Earlier posts cautioning against falling for unsolicited invitations to purchase foreign domain names [see: 3/7/11 post and 10/28/10 post ] assumed that a U.S. company that has obtained necessary rights to the .com, .net and .org variations of its chosen domain name has put itself where it should be in the Internet domain name marketplace.  As every 21^st century entrepreneur knows, having the .com top level domain (TLD) for your name is what is most important.  In fact, we have seen start-up businesses so attuned to this concern that they have moved from their preferred name to another one because the .com TLD was not available for their first choice.  This is indicative of the fact that the .com world has become a very crowded place.

Enter, stage left, Madison Avenue and its ability to create demand for something no one needed before the sales pitch.   Anyone who paid attention to the important part of the Super Bowl, the ads, saw the launch of a concerted effort to sell .co domain names as an alternative or add-on to .com ones.  With a somewhat refurbished Joan Rivers as the GoDaddy.co girl, billboard ads in Time Square and other fanfare, domain name registrars are investing heavily in promoting .co TLDs.

Even though .co is actually the TLD for the South American country of Colombia, this promotional campaign relies on most people seeing it instead as standing for “corporation,” “commerce,” or “company.”  It’s too early to say how successful this campaign will be, but the point to be noted is that all of this has launched a previously ignored country code TLD to prominence as a suggested alternative to the .com 500 pound gorilla in the TLD room.

So, while it is still best to ignore unsolicited offers to purchase domain names you don’t need, any U.S. company with a .com website might want to consider wrapping up the .co TLD for its Internet name as well.  And any U.S. company that was disappointed to find that the .com TLD was not available for its chosen Internet domain name should consider reserving the .co version.  –Robert E. Smartschan

As mentioned in our previous post, this post will address the incentive payment programs for the implementation and meaningful use of Electronic Health Records (“EHRs”).  The Health Information Technology Economic and Clinical Health Act of 2009 (“HITECH”) authorized incentive payments for the adoption and meaningful use of certified EHR technology.  Medicare and states’ Medicaid programs will provide incentive payments to eligible professionals, eligible hospitals, and Critical Access Hospitals (“CAHs”) that demonstrate meaningful use of certified EHR technology.

Non-hospital based physicians and other eligible professionals can receive up to $44,000 over five years under Medicare or up to $63,750 over six years under Medicaid.  Incentive payments for eligible hospitals and CAHs will begin with a $2 million base payment under both Medicare and Medicaid but will depend on a number of factors.

Provider registration for participation in the Medicare EHR Incentive Program and some Medicaid EHR Incentive Programs opened January 3, 2011.  Most states will begin registration for their Medicaid EHR Incentive Programs during the spring and summer of 2011.

To maximize incentive payments, Medicare eligible professionals must begin participation by 2012.  However, and of utmost importance, Medicare eligible professionals, eligible hospitals, and CAH’s that do not successfully demonstrate meaningful use by 2015 will have a negative payment adjustment in Medicare reimbursement.  There will be no payment adjustment under the Medicaid EHR Incentive Program.

Medicare and Medicaid are providing incentive payments to physicians that implement and meaningfully use EHRs that will help defray the costs of implementing EHR technology.  As you will see in our discussion of EHRs’ importance to ACOs in our next post, eligible professionals should seriously consider participating in the incentive program.
–Christopher L. McLean

For the purposes of requesting Family and Medical Leave Act (“FMLA”) leave, is there a legal difference between the employee who tells his supervisor in passing “I am having back surgery next Monday and need time off” and the employee who delivers a letter to human resources that says “I have been diagnosed with a serious health condition and request one month of FMLA leave”?  Probably not.

In general terms, the FMLA provides up to twelve weeks of leave per year for eligible employees in the event of a serious health condition of the employee or the employee’s family member, the birth or adoption of a child, or certain situations related to military service.  Of course, interpreting and applying the FMLA can be tricky.  One common issue is determining whether or when an employee has requested FMLA leave.

Department of Labor regulations make it clear that an employee requesting FMLA leave “need not expressly assert rights under the FMLA or even mention the FMLA.”  In fact, if an employee provides some form of notice that the employee requires leave that may be covered by the FMLA, it is the employer’s obligation to “inquire further” to “obtain the necessary details of the leave” to determine whether it qualifies as FMLA leave.  29 C.F.R. 825.302(c).

What this means is that employers may not require written notice, may not insist that requests expressly assert FMLA rights, or even deny leave requests out of hand, simply for lack of information.  Instead, employers must be careful to detect and properly respond to any information that puts them on notice that FMLA leave may be appropriate.  By way of example, the supervisor in the first example above should be sure that the employee having back surgery is treated as if he formally requested FMLA leave.

Departing employees can pose significant threats, so don’t wait to find out after the fact that your company isn’t properly protected or that your agreements are unenforceable.
–David J. Sullivan

In connection with 2010 revisions by the Organization for Economic Cooperation and Development (OECD) regarding the transfer pricing aspects of business restructuring, the OECD noticed an area of concern related to the lack of guidance regarding the identification and valuation of intangibles.  This concern affects both governments and taxpayers because the uncertainly of the treatment of intangibles increases both the possibility of disputes and the risks of double or less-than-single taxation.  In response, the OECD announced a new project for 2011 which will result in revisions and updates to the transfer pricing guidelines.  OECD has identified seven key areas for the project:  1) The framework or process for analyzing intangible-related transfer pricing issues; 2) The definitional aspects, specifically defining “intangibles” for transfer pricing purposes; 3) The specific categories or types of intangibles, including research and development, workforce in place, going concern and goodwill as well as differentiating between intangible transfers and services and matters pertaining to marketing intangibles; 4) The determination of intangible transfers including the determination of when a transfer has occurred and possible recharacterization issues that may result; 5) The right of an associated enterprise to share in the return from an intangible that it does not own; 6) The cost contribution arrangements which are used to organize the development and ownership of valuable intangibles; and 7) The most appropriate transfer pricing method – currently OECD has five recognized methods.  The OECD has delegated this review and responsibility to the Working Party No.6 of the Committee on Fiscal Affairs.  The scope of the project can be accessed at: http://www.oecd.org/dataoecd/10/50/46987988.pdf. –Elaina L. Blanks

Introduction to EHRs

In continuing our discussion of Accountable Care Organizations (“ACOs”), over the next several posts we will discuss what will be an essential element in the operation and success of ACOs: Electronic Health Records (“EHRs”).

EHRs are electronic versions of a patient’s medical history that are maintained by a provider over time.  EHRs may include key administrative clinical data relevant to a patient’s care such as demographics, progress notes, problems, medications, vital signs, past medical history, immunizations, lab data, and radiology reports—to name a few.

EHRs automate access to patient information and work to streamline a physician group’s workflow.  Most important to the future success of ACOs, EHRs support other care-related activities directly or indirectly through various interfaces that include evidence-based decision support, quality management, and outcomes reporting.  Later on in our discussion of ACOs and EHRs, we will address exactly how these interfaces will play such a crucial role in the success of ACOs.  However, in our next post, we will discuss the EHR incentive payment programs for physicians that were authorized in 2009.  –Christopher L. McLean

On February 8, 2011, the IRS announced a second voluntary offshore disclosure initiative.  The original program, which ran from March 23, 2009 through October 15, 2009, resulted in approximately 15,000 voluntary disclosures being made by taxpayers by the closing date and more than 3,000 additional disclosures from taxpayers after the closing date.  Stating that its goal is to bring taxpayers back into compliance with the U.S. tax system, the Tax Commissioner continued to stress that a top goal of the IRS is to combat international tax evasion.  As such, the IRS has developed the 2011 Offshore Voluntary Disclosure Initiative (OVDI) designed to assist taxpayers with complying with their U.S. tax obligations.  The deadline for submission is August 31, 2011.

One of the big differences in the 2011 program is the change in the penalty structure, which is designed to not reward the taxpayers who did not come forward in the 2009 program, but is designed to grant some relief for smaller offshore accounts.  Specifically, the penalty is equal to 25 percent of the amount of the foreign bank accounts in the year with the highest aggregate balance over the last eight years (tax years 2003 – 2010).  There is some relief for smaller offshore accounts which may result in a reduced penalty equal to 12.5 percent or 5 percent, as applicable.   By way of comparison, the 2009 program offered a 20 percent penalty and included the past six years.

The process for a taxpayer wishing to come forward can include three parts.  First, the taxpayer (or a designated representative) may choose (but is not required) to submit a pre-clearance request to the IRS Criminal Investigation Unit including only the taxpayer’s name, date of birth, social security number, address and, if applicable, power of attorney.  This request will be reviewed to determine if the taxpayer is cleared to participate in the OVDI, but does not guarantee acceptance into the program. 

Second, once the taxpayer receives notification of his/her pre-clearance, the taxpayer would then have 30 days to submit a completed voluntary disclosures letter.  If the taxpayer opted to not receive a pre-clearance notification, the taxpayer would just submit the voluntary disclosures letter.  The IRS would review the letter and respond as to whether the voluntary disclosure is preliminarily accepted or declined.

Third, once the taxpayer receives a preliminary acceptance of the voluntary disclosure, the taxpayer would have until August 31, 2011 to submit a full voluntary disclosure package and include the payments for taxes, interest and accuracy-related penalties.

Recently, the IRS launched a new section on its website explaining these procedures and providing guidance.  Please click here for more information.  –Elaina L. Blanks

Included in the 2011 legislation approved by the General Assembly of the Commonwealth of Virginia are amendments that modify the conservation easement tax credit application process.  The amendments (HB1820/SB1232) give the Tax Commissioner the authority, at his own discretion, to require the donor submit a second qualified appraisal of the property subject to the easement. This second qualified appraisal will be used by the Tax Commissioner to assist with the determination of the fair market value of the donation. Written notice of the need for a second qualified appraisal must be provided to the donor within 30 days of the filing of the application for conservation tax credits. The application cannot be deemed complete and will not be eligible for consideration for tax credits until the fair market value of the donation has been determined by the Tax Commissioner.  The amendments require that the Tax Commissioner make a final determination of the fair market value of the donation within 180 days of the notice that a second qualified appraisal is required.  The amendments add language that offer the donor the right to appeal any decision of the Department, including the decision that a second qualified appraisal is required, in accordance with the current provisions for requesting appeals regarding actions of the Tax Commissioner. 

The determination of the value of the property to be donated has become one of the most controversial elements of the application process.  Under the pre-existing statute, the Tax Commissioner was not required to make a final determination of the fair market value of the property at the time the tax credits were approved. He was only required to determine that the donor’s application was complete – that all the information supporting the request for credits had been submitted.  As a result, the Tax Commissioner could challenge the value of the property provided by the donor and the credits issued for it at a later time, such as when the income tax return applying the credits was filed by the donor.  The amendments imply that the Tax Commissioner must now make a fair market value determination before any application is deemed complete, but leave the process for establishing the fair market value to his discretion. 

The new changes leave several questions that have not been addressed by the legislation.  For example, if the Tax Commissioner does not ask for a second appraisal, will the Tax Commissioner now be bound by the value put on the application with the first appraisal?  Further, if the Tax Commissioner does ask for and receives a second appraisal from the donor but does not issue a final determination within 180 days, will the Tax Commissioner then be bound by the donor’s submission of the appraisals and, if so, by what value – the first appraisal, the second appraisal, or a combination or average of the two?  These and other questions should be addressed as the amendments are implemented.

Kaufman & Canoles attorneys have significant experience with all aspects involved in the conservation easement process – including the preparation of the documents and coordination of the studies, reports and appraisals necessary to receive approval of conservation easements and the representation of taxpayers who receive and use tax credits at the state level and/or the charitable donation deduction at the federal level. We follow changes in this program closely to provide our clients with the most current information and will track the modifications made to implement these new amendments.

Although these amendments have been approved by the General Assembly, as of March 15, 2011, they have not yet been signed by the Governor.
–Marina Liacouras Phillips & Elaina L. Blanks

With today’s overcrowded labor market and summer breaks on the horizon, students and other unemployed individuals may apply for unpaid “internships”, as they can appear to be a good way to get a foot in the door for a future employment opportunity.  However, “for-profit”, private sector employers must be very careful, as the Department of Labor has promised increased audits of employers who hire unpaid interns.

If an intern is deemed an “employee” for wage-hour law purposes, the intern must be paid at least the minimum wage and overtime pay, where applicable.  The fact that an intern wants to work for free is not determinative.  Instead, an intern must satisfy a six-part test, otherwise he or she will be considered an “employee”, and this misclassification can be costly after the fact. 

In addition to agreeing that the relationship is for training and not compensation, the six-part test also examines the type of training the intern receives, whether they replace or work side-by-side with regular employees, who benefits from the relationship, and whether a future position as an employee follows the internship period.  This analysis is nuanced and more complex than it might appear.  The law is designed so that only very limited arrangements should be treated as unpaid internships.  Think of the internship rules as a very narrow exception, and carefully examine any arrangements that your company might be considering.  –David J. Sullivan

Sometimes life imitates art; at least, if you consider the iconic “Whac-a Mole” game art.  Like life, in the game, moles pop out of five holes and players “whac” them with a soft mallet to force them back into the hole. A recent sad tale involving the game points out a few practical lessons for protecting intellectual property from employees and independent contractors bent on “whacking” your company. 

Marvin Walter Wimbley, Jr. an independent contractor for the company which had created Whac-a Mole, Bob’s Space Racers, decided to rig the game to ensure permanent job security.  Wimbley had worked for the company since 1980 as an independent contractor writing software programs to maintain the company’s games, including Whac-a Mole.  Recently, the company demanded that he become a full time employee for less pay.  To provide himself leverage, he raised his fees and decided to implant a complex virus in the Whac-a Mole software that rendered the games worthless after a preprogrammed number of plays.  Only he knew how to disable the virus.  He implanted similar viruses into other, newly introduced games to make them fail.  In a stroke of short term genius, Wimbley also planned to open his own company to service the infected machines. 

In the end, Wimbley ensured only long term residency in a minimum security facility as he has been charged with crimes against “intellectual property.”  The incident reminds the employer of the harm that employees and independent contractors can cause to a company that fails to protect its valuable intellectual property, and highlights the importance of requiring the escrow of all software source code created, and securing a well written intellectual property invention and rights assignment from any employees and independent contractors working for the company.

Stephen E. Noona is the head of Kaufman & Canoles’ Trial Section and Co-chair of its Intellectual Property Law and Franchising Practice Group.  He has been counsel in over sixty (60) patent cases in the Eastern District, is Fellow in the American College of Trial Lawyers and has appeared before the judges in all four Divisions of the Eastern District on patent matters.
–Stephen E. Noona

The previous post set forth the current state of the shared savings program that will be utilized by Accountable Care Organizations (ACOs).  As a follow-up, this post will expand upon the previous post’s “nuts and bolts” explanation of the system, by use of two examples so that the readers can have a better real-world understanding of the system’s benefits.

By way of a general example, if, for a particular ACO, (i) the benchmark is set at $100 million, (ii) the target savings percentage is set at 2%, (iii) the savings shared percentage is 80%, and (iv) the ACO during the relevant time period reports a total expenditure of $94 million, then the ACO would be entitled to a shared savings payment equal to $4,800,000.  In this example, the ACO achieved a 4% cost savings (2% target savings required to qualify for the shared savings).  The amount of the savings under the benchmark was $6 million (i.e. $100 million – $94 million).  Therefore, this ACO would be entitled to shared savings payments equal to the savings ($6 million) multiplied by the savings shared percentage (80%), for a total of $4,800,000.

The Medicare Physician Group Practice Demonstration mentioned in our previous post (Changes to the Delivery Side of Health Care Under the PPACA) provides a further concrete example.  In that demonstration, 10 practice groups were examined over a 4 year period.  The practice groups were each given individual benchmark’s that were determined by comparison to each respective group’s local market area.  Each group had a 2% target savings percentage, meaning that, in order for that individual group to recover any savings, it needed to be at least 2% under the local market benchmark set by the Secretary.  The practice group received 80% of the amount that each group was below that 2% local market benchmark for a performance year.  Therefore, in the third year of the demonstration, 5 of the 10 groups combined to be $32.3 million below the local market benchmark and, thus, those 5 groups split $25.3 million in savings payments (80% of 32.3 million).  In the final year of the demonstration, those same 5 practice groups earned $31.7 million in performance payments for improving the quality and cost efficiency of care as their 80% share of a total of $38.7 million in Medicare savings.  To read the complete fact sheet on this demonstration visit: http://www.cms.gov/DemoProjectsEvalRpts/downloads/PGP_Fact_Sheet.pdf .

As the final regulations applicable to ACOs and the shared savings program are expected to be released in the near future, it is unclear if the program will exactly reflect these examples or not.  However, the regulations will be based on the above demonstration and those mentioned in our previous blog entry so there should not be much variation in the final regulations.  Stay tuned to our future posts as we will keep you up to date on the final regulations as soon as they are issued. –Christopher L. McLean