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Miami

Cypen & Cypen
NEWSLETTER
for
FEBRUARY 19, 2009

Stephen H. Cypen, Esq., Editor

1. THE AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009:

On February 17, 2009, President Barack Obama signed the American Recovery and Reinvestment Act into law. According to an e-mail your editor (and surely millions of others) received on that date, ARRA is the first of many historic steps designed to help America climb out of crisis. According to the president’s e-mail, the recovery plan will create or save 3.5 million jobs, provide tax cuts for working and middle-class families, and invest in health care and clean energy. The following partial summary of ARRA provisions comes from the Senate Finance Committee and the House Ways & Means Committee. The full 19-page summary is available at http://waysandmeans.house.gov/media/pdf/111/arra.pdf:

“Making Work Pay” Tax Credit. The bill would cut taxes for more than 95% of working families in the United States. For 2009 and 2010, the bill would provide a refundable tax credit of up to $400 for working individuals and $800 for working families. This tax credit would be calculated at a rate of 6.2% of earned income, and would phase out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 for married couples filing jointly). Estimated cost: $116.199 Billion over 10 years.

Economic Recovery Payment to Recipients of Social Security, SSI, Railroad Retirement and Veterans Disability Compensation Benefits. The bill would provide a one-time payment of $250 to retirees, disabled individuals and SSI recipients receiving benefits from the Social Security Administration, Railroad Retirement beneficiaries and disabled veterans receiving benefits from the U.S. Department of Veterans Affairs. The one-time payment is a reduction to any allowable “Making Work Pay” tax credit. Estimated cost: $14.225 Billion over 10 years.

Refundable Credit for Certain Federal and State Pensioners. The bill would provide a one-time refundable tax credit of $250 in 2009 to certain government retirees who are not eligible for Social Security benefits. This one-time credit is a reduction to any allowable “Making Work Pay” tax credit. Estimated cost: $218 Million over 10 years.

Increase in Earned Income Tax Credit. The bill would temporarily increase the earned income tax credit for working families with three or more children. Estimated cost: $4.663 Billion over 10 years.

Refundable First-time Home Buyer Credit. Last year, Congress provided taxpayers with a refundable tax credit that was equivalent to an interest-free loan equal to 10 percent of the purchase of a home (up to $7,500) by first-time home buyers. The provision applies to homes purchased on or after April 9, 2008 and before July 1, 2009. Taxpayers receiving this tax credit are currently required to repay any amount received under this provision back to the government over 15 years in equal installments, or, if earlier, when the home is sold. The credit phases out for taxpayers with adjusted gross income in excess of $75,000 ($150,000 in the case of a joint return). The bill eliminates the repayment obligation for taxpayers who purchase homes after January 1, 2009, increases the maximum value of the credit to $8,000, removes the prohibition on financing by mortgage revenue bonds and extends the availability of the credit for homes purchased before December 1, 2009. Estimated cost: $6.638 Billion over 10 years.
Sales Tax Deduction for Vehicle Purchases. The bill provides all taxpayers with a deduction for State and local sales and excise taxes paid on purchase of new cars, light trucks, recreational vehicles and motorcycles through 2009. This deduction is subject to a phase-out for taxpayers with adjusted gross incomes in excess of $125,000 ($250,000 in the case of a joint return). Estimated cost: $1.684 Billion over 10 years.

Temporary Suspension of Taxation of Unemployment Benefits. The bill temporarily suspends federal income tax on the first $2,400 of unemployment benefits per recipient. The proposal is effective for taxable year 2009. Estimated cost: $4.740 Billion over 10 years.

Extension of Alternative Minimum Tax Relief for 2009. The bill would provide more than 26 million families with tax relief in 2009 by extending AMT relief for nonrefundable personal credits and increasing the AMT exemption amount to $70,950 for joint filers and $46,700 for individuals. Estimated cost: $69.759 Billion over 10 years.

De Minimis Safe Harbor Exception for Tax-Exempt Interest Expense for Financial Institutions. Under current law, financial institutions are not allowed to take a deduction for the portion of their interest expense that is allocable to such institution’s investments in tax-exempt municipal bonds. In determining the portion of interest expense that is allocable to investments in tax-exempt municipal bonds, the bill would exclude investments in tax-exempt municipal bonds issued during 2009 and 2010 to the extent that these investments constitute less than two percent (2%) of the average adjusted bases of all the assets of the financial institution. Estimated cost: (Included in estimated cost of next provision).

Modification of Small Issuer Exception to Tax-Exempt Interest Expense Allocation Rules for Financial Institutions. As described above, financial institutions are not allowed to take a deduction for the portion of their interest expense that is allocable to such institution’s investments in tax-exempt municipal bonds. For purposes of this interest disallowance rule, bonds that are issued by a “qualified small issuer” are not taken into account as investments in tax-exempt municipal bonds. The bill would increase the dollar threshold to $30,000,000 (from $10,000,000) when determining whether a tax-exempt obligation issued in 2009 and 2010 qualifies for this small issuer exemption. Estimated cost: $3.234 Billion over 10 years.

Eliminate Costs Imposed on State and Local Governments by the Alternative Minimum Tax. The AMT can increase costs of issuing tax-exempt private activity bonds imposed on State and local governments. Under current law, interest on tax-exempt private activity bonds is generally subject to the AMT, which limits marketability of these bonds, and, therefore, forces State and local governments to issue the bonds at higher interest rates. Last year, Congress excluded one category of private activity bonds (tax-exempt housing bonds) from AMT. The bill would exclude the remaining categories of private activity bonds from AMT if the bond is issued in 2009 or 2010. Estimated cost: $555 Million over 10 years.

Delay Application of Withholding Requirement on Certain Governmental Payments for Goods and Services. For payments made after December 31, 2010, the Internal Revenue Code requires withholding at three percent rate on certain payments to persons providing property or services made by Federal, State, and local governments. The provision would delay for one year application of the three percent withholding requirement on government payments for goods and services in order to provide the Treasury Department time to study the impact of this provision on government entities and other taxpayers. Estimated cost: $291 Million over 10 years.

Qualified School Construction Bonds. The bill creates a new category of tax credit bonds for construction, rehabilitation or repair of public school facilities or for acquisition of land on which a public school facility will be constructed. Estimated cost: $9.877 Billion over 10 years.

Extension and Increase in Authorization for Qualified Zone Academy Bonds. The bill would allow an additional $1.4 Billion of QZAB issuing authority to State and local governments in 2009 and 2010, which can be used to finance renovations, equipment purchases, developing course material, and training teachers and personnel at a qualified zone academy. In general, a Qualified Zone Academy is any public school below college level that is located in an empowerment zone or enterprise community and is designed to cooperate with businesses to enhance academic curriculum and increase graduation and employment rates. QZABs are a form of tax credit bonds that offer the holder a Federal tax credit instead of interest. Estimated cost: $1.045 Billion over 10 years.

Tax Credit Bond Option for State and Local Governments (“Build America Bonds”). The Federal government provides significant financial support to State and local governments through the federal tax exemption for interest on municipal bonds. Both tax credit bonds and tax-exempt bonds provide a subsidy to municipalities by reducing the cash interest payments that a State or local government must make on its debt. Tax credit bonds differ from tax-exempt bonds in two principal ways: (1) interest paid on tax credit bonds is taxable and (2) a portion of the interest paid on tax credit bonds takes the form of a Federal tax credit. The Federal tax credit offsets a portion of the cash interest payment that the State or local government would otherwise need to make on the borrowing. For 2009 and 2010, the bill would provide State and local governments with the option of issuing a tax credit bond instead of a tax-exempt governmental obligation bond. Because the market for tax credits is currently small given current economic conditions, the bill would allow the State or local government to elect to receive a direct payment from the Federal government equal to the subsidy that would have otherwise been delivered through the Federal tax credit for bonds. (Very clever.) Estimated cost: $4.348 Billion over 10 years.

Qualified Energy Conservation Bonds. The bill authorizes an addition $2.4 Billion of qualified energy conservation bonds to finance State, municipal and tribal government programs and incentives designed to reduce greenhouse gas emissions. Estimated cost: $803 Million over 10 years.

Plug-in Electric Drive Vehicle Credit. The bill modifies and increases a tax credit passed into law at the end of the last Congressional Session for each qualified plug-in electric drive vehicle placed in service during the taxable year. The base amount of the credit is $2,500. Estimated cost: $2.002 Billion over 10 years.

Parity for Transit Benefits. Current law provides a tax-free fringe benefit employers can provide to employees for transit and parking. Those benefits are set at different dollar amounts. The provision would equalize the tax-free benefit employers can provide for transit and parking. The proposal sets both the parking and transit benefits at $230 a month for 2009, indexes them equally for 2010 and clarifies that certain transit benefits apply to federal employees. Estimated cost: $192 Million over ten years.

Extension of Emergency Unemployment Compensation. Through December 31, 2009, the bill continues the Emergency Unemployment Compensation program, which provides up to 33 weeks of extended unemployment benefits to workers exhausting regular benefits. Estimated cost: $26.96 Billion.

Increase in Unemployment Compensation Benefits. The bill increases unemployment weekly benefits by an additional $25 through 2009. Estimated cost: $8.8 Billion.

Premium Subsidies for COBRA Continuation Coverage for Unemployed Workers. Recession-related job losses threaten health coverage for many families. To help people maintain coverage, the bill provides a 65% subsidy for COBRA continuation premiums for up to 9 months for workers who have been involuntarily terminated and for their families. The subsidy also applies to health care continuation coverage if required by states for small employers. Estimated cost: $24.7 Billion.

Debt Limit Increase. The bill increases the statutory limit on the public debt by $789 Billion (obviously), from $11.315 Trillion to $12.104 Trillion!

We hope (and trust) that the foregoing Committees’ summary is accurate. For those of you who wish to watch your money drift away, visit http://www.recovery.gov. That site also links to a copy of the bill itself.

2. FLORIDA APPELLATE COURT UPHOLDS FORFEITURE OF HOLLYWOOD CO-CONSPIRATOR COP’S PENSION:

Former Hollywood Police Officer Kevin Companion appealed from an administrative decision rendered by the Board of Trustees of the City of Hollywood Police Officers’ Retirement System forfeiting his retirement benefits. In Federal Court, Companion had pleaded guilty to the crime of conspiracy to possess heroin with intent to distribute. Following its earlier decision in Simcox vs. City of Hollywood Police Officers’ Retirement System, 988 So. 2d 731 (Fla. 4th DCA 2008) (see C&C Newsletter Special Supplement for August 27, 2008), the Florida Fourth District Court of Appeal affirmed. We are pleased to have served as co-counsel for our regular client, Board of Trustees of City of Hollywood Police Officers’ Retirement System. Companion v. The City of Hollywood Police Officers’ Retirement System, Case No. 4DOA-570 (Fla. 4th DCA, February 18, 2009). Because Simcox and Companion were co-conspirators, in order to provide context, we are reproducing our earlier piece on the Simcox case:

Former police officer Thomas Simcox appealed from a final administrative decision rendered by the Board of Trustees of the City of Hollywood Police Officers’ Retirement System forfeiting his retirement benefits. In federal court, Simcox had pleaded guilty to the crime of conspiracy to possess heroin with intent to distribute. Because competent evidence established that Simcox committed a “specified offense” under Section 112.3173(2)(e)(6), Florida Statutes, the Florida Fourth District Court of Appeal affirmed.

Simcox worked as a City of Hollywood police officer until he resigned on February 22, 2007, less than a month after a federal criminal information had been filed against him. The information charged Simcox with one count of conspiracy to possess with intent to distribute a controlled substance, in violation of federal law. The charges arose from an undercover sting operation conducted by the Federal Bureau of Investigation targeting corruption within the Hollywood Police Department.

Simcox pleaded guilty as charged. During the plea colloquy, Simcox admitted that he had provided escort services for a truck driver who was portrayed as carrying multiple kilograms of heroin. Simcox's role was to make sure that the truck driver encountered no problems with his delivery. Simcox conceded that he, his co-conspirators and the undercover officers discussed the operation in detail, including the counter-surveillance techniques they would employ and the methods they would use to ensure that the heroin delivery was successful. Simcox acknowledged that after escorting the truck, he returned to a hotel room in Miami Beach where he received payments for these activities. While in that hotel room, he and the co-conspirators discussed how the operation had gone, including some of the surveillance techniques and methods they had used. The federal court adjudicated Simcox guilty and sentenced him to 135 months incarceration.

After the conviction, the Board held a preliminary hearing and decided to conduct a formal hearing on whether Simcox had forfeited his retirement benefits pursuant to Section 112.3173, Florida Statutes.

At the formal hearing, the Board found that Simcox had committed a "specified offense" forfeiting his retirement benefits under Section 112.3173(2)(e)(4), Florida Statutes, because the acts underlying the federal crime of which Simcox was convicted would support a Florida conviction for a Chapter 838 felony under both Section 838.016, unlawful compensation for official behavior, and Section 838.022, official misconduct. Alternatively, the Board found that the federal conviction fell within the catch-all provision, Section 112.3173(2)(e)(6), Florida Statutes.

Review of the Board's forfeiture order is governed by Section 120.68, Florida Statutes. The Board's final action may be set aside only upon a finding that it is not supported by substantial competent evidence in the record or that there are material errors in procedure, incorrect interpretations of law or an abuse of discretion.

Section 112.3173(3), Florida Statutes, implements the portion of the Florida Constitution that provides the framework for forfeiture of public retirement benefits:

Any public officer or employee who is convicted of a specified offense committed prior to retirement, or whose office or employment is terminated by reason of his or her admitted commission, aid, or abetment of a specified offense, shall forfeit all rights and benefits under any public retirement system of which he or she is a member, except for the return of his or her accumulated contributions as of the date of termination.

Two statutory definitions of "specified offense" pertain to this case. First, Section 112.3173(2)(e)(4), Florida Statutes, provides the meaning: "any felony specified in chapter 838, except ss. 838.15 and 838.16." Second, the "catch-all" provision section of 112.3173(2)(e)(6), Florida Statutes, defines "specified offense” as,

[t]he committing of any felony by a public officer or employee who, willfully and with intent to defraud the public or the public agency for which the public officer or employee acts or in which he or she is employed of the right to receive the faithful performance of his or her duty as a public officer or employee, realizes or obtains, or attempts to realize or obtain, a profit, gain, or advantage for himself or herself or for some other person through the use or attempted use of the power, rights, privileges, duties, or position of his or her public office or employment position.

The term "felony" means any criminal offense that is punishable under the laws of Florida or that would be punishable if committed in Florida, by death or imprisonment in a state penitentiary.

On appeal, Simcox argued that the acts constituting his federal conviction were not punishable as a "specified offense" in Florida under Section 112.3173 , Florida Statutes. He maintained that his actions in furtherance of the drug trafficking scheme were unrelated to his position as a police officer; that he did not use his power, rights, privileges, duties or position as a police officer when participating in the scheme; and that his role in the scheme was merely that of an unlawful citizen.

A public officer or employee may have his pension benefits forfeited if the acts underlying the federal crime of which he was convicted or admitted to during his guilty plea would support a Florida conviction for a Chapter 838 felony or other felony described in Section 112.3173(2)(e)(6) , Florida Statutes.

Contrary to Simcox's arguments, the record contained substantial competent evidence sufficient to support forfeiture under Section 112.3173(2)(e)(6) , Florida Statutes. In finding that the crime was related to Simcox's position as a police officer, the Board relied upon the admissions during his plea colloquy. In that plea colloquy, Simcox admitted that he participated in a drug trafficking scheme to transport over one kilogram of heroin; his role was to make sure the truck driver encountered no problem with his delivery; he utilized counter-surveillance and other methods to ensure that the delivery was successful; and he received payment for his corrupt services. These concessions supported the Board's conclusion that Simcox used the expertise he gained as a law enforcement officer to facilitate the scheme.

By accepting $8,000 in exchange for protecting and escorting the drug deliveryman, Simcox obtained an advantage for himself. He knowingly intended to violate the duties he owed to the public and the public agency for which he acted and was employed by committing those acts. Given these facts, the record supported the finding that Simcox obtained his monetary advantage through use or attempted use of his privileges, experience and duties, which were all a part of his position as a police officer. "Faithful performance" of a "duty" as a police officer under Section 112.3173(2)(e)(6), Florida Statutes, does not allow an officer to traffic in drugs when off duty.

At this point, the court turned to an issue of first impression in the State of Florida: whether or not forfeiture is appropriate when the subject acts were committed while the officer was participating in a Deferred Retirement Option Plan. Simcox contended that, even if the court found that he had used his powers, rights, privileges, duties or position as a police officer, that Section 112.3173, Florida Statutes, is inapplicable because he participated in the DROP and was therefore "retired" prior to his involvement in the drug trafficking scheme. (As our readers know, DROP is a program that allows employees to retire without terminating employment, while retirement benefits accumulate in an account.) However, DROP does not change an employee's conditions of employment. When an employee's DROP period ends, he must still terminate employment. A DROP "retirement" is not a true retirement, since the employee continues to work in his job. Rather, a DROP "retirement" is an employment status that triggers entitlement to certain benefits.

The court concluded that "retirement" for purpose of DROP is different and separate from "retirement" as used in Section 112.3173, Florida Statutes. Section 185.02(6), Florida Statutes, defines DROP retirement solely for "purposes of the plan." On the other hand, Section 112.3173, Florida Statutes, employs the common meaning of "retirement." That definition is usually associated with an employee's voluntary termination of his own employment or career. Here, Simcox remained employed as a police officer until he officially resigned, months after he had committed the federal felony. He therefore was not retired for purposes of section 112.3173, Florida Statutes. The court thus agreed with the Board and found that the evidence was sufficient to meet the statutory criteria for forfeiture, as there was a connection or "nexus" between the federal crime committed by Simcox and his duties as a police officer. As the Board noted, Simcox and his fellow police officers were chosen as drug escorts because of their heightened knowledge of law enforcement techniques, their police training and because they "knew the enemy" (that is, federal, state and local law enforcement agents).

Because Simcox's federal conviction equated to violation of Section 112.3173(2)(e)(6), Florida Statutes, the “catch-all” provision, and his retirement benefits were forfeited pursuant to that section, the court did not address whether his conviction also equated to a violation under Section 112.3173(2)(e)(4), Florida Statutes.

3. DRAMATIC DROP IN INTEREST RATES FORECASTS LOWER DB PLAN FUNDING STATUS:

An earlier Watson Wyatt analysis of pension funding in 450 Fortune 1000 firms projected an 8% decline in their defined benefit pension funding status, under an assumption that the market conditions of October 15, 2008 would persist through year-end. (Funding status equals plan assets divided by projected benefit obligations.) But interest rates have fallen by more than 200 basis points since then, and Watson Wyatt is now projecting a much larger 29% drop in funding status. The eight-percentage-point drop (from 96% to 88%) in the earlier analysis reflected the effect of higher interest rates, which mitigated the decline in asset values. While market returns on assets have not realized much net change since the earlier analysis, the interest rates used in measuring plan liabilities have decreased substantially over the past few months. This dramatic decline in interest rates will result in a substantial decrease in plan funding at the end of 2008 -- an average drop of 29 percentage points. Egad.

4. TENANTS ACQUITTED IN FIREFIGHTER DEATHS:

A jury acquitted two tenants of a Bronx apartment building in the deaths of two firefighters who jumped out a window to escape an out-of-control blaze. According to New York Times, prosecutors accused the tenants of contributing to the deaths by illegally erecting partition walls in their apartments, which disoriented the firefighters. They were charged with manslaughter, criminally negligent homicide and reckless endangerment. On a 17-degree Sunday morning, January 23, 2005, the firefighters were called to a blaze sparked by a faulty extension cord in the building. The fire started in a third-floor apartment and spread up to a fourth-floor unit. Lt. Curtis Meyran, 46, and firefighter John G. Bellew, 37, died when they jumped fifty feet from the burning building. Four other firefighters jumped as well, but survived. The jury apparently was not bothered by the partitions; the defendants were acquitted on all counts. The union president said that “New York City firefighters are disgusted that our safety has been so easily disregarded in this case.” He said the two apartments had been subdivided with walls to create windowless rooms, which tenants rented out for $75 a week, creating a “death trap” that blocked firefighters’ visibility. In a statement, the Fire Commissioner also criticized use of partitions in apartments. Was it really worth 75 bucks a week?

5. 40 YEARS’ WORTH OF THANKS:

In 1968, a white firefighter saved a black baby girl, touching the heart of a divided city. The two did not meet again ... until earlier this month. Boston.com reports that four decades ago firefighter William Carroll crawled on his stomach through the pitch-black apartment, the smoke so thick he could not see his hand in front of his face. Somewhere inside was a baby, and he had to find her. A window broke, light filled the room, and he saw her lying in her crib, dressed only in a diaper, unconscious. Soot covered her tiny nose. She was not breathing and had no pulse. Carroll grabbed her and breathed life into her as he ran from the apartment. A newspaper photographer captured their image -- a white firefighter from South Boston with his lips pressed to the mouth of a black baby from the Roxbury public housing project -- at a time when riots sparked by racial tensions were burning down American cities. Despite this most intimate of introductions, the two remained strangers. Carroll won a commendation for the rescue, stayed on the job for another 34 years and retired. Evangeline Harper Anderson grew up, lost her family to drugs and illness, had six children of her own and became a nursing/teaching assistant. And through it all, someone would often tell the story about the day she almost died and the man who would not let it happen. She always wanted to meet him and say thank you. On February 11, 2009, more than 40 years after the fire, she finally did. In the neighborhood where they first met, Carroll a slim 71-year-old dressed in a borrowed navy blue uniform, strode up to the 40-year-old woman, and beamed. “You’ve grown a lot since the last time I saw you. Thank you so much for remembering me. “ He then pulled her into a tight embrace, and they held onto each other as they stood just a few yards from where he had carried her limp body decades ago. “Thank you so much,” she said softly. The Boston Globe arranged the meeting after Evangeline introduced herself to a reporter at a community meeting and asked for help tracking down Carroll. If you have three minutes to be touched, go to http://www.boston.com/news/local/massachusetts/articles/2009/02/12/40_years_worth_of_thanks/?s_campaign=yahoo. God bless William Carroll.

6. PRICELESS OBSERVATIONS:

Only Irish coffee provides in a single glass all four essential food groups: alcohol, caffeine, sugar and fat. Alex Levine

7. QUOTE OF THE WEEK:

“If I had eight hours to chop down a tree, I'd spend six hours sharpening my ax.” Abraham Lincoln

Copyright, 1996-2009, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.


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