Funding Needed to Make Food Safety a Reality

Now that the Food Safety Modernization Act has been signed into law, lawmakers face the added challenge of funding the efforts that will make food safety reform a reality. This funding is critical, as the Act has shifted the focus of the FDA from one of reaction to prevention.

Previously, the laws and strategy administered by the Agency primarily focused on the ability to swiftly respond to outbreaks by limiting the ability of contaminated food to reach consumers once cases of food borne illness were identified. This strategy allowed the FDA to focus its limited resources on enforcement and limiting the spread of contamination, rather than preventing these cases in the first instance.

As we previously reported, the Food Safety Modernization Act includes a number of provisions that will change the way the FDA approaches food safety measures. This will include increased inspections and mandatory recall authority. However, with all of this added power and the shift in focus from reaction to prevention, Congress has yet to provide increased funding for the measures. Lawmakers will likely take on this challenge in 2011, and these funding efforts will be critical for the goals of food safety reform to be realized.

For more information regarding FDA regulatory compliance, please contact us at contact@fidjlaw.com.

FDA Seeks to Rid the Market of Unapproved Cough, Cold, and Allergy Drugs

On January, 7, 2011, the U.S. Food and Drug Administration (FDA) published a notice in the Federal Register, informing companies of its efforts to step up enforcement on unapproved cold and cough drugs. The targets of these enforcement efforts are unapproved drugs being marketed for the treatment of cough, cold, and allergies. Previously exempted from certain market approval requirements under the Drug Efficacy Study Implementation (DESI) program, these products are considered new drugs by the FDA.

When the Food Drug and Cosmetic Act (FD&C Act) was enacted, new drugs required approval before they could be legally marketed and sold. Generally, the FD&C Act requires new drugs to be approved for safety, which may be established by the submission of a new drug application (NDA), unless otherwise eligible for an over the counter (OTC) monograph. However, because of their similarities to approved prescription drugs and OTC drugs, several unapproved drugs were temporarily exempted from this process through the DESI program. Under this program, the FDA allowed these products to be marketed and sold until final DESI determinations were made.

With the recent notice published by the FDA, the Agency has announced changes that will affect all orally administered DESI cough, cold, or allergy drugs. First, the FDA announced that any interstate shipment of products with outstanding hearing requests that were withdrawn is now unlawful. Second, the FDA announced that it will consider any pending hearing requests withdrawn, unless companies specifically respond with the intention of pursuing their request. While the FDA specifically names certain firms in the notice, the enforcement efforts also apply to products that are identical, related, or similar (IRS) to those in the DESI program. Additionally, the Agency warns that no further notice will be given prior to commencing enforcement actions.

While this recent roundup of unapproved new drugs signals heightened enforcement by the FDA, these efforts are decades in the making. As illustrated in the Notice, the hearings for most of these drugs had either been withdrawn or pending since the 1980s. While we previously reported the FDAs intentions to step up enforcement in 2011, this recent action shows that the Agency is ready to clear out old matters, one industry at a time.

For more information on FDA enforcement measures or compliance, please contact us at contact@fidjlaw.com.

USDA Issues Draft Guidance Concerning Organic Labeling

The USDA recently announced the issuance of its draft guidance regarding the use of the term “organic” in food labeling. The draft guidance specifically addresses two issues in regards to labeling: the requisite organic ingredients for “made with organic” labeling, and the use of statements advertising the percentage of organic ingredients in final products.

First, the draft guidance details the different categories of organic products and the importance of this distinction in labeling. Under the USDAs National Organic Program (NOP), there are different levels of organic products, with the distinguishing factor being product composition. For instance, products that fall within the “made with organic” category must contain at least 70 percent certified organic ingredients. While a product that has 70 percent certified organic ingredients may be labeled as “made with organic,” the labeling cannot state “100% organic” or simply “organic” because it does not meet the requirements for this category.

In addition to explaining the applicability of the various terms and phrases for organic products, the USDA discussed the use of percentage statements in labeling. According to the draft guidance, a percentage statement, claiming a certain amount of specified organic ingredients, may not be made without the “made with organic” statement on products within this category. For instance, a product that is made with 70 percent certified organic fruit, thus qualifying for the “made with organic” category, may be labeled as being “made with 70 percent organic fruit.” While this percentage statement could not be used without the phrase “made with organic fruit,” the guidance points out that the “made with” statement could be made without reference to percentage, as this will not mislead consumers into believing that the product qualifies for the “organic” category.

With the issuance of this draft, the USDA is seeking comments regarding these issues to help refine its final guidance on this topic. Although only two main issues were specifically addressed by this document, the popularity of organic products and concerns regarding the accuracy of labeling by consumers and manufacturers will likely produce some interesting feedback for the USDA.

For more information about food labeling or USDA and FDA regulatory compliance, please contact us at contact@fidjlaw.com.

Enforcement Emphasis on Employee Classification is Likely to Decrease Payroll Tax Evasion

The Labor and Employment Relations Association (LERA) held its annual meeting on January 7 through January 9, 2011. Among the topics discussed by LERA speakers was the recent “crackdown” on employers who evade payroll taxes by misclassifying or underreporting their workers.

Unless otherwise excluded, IRC §3402(a) requires employers to withhold income taxes on the wages paid to all employees. Issues often arise with regard to employers treating workers as independent contractors instead of employees.

Rev. Rul. 87-41, 1987-1 C.B. 296, provides:

[a]n individual is an employee for federal employment tax purposes if the individual has the status of an employee under the usual common law rules applicable in determining the employer-employee relationship. . . An employee is subject to the will and control of the employer not only as to what shall be done but as to how it shall be done. In this connection, it is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so. . . Conversely, individuals (such as physicians, lawyers, dentists, contractors, and subcontractors) who follow an independent trade, business, or profession, in which they offer their services to the public, generally are not employees.

Significantly, Treas. Reg. §31.3401(c)-1(e) provides that if an employer-employee relationship exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Thus, for a worker who constitutes an “employee” as described above, the employers erroneous issuance of a Form 1099 carries no weight.

Despite these principles offered by the Internal Revenue Service (IRS), Deputy Director and Chief Economist for the Fiscal Policy Institute in New York James A. Parrott reported that 95 percent of restaurants in Brooklyn have “some kind of misclassification.” Parrott also reported that New York enforcement sweeps targeting the restaurant industry identified nearly 500 million dollars in unreported taxes.

Data compiled by the Commerce Departments Census Bureau revealed a 20 percent increase in the number of New York workers who were paid as independent contractors and received IRS Forms 1099 between 2000 and 2005. During the same time period, private payroll employment in New York, which consists of workers who received W-2 forms, only increased by 0.5 percent.

Although misclassification was commonly attributed to illegal immigration, Matthew Capece, an attorney with the Carpenters and Jointers of America, indicated that it now “encompassed many documented citizens of the U.S.” Capece further described the severity of the problem in the construction industry, stating, “There is much more outright fraud and problems with nonreporting than unintentional or negligent behavior And this is not about ma and pa businesses renovating kitchens. Its about a problem that is widespread within the residential construction industry.”

Panelists at the LERA annual meeting described how numerous employers minimize payroll tax liabilities by treating workers as independent contractors or paying them cash “under the table.” Notwithstanding the amount of revenue lost by both the federal government and states, Panelists also emphasized the problems created by misclassification on the workers.

In addition to not being covered by workers compensation, unemployment insurance, or state temporary disability insurance, misclassified and underreported workers lose overtime pay and access to healthcare coverage and other benefits, such as retirement benefits and paid time off.

State enforcement agencies, such as the New York Enforcement Tax Force on Employee Misclassification, continue to conduct “sweeps” for worker misclassifications. Between September 2007 and March 2010, the New York Enforcement Tax Force on Employee Misclassification has identified nearly 35,000 cases of employee misclassification, $457 million in unreported taxes, $13.2 million in unemployment insurance taxes due, and $14 million in unpaid wages.

New Yorks and other states enforcement efforts are likely to reduce payroll tax evasion, as well as assist unaware employees who incorrectly receive Forms 1099 and consequently lose benefits to which they are entitled.

If you have any questions regarding payroll taxes, worker classifications, or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

The IRS Indicates a Second Voluntary Disclosure Program for Offshore Assets is “Very Likely” But Continues to Remain Silent on its Terms

As we previously reported here, tax practitioners at the annual ABA Criminal Tax Institute lobbied for the Internal Revenue Service (IRS) to extend its voluntary disclosure program, which ended on October 15, 2009. The voluntary disclosure program permitted taxpayers who failed to report their offshore assets to voluntarily come forward in exchange for relief from criminal prosecution and partial relief from civil penalties.   

IRS Commissioner Douglas H. Shulman’s speech before the Annual Institute on Current Issues in International Taxation seems to show that these practitioners’ efforts were successful.  During his speech on December 9, 2010, Commissioner Shulman briefly discussed the first program and stated, “Given its success, we are seriously considering another special offshore voluntary disclosure program.”  While acting “in the interest of being fair to the 15,000 taxpayers who came forward in the first offshore voluntary disclosure program”, Commissioner Shulman also indicated that taxpayers coming forward during the second program would be subject to higher penalties and different terms of participation. 

Tax practitioners understand the need for the higher penalty, but believe “there is no need to raise it much beyond the previous 20 percent.” In short, a much higher penalty could deter taxpayers from entering into the program, since in some cases penalties already far exceed the tax owed.  Wish List for the Possible Second U.S. Offshore Voluntary Disclosure Program. 2011 WTD 9-1, Tax Analysts, Worldwide Tax Daily. January 13, 2010. 

It is important to note, however, that even penalties significantly exceeding the previous 20 percent are likely to be less than the “failure to comply” penalties imposed by new legislation. Earlier this year, we reported the enactment of the Foreign Account Tax Compliance Act (FATCA), which according to Commissioner Shulman, “provides the IRS with better tools to cracks down on Americans hiding assets overseas.” FATCA, which becomes effective in 2013, imposes significantly increased information reporting on taxpayers and financial institutions, requiring the disclosure of any information pertaining to U.S. taxpayers holding financial assets outside of the U.S.  Among the IRS’s newest “tools” are the severe penalties for failure to comply. 

The IRS hopes that imminent implementation of FATCA will seriously deter U.S. taxpayers from hiding assets overseas. Commissioner Shulman believes that the passage of FATCA “makes the world a riskier place for U.S. taxpayers still trying to hide their money anywhere around the world.”  Of course, this provides taxpayers currently holding assets overseas with greater incentive to disclose under a second voluntary disclosure program.    

Practitioners have expressed concerns regarding the lack of flexibility in the first voluntary disclosure program.  Including some who were completely unaware of their Foreign Bank and Financial Accounts (FBAR) filing obligations, many taxpayers who participated in the first voluntary disclosure program expressed frustration with IRS officials refusing penalty relief in situations with mitigating circumstances.  Critics of the original program who are lobbying for more flexibility in the new program have stated that “building flexibility into the systems would help lawyers reduce the concerns of prospective voluntary disclosure program participants who want to know that the IRS will at least hear them out.”   Wish List for the Possible Second U.S. Offshore Voluntary Disclosure Program. 2011 WTD 9-1, Tax Analysts, Worldwide Tax Daily. January 13, 2010. 

Such critics also support the idea of the IRS implementing a second voluntary disclosure program without a set expiration date. “Setting a firm deadline requires any subsequent program to have higher penalties, and higher penalties reduce the incentive to come in.” Id. Other practitioners have offered an alternative solution to the issues presented by an “end date” to the program.

A new VDP should be in the form of the mitigation guidelines in the Internal Revenue Manual (IRM) and reflect ongoing IRS policy with respect to previously undisclosed interests in foreign accounts.  Efforts to increase foreign account compliance should not be allowed to destroy the overall voluntary disclosure practice of the IRS and the Department of Justice.

Id.

The IRS’s current voluntary disclosure site directs taxpayers to click on a link to IRM §9.5.11.9 for “more information about the IRS’s voluntary disclosure practice.” This provision states:

It is currently the practice of the IRS that a voluntary disclosure will be considered along with all other factors in the investigation in determining whether criminal prosecution will be recommended.  This voluntary disclosure practice creates no substantive or procedural rights for taxpayers, but rather is a matter of internal IRS practice, provided solely for guidance to IRS personnel.  Taxpayers cannot rely on the fact that other similarly situated taxpayers may not have been recommended for criminal prosecution.

This language is highly unlikely to entice taxpayers to come forward. Voluntary disclosure guidelines should require IRS personnel to impose criminal or civil penalties only after considering the wide range of circumstances in which taxpayers intentionally or unintentionally failed to report their offshore assets.  This type of ongoing approach is much more likely to meet Commissioner Shulman’s goal of “bringing taxpayers with underreported assets and income overseas back into the fold.”

Other than Commissioner Shulman’s speech portraying the likelihood of a second voluntary disclosure program, however, the IRS has yet to comment on when such a program may be implemented, much less its associated penalties or terms. 

If you have any questions regarding voluntary disclosure programs, IRS penalties, FBAR, or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

FASB Clarifies Coming Guidance on Balance Sheet Offsetting

At its January 12, 2011 Board meeting, the Financial Accounting Standards Board (FASB) clarified the scope of coming criteria on when offsetting of financial assets and financial liabilities in the balance sheet is appropriate. These FASB guidelines will be critical to accounting for certain stock lending and stock borrowing transactions.

A year ago, in discussing International Accounting Standard (IAS) 32: Financial Instruments, the International Accounting Standards Board (IASB) and FASB noted that convergence was needed between IASB standards and FASB standards on the criteria for offsetting on the balance sheet. Therefore, FASB initiated a project to establish revised criteria on offsetting. However, in drafting the Exposure Draft for the Board, FASB staff noted that the scope of the project was not clearly defined and returned to the Board for clarification.

Currently, guidance on offsetting is contained in FASB Interpretation No. 39 (FIN 39), Offsetting of Amounts Related to Certain Contracts (March 1992). Nonfinancial assets and liabilities (and nonfinancial derivative products) are not within the scope of the Interpretation and, therefore, are not eligible for offsetting. However, under the IASB-FASB convergence project, the issue arose as to whether nonfinancial assets and liabilities should be addressed in the guidance. But on January 12, 2011, FASB decided that nonfinancial assets and liabilities are not within the scope of the project, thus offsetting is effectively not permitted for those assets and liabilities.

Although the Exposure Draft is not yet completed, past Board meetings have indicated that final FASB guidance will contain a requirement that entities offset a recognized financial asset and financial liability if the criteria for offset are met, whether the right of offset arises from a bilateral or a multilateral arrangement. Moreover, entities should information on the effect of those arrangements on an entitys net exposure, by category of financial instrument, including:

  1. The gross carrying amount;
  2. Amounts deducted as a result of the proposed offset criteria to determine the carrying amounts in the statement of financial position;
  3. The portion of the exposures that is covered by a legally enforceable netting agreement (other than in (2));
  4. The amount of financial instrument collateral (cash collateral and fair value of noncash financial asset collateral should be separately disclosed) obtained or pledged in respect to those assets and liabilities; and
  5. The net exposure after taking into account the effect of the items in (2) “ (4).

The Board has tentatively decided that such information should be presented in a single note and in a tabular format, unless another format is more appropriate. Additionally, financial assets and financial liabilities should be separately disclosed. Additionally, the Boards decided that an entity would also be required to provide a description of the nature of offset agreements for the amounts included in item (3) above.

While no deadline has been set by FASB for issuance of the guidance on offsetting, the Board has decided that the proposed Accounting Standards Update will have a 90-day comment period.

Let Fuerst Ittlemans Tax Planning Practice help your organization prepare for, and thrive in, the ever-changing tax and financial accounting landscape. Contact us today for a free consultation.

National Taxpayer Advocate Report Reveals the IRS’s Lack of Sympathy for Financially Struggling Taxpayers

In the National Taxpayer Advocate 2010 Annual Report to Congress, the Taxpayer Advocate Service (TAS) lays out numerous problems with the Internal Revenue Services (IRS) administration of federal income tax. TASs analysis includes counterproductive methods utilized by the IRS, which continue to compromise taxpayers rights. The full text of the report is available here.

Among TASs main concerns is the IRSs failure to recognize that taxpayers are currently “in the worst economy in at least a generation.” While making periodic announcements regarding future plans to assist financially struggling taxpayers, the IRS increased its annual lien filing by 550 percent since 1999. The most significant finding regarding this increase is the lack of a corresponding increase in revenue collection. As stated in the report:

If liens were clearly correlated with substantial increases in revenue collection, one could at least understand the IRSs position. But over the same period that the IRS has increased lien filings by 550 percent, revenue collected by the IRSs Collection function has remained flat . . . In fact, the IRS must pay filing fees to local county clerks offices an incur its own costs, making it questionable whether liens generate much, if any direct revenue.

The drastic increase in lien filing leads TAS to argue that the IRS focuses almost exclusively on tax collection and not on providing services to the taxpayers. Despite the IRSs extensive enforcement efforts, however, the vast majority of tax revenue is collected through the most inexpensive enforcement procedure, voluntary compliance.

The IRSs response portrays an unsupported rationalization for this result.

While we agree that the vast majority of revenue is collected through voluntary compliance, it is likely that the voluntary compliance rate would drop significantly if the IRS did not have a strong enforcement presence.

The IRSs “strong enforcement presence” ignores the likewise “strong enforcement presence” of creditors other than the IRS on taxpayers who are delinquent on their debts. When computing how much it believes the taxpayer can reasonably pay, the IRS makes no allowance for the taxpayer to pay other debts for which they remain liable. TAS, taking the current economy in account, recognizes the severe effects of IRSs computation.

[o]ther creditors will continue to press the taxpayer to repay these debts. A state agency does not stop garnishing a paycheck and a credit card collection company does not stop calling just because the taxpayer has committed to an IRS payment plan. Thus, the IRSs unwillingness to allow for payments to other creditors is often unrealistic.

The IRS easily ignores the debts to other creditors during its attempts to collect its own debts, but has no issues subjecting taxpayers to “discharge of indebtedness” income when it believes taxpayers have been freed from liabilities. TAS describes the IRSs often incorrect assumption regarding Form 1099-C, Cancellation of Debt.

As a general matter, the IRS assumes that when a creditor files a Form 1099-C, Cancellation of Debt, the creditor is reporting the actual cancellation of a debt and the amount shown on the form is correct However, the IRSs assumptions that a debt was cancelled and the amount reported by lenders is accurate may be incorrect for any of these reasons:

  • Creditors sometimes issue a Form 1099-C because Treasury regulations provide an incentive to do so or as a means of pressuring a debtor to pay “ even where they are not canceling the debt;
  • Creditors sometimes make errors on the forms that debtors then may have to wage an uphill battle to correct; or
  • IRS automated systems cannot distinguish taxpayers with canceled debts who have additional income and owe additional tax from taxpayers with canceled debts who are insolvent, have no additional income, and do not owe additional tax. As a consequence, the IRS may sometimes deny legitimate Earned Income Tax Credit (EITC) claims because it believes the taxpayers income is too high.

The IRSs less than helpful actions also include carelessness and manipulation prior to and during Collection Due Process (CDP) hearings. Congress established CDP hearings to provide taxpayers “with an opportunity to have IRS lien filings or proposed levy actions reviewed by an independent Office of Appeals.” Notably, IRC §6330(c)(3)(C) requires that the Office of Appeals considers whether “any proposed collection action balances the need for the efficient collection of taxes with the legitimate concern of the person that any collection action be no more intrusive then necessary.”

TAS described IRS actions that arguably defeat the purpose of the CDP hearing.

In practice, the IRS frequently issues CDP notices without verifying the taxpayers liability or adequately analyzing his or her ability to pay. In addition, the IRS routinely asks taxpayers to withdraw their CDP hearing requests upon resolution of their cases, which imposes pressure on taxpayers and may cause them to forfeit their judicial review rights if their problems are not ultimately resolved.

We previously reported the Treasury Inspector General for Tax Administrations (TIGTA) findings regarding the effectiveness of controls and procedures (or lack thereof) utilized by the Internal Revenue Service (IRS). Notably, TAS reveals similar criticisms of the IRSs current operations.

In addition to reporting IRSs oppressive attitude towards struggling taxpayers, TAS also reveals the ineffective and inaccurate results of the IRSs reliance on automation. Specific instances of this, such as failures in Power of Attorney (POA) processes were mentioned in TASs report.

IRC processes and systems designed to recognize and record power of attorney (POA) form information continue to frustrate taxpayers and their representatives. Problems associated with POA processing can lead to a lack of representation, adverse IRS action (i.e. unnecessary liens and levies) and lengthy delays in processing tax returns and refunds.

Notably, the Internal Revenue Manuel §5.1.10.5.2 (08-21-2006) states that taxpayers have a right to representation in tax matters. Thus, these failures in POA processes continue to jeopardize taxpayer rights.

Also discussed by TAS is the overwhelming inaccuracy of the IRSs Reasonable Cause Assistant (RCA) program. RCA is “an interactive decision support program” used to “evaluate taxpayers request for abatement of certain penalties.”

[a] study conducted by the IRS itself found that RCA determinations were accurate in only 45 percent of the cases examined, even though all employees thought their determinations were correct. In other words, a coin flip would have procedures nearly the same level of accuracy as the RCA.

In its response to this, the IRS stated that it “is aware of issues related to the RCA and is taking steps to address this issue.” Significantly, the IRS response does not include any explanations for the failure, or the actual “steps” that will be taken in this matter. On numerous occasions, the IRSs response indicated that its software and programs were “up to industry standards.” Notably, however, the IRS has no response as to why its employees are relying almost entirely on automation to make decisions that severely affect taxpayers.

As TAS points out, IRS employees have no incentive to produce accurate results. In fact, the incentive systems currently in place reward those employees that perform their work as quickly as possible; not taking into account the IRSs need to later take corrective actions due to careless mistakes of its rushed employees.

An overemphasis on cycle time creates incentives for IRS employees to take actions quickly, even where doing so produces inaccurate results or delays the final resolution of problems. As a consequence, taxpayers may face inaccurate audit determinations or unwarranted collection actions.

The IRS clearly has no interest in “keeping track” of increases in corrective actions. As discussed by TAS:

Although the number of audit reconsiderations and tax abatements has significantly increased over the past three years, the IRS does not measure the impact of the growing number of audit reconsiderations and does not use the outcomes to improve procedures for original audits.

Notably, the IRS avoids responding to the increases in audit reconsiderations. Instead, in its response, the IRS defends itself by arguing the usefulness of a “cycle time” incentive system.

This analysis presumes that a given measure cannot serve multiple purposes . . . Clearly, cycle time is also closely related to “timelineness” as maintaining timely interactions throughout the collection process is an essential component of delivering cycle time goals. Moreover /timeliness/cycle time is a significant customer concern. The “amount of time you had to spend on this collection issue” was the top improvement priority for collection customers on the most recent collection customer satisfaction survey.

Although taxpayers may appreciate “timely interactions” during their collection procedures, the IRSs response does not take into account the numerous taxpayers who are the victims of inaccurate audit determinations and unwarranted collection actions.

IRS practices seem to suggest that its “concerns” do not revolve around customer satisfaction. Significantly, even if the IRS intends to provide taxpayers with at least satisfactory customer service, it is virtually impossible for it do so with its current resources.  TAS provides an example of this in its report.

Taxpayer Assistant Centers (TACs) are the main form of face to face IRS customer service available to taxpayers. However, the IRSs 401 TACs are within a 30 minute drive of only 60 percent of the taxpaying population. TACs remain out of reach for many rural taxpayers as most are located in more populous areas and only 55 percent are open 36 to 40 hours per week.

TAS continuously emphasizes the ineffectiveness of oppressive practices and reliance on automation. Although the IRS seems to believe otherwise, neither of these philosophies results in efficient tax collection. Research seems to suggest that the IRSs “strong enforcement presence” is less helpful than it believes.

In 2007, TAS examined tax compliance literature to identify factors that affect voluntary compliance. As discussed in TASs report:

Broadly speaking, the factors identified by the 2007 Study and other research include not only the expected likelihood and cost of getting caught cheating (called “economic deterrence”) , but other factors such as compliance norms, trust in the government, and the tax administration process, complexity and convenience of complying, and the influence of preparers. Perhaps surprisingly, this literature suggests that factors other than deterrence may have the greatest impact.

Current IRS practices arguably create additional distrust in the government and tax administration. As it is unlikely that the Internal Revenue Code will become any less complex, change in current IRS procedures, controls, and practices may be the only method to increase efficiency in tax collection. The IRS has to learn to balance “enforcement” with “service,” especially because tax collection is no longer its only role.

As the IRS prepares to administer large portions of the health care legislation, it will have to shift from being an enforcement agency that primarily says, in effect, “you owe us” into an agency that places much greater emphasis on hiring and training caseworkers to help eligible taxpayers receive benefits and work one-on-one with taxpayers to resolve legitimate disagreements.

This new role requires the IRS to oversee the distribution of social benefits to eligible taxpayers. TASs report shows how this function simply cannot be performed by an oppressive and collection-minded agency. Among other recommendations, TAS suggested that the IRS revise its mission statement “to reflect the two distinct administrative roles of tax collection and social benefits delivery.”

The IRS disagreed, stating,

While there are a number of very thoughtful and constructive ideas outlined in the Office of the National Taxpayer Advocates articulation of these issues, the IRS does not agree that the wording of the IRSs mission statement is one of the “most serious problems” faced by taxpayers.”

Here, the IRS once again avoids the issue presented by TAS. If the IRS does not consider the problems presented by TAS, it is unlikely that either of its roles will be effectively administered in the coming year.

If you have any questions regarding TASs report, IRS procedures, or any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com.

Advocacy Groups Push for “Humane” Labeling

Recently, animal welfare advocates have been calling for the labeling of “humane” food.  On December 30, 2010, animal rights groups increased their efforts by updating their petition with the U.S. Department of Agriculture Food Safety Inspection Service (FSIS) and calling for rulemaking to standardize labeling requirements of eggs.  Specifically, the petition urges the USDA to standardize labeling requirements to alert consumers of the conditions under which food products have been produced.  Currently, a few major retailers, like Whole Foods, have signaled their support by announcing their intentions to inform interested consumers by adding signs indicating humanely-produced products in stores.

While there is no official word from the USDA regarding standardizing “humane” labels on eggs and other foods, this is not the only issue raised by consumer groups in regards to labeling.  The term “natural” has also come under scrutiny by consumer groups, as food companies are using this word to market their products to appeal to health-conscious consumers.  As we previously reported, a recent poll revealed that the majority of consumers were skeptical of the term “natural” being used on food labels and would like to see some uniformity regarding how “natural” is defined.  Similar to the use of “humane,” there is currently no standardized definition or certification process regarding the use of “natural” in labeling.  On the other hand, there is currently a certification process concerning the use of “organic” in labeling, which may only be used after several requirements are met.  Advocacy groups are calling for similar requirements to limit the use of “humane” and “cage-free” on food labels to those products that meet these kind of standards.

For more information about food labeling or USDA and FDA regulatory compliance, please contact us at contact@fidjlaw.com.

Joe Diruzzo of Fuerst Ittleman petitions United States Supreme Court for Writ of Certiorari

Joe Diruzzo of Fuerst Ittleman petitions United States Supreme Court for Writ of Certiorari [PDF]

On January 10, 2010, Joseph A. DiRuzzo, III, Esq., CPA, an associate at Fuerst Ittleman filed a Petition for a Writ of Certiorari in the United States Supreme Court inLizardo v. United States, available [here].  The Petition seeks to review the decision of the Third Circuit Court of Appeals, where the Third Circuit held, inter alia, that it lack jurisdiction to hear Lizardo’s appeal under Federal Rule of Appellate Procedure 4, available [here]. The Third Circuit expressly noted a split in opinion from the decision of the Sixth Circuit Court of Appeals in the case of National Ecological Foundation v. Alexander, 496 F.3d 466 (6th Cir. 2007).

The background of the case is as follows.  Lizardo sought to vacate his sentence via collateral attack pursuant to 28 USC sec. 2255.  The District Court of the Virgin Islands denied Lizardo’s sec. 2255 petition.  Lizardo then filed a motion for reconsideration pursuant to Federal Rule of Civil Procedure 59(e), commonly referred to as a motion for reconsideration. At the time of the litigation before the District Court a motion for reconsideration had to be file within 10 days of the final judgment to be timely (currently the time for a motion for reconsideration is 28 days). The Defendant, the  United States, did not object to the motion for reconsideration on timeliness grounds.  The District Court then denied the motion for reconsideration on the merits.

Lizardo then filed a notice of appeal with the Third Circuit.  The United States, at that point, first objected to the notice of appeal as being untimely as defined in Federal Rule of Appellate Procedure 4 and claimed that the Third Circuit lacked jurisdiction to hear Lizardo’s appeal.  In coming to its conclusion that it lacked jurisdiction to hear Lizardo’s appeal, the Third Circuit noted that notwithstanding that motion may be "timely" for district court litigation, it is not necessarily "timely" for circuit court litigation.  The reason that Lizardo’s motion for reconsideration was "timely" at the district court level was that motions for reconsideration, and the then 10 day time limitation, were not founded in statute and hence not jurisdiction.  Rather, motions for reconsideration were based on the rules enabling provisions, and objections based on lack of timeliness are subject to forfeiture by the opposing party is not properly raised.  In 2004 the U.S. Supreme Court issued its decision in Kontrick v. Ryan, 540 U.S. 443 (2004), announced the new "claims-processing" jurisprudence.  Subsequently in 2005 and 2007 the Supreme Court further expounded on the "claims-processing" rules in Eberhart v. United States, 546 U.S. 12 (2005) and Bowel v. Russell, 551 U.S. 205 (2007).

However, the Third Circuit in its decision ruled, in direct conflict with the Sixth Circuit in National Ecological Foundation, that a party could raise a timeliness objection in the first instance at the Courts of Appeals.  The Third Circuit then described its rationale why it departed from the Sixth Circuit.  The Third Circuit took exception to the Sixth Circuit’s approach claiming that there would be a disparity in treatment in the six types of post-judgment motions addressed in Federal Rule of Appellate Procedure 4(a)(4)(A), and the recent amendments to the Rules of Appellate procedure sought to standardize the time in which post-judgment motions must be made.  Additionally, the Third Circuit noted that the Sixth Circuit’s approach produced uncertainty in the appellate timeline.  Finally the Third Circuit quoted to its prior decision in Guitierrez v. Johnson & Johnson, 523 F. 3d 187 (3d Cir. 2008), for the proposition that "the fact that [a] motion was timely for the purposes of the District Court’s schedule does not necessarily made it timely for an appeal to the Court."

Interestingly, Judge Jordan authored both a concurrence and a dissent, concurring that the Court lacked jurisdiction over the appeal of the denial of the 28 USC sec. 2255 petition, but not over the appeal of the denial of the motion for reconsideration.  In Judge Jordan’s dissent, he reaches the same conclusion regarding jurisdiction that the Sixth Circuit reached.

In Lizardo’s Petition for a Writ of Certiorari filed with the U.S.Supreme Court the following highly technical questions were presented for the Court’s consideration:

1.         Whether, in light of this Courts holding in Kontrick v. Ryan, 540 U.S. 443 (2004), and its progeny, the Court of Appeals erred in concluding that when a party forfeits an objection to the untimeliness of a motion at the trial level, that forfeiture does not operate as a bar to a subsequent untimeliness objection at the appellate level, operating to cause the notice of appeal to be “untimely” for the purpose of Fed. R. App. 4, which is also contrary to a decision of another circuit.

2.         Whether, in light of this Courts holding in Kontrick, supra, and its progeny, the Court of Appeals erred in failing to adopt the position of the dissenting opinion which concluded that the Court of Appeals had jurisdiction over Petitioners appeal from the trial courts denial of Petitioners deemed timely motion for reconsideration, which is also contrary to a decision of another circuit.

It remains to be seen if the U.S. Supreme Court will accept jurisdiction, but the Petition ended with the following passage that demonstrates the importance of this issue:

"[T]he determination of a “timely” appeal for Rule 4 purposes is a recurring issue; an issue that potentially affects every appeal before the Circuit Courts, and in turn affecting the number of cases [the U.S. Supreme] could potentially review on the merits.  [The U.S. Supreme Court] should grant the instant Petition to address this extremely important issue of federal procedural law."

The attorneys at Fuerst Ittleman handle complex issues of federal litigation at the District Court, Circuit Court, and if necessary in the U.S. Supreme Court.

Subsequent Remedial Measures Not Admissible in Contract Cases

The U.S. District Court for the Eastern District of Pennsylvania has held that Federal Rule of Evidence 407, which prohibits evidence of measures taken after an injury or harm, which if taken previously would have made the injury or harm less likely, is not solely limited to negligence claims but also to contract actions. The Courts ruling may be found here.

Rule 407 has been extensively used in negligence and tort actions to exclude evidence of remedial measures taken by a defendant to prove that the defendant was previously negligent or culpable, causing a plaintiffs injuries or damages. Hypothetically, if a plaintiff sued a defendant for negligently maintaining a walkway in front of the defendants place of business, courts would not allow the plaintiff to offer at trial evidence of the defendant repairing the dangerous walkway after the plaintiffs injury occurred. Indeed, whereas the plaintiff might wish to use such evidence to prove that the walkway was dangerous, the rule exists to ensure that defendants in such situations improve potential dangers without concern as to whether such repairs might be used against them in the future.

In this case, the Plaintiff claimed that the Rule is inapplicable to breach of contract cases, but the Court disagreed, finding that the Rule covers proof of subsequent remedial measures offered to prove any “culpable” conduct, including breaches of contracts. The Court reasoned that Rule 407 should offer defendants “predictable” protection when they are devising ways to prevent future injury or harm. In this way, a defendant need not assess the likelihood that a plaintiff will sue for breach of contract rather than negligence when determining if the remedial measures could be used against the defendant. According to the District Court, Rule 407 exists so that defendants are not penalized in court for having sought, after causing injury or damages, to prevent similar occurrences in the future.

A thorough knowledge of the Federal Rules of Evidence is necessary when presenting or defending claims in federal court. Fuerst Ittlemans litigators have substantial experience in using these Rules to benefit our clients cases and make persuasive presentations in court.