IRS AUDIT NOTICE – What NOT to do!!!!
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Board Enthusiasm
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Management Transitions – The Management Agreement – Automatic Renewal Provisions
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NY Cooperative Application Fees are not Limited by New Law
New York State has clarified that the Housing Stability and Tenant Protection Act does not restrict Cooperative boards from charging more than $20 for purchase applications.
On September 13, 2019, New York State Department of State issued guidance for real estate professionals (the guidance) concerning the Housing Security & Tenant Protection Act of 2019 (the Act). The guidance loosens the application of the $20 limit on application fees and background checks for coops. Therefore, coop boards may charge application fees in excess of $20 in connection with the sale of a coop unit.
It is not clear how this all affects sublet fees and whether they can till be charged above the limit. The other part of the law that still applies to coops is the limit on security deposits to one month’s rent or maintenance. Some coop boards required substantial maintenance escrows as a condition of the approval of the sale. The law prevents this now. Also, the law limits late fees to $50 or 5 percent of monthly maintenance, and has provisions that will make it more expensive and difficult to evict residents who fail to pay their rent or breach the proprietary lease. Stay tuned as we learn more from the State.
Association Document Handling – Avoids Court Sanctions but Leaves Serious Concerns
The cooperative at 118 East 60th Street in Manhattan got lucky. Its books and records including alteration records were maintained at its management firm’s office – Matthew Adam Properties. When sued, the cooperative and management was demanded to turn over alteration records but was unable to do so because of water damage at management’s office. The other reason raised was a 7 year document retention policy which the cooperative and management claimed was followed and thus the requested records were no longer available.
Plaintiff’s counsel argued that the cooperative and management, including the individual board members named as defendants, spoiled the evidence and thus, they should be sanctioned in the suit. The Court refused to do so based upon the photos of the water damage that management presented along with what the Court considered a reasonable document retention policy which it had no reason to believe was not followed.
This is all fine for this lawsuit, but what about all the other books and records that were destroyed by the water damage. Maybe some of those books and records were needed by the cooperative and not having them safe kept from such casualty was a bad idea. In today’s digital age, digitizing documents is easy and if property maintained, can withstand casualty. Once the records are in electronic form, they can be maintained (and proven to be maintained) in accordance with a document retention policy.
The Court in the the 118 East 60th Owners Inc. case didn’t speak about individual board member records regarding alteration decisions. Perhaps plaintiff’s counsel did not go after the individual records just yet. In many cases, board members inadvisably use personal email to conduct board business including alteration and other decisions by the board. Maybe the destroyed records are located in the emails. If the cooperative had an electronic office like and Office of the Board (www.officeoftheboard.com), all of those records would be contained in the Office and all of them could have been either maintained to withstand casualty and/or purged and gone forever as a part of a document retention policy. Stay tuned on the lawsuit, there are probably appeals and future decisions to come. Read the decision here.
New Law – 6 Year Statute of Limitations Applies to Martin Act Claims by the NY Attorney General against Developers
The New York Court of Appeals’ decision that a shorter 3 year statute of limitations applies to New York Attorney General claims under the Martin Act against developers and others, was changed by a new law just signed by Governor Cuomo. The new law establishes that the statute of limitations is not 3, but 6 years. This will make a difference in going after developers for construction defect and under claims under the Martin Act. Essentially claims that the developer did not deliver what was promised in the publicly filed offering plan. Read more.
Using Personal Email Accounts for Business is Problematic
A business entity’s business records can be discoverable in lawsuits. When employees or board members of a business entity are using their personal email accounts like gmail, yahoo, etc. to conduct business, those personal email accounts are fair game when it comes to discovery. The complication is that business emails are now mixed with personal emails in those accounts and an adversary could be allowed access to both the business and personal emails. How embarrassing would that be?
This issue just came up in a lawsuit between Exxon Mobil and the State of New York. Manhattan State Supreme Court Justice Barry Ostrager is presiding over the lawsuit in which Exxon Mobil has accused the Attorney General’s Office of official misconduct and acting with a conflict of interest.
Exxon Mobil has alleged that Schneiderman, while in office, used his personal email account to conduct official business related to his office’s investigation of the company. Exxon Mobil had obtained a series of communications relevant to the litigation through discovery that Schneiderman had forwarded to his government account from his personal email. Based on that finding, the company went for the jugular, demanding broader access to Schneiderman’s personal email account to support their claim of official misconduct on his part.
The company suggested in recent filings that there may be additional communications on Schneiderman’s personal email account that he chose not to forward and preserve. Those communications could have shown he was influenced by environmental activists to trigger an investigation and bring litigation against the company.
The Court ruled that, instead of unfettered access to Schneiderman’s account, Exxon Mobil would be provided with a signed declaration from Schneiderman certifying that anything relevant on the account was made available to them through discovery.
What a mess created by Schneiderman using a personal email account instead of just his office’s business email account.
The Court’s resolution of the discoverability issue, for the moment, does not change the fact that business email in personal email accounts is not shielded from discovery. Schneiderman has to provide a sworn declaration certifying that relevant emails in his personal account were all turned over. Exxon Mobil could appeal the decision and continue arguing for access to the entire personal email account to make its own assessment of what is relevant rather than relay on a declaration by its adversary in a contentious litigation. We’ll have to wait and see.
This serves a warning to businesses and their employees and board members. If you allow employees or board members to use personal email accounts to conduct business, those emails are discoverable and will expose the entire email account (both personal and business emails) to discovery.
Attorney-Client Privilege is essential for Tax Audits
Over the last few months, the IRS and prosecutors have been ramping up efforts to go after tax violators. In Connecticut alone, there have already been 8 arrests and criminal prosecutions, not to mention innumerable civil tax audits. The common thread to people and businesses getting into trouble is that they did not consult an attorney as soon as they received an audit notice.
The difference between having an attorney and not is that nearly all communications with the attorney are covered by the attorney-client privilege. That means no-one including the IRS and prosecutors can get their hands on those communications and use them against you.
If you rely solely upon your tax preparer or new advocate with the government, none of your communications are privileged. That means the IRS and prosecutors can ask your accountant for their emails and other documents exchanged with you. For example, you receive an audit notice and email your tax preparer about it. That email is discoverable. If you emailed your attorney for legal advice on how to approach the audit and discussed your position on items being audited, that email is protected by the attorney-client privilege and not discoverable.
The best approach to an audit is a team approach where you have an attorney retained so the privilege is established and the attorney engages either your tax preparer or others as experts to help. This approach allows for all the communications between your attorney, you and the expert accountants to remain privileged and protected from being used against you. Tax preparer and accountants should be consulting an attorney and having their clients retain counsel at the beginning of an audit so that the privilege is established and communications protected. Proceeding otherwise would be negligent.
Tax Preparer Faces 36 years in Prison for False Client Tax Returns
Ana Nunez, of Naugatuck, also known as Ana Pagoaga has been indicted by a federal grand jury with 12 counts of filing false tax returns. Ana faces up to 36 years in jail. It all started with an audit notice to her client. Her communications on the audit with her client were not confidential.
Nunez owned and operated Nunez MultiServices, LLC, a tax return preparation service located in Naugatuck. From 2011 and continuing at least through 2016, Nunez falsified information on tax returns she prepared for clients and caused the returns to be filed with the IRS.
Tax Crimes usually start with a Simple Audit Notice
On March 22nd, a landscaper from Guilford Connecticut, Louis Pocograno, pled guilty to tax evasion and will be sentenced on June 14, 2019. What started as an audit notice from the IRS, eventually revealed that this self employed landscaper, Poco & Son Lawn Care, LLC, failed to report income during the audit period of 2013 to 2016. He also used a portion of the cash to pay undocumented workers he employed, and failed to collect and pay over the employment taxes for these employees. Mr. Pocograno faces possibly five years in prison, has to pay the IRS $33,383 in past income tax, an additional $250,364.59, in employment tax , plus interest and penalties. Read more.
Once you receive an initial audit notice from the IRS, you should immediately consult with an attorney. Most people contact their tax preparer first, which can be a big mistake. Your communications with your tax preparer are not confidential; meaning the IRS can ask the tax preparer to provide documentation, your emails or letters or other materials that you provided. With an attorney, your communications are confidential and protected by the attorney-client privilege. So, you can communicate freely with your attorney and no one including the IRS is entitled to discover those privileged communications. This allows you to tell your story without fear of incriminating yourself.
We represent individuals and businesses who are subject to IRS and other tax authority audit. We can work with your tax preparer as our expert or another accountant to resolve your issue and keep you out of trouble civilly and criminally. Our communications with the experts are confidential and protected by the attorney-work product privilege. This could mean the difference between resolution and the place the Mr. Pocograno finds himself civilly and criminally.
