The IRS’s Rejects Judicial Interpretations of the Six Year Statute of Limitations Rule

On December 17, 2010, the Internal Revenue Service (IRS) “eliminated a perceived ambiguity in the temporary regulations that was brought to light by the Tax Court in Intermountain Insurance Service of Vail v. Commissioner, 134 T.C. No. 11 (9th Cir. 2010)” by publishing a final rule in the Federal Registrar. Definition of Omission From Gross Income, 75 Fed. Reg. 242, 78,897 (December 17, 2010) (to be codified at Treas. Reg. §301.6501(e)-1).  Specifically, the final regulation defines an omission from gross income for purposes of the six-year period for assessing tax.

In Intermountain, the United States Court of Appeals for the Ninth Circuit found that overstatements of basis in cases outside of the trade or business context were not omissions from gross income as discussed in IRC §6501(e)(1) and Treas. Reg. §301.6501-1T. Additionally, the court in Intermountain indicated the “applicable period for assessing tax” for these overstatements in basis was the general three year limitation. In reaching its decision, the Ninth Circuit relied on the Supreme Court interpretation of the predecessor of IRC §6501(e) in Colony v. Commissioner, 378 U.S. 28 (1958).

The IRS rejected this position, relying on National Cable & Telecommunications Association v. Brand X Internet Services, 545 U.S. 967 (2005), inwhich the Supreme Court held that “the Treasury Department and the Internal Revenue Service are permitted to promulgate a reasonable construction of an ambiguous statute that contradicts any court’s interpretation.” The IRS indicated in its final regulation that “the interpretation adopted by the Supreme Court in Colony represented that court’s interpretation of the phrase “omits from gross income,” but this was not the only permissible interpretation of it.”  Definition of Omission From Gross Income, 75 Fed. Reg. 242, 78,897 (December 17, 2010) (to be codified at Treas. Reg. §301.6501(e)-1). 

Note, however, that the IRS’s position depends entirely on whether IRC §6501(e) is in fact ambiguous.  In its final regulation, the IRS indicates that the Supreme Court stated in Colony that the statutory phrase “omits from gross income” is ambiguous. Id.

The Ninth Circuit in Intermountain suggests that the Supreme Court in Colony came to a contrary conclusion: 

Although the Supreme Court initially found the statutory provision ambiguous, that was only a preliminary conclusion before considering the statute’s legislative history. After thoroughly reviewing the legislative history, the Supreme Court concluded that Congress’ intent was clear and that the statutory provision was unambiguous.

Intermountain, 134 T.C. No. 11 at 7.

Additionally, the IRS does not respond to Ninth Circuit’s application of the test from Chevron U.S.A. Inc. v. Natural Res. Def. Council, 467 U.S. 837, (1984),to determine whether the statutory provision at issue was ambiguous.

The first step in Chevron’s two-step analysis is to ask “whether Congress has directly spoken to the precise question at issue” If the intent of Congress is clear, that is the end of the matter, for the court, as well as the agency, must give effect to the unambiguously expressed intent of Congress.

Intermountain, 134 T.C. No. 11 at 8.

Notably, when answering the first step of the Chevron analysis, the Ninth Circuit relied upon the 1958 Supreme Court’s examination of the legislative history of IRC §6501(e)’s predecessor in Colony, IRC §275(c) to determine whether Congress had spoken to the question at issue.

The Supreme Court found the legislative history to be persuasive evidence that Congress was addressing itself to the specific situation where a taxpayer actually omitted some income receipt or accrual in his computation of gross income, and not more generally to errors in that computation arising from other causes. It further indicated that this history shows to our satisfaction that the Congress intended an exception to the usual three-year statute of limitations only in the restricted type of situation already described [an omission of an item of gross income] The statute’s legislative history clarified its otherwise ambiguous text and, as a result, explicated Congress’ intent and the meaning of the statutory provision.

Id.

The predecessor statute, IRC §275(c), contains the exact same statutory language as IRC §6501(e).  “Thus, the Supreme Court’s opinion in Colony, Inc. v. Commissioner, supra, “unambiguously forecloses the agency’s interpretation” of sections 6229(c)(2) and 6501(e)(1)(A) and displaces respondent’s temporary regulations.” Id. 

The Ninth Circuit emphasized the clarity of the Congressional Intent when enacting the predecessor of the statute at issue.  Despite the holding in Colony finding the statutory language to be “unambiguous”, however, the phrase “omits from gross income” as used in IRC §6501(e) is pending before several United States Courts of Appeals.  Definition of Omission From Gross Income, 75 Fed. Reg. 242, 78,897 (December 17, 2010) (to be codified at Treas. Reg. §301.6501(e)-1).

The IRS, relying on the Supreme Court’s language in Colony finding the language to be ambiguous, promulgated its own interpretation of IRC §6501(e). The IRS’s construction of IRC §6501(e) as it pertains to overstatements in basis is provided in the recently published final rule:

The term gross income, as it related to any income other that the sale of goods or service in a trade or business has the same meaning as provided under IRC §61(a), and includes the total of the amounts received or accrued, to the extent required to be shown on the return.  In the case of amounts received or accrued that relate to the disposition of property, and except as provided in paragraph (a)(1)(ii) of this section, gross income means the excess of the amounts realized from the disposition of the property over the unrecovered cost or other basis of the property.  Consequently, except as provided in paragraph (a)(1)(ii) of this section, an understated amount of gross income resulting from an overstatement of recovered cost or other basis constitutes an omission from gross income for purposes of IRC §6501(e)(1)(A)(i). 

Id. at 78,899.

In the recently finalized regulation, the IRS clearly includes the overstatement of basis in the sale of property within the phrase “omission from gross income” regardless of whether the property was sold in course of trade or business.

The IRS indicated that the regulation applies to taxable years with respect to which the six-year period for assessing tax under IRC §6501(e) was open on or after September 24, 2009. Id. at 78,900. Thus, this includes (but is not limited to) all taxable years for which six years have not elapsed from the later of the date that a tax return was due or actually filed, all taxable years that are the subject of any case pending before any court of competent jurisdiction in which a decision has not become final, and all taxable years with respect to which the liability at issue has not become fixed pursuant to a closing agreement. 

If you have any questions regarding overstatements of basis in previous or current tax returns, omissions of income in previous or current tax returns, the applicability of Treas. Reg. §301-6501(e)-1, or questions pertaining to any other tax provision, please contact Fuerst Ittleman, PL at contact@fidjlaw.com

FDA Targets Tainted Dietary Supplements

Last week, the U.S. Food and Drug Administration (FDA) issued a letter to the dietary supplement industry, notifying companies of increased enforcement efforts and seeking cooperation from within the industry. The Letter, released on December 15, warns of products being marketed as dietary supplements that contain materials not qualified as dietary ingredients. The letter notes that, “FDA is very concerned about products marketed as dietary supplements that contain the same active ingredients as FDA-approved drugs, analogs of the active ingredients in FDA-approved drugs, or other compounds, such as novel synthetic steroids, that do not qualify as dietary ingredients.”

With this focus, the FDA indicated three distinct categories of products that the Agency believes are often marketed as dietary supplements but contain undeclared ingredients. These products include those that are marketed for: weight loss, sexual enhancement, and body building. Although these categories of products will receive “extra attention and scrutiny” from the Agency, all products will be subject to the increased enforcement measures. Finally, the letter makes it clear that enforcement will not only be focused on manufacturers and distributors of products but that parties at any stage in the supply chain may be liable for violations, as all are responsible for ensuring compliance with applicable law.

According to the letter, the FDA fears that tainted products may impact consumer safety in addition to undermining public confidence in products that are legitimately marketed as dietary supplements. To this end, the Agency outlined several measures to step up enforcement. For instance, noting that these ingredients often go undeclared in labeling, the Agency announced its intention to increase testing of dietary supplements. In addition to the FDAs traditional approach when violations are discovered, such as the issuance of warning letters, seizures and voluntary recalls, the FDA has established a RSS feed on its website. This new measure will be utilized by the FDA to alert consumers more quickly about dietary supplements that the Agency deems tainted. The FDA has also created a means for the industry to report suspected violations either via email or by anonymously reporting this information on the Agencys website.

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

Embryonic Stem Cell Research Largely Funded by States

Researchers from the Georgia Institute of Technology have published a study shedding some light on the source of funding for embryonic stem cell research. According to the study, most of the research using human embryonic stem cells has been funded by states, rather than the federal government, even though federal spending for stem cell research is higher overall.

While the findings suggest that the federal government is focusing its funds on different types of stem cell research, the current state of the law does not preclude federal funding of embryonic stem cell research. Aaron Levine, an Assistant Professor at Georgia Tech and author of the study, suggested that the disparity in the funding may be due in part to state-adopted programs that incentivize scientific study using human embryonic stem cells.

According to the study, it is likely that these state-initiated incentives were developed to promote research during the Bush Administration, when federal funding for much of this research was eliminated. Although many of these state-led programs may have developed to fill the void by providing a means of funding research that was ineligible for federal funds, Levine found that most of the research being performed during the Bush era was actually eligible for federal assistance. However, it remains unclear whether this disparity reflects the different priorities of the federal government or lack of information regarding the eligibility of federal funds for this type of research.

For more information about the regulatory framework surrounding stem cells or any other stem cell-related issues you may be facing contact us at contact@fidjlaw.com.

Dannon Agrees to Settle Advertising Dispute with the FTC

The Federal Trade Commission (FTC) has announced that Dannon, the makers of Activia and DanActive, has agreed to stop making certain claims about its products. In addition to its settlement with the FTC, Dannon has agreed to pay $21 million to resolve state-led investigations pertaining to its advertising.

Dannons troubles with the FTC began in October, when the Agency filed a complaint against the company. The Complaint specifically alleged that Dannon violated the FTC Act by making certain unsubstantiated claims about its probiotic products. The substance of these claims was that: (1) “drinking DanActive reduces the likelihood of getting a cold or the flu,” and (2) “eating one serving of Activia daily relieves temporary irregularity and helps with slow intestinal transit time.”

The Settlement prohibits Dannon from advertising that its probiotic products reduce the likelihood of cold or flu unless these health claims are first approved by the U.S. Food and Drug Administration (FDA). While the FTCs Announcement notes that “companies usually do not need FDA approval of their health claims in order to comply with the FTC Act,” the Agency insisted on this as a term of the settlement to ensure Dannons compliance with the agreement. In addition, Dannon may not advertise that its probiotic products relieve temporary irregularity or slow intestinal transit unless the company possesses two well-controlled human clinical studies that substantiate these claims.

While the terms of this settlement may be stringent, they are becoming more common as the FTC has targeted other makers of probiotic drinks this year. For instance, the FTC entered into a settlement with Nestle HealthCare Nutrition, Inc., the makers of BOOST Kid Essentials, in May of this year. Although the claims that Nestle made about its product differed from those made by Dannon, namely that BOOST reduced the duration of acute diarrhea in children, the terms of the companys settlement with the FTC were essentially the same. Found here, the Agreement prohibits Nestle from making these types of claims about its products unless otherwise approved by the FDA and backed by two well-controlled human clinical studies.

In addition to targeting advertisements of probiotic drinks, the FTC has launched an attack against claims touting the efficacy of pomegranate in its battle with POM Wonderful. In September, the FTC filed a complaint against the pomegranate juice maker for allegedly making several false and unsubstantiated claims in advertising. Found here, the Complaint sets forth various claims that offended the FTC, including that the pomegranate juice was effective in decreasing blood pressure and the risk of heart disease. Additionally, the Complaint contains a proposed order that contains essentially the same terms as the Dannon and Nestle Agreements. However, POM Wonderful has yet to reach a settlement with the Agency, and as POM has brought its own suit against the FTC, in a matter previously reported in our blog, it is likely that this embroiled battle will continue well into the New Year.

For more information regarding the FTC regulations and substantiation requirements for advertising, please contact us at contact@fidjlaw.com.

FinCEN Assessment of Civil Monetary Penalty Against Unlicensed Money Transmitter Reveals the Importance of Compliance with Federal Regulations

On December 16, 2010, the Financial Crimes Enforcement Network of the U.S. Department of the Treasury (“FinCEN”) announced an assessment of a civil money penalty of $12,000 against a New Jersey money transmitter for non-compliance with the Bank Secrecy Act (“BSA”). A copy of the announcement can be read here. The civil penalty serves as an important reminder to all money services businesses (“MSB”) of their requirements to remain in compliance with federal law.

FinCEN assessed the penalty against Baltic Financial Services, a money transmitter operating out of Montclair, New Jersey, for its non-compliance with money transmitter registration requirements under the BSA. The BSA requires money transmitters to register with FinCEN by filing a registration of money services business (“RMSB”) form, and renewing the registration every two years. There is no fee to register with FinCEN.

Though Baltic maintained a state money transmitters license in New Jersey, FinCEN stated that between 2005 and 2010, Baltic failed to maintain its federal registration and reporting requirements under the BSA despite knowledge of its requirements to do so. According To FinCEN, Baltic also ignored numerous contacts by FinCEN notifying Baltic that its registration had expired.

This case highlights the multiple levels at which an MSB must be compliant in order to operate. Most states require a MSB to obtain a license to conduct business in the state; however, an MSB is also required to register with the federal government and comply with the BSA and its applicable regulations. While the state licensing requirements are generally the more complex of the two, as revealed by this case, companies may face serious consequences for failing to keep up to date with federal registration requirements.

If you have questions pertaining to the BSA, FinCEN regulations, anti-money laundering compliance or how to ensure that your business maintains regulatory compliance at both the state and federal levels, contact Fuerst Ittleman PL at contact@fidjlaw.com.

Key Elements of the Food Safety Modernization Act of 2010

The Food Safety Modernization Act (the Act) contains various sweeping provisions that will expand the FDAs power to regulate food facilities. With provisions for a more stringent registration process, the Act provides for increased oversight by the FDA. In addition to the registration process, another feature added by the Act requires food facilities to formulate and implement various procedures to combat risks that may otherwise lead to contamination. The Act also provides for the regulation of produce safety, which calls for the FDA to engage in rulemaking to establish standards for the production and harvesting of fruits and vegetables. Finally, and most troubling to some, is the power the Act gives to the FDA to issue mandatory recalls. Although many of the provisions in the Act contain exemptions, they are very restricted and only the smallest of businesses and farms may apply.

A. Changes to the Registration Process

Several changes are made to the food facility registration process by the Act. First, the Act contains a provision that requires all registrants to renew their registration every two years, regardless of whether any problems have occurred in connection with their facility. Second, greater detail is provided which will aid in determining whether the primary function of an establishment is retail-based, as opposed to being a food facility. Third, the Act contains provisions for suspension of registrations by the Agency, which can be implemented immediately by the issuance of an order.

1. Biennial Registration of Food Facilities

The Act provides for the mandatory renewal of registration with the FDA every two years for registered food facilities. However, there will be an abbreviated renewal process where a registrant “. . . has not had any changes to such information since the registrant submitted the preceding registration or registration renewal for the facility involved.” While the Act does not contain the substance of this abbreviated process, the Secretary is authorized to formulate this process under the Act.

Mandatory biennial registration renewal alters the current framework, as the FD&C Act does not mandate renewal once the registration process is complete. Additionally, it must be noted that this requirement is not restricted to those who have gotten into trouble with the Agency. Rather, this provision applies to all registrants under the Act.

2. Changed Definition of “Retail Food Establishment”

The Act clarifies definition of “retail food establishment”, to guide the Agency in determining whether an establishments primary function may be properly called a “food facility.” Under the FD&C Act, retail food establishments are not considered “facilities” for the purposes of registration.

While the Act does not change this exemption, it explicitly lists three types of sales that would be considered activities undertaken by retail food establishments. First, when considering the primary function of an establishment, the direct sale of food to consumers at roadside stands or farmers markets is considered an activity of a retail food establishment. Second, the sale and distribution of food through a community supported agricultural program is considered an activity of a retail food establishment. Finally, the Act provides a catch-all exemption to any other direct platform for sale and distribution of food that the Secretary deems proper.

3. Suspension of Registration

The Act authorizes the Agency to suspend the registration of a food facility if the food manufactured, processed, packed, or held by the facility has a “reasonable probability” of causing serious adverse health consequences or death to humans or animals. If registration is suspended, no one may import or export food to or from the United States from such facility, or otherwise introduce food into commerce.

Under this provision, the Agency can suspend the registration of a facility by order, in certain enumerated circumstances. First, registration may be suspended it is determined that the facility “created, caused, or was otherwise responsible. . .” for the reasonable probability of serious adverse health consequences. Second, a facility may have its registration suspended where the facility: 1. either “knew of, or had reason to know of, such reasonable probability, and” 2. “packed, received or held such food.”

Once an order for the suspension of registration has been issued, the Act further provides the registrant an opportunity for an informal hearing. However, this hearing may not be held more than 2 business days after the issuance of the order, unless otherwise agreed by both parties. The substance of the hearing is to concern “. . . the actions required for reinstatement of registration and why the registration that is subject to suspension should be reinstated.” “The Secretary shall reinstate a registration if the Secretary determines, based on evidence presented, that adequate grounds do not exist to continue the suspension of the registration.” Additionally, it must be noted that the Act prohibits the delegation of authority to suspend or vacate an order of suspension to anyone other than the Commissioner.

B. Hazard Analyses and Risk-Based Preventive Controls

The Act requires owners, operators, or agents in charge of facilities to formulate and implement various procedures to deal with problems that may arise during the course of business. These procedures include things like: developing a written hazards analysis, implementing preventive controls and a means of monitoring these preventive measures, a planned course of corrective action to take if the preventive measures are faulty, etc. Further, the Act provides that the person “. . . in charge of a facility shall prepare a written plan that documents and describes the procedures used by the facility to comply with [these requirements].”

These provisions apply to facilities where food is manufactured, processed, packed, or held. However, there are provisions under the Act to allow flexibility for small businesses. “A qualified facility . . . shall not be subject to the requirements under subsections (a) through (i) and subsection (n) in an applicable calendar year.” If qualified under this provision, these facilities do not need to comply with a number of requirements, but must still file documentation to show that the facility has identified hazards and is in compliance with other (non-federal) law.

To be considered a “qualified facility” under the Act, there are two separate routes that a facility may take. The first means of qualification is to be deemed a “very small business,” which Congress has mandated the Secretary define no later than 18 months after the enactment of the Act. Second, a facility may qualify if it has only a limited monetary value of sales, which requires two conditions be met. First, during the three-year period preceding the applicable calendar year, the average annual monetary value of the food sold directly to qualified end-users must be greater than the value sold to all other purchasers during the period. Second, the annual average monetary value of food sold during the period must be less than $500,000 (adjusted for inflation).

C. Standards for Produce Safety

The Act contains provisions requiring the FDA to promulgate standards to ensure the safe production and harvest of fruits and vegetables. As required in the Act, within one year from the date of enactment, the Secretary “. . . shall publish a notice of proposed rulemaking to establish science-based minimum standards for the safe production and harvesting of those types of fruits and vegetables, including specific mixes or categories of fruits and vegetables, that are raw agricultural commodities [which are determined by the Secretary to minimize health risks].”

This Section also provides the FDA with the express authority to exempt small businesses and very small businesses from the promulgated standards where these businesses produce and harvest fruits and vegetables that the FDA determines to be low risk. The FDA may also modify the rules applicable to these businesses under this Section. The Act also expressly exempts produce produced by individuals for their personal consumption from the requirements of this Section.

Additionally, the Act contains an exemption for direct farm marketing if two conditions are met. First, “the average annual monetary value of food sold by such farm directly to qualified end-users. . .” must exceed the average annual value of the food sold to all other buyers during the period. Under the Act, “qualified end users” are either consumers (not businesses) or restaurants or retail food establishments. However, in order for a restaurant or retail food establishment to be considered a qualified end user, the establishment must be located within the same state as the farm that produced the food or within 275 miles from the farm. Second, the average annual monetary value of all food sold must be less than $500,000 (adjusted for inflation).

D. Mandatory Recall Authority

The Act provides the FDA with the authority to issue a mandatory recall authority where the FDA determines there is a reasonable probability that a food is adulterated or misbranded and exposure to the article will cause serious adverse health consequences to humans or animals and the parties do not voluntarily cease distribution of the food. Before issuing a mandatory recall, “the Secretary shall provide the responsible party with an opportunity to cease distribution and recall such article.” However, if the responsible party does not voluntarily comply, the Agency may, by order, require the party to immediately cease distribution of the article and may notify all persons involved in the manufacturing, distribution, importing, packing, etc., and require these persons to cease distribution of the article. 

Conclusion

In sum, the Food Safety Modernization Act sets forth a number of important changes to the current framework. Because of these changes, it may be seen as a sweeping piece of legislation that increases the FDAs authority in a number of areas. While some of the Acts provisions are aimed at providing greater detail to the current framework, several sections break new ground and delve into new areas that the FDA had yet to regulate.

With Offshore Tax Evasion an IRS Top Priority, Practitioners Seek Extension of Voluntary Disclosure Program

As the IRS increases its efforts at combating tax evasion by taxpayers who hide their assets offshore in countries with favorable bank secrecy laws, practitioners at the annual ABA criminal tax institute lobbied for the IRS to extend its popular and effective voluntary disclosure program. Under the IRS voluntary disclosure program, which ended in October, over 15,000 taxpayers self disclosed offshore accounts without threat of criminal prosecution.

The calls for an extension to the voluntary disclosure program come as the IRS Criminal Investigation Unit is partnering with the Department of Justice (“DOJ”) and partners around the world to combat international tax fraud and evasion. As we have previously reported, the US has been active in negotiating with countries that are traditional havens for tax evasion in an effort to curb such practices. Most recently, the US and Panama entered into a tax information exchange agreement. Additionally, in August the US and Switzerland entered into an information exchange agreement that led to information on over 7,500 previously unreported accounts being turned over in the wake of the deferred prosecution agreement between the US and Swiss banking giant UBS.

As the IRS moves beyond UBS, it is focusing on regions where it can make the greatest strides in tax compliance. On November 24, 2010, the Treasury Inspector General for Tax Administration (“TIGTA”) released a report documenting the IRSs increased efforts. According to the report, the amount of civil examination closings involving the Report of Foreign Bank and Financial Accounts (“FBAR”) has increased by 145 percent since 2004 yielding penalty assessments of over $20 million.

The IRS has seen successes in combating international tax evasion as a result of the combination of voluntary disclosures and international enforcement. In fact, even after the formal voluntary disclosure program ended, the Service has received 3,000 voluntary disclosures from people with accounts around the world. Practitioners believe that if the program is brought back it will yield even greater results if the IRS gives disclosers advanced notice of the tax penalties that will be assessed.

If you are facing criminal tax prosecution or have questions about tax law provisions please contact our attorneys at contact@fidjlaw.com.

Victor Stanley, Inc. v. Creative Pipe, Inc. A Lesson in the Consequences of Spoliation of Evidence

A recent series of decisions in the case Victor Stanley, Inc. v. Creative Pipe, Inc. in the U.S. District Court for the District of Maryland, demonstrate the serious consequences that can arise when parties engage in the intentional spoliation of evidence. The decisions stem from numerous incidents of spoliation of evidence by the defendant over a four year period in a case involving alleged violations of copyrights and patents and unfair competition. The decisions provide a lesson not only in the severity of the possible sanctions associated with severe spoliation of evidence but also provide a chart which breaks down important spoliation decisions at the district and circuit court levels.

In the initial ruling on the plaintiffs motion for sanctions, U.S. Magistrate Judge Paul Grimm concluded that the spoliation of evidence was a direct result of the defendants willful permanent destruction of electronically stored information. As a result of the defendants actions the Court granted the plaintiff partial default judgment. Additionally, the court concluded that because the defendant acted willfully in destroying the evidence, the defendant would be held in civil contempt. The court ordered the individual defendant who destroyed the evidence be imprisoned for a period not to exceed two years unless and until he paid the plaintiffs attorney fees and costs related to the spoliation. Additional sanctions included all attorney fees and costs associated with the plaintiffs motion for sanctions. A copy of the courts September 9, 2010 Order can be read here.

Following this ruling, the defendant appealed. On appeal, the District Court modified the sanctions to remove the possible jail sentence. U.S. District Court Judge Marvin Garbis, writing for the court, found that jail was not an appropriate sanction “for a future possible failure to comply” with payment. Additionally, the court ordered the defendants to pay an “agreed minimum amount” of $337,796.36 to the plaintiff within four days of the order.

Fuerst Ittleman has built a reputation for getting results in wide variety of complex litigation cases in federal, state, local, and appellate courts. Contact a complex litigation attorney from Fuerst Ittleman at contact@fidjlaw.com.

Revision to Federal Rule of Civil Procedure 26 Broadens Work Product Protections for Expert Communications with Attorneys

On December 1, 2010, revisions to Federal Rule of Civil Procedure 26 took effect which will have significant implications on the attorney-expert witness relationship. The new changes will limit the amount of expert discovery that is available and should provide for more efficient and cost effective litigation.

Under the former version of Rule 26, experts were required to disclose draft reports and information regarding communications between themselves and the attorney who retained them. The practical effect of the old rule was the development of litigation strategies where experts would consciously avoid sharing drafts of their opinions with counsel and the frequent use of two experts, a testifying expert who would share limited information with counsel and a consulting expert who would be used to provide much needed expert analysis while preparing for trial.

With the changes to Rule 26, draft reports of expert witnesses will no longer be discoverable and will be protected under the work product doctrine. Additionally, communications between counsel and the expert witness will be protected expect for communications that: 1) relate to compensation for the experts study or testimony; 2) identify facts or data that the partys attorney provided and that the expert considered in forming the opinions to be expressed; or 3) identify assumptions that the partys attorney provided and that the expert relied on in forming the opinions to be expressed. The rule also provides that if an expert is not providing a report, but testifying at trial, then the attorney must disclose the facts and opinions to which the expert is expected to testify.

This practical rule change of extending the work product privilege to expert reports and communications should result in reduced costs and more effective and efficient litigation. The attorneys at Fuerst Ittleman have a deep understanding of the mechanics of complex litigation and they can apply that knowledge to a variety of complex litigation cases. Fuerst Ittleman has built a reputation for getting results in wide variety of complex litigation cases in federal, state, local, and appellate courts. Contact a complex litigation attorney from Fuerst Ittleman at contact@fidjlaw.com.

EU Ministers Agree to Legislation Aimed At Ending Bank Secrecy Laws of Member States

On December 7, 2010, the European Union (“EU”) announced an agreement that will require its members to exchange tax information on nonresident citizens in an effort to fight tax fraud. When fully implemented, the agreement is expected to end the use of bank secrecy of members such as Luxembourg and Austria that have allowed EU citizens to hide money from tax authorities.

Under the agreement, the Organization for Economic Development (“OECD”) standard for information exchange on request will be implemented in the EU. However, when the exchange of information is with EU tax authorities and not individual member states, the EU must identify the person under investigation and the tax purpose for which the information is sought.

Additionally, the agreement provides for the automatic exchange of information to be introduced on a step-by-step basis. Starting in 2015, member states will automatically communicate information in five categories: 1) income from employment; 2) director fees; 3) certain life insurance products; 4) pensions; 5) ownership of and income from immovable property. However, member states will not be required to send more information than they receive from the requesting member state in return. By 2018, automatic reporting will extend to dividends, royalty payments, and capital gains.

The EU legislation comes at a time when countries around the world once thought of as tax havens are moving away from tight bank secrecy laws and into an era of openness and transparency. As we previously reported, the United States and Panama recently entered into a bi-lateral tax information exchange agreement for many of the same reasons. A complete list of tax information exchange agreements has been published by the Organization for Economic Cooperation and Development (“OECD”) and can be found here.

The OECD is one of the leading groups calling for more transparency in banking laws. With the backing of the G20, the OECD has taken steps to encourage tax information exchange agreements by proposing a model tax exchange agreement. The OECD also maintains its “blacklist” of uncooperative tax haven nations, its “grey list”, which names nations that have committed to OECD standards but have yet to fully implement the required changes, and its “white list” of countries that have substantially implemented the tax rules. As countries commit to transparency and enter into fully enforceable information exchange agreements, the OCED reclassifies nations.

If you have any questions regarding the potential impact the EU tax exchange agreement may have on your business or any other tax provision, please contact Fuerst Ittleman at contact@fidjlaw.com.