New Corporate Compliance Guidance Issued by the Department of Justice

Earlier this year, under the direction of the new Attorney General, the United States Department of Justice (“DOJ”) issued new guidance for corporate compliance programs. This guidance applies when the DOJ is investigating a business and determining how to prosecute a business for federal crimes, such as certain types of fraud. The DOJ notes that the recently issued “Evaluation of Corporate Compliance Programs” updates the prior guidance and does not replace or substantially alter the investigation process.

Currently, federal prosecution of a business will follow the United States Attorney Manual, which provides factors for determining whether to charge a business, negotiate a plea, or come to some agreement. When making these determinations, the government will, among other items, evaluate the compliance program instituted by the business entity. The new guidance specifically pertains to the business compliance program pertaining to fraud prevention. The new fraud compliance guidance lists 11 topics to be evaluated by the DOJ, including Analysis and Remediation of Underlying Misconduct, Risk Assessment, Senior and Middle Management, and other topic areas.

The new guidance provides granularity and clarity regarding the DOJ evaluation of corporate compliance programs, when facing corporate criminal investigations. Although designed for corporate criminal investigations, this should guide companies implementing a compliance program, especially those in highly regulated industries, such as healthcare, pharmaceuticals, and securities. The updated factors issued by the DOJ can be found at the following link: https://www.justice.gov/criminal-fraud/page/file/937501/download

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New Year, New Requirements – Employers Must Now Use the New Form I-9

One of the changes the new year brought was a new version of I-9 Form.  Beginning on January 22, all employers should now use the newly revised version of the new I-9 Form for verifying employment eligibility.  The form may be found at https://www.uscis.gov/i-9

The latest version of the I-9 Form may be filled out on-line (although it still must be printed out, signed and retained).  The electronic version should help with reducing potential errors due to the new drop-down lists and on-line instructions.  The new I-9 Form can also simply be downloaded from the government website, if you would prefer.

As a reminder, employers are required to complete an I-9 Form for all new employees not later than the third business day of their employment.

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IRS Issues Final Regulations for Foreign Owned Single Member LLCs

The Internal Revenue Service (“IRS”) issued final regulations that will increase reporting requirements for certain foreign owned single member limited liability companies (“LLC”). When a single member LLC is formed, for federal tax purposes, it is a disregarded entity by default. This means that income, loss, and subsequent tax obligations will pass through the entity to the owner. The final regulations change the default rule when a LLC is wholly owned by a foreign person, requiring the LLC to be treated as a domestic corporation separate from its owner.

By having these LLCs treated as a domestic corporation, separate from its owner, the LLC must obtain an Employer Identification Number (EIN) and annually file an information return, Form 5472. The LLC must also maintain records of reportable transactions with the foreign owner or foreign related parties. Ultimately, the IRS believes that this will ensure that disregarded LLCs aren’t used by foreign owners to shield assets from the IRS.

Although this change is designed to prevent abusive practices, this has a practical impact for foreign owners of a domestic LLC, ultimately increasing administrative requirements. For further information, the IRS regulation can be found at the following address: https://www.irs.gov/irb/2016-21_IRB/ar19.html

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Supreme Court Issues Ruling on Insider Trading Case

In its first insider trading decision in nearly two decades, the United States Supreme Court upheld the insider trading conviction of Bassam Salman and reaffirmed the three-decade-old personal benefit standard applied to insider trading violations under federal securities laws. Salman was convicted of securities fraud, after making over $1 million by trading on a tip from his brother-in-law, who was an investment banker with Citigroup at the time.

To prevail in an insider trading case, the Securities and Exchange Commission (“SEC”) must establish that the person who gave the tip, the “tipper”, received a personal benefit in exchange for giving non-public information to the tippee. The Supreme Court ruled that the personal benefit test is satisfied if the tipper gifts the confidential non-public information to a relative or friend. This result is different from the Second Circuit case, United States v. Newman, which stated that the personal benefit test requires an insider to receive something of a pecuniary and valuable nature in exchange for the information. The Supreme Court noted in Salman v. United States that the Newman outcome is inconsistent with the requirements of the personal benefit test and clarified the test is satisfied even in the absence of a tipper’s receipt of a pecuniary benefit.

Notably, the Supreme Court did not address several pressing issues with insider trading. While the Supreme Court stated the personal benefit test is not necessarily satisfied when a tipper discloses information to anyone, it did not specify how close a relationship is required between a tipper and tippee, outside the context of relatives or friends. Similarly, the Supreme Court did not address the constitutionality of aggressive enforcement tactics, including the SEC’s use of the “rocket docket”. The “rocket docket” requires cases to be decided within 300 days of filing, and consequently leaves little time to prepare for a hearing. It is unclear whether the Supreme Court intends to address these concerns in the near future.

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Changes in Local Sales and Use Tax Rates – Nebraska

Effective January 1, 2017, certain Nebraska cities and villages will increase sales and use tax rates. The village of Meadow Grove enacted a new local sales and use tax rate of 1.5%. Elmwood, Weeping Water, and Wilber will increase sales and use tax rates to 1.5% and the city of Papillion will increase its local sales and use tax rate to 2%.

Consumers should be aware that there will be additional sales tax on purchases in these areas. Retailers should be ensure that they are prepared to appropriately collect and remit the increased sales tax beginning January 1, 2017.

For more information regarding the sales and use tax rate increases, sales and use tax compliance, and related information, visit the Nebraska Department of Revenue’s website, available at http://www.revenue.nebraska.gov/salestax.html.

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Tax Related Identity Theft Awareness

The holiday season is underway and while this is a time for family events and holiday parties, this is also the time that many identity theft scams occur. The Internal Revenue Service (IRS) started the process of alerting taxpayers about potential tax-related identity theft and to provide advice on how to prevent threats to your identity.

For prevention, the initial steps include ensuring use of security software on devices, use of secure wireless networks, and never providing sensitive data when replying to emails, texts, or pop-up ads. For individuals that are hit with tax-related identity theft, it may not become apparent until attempting to file taxes or receiving a notice from the IRS and finding out that a tax return has been filed on your behalf. When this occurs, file a complaint with the Federal Trade Commission (FTC) at https://www.identitytheft.gov/, file a report with the credit agencies, and contact the IRS. Importantly, regardless of the situation, ensure that your taxes are filed and paid, even if it requires filing in paper form.

Taking steps now to add layers of security for your social security number and other sensitive data can help prevent tax-identity theft in the future. If you have questions, please contact the attorneys at Vandenack Weaver LLC.

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SEC Updates Rules for Capital Raises Through Regulation D

Over the past couple of years, the Securities and Exchange Commission (“SEC”) has evolved how companies can raise capital, while simultaneously maintaining adequate protection for investors. For example, starting in May of 2016, companies were provided the option of raising capital through the newly created Regulation Crowdfunding, but the SEC was not finished modernizing the laws for exempt securities issuance. On October 26, 2016, the SEC finalized rules amending Regulation D, which contains exemptions from securities registration.

 

Many non-public companies, at all stages, rely on Regulation D for capital raises. Depending upon the unique circumstances of the company, the company may have utilized registration exemptions under rule 504, 505, or 506 of Regulation D. However, exemption under rule 505 became disfavored compared to rule 504 and 506 because of the additional, and oftentimes onerous, regulatory requirements. Recognizing this trend, the SEC finalized rules that increased the amount a company can raise under rule 504 to $5,000,000 dollars, up from $1,000,000, in a 12-month period. This means that the same amount of capital can be raised under rule 504 as was possible under rule 505, allowing the SEC to repeal rule 505.

 

For most companies relying on Regulation D to raise capital, the factors used before the rule change will likely continue to be the predominate factors when determining whether to use rule 504, often referred to as the “seed capital” exemption, or rule 506 exemption. For example, an entrepreneur in the first few years of business that requires additional capital to get a product, currently in research and development, to the market, will likely look to rule 504, which limits the total money raised, but is more navigable for new companies. Moving forward, as the SEC undergoes a change of leadership, starting when SEC Chairwoman Mary Jo White steps down in early 2017, these rules may continue to evolve and any company looking to utilize a Regulation D exemption should consult with legal counsel. For more information on the current changes under SEC Regulation D, please visit the following SEC website: https://www.sec.gov/news/pressrelease/2016-226.html

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