Florida Tax Attorney Blog

The Emily Vernon Foundation for Homeless and Abused Animals whose property tax exemption is under challenge by the Palm Beach County property appraiser paid its entire tax bill this week.

Jennifer Sorentrue of the Palm Beach Post summarizes the procedural history of this case well in her May 9 and May 16 articles. The non-profit animal rescue group owns a 5,900-square-foot luxury home, stables and kennels on 7.3 acres in Wellington. The group applied for a charitable property tax exemption last year, but the Palm Beach County property appraiser denied the request on the ground that the house was being used as a residence for the foundation trustee's family

The rescue group appealed the property appraiser's decision to the Palm Beach County Value Adjustment Board, which oversees property tax exemptions. The special magistrate assigned to the case ruled in favor of the animal rescue group, ultimately agreeing that the vast majority of the estate qualified under the charitable exemption requirements. The Value Adjustment Board unanimously approved the magistrate's decision at its April 17 meeting.

The Palm Beach County property appraiser, Gary Nikolits, subsequently filed suit against the Value Adjustment Board alleging that the Board exceeded its authority when it granted the exemption. According to Nikolits, the Board did not have authority to approve the magistrate's decision because Florida law requires a property owner to make a "good faith" payment during the pendency of a petition challenging a property tax assessment, and the animal rescue group had not paid its property tax bill. This is what prompted payment of the tax bill.

The animal rescue group plans to seek a refund if the Value Adjustment Board's decision is upheld in court. Approximately $86,000 (plus penalties and interest) is at stake. That's $86,000 that could be better spent on rescuing and caring for abused and abandoned animals.

In my opinion, the property appraiser's initial denial of the exemption and subsequent challenge illustrates a blatant and impermissible entanglement of government and religion. Here's why: the property appraiser's primary reason for denying the exemption is that the house is also being used as a residence by the foundation's principals. Yet, home-based churches and clergy housing receive property tax exemptions on religious grounds throughout Palm Beach County.

Let me be clear: I'm not saying that these religious exemptions should be denied. I recognize the importance of religion in society and believe that its presence should be facilitated and accommodated. Significantly, however, "[t]he First Amendment has erected a wall between church and state . . . and [t]hat wall must be kept high and impregnable." Everson v. Board of Education, 330 U.S. 1 (1947). This means that the government must be neutral with respect to religion. This means that government may neither favor nor burden religion. Palm Beach County's allowance of property tax exemptions for home-based religious organizations and denial of charitable property tax exemptions for this home-based animal rescue group effects a symbolic endorsement and preference for religious charities over non-religious charities. Government cannot constitutionally convey a message that religion is preferred over non-religion. County of Allegheny v. ACLU, 492 U.S. 573 (1989).

The Treasury Regulations tell us when to value stock issued in a reorganization for purposes of evaluating continuity. Curiously, however, these same regulations are silent as to how to value such stock.

With respect to the valuation date, stock will be valued at the agreement date if: (1) there is a binding merger agreement; and (2) the number of shares to be issued and the non-stock consideration are fixed. Otherwise, stock must be valued at the date on which the transaction closes. But once the valuation date is determined to be either the signing date or the closing date, how do you value the stock? On a typical trading day, a stock will trade within a range of prices, so which price is the relevant price for valuation purposes? The high? The low? The closing price? The weighted average? Curiously, the regulations provide not guidance on this subject.

The most conservative approach would be to use the lowest trading value for the relevant valuation date. So long as continuity requirements are satisfied based on the lowest trading value, you can rest assured that the requisite continuity of interest exists. However, the correct answer is probably less conservative. In the estate tax context, publicly traded securities are valued on the basis of the mean between the highest and lowest quoted selling prices on the valuation date. See Treas. Reg. § 20.2031-2(b). With that being said, there appears to be no reason in law or logic to believe that the same principles would not apply to stock valuation in the reorganization context.

If you need assistance in properly structuring a business reorganization under Section 368 of the Internal Revenue Code, please contact me.

Teresa Mayes, wife of the late Adam Mayes, has admitted to authorities that she was present for the gruesome killings of thirty-one-year-old Jo Ann Bain and fourteen-year-old Adrienne Bain. In addition, she has admitted to assisting with the removal of the two bodies and the transportation of the two kidnapped girls across state lines. She has been charged with two counts of first-degree murder and two-counts of aggravated kidnapping for her admitted role in these crimes.

Despite the egregious nature of these crimes, Teresa Mayes likely has a fairly solid defense.

Insanity

In an interview with Nancy Grace, Teresa Mayes' mother revealed that her daughter, Teresa, suffers from various learning disabilities. The exact nature of these disabilities remains unclear at this time, but according to Teresa Mayes' mother, doctors did not expect that Teresa Mayes would be able to successfully graduate high school. With that being said, an insanity defense may be appropriate in this case.

Under Tennessee law, Teresa Mayes will be excused on grounds of insanity if she proves by clear and convincing evidence that, at the time of the offense: (1) she was suffering from a severe mental disease or defect; and (2) as a result of that mental disease or defect, she was unable to appreciate the nature and quality of her conduct; or the wrongfulness of her conduct.

Insanity, if proven at trial, operates as a complete defense to the charged crime. That is, successful assertion of the insanity defense results in an acquittal on grounds of insanity.

Battered Woman Syndrome

In her interview with Nancy Grace, Teresa Mayes' mother also revealed that Teresa was a victim of domestic violence. According to Teresa's mother, Adam Mayes was controlling and physically abusive.

In the case of a battered woman, a cycle of violence induces a state of "learned helplessness" which keeps the battered woman in the relationship. The cycle begins with an initial building of tension and violence, culminates in an explosion, and ends with a "honeymoon." The battered woman is captive. She begins to believe her husband is omnipotent, and resistance will be futile at best. And, of course, given Teresa Mayes' learning disabilities, she was likely more susceptible to fall victim to Adam Mayes' controlling and abusive ways than an average woman.

To be clear, the battered woman syndrome defense is generally asserted in self-defense cases where an abused woman attacks her abuser. However, the theory underlying the traditional battered woman syndrome defense may, nevertheless, prove helpful to Teresa Mayes' defense. If anything, her status as a battered woman demonstrates an inability to appreciate the nature and qualify of her conduct due to her captor's control over her.

The trial of Florida developer Adam Kaufman who is charged with the murder of his wife begins tomorrow. The primary defense theory is that his wife collapsed onto the magazine rack where Mr. Kaufman discovered her body after experiencing an allergic reaction to a spray tan. The defense has been ridiculed by prosecutors and commentators as offensive and ridiculous, but the defense theory may not be as farfetched as the prosecution is making it out to be.

To be clear, the medical examiner has ruled the death as a homicide. But homicide is simply a cause of death. It's not the crime in and of itself. So the fact that the medical examiner has ruled the death as a homicide does not necessarily speak to the prosecution's ability to prove the crime of murder at trial.

The primary ingredient in the self-tanning spray used in spray tan booths is dihydroxyacetones (commonly referred to as DHA). DHA is a colorless chemical which causes a browning effect when applied to the skin. It has been FDA approved for topical application to the skin. Significantly, however, the FDA has not approved the spray application or the incidental inhalation that can occur during the spray application process. It is certainly plausible that accidental inhalation of this chemical could cause a person to react adversely. In this respect, it is certainly plausible that any adverse reaction to chemical inhalation could include fainting. With that being said, Adam Kaufman's wife could have fainted as a reaction to DHA inhalation earlier that day and fallen onto the magazine rack where her husband discovered her body. In this respect, it should be noted that the medical examiner's determination of homicide was largely based on bruising and trauma in the neck area which could be consistent with strangulation. But this type of neck trauma could also be consistent with falling onto the magazine rack. Moreover, the manner of death (i.e. suffocation) could still be accurate based on pressure placed on the victim's neck by the magazine rack.

The bottom line is this: the level of proof required in a criminal trial is "beyond a reasonable doubt." In light of the foregoing, I think it is unclear whether the prosecution will be able to prove each element of the crime beyond a reasonable doubt. This is especially true when you consider that the victim's own family believes the defense theory. Indeed, some of the victim's family members are expected to testify as defense witnesses at trial.

As a final note, consider what I consider to be the three most ridiculous legal defense theories to have been successfully asserted in a court of law.

1. The PMS Defense

Geraldine Richter was stopped for erratic driving and arrested for driving under the influence of alcohol. A breathalyzer test administered at the scene revealed a blood alcohol level in excess of the legal limit. During the course of the traffic stop, the defendant directed offensive language toward the state trooper and attempted to kick him in the groin. She was acquitted on all charges after her lawyer successfully argued that her violent behavior at the scene of the traffic stop was due to PMS rather than intoxication and that the breathalyzer result was skewed because she was holding her breath in her fit of rage.

2. The Gay Panic Defense

In 2009, Joseph Biederman was acquitted on murder charges after stabbing Terrance Hauser 61 times with a medieval sword after his defense attorney asserted what is known as the gay panic defense. In essence, this is a legal defense in which a person claims temporary insanity as a result of having been at the receiving end of a homosexual advance.

3. The Twinkie Defense

In Dan White's 1979 trial for the murders of San Francisco city supervisor Harvey Milk and San Francisco mayor George Moscone, defense counsel was able to obtain a lesser conviction of voluntary manslaughter by arguing diminished capacity due, in part, to defendant's poor diet which was high in sugary junk foods.

Is the spray tan murder defense up there with these three or does it have legitimate merit? Personally, I think that supporting facts and evidence are present in what has been dubbed the spray tan murder case which were lacking in these other cases. With that being said, I think that the defense theory has a reasonable chance of success at trial.

Under the continuity of proprietary interest doctrine, a substantial part of the proprietary interest in the target corporation must be preserved in the reorganization. As to what constitutes a "substantial part," the treasury regulations indicate that 40% is sufficient. See Treas. Reg. § 1.368-1T(e)(2)(v), Example (1). That is, the requisite level of continuity is preserved if at least 40% of the value received for the target stock is in the form of stock in the acquiring company. While there are cases out there finding the requisite level of continuity where stock of the acquiring company constitutes less than 40% of the total merger consideration, taxpayers are well-advised to structure the transaction to satisfy the 40% threshold.

But even then, the transaction may be subject to fluctuations in value. Historically, where the merger consideration consisted of a fixed number of shares, the risk was that the stock would decline in value between the signing of the merger agreement and the closing date and, thereby, cause the merger consideration to consist of less than 40% of the total merger consideration. These types of valuation issues have been largely mitigated by the signing date rule under which valuation occurs at the close of the day before the signing of the merger agreement in cases where it applies. However, valuation concerns have not been eliminated, especially in the private company environment.

Unlike public company stock for which an active market exists, there is no established market for stock of privately held companies. As a result, valuation of the shares is a subjective determination to which the IRS is not bound. Thus, even in cases where the signing date rule applies, the actual value of the shares on the day before signing is susceptible to challenge by the IRS. Consequently, valuation risks continue to persist in the private restructuring environment.

Although valuation risks cannot be eliminated in the private restructuring environment, restructuring transactions can be proactively structured so that a successful valuation challenge by the IRS doesn't turn into a double-level tax disaster. In this respect, the reverse forward merger structure is one of the soundest forms of protection. Here's how it works:

Step 1: acquiring company sets up two subsidiaries, Sub1 and Sub2.

Step 2: reverse merger of Sub1 into target company.

Step 3: forward merger of target company with and into Sub2.

Under this structure, if the share valuations are respected, the separate steps would, more likely than not, be integrated, and the steps would, collectively, qualify as a tax-free reorganization. Obviously, this is the desired result. However, if the share valuations are successfully challenged, the reverse merger would constitute a qualified stock purchase of the target shares, while the forward merger would constitute a good (A) reorganization. The result? A single layer of tax at the shareholder level. Thus, while the transaction is not tax-free in its entirety, the reverse forward structure avoids the double layer of taxation (i.e. at both the shareholder and corporate levels) that would otherwise be triggered by a successful valuation challenge.

Governor Rick Scott's task force will meet today for the first time to examine Florida's controversial "Stand Your Ground" law. The seventeen-member task force will receive public testimony throughout the state. After hearing this testimony and evaluating the statute, the task force will make recommendations to Governor Scott and the Florida Legislature.

So what should be done about this law: repeal or reform? Despite high emotions for an all-out repeal of the "stand your ground" right in the wake of the shooting death of Trayvon Martin, reform is probably the more appropriate route.

It remains important that the people of Florida feel confident in their right to defend themselves under the appropriate circumstances. At the same time, it is crucial that the people of Florida understand that deadly force must be used only as a last resort. I think that a return to the common law duty to retreat could be the best way to reconcile these seemingly irreconcilable goals.

Like Florida's "Stand Your Ground" law, the common law duty of retreat recognizes every man's right of self-defense. However, the common law of self-defense requires a person to make a reasonable effort to retreat before employing deadly force. Under the common law, a person may not resort to deadly force without first exhausting every reasonable non-deadly means to avoid the danger.

To be clear, I believe that a "stand your ground" right should continue to exist in cases where a person is attacked in his or her home. But this is not inconsistent with the common law's "castle doctrine," which abrogates the duty to retreat when a person is attacked in his or her home.

But moving the "castle doctrine" out of the castle and into the streets clearly appears to have been a mistake. Trayvon Martin in Florida and Daniel Adkins, Jr. in Arizona are only the most recent victims of this mistake.