Alaska Bar Assoc. — Bankruptcy Section

We just spoke at the Alaska Bar Association — Bankruptcy Section on the issue of the Alaska usury statute.  We had less than two hour notice to prepare for the presentation.  The materials are available at the Bar Office.

The attendees seemed surprised to learn that the Cox v. Cooper decision actually doesn’t have very wide sweeping effect.  There are seven state statutes that exempt whole classes of creditors and transactions from the decision.  Two Federal acts also limit the decisions scope:  The Banking Act of 1864 and the Depository Institutions and Deregulation and Monetary Control Act of 1980.  These two acts exempt all federal banks and state banks that compete against federal banks from state regulation.  Add to that the Marquette National Bank v. First of Omaha Service Corp. and Smiley v. Citibank decisions and all interest and fees for banks are exempt from state regulation.

The Cox v. Cooper decision only concerns local Alaska credit between private parties.  The sky is not falling.  Even though the creditors bar insists that it is.  I wonder how much money the local and national banks will pay in fees for amicus briefs on a local issue with no bearing on their operations?  Indeed, regulating hard money lenders could actually send more business to the banks.

Thank you for the invite, Michelle Boutin, Chair of the Alaska Bar Association — Bankruptcy Law Section.

 

Alaska Usury Interest Rules

Has your lender violated Alaska usury laws?  Have you paid more than 10.5% interest on loans larger than $25,000.00? Are the loans from a person or non-bank? Do you still owe or have you paid any interest in the past two years? You may have a basis to recover money.

Alaska Usury Interest Rules

Alaska Usury rules establish the maximum interest that a lender may charge.  The rules also provide different remedies for maximum interest charge rules.  The Alaska statutes provide six different sets of usury or interest rules:

  1. The Legal Rate of Interest Rules in the Trade and Commerce Code at Alaska Statutes 45.45.010-070;
  2. The Retail Installment Sale Contract at Alaska Statutes 45.45.010-230;
  3. The Small Loan Rules at Alaska Statutes 06.20.010-920;
  4. The Credit Card Rules at Alaska Statutes 06.05.209;
  5. The Judgment on Contracts at Alaska Statutes 09.30.070;
  6. The Credit Union Rules at Alaska Statutes 06.45.060; and,
  7. The Negotiable Instruments Rules at Alaska Statutes 45.03.112.

Alaska Legal Rate of Interest A.S. 45.45.010-.070

There are two key subsections that define the usury rate.  They are found in Section 45.45.010, subsection (a) and subsection (b).  Those two provisions provide:

(a) The rate of interest in the state is 10.5 percent a year and no more on money after it is due except as provided in (b) of this section.

(b) Interest may not be charged by express agreement of the parties in a contract or loan commitment that is more than the greater of 10 percent or five percentage points above the annual rate charged member banks for advances by the 12th Federal Reserve District on the day on which the contract or loan commitment is made.  A contract or loan commitment in which the principal amount exceeds $25,000.00 is exempt from the limitation of this subsection.

Many people who read these two provisions simply disregard the existence of subsection (a) and only read subsection (b).  For Instance Matsu Title Usury Alert issued their Usury notice and only quoted subsection (b) and wholly ignored (a).   They then imply that any interest rate may be applied to loans exceeding $25,000.00.  However, loans that exceed $25,000.00 are exempt only from the limitation of subsection (b).  Loans exempt from subsection (b) are then governed by subsection (a) which does not have the value exemption.  Large Alaska loans are capped  at the higher 10.5%.

The Retail Installment Sale Contract at Alaska Statutes 45.45.010-230

If the transaction qualifies as a retail installment contract, then the parties may charge any interest rate to which they agree in writing.  Alaska Statute 45.10.120.  To be a qualified retail installment contract the seller must be financing the transaction.  Virtually every car deal from a dealership will be written in this way.  The law doesn’t protect you on these transactions.  However, if a car dealer independently finances the down payment separately from the car loan itself usury laws apply.

The Small Loan Rules at Alaska Statutes 06.20.010-920

Licensed small loan lenders, typically pawn shops and payday lenders, are allowed to charge higher rates:

(a) A licensee may lend any sum of money not exceeding $25,000 and may charge, contract for, and receive on the loan interest at a rate not exceeding three percent a month on that part of the unpaid principal balance of a loan not in excess of $850; two percent a month on the unpaid principal balance exceeding $850 but not exceeding $10,000; and at a rate agreed by contract on the remainder of any unpaid principal balance exceeding $10,000 but not exceeding $25,000.

(b) Notwithstanding the provisions of (a) of this section, a licensee who makes open-end loans under this chapter may charge, contract for, and receive interest at a rate not exceeding three percent a month on that part of the unpaid principal balance of a loan not in excess of $850; two percent a month on the unpaid principal balance exceeding $850 but not exceeding $10,000; and at a rate agreed by contract on the remainder of any unpaid principal balance exceeding $10,000 but not exceeding $25,000.

(c) Interest on loans under (b) of this section shall be computed according to the actuarial method on the entire unpaid principal balance as determined under AS 06.20.285 (b).

The Credit Card Rules at Alaska Statute 06.05.209

In order to allow Alaska banks to compete with national banks, Alaska allows credit card issuers to charge any rate agreed to in the parties’ contract.

(b) A state bank may issue a credit card or other similar credit granting device to a customer for obtaining money, goods, services, or anything else of value, and, notwithstanding AS 45.45.010 , the state bank, when credit is extended under this section, may impose a service charge at a monthly rate as agreed upon by contract between the state bank and the customer receiving the credit granting device.

The old version of the statute capped interest rates on credit cards at 17%.  The statue was changed to conform with the reality of federal preemption having stripped usury protection from credit cards.

The Judgment on Contracts at Alaska Statutes 09.30.070

This statute provides an interest formula that may allow interest rates to exceed the Alaska usury statute.

(a) Notwithstanding AS 45.45.010 , the rate of interest on judgments and decrees for the payment of money, including prejudgment interest, is three percentage points above the 12th Federal Reserve District discount rate in effect on January 2 of the year in which the judgment or decree is entered, except that a judgment or decree founded on a contract in writing, providing for the payment of interest until paid at a specified rate not exceeding the legal rate of interest for that type of contract, bears interest at the rate specified in the contract if the interest rate is set out in the judgment or decree.

The Credit Union Rules at Alaska Statutes 06.45.060

Alaska Credit Unions have their own usury rule that provides:

(vi) the rate of interest may not exceed the greater of 15 percent a year or the rate specified in AS 45.45.010 (b);

Though there is no case law on this matter, it is possible that federal preemption may allow them to ignore this rule.  Also note that because 45.45.010(b) specifically exempts loans less than $25,000, loans greater than $25,000 would be limited to 15%.

The Negotiable Instruments Rules at Alaska Statutes 45.03.112

The Alaska Negotiable Instruments rules provides the following rules that may exceed regular usury rules:

(a) Unless otherwise provided in the instrument, an instrument is not payable with interest, and interest on an interest-bearing instrument is payable from the date of the instrument.(b) Interest may be stated in an instrument as a fixed or variable amount of money or it may be expressed as a fixed or variable rate or rates. The amount or rate of interest may be stated or described in the instrument in any manner and may require reference to information not contained in the instrument. If an instrument provides for interest but the amount of interest payable cannot be ascertained from the description, interest is payable at the judgment rate in effect at the place of payment of the instrument and at the time interest first accrues.

Federal Preemption

The Federal Banking Statute of 1864 preempts state law.  National Banks and state chartered banks competing with National Banks are exempt from state law under federal preemption.  The National banks can export the interest rate rules of their home state.  This is true even if their home state is either higher or completely unregulated.  Most credit cards are issued in states with high or unregulated interest rates.  Most credit cards are issued by National Banks so that they can charge the high unregulated rates.

Alaska Remedies for Usury Violations

  1. If you have paid an amount greater than the original principle, the additional amount counts as interest paid and you may recover double that amount.  Alaska Stat. 45.45.030; Werner v. Lorentzen, 3 Alaska 275 (1907).  Unlike most states, Alaska requires you to have paid the illegal interest to gain a double recovery.
  2. Charging an illegal rate is a forfeiture of all interest. 45.45.040.  The debtor still owes the principal, less any amounts paid.
  3. Recovery of Attorney fees and costs whether the matter is contested or not.
  4. Small lenders that forfeit principal and interest.  Alaska Stat. 06.20.310.

Federal Criminal Extortion

Interest rates in excess of 45% are per se criminal extortion. 18 United States Code 891.  Violation of a federal criminal extortion statute may be a violation of the Alaska Unfair Trade practices act.

 

Alaska Usury laws and associated federal statutes are often complicated.  Alaska has very little case history interpreting the interplay between the statutes, or even between the subsections of the statutes.  It is obvious from third-party, non-legal information present in the state that there is a great deal of confusion about the meaning of the statutes.  If you are paying greater than 10.5% interest on a loan, and that loan is not from a bank or other licensed lender, you may be paying too much.

 

Resolving Cross Motions for Summary Judgment

Katchemak Bay Oysters
Katchemak Bay Oysters

The Alaska Supreme Court overruled a Superior Court’s resolution of Cross Motions for Summary Judgment.  Stavenjord v. Schmidt.  The case started back in 2001.  The matter had been fully briefed by both parties, first on the motion for preliminary injunction and then again in cross motions for summary judgment.  The Superior Court denied Stavenjord’s motion and granted the State’s motion.  On appeal the Supreme court overturned the matter and sent it back to the trial court for further development.

Summary judgment motions are granted or denied based upon viewing the facts in the light most favorable to the nonmoving party.  Accordingly, in cross motions for summary judgment the court doesn’t evaluate the merits of the evidence offered by the parties and make a ruling.  Instead the court must look at each motion in a vacuum and view the facts against the movant.  A typical result will be both sides simply lose their motions and the matter proceeds to trial on the factual issues.  Where, as here, the court grants someone judgment, the appellate court reviews the opinion without deference to the trial court’s decision.

There is an alternative to ruling on motions in this fashion.  The parties could stipulate to the facts in the written record and allow the court to pass judgment on the merits..  The court itself could invite the parties to stipulate to the facts in the record and allow judgment on the evidence on one or all of the issues presented.  See, TRIAL ON THE PAPERS:   AN ALTERNATIVE TO CROSS-MOTIONS  FOR SUMMARY JUDGMENT, by  MORTON DENLOW (1998). 

While Denlow discusses federal court procedures they are as applicable to Alaska courts.  Alaska Rules 52 and 58 allow the court to resolve a matter based on the record prepared.  Such a procedure in this case could have saved years of legal procedure in this case.  The cost to the parties and the community for all of the legal time spent considering these issues has been and will continue to be considerable.

Stavenjord is serving time for a double homicide and was previously a bank robber.  He’s litigating with the state over his desire for religious privilege in prison.  The courts have interpreted a prisoner’s religious beliefs to only require the prisoner’s sincere yet personal belief.  They have not required the belief to have been adopted by any formal or recognized religious group.  When you expand the personal religious privilege to include food selection, public costs can escalate quickly.  The cost for special meals in at least one example was four times more expensive.  The prison population’s response to a prisoner’s win was mass adoption of the new religious diet.   There is nothing to stop a prison from experiencing a mass adoption of individualized religious diet requirements.

Strategic use of court procedure can reduce the cost and time to resolution.

 

 

 

Alaska Overtime — Professional Employee Exemption Doesn’t Cover Pilots

Alaska Overtime law requires covered employers to pay overtime to covered employees.  One exemption to the overtime law is the Professional Employee Exemption.  The old Alaska exemption was not the same as the Federal Exemption and was particularly vague.  The Alaska Supreme Court provided guidance on interpreting the old statute in Dayhoff v. Temsco Helicopters, Inc.,  848 P.2d 1367, 1371 (Alaska 1993).  In Dayhoff the court provided a four-part test to define whether an employee was an exempt professional.  Under Dayoff, an employee was an exempt professional if:

  1. the employee’s primary duty is to perform work requiring knowledge of advanced type,
  2. the work requires consistent exercise of discretion,
  3. the work [is] predominantly intellectual and varied, and
  4. the work [is] compensated on a fee basis.”

Under this test commercial pilots were exempt employees.  This position was previously affirmed in  Era Aviation, Inc. v. Lindfors,17 P.3d 40 (Alaska 2000). It was also the opinion other states had reached. Paul v. Petroleum Equip. Tools Co., 708 F.2d 168 (5th Cir. 1983); Kitty Hawk Air Cargo, Inc. v. Chao, 304 F. Supp. 2d 897 (N.D. Tex. 2004).  But these cases preceded the amendment to 29 C.F.R. § 541.301 in 2004.

The Alaska legislature amended the Alaska Overtime law (Alaska Wage and Hour Act) in 2005.  The legislature adopt the federal definition of this exemption.  However, the federal code of federal regulation implementing the federal definition was itself amended in 2004.  The new federal regulation restricted the exemption to employees in “professions where specialized academic training is a standard prerequisite.”   29 C.F.R. § 541.301(d) (2014).

Since the 2004 amendment of 29 C.F.R. § 541.301(d), every federal court considering whether pilots fall within the professional exemption has concluded that they do not, because commercial piloting does not require specialized academic training as a standard prerequisite. In Pignataro v. Port Authority, the Third Circuit Court of Appeals upheld a trial court’s determination that helicopter pilots did not qualify for the professional exemption under the Fair Labor Standards Act. The appellate court acknowledged the significant credentials required to become a Port Authority helicopter pilot: 2,000 hours of flying time, a commercial helicopter pilot certificate, a second class medical certificate, knowledge of the FAA’s rules and regulations, and a high school diploma or GED. But critically, none of those credentials involved the attainment of an advanced academic degree — the “pilots’ knowledge and skills were acquired through experience and supervised training as opposed to intellectual, academic instruction.” For this reason, the court concluded that the pilots were “not ‘learned professionals’ and . . . not exempt from the provisions of the [Fair Labor Standards Act].

Alaska Pilots are not exempt employees from the Overtime laws.  Accordingly, they are entitled to time and a half for any hours over 8 in a day or 40 in a week.  How many other professions don’t require specialized academic training as a standard perquisite?

Alaska Pilots Earn Overtime
Jerome Hoffman 2015.

No. 6966 S-14864/14883 Moody v. Royal Wolf Lodge

 

 

 

 

 

 

 

Transaction Questions

Please consider and answer the following questions to help us efficiently evaluate and structure your transaction, and help you address issues prospectively.

General information about the proposed transaction:

1. Is there a confidentiality agreement in place?

2. Is the transaction an asset purchase or a purchase of the ownership interest of an entity?

a. Will the transaction cause a termination of the entity?

b. Would you like the purchase of the ownership interest of the entity to be treated as an asset purchase?

3. What is the purchase price?

a. Are there any adjustments to the purchase price (e.g. floors/ceilings/allowances)?

b. Will the purchase price be paid in installments?

c. Is there a reason to hold back any part of the purchase price?

4. How is the purchase price allocated?

5. Is the transaction seller-financed?

a. What are the terms of the promissory note?

Unsuccessful Public Contract Bid Process

Unsuccessful Public Contract Bid Process

The Alaska Supreme Court issued an opinion addressing a litigants complaints about an unsuccessful public contract bid process.  The full opinion can be found here.  There are a number of interesting issues addressed in the matter that have application outside the construction field. However, some factual background always makes the matter more memorable.

Factual Background

Back in 2002, Bachner Company, Inc. and  Bowers Investment  Company bid for the Alaska Department of Transportation office Building in Fairbanks.  They were not awarded the project.  So, Bachner filed bid protests alleging bid scoring irregularities in the scoring process.  Bachner lost the appeal, found here. Undeterred, Bachner mounted an attack on four of the committee members that voted in awarding the contract to a competitor.   Bachner’s claims were dismissed in part based on absolute immunity.  Bachner appealed that decision. The supreme court remanded the matter back to the state court, holding that the committee members were only entitled to qualified immunity and Bachner’s allegations of bad faith, if proven, would fall outside of qualified immunity. Decision found here.

Board Member Qualified Immunity

“Under a rule of qualified immunity, a public official is shielded from liability . . . when discretionary acts within the scope of the official’s authority are done in good faith and are not malicious or corrupt.”  Thus, “ ‘malice, bad faith or corrupt motive transforms an otherwise immune act into one from which liability may ensue.’ ” Qualified immunity “ ‘protect[s] the honest officer who tries to do his duty,’ ” but it does not protect “malicious, corrupt, and otherwise outrageous conduct.”  When committee members raise qualified immunity as a defense and testify that they acted in good faith, the committee members are entitled to judgment as a matter of law unless the plaintiffs can present some admissible evidence that creates an issue of fact as to whether the committee members acted in bad faith or with an evil motive.  The supreme court then analyzed Bachner’s evidence offered to support the claims and found that even in the light most favorable to Bachner that it did not have a case.

Public Service Litigant Attorney Fee Shield Denied

Having concluded that Bachner did not present a genuine issue for trial and that the statutory exclusive remedy rule barred the claim, the court awarded defendants their attorney fees.   defendants, who had been defended by the State attorneys didn’t actually incur any fees but was awarded $93,871.85.    In Alaska attorney fee awards are within the very broad discretion of the trial court.  They are seen as a powerful tool to discourage litigants from filing frivolous suits against the state and its employees.  An exception to the attorney fee award is available for public servant litigants.  The court denied Bachner public service litigant status “due to its significant financial interest in this case.”

Anchorage Board of Equalization — Property Taxes

Jolly Roger of “Calico Jack” Rackham
Image in public domain

The annual right of passage for Anchorage property owners is the receipt in the mail of the Anchorage Board of Equalization green property appraisal card.  If you do not agree with the property value as assessed you may appeal the valuation.  You may appeal on the grounds that the appraisal is “unequal, excessive, improper or under evaluation.” Continue reading “Anchorage Board of Equalization — Property Taxes”

A Negligence Primer — Good Samaritan Defense

This was originally written for my EMS friends, but the basic concepts still apply:  duty, breech, causation, and damages.

Setting the stage:  It’s 3am (of course), and you just laid down after watching a Star Trek – The Next Generation marathon when the tones go off, and the dispatcher announces another of a long line of winter vehicle rollovers.  Blah, blah, blah, icy roads and drunk drivers.  Wind and snow, minor extrication, neck pain and minor bleeding from the head, the patient intoxicated but friendly.  C-collar, the requisite uncomfortable backboard, and couple of big IVs just because, and a quick drop off at the local ER.  The next afternoon you hear the patient began seizing shortly after you left the ER, and died a short time later from a massive subdural.  Three years later you get the summons and complaint, naming you, your partner, your duty supervisor, your service, the hospital, the ER Doc, the radiologist, and the high school janitor as defendants in a lawsuit claiming negligence.

First, let’s dispense with the Good Samaritan defense.  You were on duty and paid a decent hourly wage.  Therefore, you’re not covered under the statute.

Negligence in the common parlance simply means you screwed up and you should have known better.  However, in legal terms, “negligence” has a very specific meaning, and very specific elements that require evidence to reach the conclusion that someone is “legally” negligent.  If the plaintiff is unable to prove each element of negligence, then the defendant cannot be found liable.

In order to be legally negligent, the plaintiff must show that the defendant had a duty to act (duty), that the defendant failed to follow the standard of required conduct (breach), that the failure was the cause of harm to the victim (causation), and that actual harm resulted (damages.)  These four elements: duty, breach, causation, and damages, must all be proven in order to prevail.  The Good Samaritan statute, which all EMTs seem to consider when thinking of negligence, speaks to two levels of negligence – simple negligence and gross negligence.  Outside of this narrow statute, however, the level of egregiousness is relevant only in the amount of punishment given.

Let’s flesh out this discussion a bit.  “Duty” is the easy one – did you have a duty to provide care to the patient.  Yes or no.  In the above case, for example, you were on duty and being paid to respond.  Therefore, yes, you had a duty.  This is the easiest of the four elements to prove, or to defend.  You’re off duty and drive past an accident scene which already has numerous responders present.  No duty, no negligence claim.  Volunteers can sometime have a bit more difficult time, but the standard becomes whether you in any way held yourself out at the time of the event to be available to respond.  If you were “on call,” duty attaches, if not, duty likely does not attach.

“Breach” is slightly more difficult to prove, but still often relatively easy.  Did you do (or not do) something beyond or outside the industry standard?  In other words, did you breach your duty to treat a particular illness or injury in an appropriate manner?  This is gross simplification, of course, because evidence would be required at trial about what, exactly, was the “standard of care” required in the given circumstance.  This makes this particular element the most wishy-washy, as dueling experts vie for the attention of the judge or jury.

“Causation” is the often missed elements by the lay public.  This means that your actions, or inactions, actually caused the harm being alleged.  If your patient was hit in the head by a pipe wrench, and you later drop him injuring his knee, you’re only responsible for the knee injury, not the whole shebang.  This can often be difficult to determine.  For example, a COPD patient presents with severe respiratory distress.  You provide high flow oxygen, but not CPAP; when the patient continues to deteriorate you elect to sedate and intubate, causing dental trauma, increased swelling to the throat and worsening of the distress.  The patient eventually arrests due to extreme hypoxemia.  How much was your fault, if any?  Would she have continued to deteriorate regardless of your actions?

“Damages” is reasonably straight forward, if the above elements have been met and determined.  First, were there actual injuries that caused harm to the patient?  It’s the “no harm, no foul” rule of negligence.  You should have given Amiodarone, not lidocaine, for an SVT according to your medical standing orders.  But the patient persevered and lived despite your best efforts.  You had a duty to act, you breached that duty, but you did not cause compensable harm.  While you may be on the soup line because you dangerously violated your standing orders, at least you won’t end up in court.   However, if actual harm was caused by you, then you are responsible for those damages.

One can be negligent in the common sense but not be legally negligent.  While this may be of little real comfort, EMTs should have a basic understanding of the general concepts of legal negligence.  As for the scenario mentioned above?  A good attorney will bring in a lot of questions.  Was the alcohol masking signs and symptoms of head trauma the EMTs and hospital should have recognized earlier?  Should the patient have been taken to a trauma center rather than just the local ER?  Did the EMTs adequately describe for the ER staff the circumstances surrounding the crash such that the physician and staff could better assess the totality of the patient’s potential injuries?  Obviously there aren’t enough details to make any reasoned response, and in the end it may take a judge or jury to flesh out all the answers.  Such is the nature of the legal world.

Are You An Employer? Workers Compensation Required?

Do you laugh at the home and garden shows on cable TV?  Do you snort in derision watching those folks spend tens of thousands of dollars on contractors?  Do you smirk to yourself because you know you can do the same thing better, faster, and cheaper?  Well of course you do, you’re an Alaskan.  Even before Home Depot and Lowes came to town we had Spenard Builder’s Supply, Eagle Hardware, and you could quote the price of a spanner wrench at your local ACE store.  When it comes to adding on or building from scratch, no one beats an Alaskan at getting things done.  And not just with Visqueen, blue tarps, and duct tape, either.

On a normal day you could sheetrock a hanger holding Alaska Airlines’ latest 737-stretch in an easy day’s work.  But what happens when you only have a morning?  Perhaps your spouse has lined you up for a snowshoe softball game this evening, or some fish is running in some creek somewhere.  Unfortunately your best bud is rough-necking on the Slope this week, and your brother is sleeping off a 4-pack of wine coolers on a beach in Hawaii.  What now?

Well, normally if you needed a little extra help you’d head on down to Beans Café where there are plenty of folks looking for honest work.  The modern version is to check on Craig’s List from your smartphone while driving to the local man store.  Either way you’ll find some chap willing to hammer, screw, lay tile, hang ‘rock, or just generally clean up your mess when you’re done.  For a hundred bucks or a promise of fresh salmon, Alaskan men will do most anything.

Unfortunately, you have now begun to tread upon the realm of The Man.  The Government.  The State.  The usurious villainy of a democratic republic.  A homeowner, or anyone else for that matter, who chooses to hire someone to do something, must comply with all the rules and regulations just like those fancy contractors who have websites and their names on their pickups.  This can be a rude awakening for many.  You just needed someone to haul Trex around the house while you’re putting on the hot tub deck, or perhaps someone to mix and pour concrete on the motorhome pad next to the garage.  But if you’re paying them, you’re an employer in the eyes of the state.

Fortunately this probably doesn’t mean you’ll have to read up on Obamacare.  But you do have certain responsibilities.  Perhaps the foremost of real concern is workman’s compensation.  Didn’t come to mind?  Paying insurance for just hiring some dude off the internet now and again?  Actually, yes, you are responsible.  If that poor fella trips over the water hose, bangs his thumb with a hammer, or slips and cracks his head while shoveling your driveway, he is a worker by Alaska standards and you are his employer.  It is necessary to report to the state that you have worker’s compensation insurance, and of course pay necessary premiums.

There are other requirements, too, such as keeping records of your employees, tax records, immigration forms, minimum wage laws, etc. etc. etc.  If nothing ever goes wrong one never has to worry, right?  More or less.  Of course our laws aren’t written for when things go right, but for when the unexpected happens.  Let’s say that poor fella really does get hurt.  There he is banging away with the nail gun and the compressor hose bursts.  Safety glasses are for wimps, so naturally splinters and other debris fly straight to his face blinding him for all eternity.  Or at least until the trial is over.  The State will try to hold you responsible for the entirety of his medical care and later disability, and will be knocking on your door grinning from ear to ear.  Actually you’ll get a nasty little letter letting you know that a worker’s comp claim has been filed, the State presumes you are responsible for the costs, and, by the way, there will be fines galore for not having the proper insurance in place and on file.

So what does this all actually mean?  The average Joe Alaska isn’t going to run out and get worker’s compensation insurance.  He’s also not going to be checking the bonafides of his day help.  He may not be keeping records or reporting employment taxes to the IRS.  This is Alaska, free man’s country, where we take care of things up front and don’t need nor want the government standing around looking over our shoulder making sure the paint is the proper color, consistency, and lead-free.  This ain’t Bolder or San Francisco, it’s Willow, or Tok, or Aleknagik.  What it means is that we need to carefully consider what we’re doing, how we’re doing it, and who’s doing it.  We  need to remain aware that we are responsible if something untoward happens.  After an accident you’ll probably think hiring that licensed small business contractor who already has the proper employment credentials and insurance would have been faster and cheaper.  He hires the fella from Beans or off Craigslist and actually insures them.

Will anything change after reading this little blerb?  Likely not, but us attorneys are around when the unthinkable or the unknowable happens.  So if your brother is snoring away on a tropical isle and your high school buddy is raking in big coin in the oil patch and you still need help slinging mud, keep in mind you are an employer, and subject to the crushing wheels of justice.

Federal Tax Liens

Understanding a Federal Tax Lien

A federal tax lien is the government’s legal claim against your property when you neglect or fail to pay a tax debt. The lien protects the government’s interest in all your property, including real estate, personal property and financial assets. A federal tax lien exists after the IRS:

  • Assesses your liability;
  • Sends you a bill that explains how much you owe (Notice and Demand for Payment); and
  • You neglect or refuse to fully pay the debt in time.

The IRS files a public document, the Notice of Federal Tax Lien, to alert creditors that the government has a legal right to your property.

How to Get Rid of a Lien

Paying your tax debt – in full – is the best way to get rid of a federal tax lien. The IRS releases your lien within 30 days after you have paid your tax debt.

Options: When conditions are in the best interest of both the government and the taxpayer, other options for reducing the impact of a lien exist.

  • Discharge of property — Allows property to be sold free of the lien. The seller or buyer can submit Publication 783, Instructions on How to Apply for Certificate of Discharge From Federal Tax Lien.
  • Subordination — Does not remove the lien, but allows other creditors to move ahead of the IRS, which may make it easier to get a loan or mortgage. For more information review Publication 784, Instructions on How to Apply for a Certificate of Subordination of Federal Tax Lien.
  • Withdrawal — Removes the public notice and assures that the IRS is not competing with other creditors for your property. If applying for a withdrawal, use Form 12277, Application for the Withdrawal of Filed Form 668(Y), Notice of Federal Tax Lien.

How a Lien Affects You

  • Assets — A lien attaches to all of your assets (such as property, securities, vehicles) and to future assets acquired during the duration of the lien.
  • Credit — Once the IRS files a Notice of Federal Tax Lien, it may limit your ability to get credit.
  • Business — The lien attaches to all business property and to all rights to business property, including accounts receivable.
  • Bankruptcy — If you file for bankruptcy, your tax debt, lien, and Notice of Federal Tax Lien may continue after the bankruptcy.

Avoid a Lien

You can avoid a federal tax lien by simply filing and paying all your taxes in full and on time. If you can’t file or pay on time, don’t ignore the letters or correspondence you get from the IRS. If you can’t pay the full amount you owe, payment options are available to help you settle your tax debt over time.

Lien vs. Levy

A lien is not a levy. A lien secures the government’s interest in your property when you don’t pay your tax debt. A levy actually takes the property to pay the tax debt. If you don’t pay or make arrangements to settle your tax debt, the IRS can levy, seize and sell any type of real or personal property that you own or have an interest in.

Clayton Walker