TAX AND
BUSINESS
LAW REPORT
A Newsletter from the Tax & Corporate Practice Group
www.flastergreenberg.com
Editor’s Note…
Richard J. Flaster
Our Corporate Practice Group
continues to expand with the return
of Matthew Azoulay to our firm and
his involvement in corporate transac-
tional matters.
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In This Issue. . .
New NJ “Filing Fee” on
Professionals May Apply
Only to Owners ......................1
Mandatory Consumer
Arbitration Provisions
May be Unenforceable ..........1
Tax Savings for the
Family Business........................2
New Jersey Imposes Estate Tax
on Smaller Estates Than Those
Taxed Under Federal Law ......3
Copyright © 2002
Winter 2003
New NJ “Filing Fee” on Professionals
May Apply Only to Owners
By Stephen M. Greenberg
n an effort to raise state revenues, last summer’s New Jersey Business
I Tax Reform Act contained a provision which imposed a
“filing fee” of $150 per licensed professional on professional corpora-
tions operating in the State, N.J.S.A. 54:10A-18(c)(2). The explicit
language of the law is that, “Each professional corporation . . . that has
more than two licensed professionals shall, at the time [its Corporation
Business Tax] return is required to be filed, make a payment of a filing fee
Stephen M. Greenberg of $150 for each licensed professional of the corporation, up to a
maximum of $250,000.” The new filing fee was made retroactively
applicable to fiscal years beginning on or after January 1, 2002 and, in an effort to accelerate
the collection of revenue, it required such corporations to pay an additional 50% of the filing
fee for the following year at the same time.
Although interpretive regulations have not yet been issued, most tax professionals have con-
strued the new filing fee to apply to all licensed professionals employed by the professional corporation.
Under this construction, all law firms organized as professional corporations would be responsible
for paying a filing fee for all attorneys; all accounting firms for all accountants; and all physician
professional corporations would have to pay the filing fee not only for all physicians, but also for all
licensed physician-assistants, nurse-practitioners and nurses employed by the corporation.
Important:
Notwithstanding the foregoing, recent advice from highly placed officials in New Jersey’s state
government indicates that this result was never intended and that forthcoming regulations will
“clarify” that this new filing fee is applicable only to shareholders of professional corporations doing
business in New Jersey. If this proves to be accurate, it will save larger professional corporations
from paying thousands of dollars on non-shareholder professional employees. We understand that
the issue will be communicated to taxpayers either through formal regulations or a less formal
notice to taxpayers prior to the due date for filing 2002 CBT returns.
Mandatory Consumer Arbitration
Provisions May Be Unenforceable
By Aaron C. Buser
Under traditional consumer law, a consumer generally has the right to
use the federal and state judicial systems to recover damages against a com-
pany for violations of statutory consumer rights or invalid contracts.
However, many consumers agree to limit their access to the judicial system
and accept arbitration for the resolution of potential claims and/or disputes.
The inclusion of mandatory arbitration clauses in consumer agreements
Aaron C. Buser (continued on page 2)
Tax & Business Report • Flaster/Greenberg P.C.
 2

Mandatory Consumer Arbitration Provisions May Be Unenforceable

(continued from page 1)
is quite common and sometimes unknowingly requires consumers to
resolve their disputes through arbitration. Indeed, in an effort to gen-
erally limit litigation (particularly class actions) exposure, insurance
companies, banks, credit card companies, health insurers, computer
companies, and phone companies are increasingly utilizing such claus-
es. Although such mandatory arbitration clauses have generally been
upheld, recent court decisions indicate that they may be unenforceable
where the provisions severely limit the rights and remedies of con-
sumers without according to them a realistic choice.
For example, a mandatory arbitration provision sent by AT&T to
its long distance phone customers was found unconscionable and
violative of state contract and consumer protection. Ting v. AT&T,
N.D. Cal., Jan. 15, 2002, No. C01-02969 BZ. Finding that AT&T
had sought to thereby compel the forum of its choice (i.e., arbitration)
and make it difficult for consumers to effectively vindicate their rights
even in this forum, the Court found such provision to be
unconscionable and unenforceable.
The court voided AT&T’s mandatory arbitration procedure on
the following findings of unconscionability:
• Envelope Stuffer—The arbitration agreement was sent as a printed
form (called the “Consumer Services Agreement”) in a mailing
separate from its normal billing statements, marked “Important
Documents” and which recited that its “billing will not change under
the consumer services agreement; there is nothing you need to do.”
Noting that an internal AT&T survey had concluded that most
customers would stop reading and throw out the notice after reading
that their services and billing would not change, the Court deter-
mined that consumers might well have disregarded the arbitration
agreement as simply an “envelope stuffer.”
• Limits on Liability—Under its arbitration provisions, AT&T’s
liability would be limited to direct damages for negligence and
precluded consequential and punitive damages, whether the claims
were based on contract, tort, statute, fraud, misrepresentation, or any
other legal or equitable theory. The Court found that this provision
impermissibly limited damages for intentional conduct and violated
public policy by imposing an effective waiver of the consumers’
statutory rights under state consumer protection laws.
• Cost of Arbitration—The AT&T arbitration clause made the
consumer responsible for the cost of arbitrating any dispute over
$10,000 or any proceeding conducted in person. The Court found
that potentially large arbitration costs would wrongfully preclude
consumers from effectively vindicating their legal rights.
• Confidentiality—A confidentiality provision in the arbitration
clause prohibited disclosure as to the existence, content or results of
any arbitration award, except as required by law or to confirm and
enforce an award. The Court held that this provision would prevent
a consumer from discussing the fairness of the arbitration and
found this requirement of secrecy to be socially undesirable and
biased in favor of AT&T’s legal position.
• Ban on Class Actions—Finally, the arbitration agreement specifi-
cally banned class actions. The Court held that this provision was
unconscionable because it took away a proper legal remedy for
consumers with individual claims that would not otherwise be
economically feasible to pursue.
Similarly, a United States District Court in Montana ruled that a
mandatory arbitration clause could not be enforced in a credit and
context, because it was unknowingly forced upon the credit cardholder.
(Myers v. MBNA American and North American Capital Corp., CV
00-163-M-DWM (D. Mont. March 20, 2001). And a recent U.S.
Supreme Court decision has also indicated that a mandatory arbitration
provision may be enforceable if it imposes prohibitive costs on a con-
sumer Greentree Financial Corp. v. Randolph, 531 U.S. 78 (2000).

Tax Savings for the Family Business • Participation in a Qualified Multi-

By Richard J. Flaster
The owners of a
family-run business
which operates as a C
corporation can
employ a variety of
tax saving techniques
Richard J. Flaster to their advantage:
The Adoption of an Uninsured
Medical Expense Reimbursement Plan
(“MERP”) — A MERP will allow the corpo-
ration to nontaxably reimburse
shareholder/employees for “diagnostic medical
expenses” that are not covered by medical
insurance (e.g., medical, dental or eye examina-
tions). In addition, if benefits are extended to
at least 70% of all full-time employees that have
worked for the corporation for at least three
years, the MERP can be broadened to cover
“expenses for medical treatment” (including
prescription and pharmaceutical costs, insur-
ance deductibles and co-pay amounts) as well
as provide dependent coverage.
• The Adoption of a “Home Office
Lease” — Adopting a “Home Office Lease”
between the corporation (as tenant) and the
shareholders and their spouses (as landlord)
can serve to establish a corporate office in
the homes of such shareholder/employees
so that they can work on business matters at
home. This may allow the corporation to
nontaxably reimburse such shareholder/
employees for the household expenses allo-
cable to such office (e.g., utilities, water,
repairs, exterminating, housecleaning, sep-
tic/sewer, and water charges). In addition,
the use of such home office each morning
before traveling to the corporation’s primary
office and again after returning at night may
support the nontaxable reimbursement for
the automobile expenses incurred in such
“inter-office travel.”
Employer Life Insurance Plan — This
may allow the corporation to deduct during
the shareholders’ pre-retirement working
years the full cost of life insurance coverage
extending beyond retirement. The amount
of such life insurance benefits can favor the
shareholder/ employees in that the cover-
age amounts can be based on a percentage
(or multiple) of compensation levels and
provided to at least 70% of all full-time
employees who have worked for the corpo-
ration for at least three years. IRC Section
419A(f6).
• Payment of Disability Insurance
Premiums — Payments may be made
on a nontaxable basis for shareholder/
employees of the corporation, without any
requirement to cover any other employees.
However, any benefits paid on such corpo-
rate-maintained disability insurance are
taxable to the recipient upon receipt.
(continued on page 3)

Tax & Business Report • Flaster/Greenberg P.C.


New Jersey Imposes Estate Tax On Smaller Estates
Than Those Taxed Under Federal Law
By Laura B.
Wallenstein
ith the passage of
W the “Economic
Growth and Tax
Relief Reconciliation Act
of 2001 (“EGTRRA”),”
taxpayers have been
rejoicing over the sched-
Laura B. Wallenstein
uled increase in the fed-
eral estate tax exemption that will reduce and
often eliminate their potential federal estate tax
burden. The exemption increases from
$1,000,000 this year in staged amounts up to
$3,500,000 by 2009. The federal estate tax is
eliminated in 2010, but revives in 2011 with
the exemption reverting back to $1,000,000,
unless Congress acts to make the repeal perma-
nent. With the passage of the new New Jersey
Estate Tax, however, a significant estate tax bur-
den may be imposed by the State of New Jersey
— even where no federal estate tax is due.
In the past, the New Jersey Estate Tax was
simply equal to the “state credit” against the
federal estate tax that was permitted under
federal law for death tax payments made to
states. For example, if the federal estate tax on
an estate were reduced by the state death tax
credit, New Jersey would require an estate tax
payment in the amount of the permitted
reduction. Accordingly, the existence of the
Tax Savings for the
Family Business
(continued from page 2)
• Establishment of an Age-Weighted or
New-Comparability Profit Sharing Plan
— Establishing such a plan may allow the
corporation to make disproportionately large
contributions to a retirement plan which
favors shareholder/employees that are higher
paid and usually older than other employees.
Such plans may either be maintained as the
corporation’s sole retirement plan or in
combination with a 401(k) plan, which has
become so popular.
• Shifting Management Services to a
Management Company Owned by
Collateral Relatives — Compensation
paid to a management company controlled
by the owners’ collateral relatives may allow
such payment to be taxed to the managers
on a deferred basis from year-to-year.
3
New Jersey estate tax did not increase the
total estate tax burden. It just shifted the tax
payment from the federal government to the
State of New Jersey.
However, with the passage of the new
New Jersey Estate Tax Law (P.L. 2002,c.31),
taxpayers whose estates exceed $675,000 have
the potential of paying New Jersey Estate Tax
even where no federal estate tax is due. In
brief, the statute provides that estates will pay
New Jersey Estate Tax equal to the federal
state death tax credit computed as if the
decedent had died on December 31, 2001
(when the federal estate tax exemption was
$675,000 and when the state death tax credit
was available in full). EGTRRA has phased
out the availability of the federal state death
tax credit by 25% in 2002, 50% in 2003 and
75% in 2004, after which state death taxes will
be a deduction rather than a credit. However,
since the state death tax credit was available in
full on December 31, 2001, the full amount
of the credit (computed as of that date), is
payable to the State of New Jersey, despite the
actual decreasing benefit of the federal state
death tax credit to the taxpayer.
Observation:
The practical effect of this new New Jersey
law is that planning to eliminate federal estate
tax may subject the estate to New Jersey estate
tax. For example, creating a “non-marital trust”
equal to the federal estate tax exemption of
$1,000,000 in 2003, will subject the estate to a
New Jersey Estate Tax of $33,200, and such
planning to avoid federal tax on a taxable estate
of $2,000,000 in 2006 (when the federal
exemption will be $2,000,000) will subject the
estate to a New Jersey Estate Tax of $99,600.
Having given clients the good news about
the federal estate tax in 2001, estate planners
must now advise clients of the increasing
New Jersey Estate Tax and possible solutions
to this dilemma. Although the problem may
not be fully solvable for all taxpayers, there
are a number of options and techniques that
taxpayers should consider:
Planning Opportunities
For All Taxpayers:
• Gifting—Since the New Jersey Estate Tax
does not impose a tax on annual exclusion
gifts (currently at $11,000 per donee),
such gifts will reduce the imposition of the
New Jersey Estate Tax. Although a read-
ing of the statute also indicates that the
New Jersey Estate Tax will not be imposed
on lifetime taxable gifts, the Division of
Taxation has taken the position that such
gifts are subject to the New Jersey Estate
Tax. It remains to be seen how this issue
will resolve.
• Change of Domicile—Although perhaps
extreme for some taxpayers, others might
consider changing their state of domicile.
If they are already spending a substantial
part of the year in another state, this may
be a viable option. Of course, the tax laws
in state of intended domicile should be
carefully reviewed.
Planning Opportunities
For Married Taxpayers:
• Creating Non-Marital Trusts under
Wills—Married taxpayers whose combined
estates exceed $675,000, but who would
otherwise not be taxable under federal law
may now wish to create non-marital trusts
to minimize the impact of the New Jersey
Estate Tax, by taking advantage of up to
$675,000 of the federal exemption in the
estate of the first spouse to die.
• Creating Flexible Non-Marital
Trusts under Wills—Since existing
Wills have characteristically been struc-
tured to utilize the full (and increasing)
federal exemption for the non-marital
trust, consideration should now be given
to limiting the non-marital trust to
$675,000 (since the marital portion is
fully exempt from the New Jersey Estate
Tax) — although this may reduce the
value of the assets that will pass to family
members free of federal estate tax.
Accordingly, the balance of the federal
exemption might be placed in a trust,
which may or may not qualify for the
marital deduction. The executor will have
15 months after the death of the dece-
dent to determine whether to pay the
New Jersey Estate Tax or to defer it until
the death of the surviving spouse.
Planning Opportunities
For Deceased Taxpayers:
• Disclaimers—For decedents who have
died before having an opportunity to
revise their Wills, it may be possible to
minimize the New Jersey Estate Tax on a
post-mortem basis by utilizing such tech-
niques as disclaimers and/or divisions of
trusts. However, such techniques are
time sensitive, so estate representatives
and their advisors are cautioned to seek
advice promptly.
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Flaster Greenberg Tax & Corporate Practice Group Office Locations

Richard J. Flaster Elaine J. Petruzziello
Harvard Law School, J.D. 1966 Willamette University, J.D., MBA 1985
Stephen M. Greenberg University of Denver, L.L.M. 1986 Commerce Center
Yale Law School, J.D. 1976 Jeffrey S. Brenner 1810 Chapel Avenue West
Rutgers Law School, J.D. 1989
Laura B. Wallenstein Cherry Hill, NJ 08002-4609
Rutgers Law School, J.D. 1977 Elliot D. Raff (856) 661-1900
New York University Law School, L.L.M. 1981 University of Wisconsin Law School, J.D. 1990
Allen P. Fineberg Jeffrey A. Cohen
Columbia Law School, J.D. 1979 University of Pittsburgh Law School, J.D. 1993 300 Walnut Street
Philadelphia, PA 19106
Markley S. Roderick Kristine M. Byrnes
University of Virginia Law School, J.D. 1982 Rutgers Law School, J.D. 1994 (215) 922-4000
Peter R. Spirgel Matthew Azoulay
Georgetown Law School, J.D. 1985 Widener University School of Law, J.D. 1997 190 S. Main Road
Temple Law School, L.L.M. 1988 Aaron C. Buser Vineland, NJ 08360
Alan H. Zuckerman Rutgers Law School, J.D. 2001 (856) 691-6200
CPA 1982; Temple Law School, J.D. 1985 Mitchell R. Cohen (Of Counsel)
William S. Skinner Temple University Law School, J.D. 1979 216 North Avenue
University of Pennsylvania Law School, J.D. 1986 Marc Garber (Of Counsel) Cranford, NJ 07016
Duquesne University School of Law, J.D. 1981
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