NEW LEADERSHIP AT BEXAR COUNTY WOMEN’S BAR FOUNDATION LEAD ACADEMY CASE UPDATE: JANVEY REQUIRES DILIGENT INQUIRY, EVEN IF FUTILE, FOR GOOD FAITH DEFENSE UNDER TUFTA TAX PLANNING THOUGHTS TO BEGIN 2020 ESTATE PLANNING WITH CONSERVATION EASEMENTSFROM THE Publisher Ken Minniti PRESIDENT & CEO Howard LaGraffe VICE PRESIDENT Caitlin Keniston EDITOR Dale Lane SAN ANTONIO PUBLISHER Jaqueline Dávila GRAPHIC DESIGN Veronica Jauregui ASSISTANT EDITOR Joseph L. Koehl Jim Rice, CPA Caroline Newman Small CONTRIBUTING EDITORS Tiffanie Clausewitz Debbie Roos Jennifer Scroggins CONTRIBUTING WRITERS Sterling Creative Photography PHOTOGRAPHY Attorney at Law Magazine is published by: Target Market Media Publications Inc. Welcome to the lat- est issue of Attor- ney at Law Maga- zine - San Antonio! We have completed one year of pub- lishing and I am extremely ex- cited about the future as we roll into 2020. This past year has been a season of learning and growing for me, both per- sonally and professionally. Be- ing a part of bringing the sto- ries in this publication to life is incredibly rewarding for me. Over the past year, I have observed amazing individuals and teams that help to make up the San Antonio Legal com- munity. One such individual is Tiffanie Clausewitz. She has served as a contributing editor for this publication and I have devel- oped a great deal of respect and admiration for her. In this is- sue, I have asked Tiffanie to tell the story of the Bexar County Women’s Bar Foundation LEAD Academy. As she shares her vi- sion for launching this wonderful organization, you will recog- nize the tremendous amount of work she has devoted to this ef- fort, all while practicing law, launching her own firm and caring for her family. We are very excited to introduce Elena Villasenor Sullivan as she takes over leadership of the LEAD Academy. Please read her interview to get to know her. You will quickly recognize that she is perfect for her new role. Our contributed content authors in this issue include Caro- line Small, Joseph L. Koehl, Jim Rice, Debbie Roos and Jenni- fer Scroggins. We are building quite a team! Also, in this issue, we introduce Stacy Foushee as the subject of our first “Paralegal Spotlight” feature. These educational articles, once again, will serve you as you practice law. As we move into 2020, we are increasing our efforts to pro- vide relevant content and showcase the legal talent here in San Antonio. I want to tell the stories that make a difference in our community. I am considering future Cover Feature Attorneys; your feedback is a vital part of finding the right story! Please use this link to nominate an Attorney you feel has a compelling sto- ry that needs to be written. https://attorneyatlawmagazine.com/nominate As you continue to build your practice, firm, or business, please keep Attorney at Law Magazine in mind for your com- munication needs. Call or email me to discuss how we can sup- port your efforts. Dale Lane PUBLISHER DLANE@TMMPUBLICATIONS.COM (210) 859-1233 Copyright ©2020, Target Market Media all rights reserved. Reproduction in whole or part is strictly prohibited. Advertising rates on request. Bulk third class (standard) mail. Although every precaution is taken to ensure accuracy of published materials, Attorney at Law Magazine & Target Market Media cannot be held responsible for opinions expressed or facts supplied by authors. Corporate Office : 5828 North 7th Street, Suite 200 Phoenix, AZ 85014 Phone (480) 219-9716 www.tmmpublications.com • info@tmmpublications.com Northern Alabama | Atlanta | Chicago | Dallas | Ft. Lauderdale Jacksonville | Los Angeles | Miami | Minnesota North Carolina Triangle | Ohio | Philadelphia | Phoenix | San Antonio Salt Lake City | Middle Tennessee | Washington D.C. 4 ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 7TABLE OF Contents 12 CONTRIBUTING Editors JIM RICE, CPA FORENSIC ACCOUNTING JOSEPH L. KOEHL ESTATE PLANNING CAROLINE NEWMAN SMALL LITIGATION 6 Case Update: Janvey Requires Diligent Inquiry, Even if Futile, for Good Faith Defense under TUFTA By Caroline Newman Small 8 Tax Planning Thoughts to Begin 2020 By Jim Rice, CPA 10 The Coffee Resolution By Jennifer Scroggins 11 New Leadership at Bexar County Women’s Bar Foundation LEAD Academy By Tiffanie S. Clausewitz 12 Incoming LEAD Academy Director, Elena Villaseñor Sullivan 16 Estate Planning with Conservation Easements By Joseph L. Koehl 18 Stacy M. Foushee Paralegal Spotlight 19 What Are Your Superpowers By Debbie Roos SPECIAL SECTIONS 20 Upcoming Events 5The Texas Supreme Court has answered a question certified to it by the United States Court of Appeals for the Fifth Circuit re- garding what constitutes good faith under the Texas Uniform Fraudulent Transfer Act (TUFTA) by holding that when a transferee on inquiry no- tice attempts to use TUFTA’s affirma- tive defense that it acted in good faith to shield a transfer from the statute’s clawback provision it must show, at a minimum, that it investigated its sus- picions diligently, and even if such investigation would be futile. BACKGROUND: In 2009, the Securities and Ex- change Commission uncovered the Stanford International Bank (SIB) Ponzi scheme. SIB issued fraudulent certificates of deposit for close to two decades, claiming that it offered higher returns to investors than those available elsewhere. Those “returns” were derived from new investors’ funds. The Ponzi scheme left over 18,000 investors with $7 billion in losses. Ralph S. Janvey was appointed by a federal district court to recover the assets and distribute them to the scheme’s victims in an equitable man- ner. Gary D. Magness was one of the largest investors in the scheme: he purchased $79 million in certificates of deposit, including through vari- ous entities in which he maintained his wealth. After news of the SEC’s investigation broke, Magness sought to withdraw his invest- ments. Instead, SIB “loaned” Magness $88.2 million. In other words, Mag- ness took back his initial $79 million investment, plus a portion of “accrued interest,” which in actuality was made up of funds from other investors. Magness repaid only $700,000, so his net return was approximately $8.5 million. JANVEY’S TUFTA THEORY IN THE DISTRICT COURT: TUFTA was enacted to prevent debtors from prejudicing creditors by improperly moving assets beyond their reach. If it is determined un- der TUFTA that a transfer was made with actual intent to hinder, delay, or defraud a creditor, the creditor may invoke the TUFTA’s clawback provi- sion to avoid the transfer. However, TUFTA protects against avoidance of a fraudulent transfer if the transferee can prove he received the transfer “in good faith and for a reasonably equiv- alent value.” Janvey sought recovery of funds from Magness in federal district court under several theories, including TUFTA. Under Janvey’s theory, SIB acted as the debtor to the victims of its Ponzi scheme. The transfers Janvey sought to avoid on behalf of the vic- tims of the Ponzi scheme were SIB’s “loans” to Magness. The federal district court granted a partial summary judgment in favor of Janvey holding that the loans to Mag- ness were indeed fraudulent transfers. The fact issue of whether Magness ac- cepted the transfers in good faith, to satisfy the TUFTA defense, was tried to the jury. The jury determined that Mag- ness had inquiry notice that SIB was engaged in a Ponzi scheme, but not actual knowledge. Inquiry notice was defined in the jury instructions as “knowledge of facts relating to the transaction at issue that would have excited the suspicions of a reason- able person and led that person to investigate.” The jury also determined that an investigation would have been futile. A futile investigation was de- fined in the jury instructions as one where “a diligent inquiry would not have revealed to a reasonable person that Stanford was running a Ponzi scheme.” The district court entered judgment in favor of Magness, and Janvey appealed. THE FIFTH CIRCUIT REVERSES, VACATES, AND CERTIFIES: The Fifth Circuit reversed the dis- trict court’s judgment, finding that Magness did not establish a good faith defense. The Fifth Circuit disagreed with the district court that TUFTA contains a “futility exception” to the good faith defense. In other words, when a transferee (Magness) does not investigate, the Fifth Circuit held that he cannot establish good faith by making the argument that an investi- gation would not have led to the dis- covery of the debtor’s (SIB’s) fraudu- lent purpose, or that it would have been futile. Magness sought rehearing follow- ing the Fifth Circuit’s decision that he did not establish a good faith defense. The Fifth Circuit vacated its prior opinion, and certified the following question to the Texas Supreme Court, Case Update: Janvey Requires Diligent Inquiry, Even if Futile, for Good Faith Defense under TUFTA CAROLINE NEWMAN SMALL | Litigation Caroline Newman Small is an equity partner and the managing partner at Davis & Santos, P.C. Caroline represents individuals, financial institutions, and business entities in complex business litigation, tax litigation, and bankruptcy litigation matters. Prior to joining Davis & Santos, Caroline was an Honors Program Trial Attorney in the Tax Division of the United States Department of Justice in Washington, D.C. where she litigated affirmative and defensive civil cases in federal district courts and bankruptcy courts. For more information, visit www.dslawpc.com or call Caroline at (210) 853-5882. 6 ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 7which can answer questions posed by a federal appellate court in limited circum- stances where there is no controlling Texas Supreme Court precedent: Is the Texas Uniform Fraudulent Transfer Act’s “good faith” defense against fraudulent transfer clawbacks . . . available to a transferee who had in- quiry notice of the fraudulent behavior, did not conduct a diligent inquiry, but who would not have been reasonably able to discover that fraudulent activity through diligent inquiry? THE TEXAS SUPREME COURT DECISION: In a December 20, 2019 decision, the Texas Supreme Court answered the certi- fied question as follows: If a transferee has actual knowledge of facts that would lead a reasonable per- son to suspect the transfer is voidable under TUFTA but does not investigate, the transferee may not achieve good- faith status to avoid TUFTA’s clawback provision—regardless of whether the transferee reasonably could have dis- covered the fraudulent activity through diligent inquiry. Because neither TUFTA nor the uniform legislation on which it is based define “good faith,” the Court relied on the plain mean- ing of the term along with interpretations under other laws as interpreted by Texas courts. To show good faith, the Court held, the transferee must establish that “its con- duct was honest in fact, reasonable in light of known facts, and free from willful igno- rance of fraud.” Central to the good-faith analysis is whether the transferee received the fraud- ulent transfers with either “actual knowl- edge” or “inquiry notice” of fraud. The jury in the underlying litigation found that Magness was on inquiry notice and that he did not have actual knowledge of the fraud. The Fifth Circuit’s certified question to the Texas Supreme Court presumed the same, and therefore the Court did not revisit this finding and focused only on how a trans- feree on inquiry notice of fraud can prove good faith. Inquiry notice, as set out by the Court, is notice attributed to a person when the in- formation would lead an ordinarily prudent person, at the time of the transfer, to inves- tigate the matter further. The Court differ- entiated between two types of knowledge a transferee might have when on inquiry no- tice, and ultimately its decision turned on this distinction: (1) Actual knowledge: knowledge of information that would lead a rea- sonable person to inquire further. Where a transferee has actual knowl- edge of facts that raise a suspicion of fraud, the Court held that additional facts that may have been uncovered through a diligent inquiry are im- puted to the transferee. (2) Constructive knowledge: knowl- edge of information one using rea- sonable care or diligence should have. Where a transferee has con- structive knowledge, the transferee can be charged with this knowledge so long as it reasonably could have been discovered at the time of the transfer. The Court noted that the basis for Mag- ness’s inquiry notice was actual knowledge (presumably, through the news surround- ing the SEC’s investigation). Thus, Mag- ness’s failure to conduct a diligent inquiry, even if ultimately futile, amounted to willful ignorance, which the Court held is incom- patible with the notions of good faith. The Court concluded with the following sum- mary: A transferee on inquiry notice of fraud cannot shield itself from TUFTA’s clawback provision with- out diligently investigating its initial suspicions—irrespective of whether a hypothetical investigation would reveal fraudulent conduct. To hold otherwise rewards willful igno- rance and undermines the purpose of TUFTA. We answer the certified question no. UNANSWERED QUESTIONS: It is now clear that, in order to establish the good faith defense under TUFTA, a transferee with actual knowledge of suspi- cious facts must make a diligent inquiry, even if such inquiry would be futile. The Texas Supreme Court, however, stopped short of offering guidance on what circum- stances would constitute a diligent investi- gation. The Court also left open the ques- tion of whether the futility defense could be viable where the transferee has only con- structive knowledge of the suspicious facts. These and other remaining questions may be answered as the Janvey rule is inevitably tested and litigated in cases to come. 7Before any tax planning can be properly performed, attorneys must have a good understand- ing of the anticipated net income for both their law practice and their personal taxes. This requires having timely financial statements for the law practice and knowing the estimated taxable income and projected tax li- ability for their personal situation. Having stated that, let’s look at some tax planning moves to consider: 1. Many law practices have a 401(k) company retirement plan. This is a good start but tends to fall very short of providing a decent retirement funding for the key employees. The 401(k) plan can be modified with provisions that increase the company funding for key employees without increasing proportionately company funding for the rank and file employees. That implementation can be as simple as signing new retirement plan documents. The provisions I refer to also do not require man- datory funding of the retirement plan each year. Each year stands on its own, as to whether the at- torneys want to discretionarily fund the retirement plan for the current year. 2. Quite often there are business ex- penses that end up being paid by the attorney personally with no re- imbursement by the law practice. One of the major tax cut changes was to disallow individuals from taking deductions related to un- reimbursed business expenses. These expenses should be cap- tured and paid by the law practice, which creates deductions for the practice.The attorney would then be reim- bursed on a non- taxable basis, as the attorney is simply reimbursed for business expenses by provid- ing required written documenta- tion. Examples of these types of expenses could include: a. An office in the home of the attor- ney, especially if substantial office administrative procedures/func- tions are done at the home. The reimbursement would consider expenses incurred to maintain the house and household. b. Mileage by the attorney to meet with his/her advisors such as the CPA or other professionals. Any travel that benefits the law prac- tice should be reimbursed includ- ing business entertainment miles. c. Reimbursement of items like con- tinuing education and association dues. 3. If the children of the attorney have done some work that benefited the law practice then those children should be paid a salary for their work. If the work of the children is justified, the salary could be sever- al thousand dollars without there being any income tax to the chil- dren while still being a deduction for the law practice. With those salaries, ROTH IRA accounts up to $6,000 (if salaries are $6,000 or more) could be funded for the children. 4. Often times the law practice has an expensive car on its books that is being written off over a much- extended period of time. This makes for the car having a high tax basis but a much lower market value. If the attorney is so inclined to dispose of this car in favor of another car, then the attorney should carefully think about sell- ing the current car. 5. If the attorney does not currently have a large regular IRA account balance, then the attorney should consider funding a nondeductible IRA account and then immedi- ately rolling over that nondeduct- ible IRA account into a Roth IRA account. This process allows the Roth IRA account to grow on a tax free basis with the future with- drawals not being taxable at all. This funding of the nondeductible IRA account does not create a tax deduction, so it is not necessarily a tax planning move. 6. With stock market investments, there may be capital losses avail- able to trigger so as to eliminate already incurred capital gains and capital gains distributions from stock holdings. 7. Acquisitions of business deprecia- ble assets and software, if needed, should always be considered. It’s worth pointing out that fixed asset purchases financed with loans will also qualify. In tandem with this idea is accelerating payment of fixed expenses (rent, supplies, in- surances, utilities) into the current year. An example of this is paying the January rent in December to get the deduction in the current year. Expenses paid with a credit card also represent a deduction in the current year, even if the credit card is not paid off until the fol- lowing year. The issue of whether to accelerate deductions into this year or push them into next year is based on an understanding of your current taxable income situ- ation. 8. Finally, it is just as important to review the current tax reporting structure for your law practice. If the practice is reporting to the IRS other than as an “S” corporation, there should be an analysis of the merits of converting the tax status to an “S” corporation. Bottom line: be sure to meet with your CPA soon. Tax Planning Thoughts to Begin 2020 JIM RICE, CPA | Forensic Accounting Jim Rice, CPA is a shareholder at Sol Schwartz & Associates, P.C. (jprice@ssacpa.com). He has 42 years of experi- ence in public accounting. In addition to providing business consultation, financial planning and various other ac- counting services, Jim specializes in income tax planning and consultation. He works with a high concentration of law practices and high net worth individuals. Contact Jim at (210) 384-8000 Ext. 112. 8 ATTORNEY AT LAW MAGAZINE · SAN ANTONIO · VOL. 1 NO. 7Next >