judge in San Jose, California would not stop Samsung from selling their products. Now, Apple is planning on bringing its plea to the United States Court of Appeals in Washington to see if it can halt Samsung.

The two companies have been gridlocked in a web of lawsuits for a while now. The companies have filed a combined 30 lawsuits against each other in a geographical location that spans to 10 different countries. Spokespeople for both companies did not immediately offer a comment concerning the ongoing legal battle.

Apple is based out of Cupertino, California while Samsung's home offices are located in Suwon, South Korea.

Source: Bloomberg, "Apple to appeal lost U.S. court bid to block Samsung sales," Karen Gullo, Dec. 8, 2011

Michigan beer maker files federal lawsuit

2011-12-25T20:14:07Z

Every business in Michigan and throughout the nation strives to create a brand that becomes recognizable to the public. If that happens, they also closely guard their brand. When a competitor encroaches on this product, not only can the rivaling business make money off it, but the original business can end up seeing their creation devalued.

Bell's Brewery, a Galesburg, Michigan-based beer maker, is looking to protect its brand by introducing litigation against a California company it alleges infringed on its registered trademark.

]]> Winery Exchange Inc., based out of Novato, California, has produced a lager beer by the name of Copper BELL. A grocery story in Ann Arbor, Michigan currently carries it. The name Copper BELL is a little too close for comfort for administrators at Bell's, according to their federal lawsuit against the California company. Bell's is lobbying to have the U.S. Patent and Trademark Office to deny the trademark application for Copper BELL. Bell's is also requesting an unspecified amount of money in the case.

The lawsuit states that Bell's Brewery sent a letter to Winery Exchange Inc. telling them to cease and desist from using the Copper BELL name and branded material. Bell's main problem with the beer is that the word 'BELL' is displayed prominently on the can with the word 'Copper' printed much smaller. This makes 'BELL' the focal point on the can.

Bell's Brewery also argues that the artwork on the Copper BELL beer can is too similar to the Bell's logo. Copper BELL features three kettles while the Bell's Brewery logo features three bells.

The lawsuit argues that Winery Exchange Inc. did these things in an attempt to trick the public into thinking that the drink was produced by Bell's Brewery. Bell's Brewery especially felt this to be the case now that Copper BELL is being sold in Michigan, where Bell's Brewery is a very popular brand.

Source: AnnArbor.com, "Bell's Brewery files trademark infringement lawsuit after Ann Arbor grocery stocks competitor," Lee Higgins, Dec. 14, 2011

Ford's hope of skirting arbitration payment dashed

2011-12-14T00:48:08Z

The Michigan Supreme Court apparently changed its mind on listening to an appeal from the Ford Motor Company about a $22.6 million arbitration that was awarded to a software company over a breach of contract dispute.

The final decision by the high court, which initially agreed to accept the appeal and hear arguments during November, ends eight years of legal proceedings between the automaker and EnGenius Inc., based out of Livonia, Michigan. The court released a statement that states it no longer thought that questions Ford was raising should continue to be reviewed by a court.

]]> A spokeswoman for Ford highlighted the fact the company thought it had a solid argument to throw out the arbitration and that the company will assess what further legal action it can take in the case.

The business litigation initially began in 2003 when EnGenius sued Ford for allegedly trying to put it out of business so Ford could lay claim to a testing system that inspected every component of a car before it left the factory. Ford enlisted the software company's help to develop the system, in which they sank millions of dollars into. Once EnGenius developed the system, company officials allege that Ford withheld vendor payments and tried to put EnGenius out of business.

Ford pushed the case into binding arbitration and lost. Ford also lost its appeal with the Michigan Court of Appeals.

A lawyer for EnGenius said if Ford remains stubborn and does not pay the $22.6 million, they will go through the courts to try to collect on a $28.5 million bond Ford had to post to appeal the case.

Source: Detroit Free Press, "Michigan Supreme Court tosses Ford appeal in $22.6 million contract dispute," David Ashenfelter, Nov. 29, 2011

Michigan becomes a battleground as healthcare-plan providers sue

2011-12-07T16:38:18Z

Many Detroit readers probably have Blue Cross Blue Shield of Michigan as their healthcare provider. It's one of the largest organizations with which employers contract to provide their workers with healthcare benefits.

It may be of interest, then, that Blue Cross Blue Shield of Michigan is facing a lawsuit that alleges in engaged inunfair business practices.

]]> Aetna, which is one of the nation's largest healthcare-plan providers, filed suit in Detroit Tuesday against Blue Cross Blue Shield of Michigan. In its suit, Aetna is alleging that Blue Cross Blue Shield of Michigan violated federal antitrust laws. Essentially, Aetna's claim is that Blue Cross Blue Shield gradually raised the rates paid by Michigan customers over a four-year-period and then turned around and gave that money to hospitals if the hospitals agreed to charge other healthcare-plan providers (like Aetna) rates that were the same as or higher than Blue Cross Blue Shield of Michigan's rates.

Aetna claims that this practice was a primary reason it had to pull out of the Michigan market. Because Blue Cross Blue Shield of Michigan unfairly tampered with the market, it could not compete and its withdrawal leaves consumer with fewer choices.

Of course, Blue Cross Blue Shield of Michigan sees it differently. A spokesman for the company called Aetna's claims "sour grapes" and said they were all false.

Source: The Detroit Free Press, "Legal challenges mounting for Blue Cross Blue Shield of Michigan," Dec. 7, 2011

Michigan Opportunities Fund marks sixth major business transaction

2011-11-28T23:20:09Z

It was announced yesterday that local firm Budco Holdings Inc. is being acquired by Glencoe Capital. Terms of the acquisition were not announced Monday, when news of the deal was made public.

Budco, which offers e-commerce services to other businesses, is one of the biggest employers in Highland Park. It was founded in Detroit in 1982 and has about $100 million in annual revenue. Glencoe Capital is based in Birmingham.

]]> Any time a business changes hands, there is concern about what it will mean for local jobs. The president of Budco said the investment in her company is going to help Budco grow. She did not make any mention of jobs moving elsewhere.

Glencoe is making the investment through the Michigan Opportunities Fund, which is meant to promote business in our state. It is the sixth such transaction facilitated by the fund.

Thus far, it appears it will be smooth sailing for this deal. However, many mergers and acquisitions hit a snag or two along the way. That is why many business owners choose to work very closely and carefully with attorneys who are familiar with business and corporate law. These attorneys can make sure that the merger or acquisition goes smoothly. They can also inform business owners of any trouble spots they see coming down the pike and can help businesses prepare for any speed bumps. Since mergers and acquisitions are are such delicate maneuvers, many business owners find this sort of guidance to be invaluable.

Source: The Detroit Free Press, "Glencoe Capital buys Budco Holdings," John Gallagher, Nov. 28, 2011.

Detroit casino's contract proposal accepted

2011-11-27T04:22:58Z

For companies both big and small, a contract dispute can put a kink in the profitability and effectiveness of the company, especially if there is a threat of an employee strike.

Recently, about 6,000 workers represented by five unions for Detroit-area casinos threatened to strike if an employment contract was not reached. As discussed in a previous blog, two of the three casinos were able to ratify contracts, leaving MGM Grand Detroit casino scrambling to find a suitable solution.

]]> November brought good news for the company, as news outlets reported that a deal had been reached. Union representatives said the vote was 73 percent in favor of the proposed employment contract. The union apparently turned down the previous deal, claiming the casino was more profitable compared with "peers in Detroit and across the country." The new deal makes modifications to health care deductibles that were in the previously proposed contract. The two sides were also able to come to an agreement on a signing bonus in exchange for higher health care premiums and co-pays.

When a business is faced with contract disputes, the goal is to come to an arrangement that both sides can agree on. With the help of experienced business attorneys, companies can often come to an agreement that is cost-effective and supports the overall growth of the company. During contract disputes, it is important to protect the financial interest of the organization. Companies, both large and small, often work to negotiate all contracts necessary for the functioning of a business, such as real estate contracts, vendor contracts and client contracts.

Source: Detroit Free Press, "MGM Grand Detroit casino workers OK new contract," Matt Helms, Nov. 5, 2011

Wrongful discharge suit targets business, city and councilwoman

2011-11-19T20:20:50Z

Allegations of wrongful discharge can have a negative impact on the reputation of a business and ultimately affect its productivity. In a recent case, an employee of a substance abuse center sued the center, a councilwoman and the city of Detroit after being fired.

Now, the city of Detroit is being forced to pay money in order to settle the wrongful discharge suit filed by a man that was unlawfully let go by a Detroit City Council member in 2009. A lawyer representing the man said that a deal is on the table, but did not disclose the amount and has not yet accepted it.

]]> The plaintiff in the case was an employee at the Mariners Inn substance abuse center and claims that a councilwoman fired him because he politically opposed her. The plaintiff was lobbying to have the councilwoman recalled from her position in 2009. He claims he was fired after the councilwoman pressured his employer to do so.

The plaintiff identified the councilwoman, the substance abuse center and city of Detroit as defendants in the wrongful termination suit. The councilwoman denied any wrongdoing and says she had immunity on the matter. A U.S. district judge ruled that claim down, saying she was not entitled to immunity and that firing someone was outside of her scope of authority.

When a business is faced with a wrongful discharge lawsuit, the allegations and circumstances of the case need to be carefully examined. Frequently, it is possible to identify legal strategies that may bring a resolution that avoids the expense and time commitment of litigation.

Source: Detroit Free Press, "Detroit to settle suit alleging unlawful behavior by Monica Conyers," Tresa Baldas, Nov. 7, 2011

Airport Authority CEO accuses board of illegal meeting

2011-11-11T21:10:28Z

The former chief executive officer of the Wayne County Airport Authority in Michigan is claiming fellow members of the Airport Authority broke the law when they held a session behind closed doors, which is a direct violation of the Open Meetings Act. But a news report points out their actions may have been legal after all and the CEO's claims could have little merit.

Under the law, public bodies must conduct all their business in a public forum. The only time they can conduct a meeting behind closed doors is when they are discussing business litigation that is pending. Because there is no pending litigation on the authority's plate, the woman assumes they held the meeting illegally to discuss her fate as CEO.

]]> The CEO and her lawyer called out the Authority publicly at a recent meeting, pointing out they did not announce what topics they would discuss in the closed-door meeting. Even after the accusations, the woman claims the board offered no explanation as to what matter prompted them to call the meeting.

However, the meeting may not have been executed illegally, as public bodies can also meet behind closed doors if they are receiving and discussing written legal advice from a lawyer. Even so, the discussion must be limited to that topic alone. During the public meeting, a board member cited this rule.

While the debate continues to rage on whether the Airport Authority was in its right to hold the meeting in the confines of a private room, the board hesitated to comment on the situation and directed reporters to speak to their lawyer. It is unclear at this time whether the CEO will pursue any legal action in regards to her allegations against the board.

Source: MLive.com, "Did the Wayne County Airport Authority really violate the Open Meetings Act with Monday's closed session?", Jeff T. Wattrick, Nov. 2, 2011