Business Law

Are You Really Ready to Sell Your Business?

Whether you started your business with the intent to sell it one day or have simply decided its time to move on after years of hard work, many business owners eventually want to sell. Sometimes the potential buyer is right in front of you, like a co-owner or employee with sufficient purchasing power and the necessary expertise to seamlessly step into your shoes. If not, you can take several important steps to make your business more appealing to a wider audience, increase its value in the marketplace, and help facilitate a smooth transition. 

The first place to look are your business records. Potential buyers will want to review documents like tax returns, profit and loss statements, balance sheets, cash flow statements, accounts receivable, and accounts payable. If you already have excellent record keeping practices, then you are in good shape. If not, then now is the time to make a change. Consider seeking professional help from an accountant or other qualified financial expert to organize your books. These records will show potential buyers how much your business has prospered and give them a good idea of its future potential. 

Next, you will want to look at your operations from an outsiders perspective. If your business is turnkey and will not require long hours or extensive hiring for the new owner, then it is inherently more valuable and easier to sell. Have you developed a loyal base of customers? Do you have marketing in place to acquire more? Are your employees happy at work, and do they do a good job? Will the existing team be able to continue providing great service to current and future clients, even if the company is under new ownership? Does your business have solid relationships with important vendors and other third parties, separate from you as the owner? Do you have thorough written policies and procedures, handbooks, and training manuals ready to go? Have you secured valuable intellectual property, like your businesss name and logo?

Taking these steps can enhance your businesss value. When the time comes to determine a sale price, you can choose from several methods of valuation. These may vary by industry, especially if your business is unique, but in general you can use annual revenue as a way to determine your businesss value. One common calculation looks at recent sale prices of similar businesses compared to their annual revenue. You can price your business based on these sales by plugging in your own financials. Then you can examine your businesss other strengths, like the soft factors described above, to determine if buyers might pay an additional premium. A professional business valuator can offer assistance in obtaining a fair and appropriate valuation that you can trust. 

Finally, its important to discuss your plans with a team of experts, including an accountant, an attorney, and other trusted advisors, like a mental health professional or business coach. You might discover that it does not make financial sense to sell your business at this time. Maybe you can find another way to step back if you are suffering from burnout or lack of interest. If the time is right, though, then your team will help you through the next steps. If you are interested in learning about my experience as a corporate law attorney assisting business leaders and entrepreneurs in our community, please email me at or call me at 407-647-7887.

Building a Better Workplace Environment and Culture

As an employer in our community, you are responsible for cultivating a positive working environment for your team. Not only is it the right thing to do, and it will therefore bring significant personal satisfaction to you as a business leader, but it’s also a vitally important step you can take to protect your business interests. Let’s take a look at some strategies you can implement today to improve your workplace environment and culture. 

  • Create (or update) your employee handbook

Your handbook is not a “set it and forget it” type of document. It must be reviewed and updated with regularity to ensure you are complying with all of the latest recommendations and requirements. Furthermore, you should take care to make the handbook easily accessible to your employees. Ideally, you would provide each of them with a hard copy on their first day of work, along with an electronic version that can be updated as needed and accessed anywhere, anytime. These written policies and procedures are essential for keeping your business running smoothly and protecting you from liability. They help you set the tone and establish expectations for how employees behave in the workplace.

  • Lead by example

Your employees are looking to you to set the bar in terms of how they will interact amongst themselves and with your clients, vendors, and other important third parties. It is key to have a leadership team in place that is not only competent but kind as well. Workplace culture starts at the top, and by treating your team with the respect they deserve, you can create an environment that is both productive and pleasant. Take care to demonstrate the behaviors you want to see in your employees, such as being patient, polite, and helpful, and seek out managers who share your values. 

  • Conduct exit interviews 

When employees leave your business, do not miss the opportunity to review the details of their experiences working for you. Even if you sense some unresolved tension in the employment relationship, that is all the more reason to investigate what went wrong and why your employee has chosen to seek work elsewhere. These insights will help you to retain current and future employees, avoiding the significant time and financial burdens of the hiring and training processes. Do not be afraid to ask for feedback from employees who are on their way out. It may be humbling, but it will ultimately help you to excel as a business leader and as an organization. 

  • Hold training and other events

Once a positive culture is in place, you can maintain it by holding development programs on relevant topics like workplace civility, stress management, and communication skills. The benefits of these are twofold: first, the direct results of the training, and second, the overall values you are able to demonstrate, like caring about your employees and being committed to providing a respectful work environment. Another good idea is to hold events specifically for the sake of employee appreciation, whether it’s a weekend of travel to a seminar with all expenses paid or a simple Friday afternoon pizza party in the break room. 

  • Review your hiring and onboarding procedures

Another important way to establish a healthy workplace culture is to hire people who align themselves with your values and whose personalities will help you foster cooperation and harmony on a broader scale. The interview process is a key part of identifying the right fit for your organization. Some candidates look great on paper, but even applicants with the best qualifications may have a negative attitude that could be disruptive or even destructive to your business. When you do find the right people for the job, ensure that your training process will make them feel comfortable and welcome. Consider assigning a designated mentor, whether that person is a peer or a more senior leader, to go to for help as needed. 

These are just a few ideas to get you started with developing and improving the culture in your business environment. The possibilities are endless and can be tailored to your unique concerns and challenges. You have the power to implement positive changes that will increase employee satisfaction and protect your business operations, and you can start today. If you are interested in learning about my experience as a corporate law attorney assisting business leaders and entrepreneurs in our community, please email me at or call me at 407-647-7887.

The Importance of Plain English Business Agreements

Much of our American legal system comes from the English common law, where early lawyers (called “scriveners”) were literally paid by the word. This history helps to explain why some legal writing tends to be so verbose. 
Today’s attorneys are often paid by the hour. It would be prohibitively expensive for clients to have their lawyers write lengthy agreements from scratch, and this is another reason why legal documents tend to be very wordy. Instead of coming up with a contract out of thin air, attorneys usually start with a template or sample. It may be something they have worked on before, received from another attorney, or obtained from a reputable source, like their state bar association. While this practice is efficient, it tends to perpetuate some of the archaic language that has been passed down by lawyers from one generation to the next. 
These days, a growing trend has emerged opposing the old status quo. One significant reason for this is that courts generally analyze contracts using plain English, i.e. the dictionary definition of every single word. Another reason is that savvy lawyers strive to write contracts that can be easily understood by everyone who reads them, which can be impossible if the agreement is filled with complicated, overly formal legalese. In other words, judges and non-lawyers may prefer a more concise, clear, and direct style. The parties to the contract absolutely must be able to understand and carry out its terms. After all, this is the purpose of having a contract. 
If you are an attorney, how can you adopt this approach? The primary consideration should be giving the parties to your contract the precise information they need in a way that is easy to understand and implement, leading to fewer disputes down the road. Try to avoid long sentences that attempt to cover too much ground at once. Use as few words as possible, leaving less room for debate and confusion. Make sure every word has a clear meaning and purpose and is truly essential to the agreement, keeping in mind that a judge may be analyzing your language choices down the road.  
If you are a business owner, you can easily improve your operations by using plain English contracts. Your employees, clients, and vendors should appreciate being presented with agreements that are as brief as possible and simple to understand. Should you inevitably receive a complicated document, though, it is important to have a qualified business attorney review it before signing. Your lawyer can act as a translator and guide, helping you to understand the agreement’s terms and requesting any necessary changes on your behalf. 
Are you interested in learning about my experience as a corporate law attorney assisting business leaders and entrepreneurs in our community? Please email me at or call me at 407-647-7887.

How to Protect Your Business With Client Services Agreements

One of the most important assets you will acquire as a business owner is your roster of clients and customers. These relationships often take years to develop and are the foundation for everything you do. Satisfied customers play an important role in helping your business prosper by returning to you for repeat business and by referring their friends and family to you. 

If you are a service provider, how can you take action to protect these valuable relationships? Ideally, you will enter into them with a clearly-defined Client Services Agreement specifically tailored to you and your business. By providing your customers with a detailed written agreement outlining the scope of your services and other important terms and conditions, you are setting your work relationships up for success.

Through your Client Services Agreement you can set clear expectations, making it easier to prevent any potential disputes in the future. Should a conflict arise, you will likely be able to refer to your Client Services Agreement to provide clarity and context to the issue at hand. This helps you provide your customers the best and most comfortable experience possible, even in the event of an unforeseen conflict.

Some important terms to consider including in Client Services Agreements across various industries are: a detailed description of the scope of your services (i.e., what is and is not included); the amount of your compensation, when it is due, and the method of payment; a timeline of when the services will be performed; and any necessary waivers to protect you from liability in the event of personal injury or property damage. Depending on the exact nature of your business, a knowledgeable corporate attorney can make additional, more specific recommendations.

Your Client Services Agreement also has the added benefit of enhancing your credibility and reputation as a business leader. By presenting a well-written agreement that makes both sides feel thoroughly informed and protected, your business increases its authority and trustworthiness with your customers and in the community at large. It demonstrates that you care about your relationships and have taken proactive steps to nurture confidence and trust.

Although a Client Services Agreement is legally binding, it does not need to be excessively formal or confusing. In fact, many experienced business attorneys understand that simplicity and transparency are essential for this type of agreement. Whether you are an athletic trainer, landscaper, web developer, or accountant, most of your clients are likely to want the same thing: an agreement they can easily understand, with terms that are thorough and fair to both sides. The right agreement makes them feel comfortable starting a relationship with you now and continuing to work with you in the future.

Are you in need of a Client Services Agreement for your new or established business? If you are interested in learning about my experience as a corporate law attorney assisting business leaders and entrepreneurs in our community, please email me at or call me at 407-647-7887.

Corporate Litigation: Public Relations and Risk Management Considerations

As a business owner, it is essential to protect sensitive information, customer lists, and other valuable assets through the use of corporate agreements: non-competes, confidentiality agreements, and the like. Prevention is truly the best medicine in this case, and attorneys who are experienced in the business sector are likely to recommend executing these agreements whenever possible.

What happens, though, when an employee or other third party violates one of the agreements you have in place? A lot is at stake for you as a business owner. Your business is not just your livelihood, but also a large part of your identity. Of course such violations can stir up feelings of disappointment, betrayal, and insecurity. So what is the best way to proceed? Should you always take legal action when a former employee goes to work for one of your competitors, or a vendor discloses privileged information to another business similar to yours, despite the agreements you carefully put into place to protect yourself?

Some attorneys may be too eager to pursue litigation, driven by their own business interests instead of your own. Litigation can be time-consuming and unpredictable, which means it can be almost limitlessly expensive. Financial considerations are not the only roadblock, however. Corporate law attorneys should also emphasize to business owners that all potential litigation must be assessed to ensure that the benefits outweigh the risks. For example:

Business A, a veterinary hospital, has a non-compete agreement with Employee A, a kennel tech and the single mother of two pre-schoolers. When the employment relationship ended, Employee A immediately sought and obtained another job in the same field and the same geographical area, despite the non-compete she had previously signed, in order to put food on the table for her two children. Even though it is frustrating to lose an employee to a local competitor, the public relations consequences of suing a struggling single parent will almost certainly outweigh any possible benefit of restricting Employee A’s ability to work in the field.

Let’s say Employee B recently quit his job due to a hostile and discriminatory work environment. Unfortunately, Business B recently learned that its managers were treating certain employees less favorably based solely upon their race. After resigning, Employee B promptly disclosed several trade secrets during his search for a new job, violating the non-disclosure agreement he had entered into with Business B. Instead of charging ahead with litigation, a thoughtful attorney will investigate all of his potential counterclaims, which may be much more catastrophic to Business B and its owners than the confidential information that has already leaked.

The attorneys at CPLS, P.A. are here to offer assistance with 1) drafting and executing protective agreements between employers, employees, and other third parties, and 2) advising business leaders of the best course of action to take when an agreement is violated. Always take care to weigh public relations and risk management considerations against any potential litigation you are considering as a business owner. If you are interested in learning about my experience as a corporate law attorney assisting business leaders and entrepreneurs in our community, please email me at or call me at 407-647-7887.

Cultural Tips for Doing Business in China

“Treat China as it is, not as what we want it to be.”

James L. Lilley, U.S. Ambassador to China (1989-1991).

China is very different with its own customs and courtesies:  know it, respect it and practice it.  The three “Fs” of China are Friendship, Face-saving, and Food.

  1. Friendship: Conducting business in China is all about relationships and everything is personal. Trust needs to be built and matured and evolves over time. Everyone is very respectful and courteous. In the USA, if business people disagree, they may argue and raise their voices (and then go out to lunch as though nothing happened). This is not the case in China, where business meetings are always civil and every person is respectful.
  2. Face-Saving: The Chinese word for courtesy is “kei chi” (phonetically spelled).  Always show respect and be courteous.  “Mi casa es su casa” (“my house is your house”) is not applicable in China.  Bring several hundred business cards with you as when meeting businessmen or women; you need to give everyone present your business card.  Your business card needs to be presented with both hands on the card and with a slight bow to the recipient. Translate one side of your business card into Chinese.
  3. Food: Relationships are developed and deepened through food.  Food is very important for business and personal relationships.  Never discuss business at a banquet unless the other side brings it up first.  Typically, a Chinese banquet will have 14 or more courses.  The host will sit facing the exit and the most important guest will sit to the right of the host.  Expect many toasts.  When you toast, your cup rim must be below the other person’s cup – this shows respect and part of face-saving.  Reciprocate by hosting your own banquet. Do not offer to pay for your meal or to split the cost of the banquet. 

At the Meeting: 

  • Speak slowly and clearly. This will give the interpreter time.  Take turns talking.
  • Engage in active listening.
  • Keep in mind that “yes” does not mean “yes, I agree.” “Yes” means “yes, I am listening” or “maybe.”  “Maybe” means “no.”  And “no” definitely is “no.”
  • Ask open-ended questions (this goes back to practicing active listening above).
  • Announce the close of a particular subject.
  • In the USA, time is money. In China, do not let the other side know the urgency of your time schedule.
  • Be prepared to walk away.

Other Practical Tips:

It is courteous to bring a gift.  The gift must be tasteful, but it need not be expensive or extravagant.  Bring a gift that is indigenous to where you live or your company’s geographical location.  For example, if you are from Florida, as I am, bring books about Florida or candies from Florida.  You should plan to bring gifts for everyone, or you can give one gift from one company to the other company.  The presentation of the gift is important.  It must be wrapped nicely – select something colorful or red.  Do not wrap a gift in white or black as they are funeral colors for the Chinese.  Never give clocks, because they represent waiting for a funeral.  Never give knives, because they represent cutting of a relationship.

China is 12-13 hours ahead of the USA. Arrive in China at least a full day before the meeting in order to rest and prepare for the meeting.   If you hired a translator, meet with the translator prior to the meeting so the translator understands each party’s business and general idea of what you want to accomplish.

Avoid colloquial phrases and slang.  Western humor is different from Chinese humor. Jokes can be misinterpreted, especially when translated.

Lisa Hu Barquist, a business litigator at CPLS PA in downtown Orlando, Florida.  She speaks Mandarin Chinese, and represents U.S. and Chinese clients in complex business transactional and litigation matters. She was President of the Asian Pacific American Bar Association of South Florida, Chairwoman Ex Officio of the Miami-Dade County Asian American Advisory Board. Lisa is admitted to practice in Florida, New York, and California.  She earned a peer review rating of AV Preeminent®, Martindale-Hubbell’s highest possible rating for both ethical standards and legal ability and a testament to the fact that a lawyer’s peers rank her at the highest level of professional excellence. For more information, contact Lisa at CPLS P.A., 201 East Pine Street, 4th Floor, Orlando, Florida 3280, 407.647.7887 and

About CPLS P.A.

CPLS PA is an Orlando, Florida business litigation firm committed to providing effective and efficient legal services to high net worth individuals, businesses and government agencies throughout the state of Florida, as well as clients outside of Florida and abroad. The firm concentrates on complex commercial litigation, including commercial real estate and stormwater litigation, shareholder, partner, member disputes, probate, alternative dispute resolution, mediation, and appellate law. 

Lisa Hu Barquist

Lisa Hu Barquist

Business Litigation Attorney

PPP Loans & Foreign Owned Companies

When the PPP came out, the loan application included a question addressing whether the applicant was a US citizen (USC) or a lawful permanent resident (LPR). This was interpreted by many to mean that small businesses owned by non USC’s or LPR’s did not qualify for these loans. However, the actual law did not impose this requirement. In April, the loan application was amended and the question regarding immigration status was removed, making the form consistent with the wording of the law. 

What this means is that PPP loans are available for small businesses owned by non USC’s or LPR’s. Of course, non USC or LPR small business owners have additional factors to take into consideration when deciding whether to apply for a PPP loan. Some of these factors include:

  • Public charge issues: Will the administration consider the forgiveness of the loan when deciding public charge issues in future applications for immigration benefits?
  • Forgiveness of loan and the requirement that a petitioning company be able to sustain itself and its employees
  • Is there a benefit to applying for the loan and not seeking forgiveness (e.g., lower interest rates, no personal guarantee requirement)? 

Non USC or LPR small business owner should consult with their immigration and business attorneys in order to consider whether applying for a PPP to stay in business is in their best interest.

If you have questions about your immigration case,, it’s important to speak with an experienced immigration attorney to discuss your specific case and circumstances. Attorney Evelyn J. Pabon Figueroa is an Associate in the Orlando office of CPLS, P.A. She is a member of the firm’s Immigration Practice Group. Contact Attorney Evelyn today at to discuss any immigration issues you may be experiencing.

Evelyn Pabon Figueroa

Evelyn Pabon Figueroa

Immigration Attorney

Divorce, Business Ownership, and Tax Liabilities

"I DIDN’T GET THE STOCK?" – Ex-Wife Still Treated as Shareholder of Administratively Dissolved S Corp

Bonilla v. United States, 2109 U.S. Dist. LEXIS 47853 (D.Conn. March 22, 2019)
Family Law/Business Practitioners/CPAs Must Remain on Alert!!!!
Issue:  Can a wife in a divorce be taxed on a company awarded to her if the corporation is administratively dissolved years prior to the divorce and the stock certificates have yet to be transferred into her name?
Yes, says a Federal court.  Under the concept of “beneficial ownership” a federal court says.  It doesn’t matter that the S corporation was administratively dissolved years prior or had stopped filing tax returns.  It had received K-1s from a partnership, and it was addressed to the husband’s company, but used the wife’s address after their divorce.  The lawyers sent the K-1s for this S corporation, which was the husband’s 100% owned company.  The fact that the stock certificates had not been transferred over to the wife as a result of the divorce decree ordering him to do so did not matter!  Beneficial ownership had vested with the wife, under the divorce decree.
Here are the facts of the case. 
Bobby Bonilla is famous.  Bobby Bonilla played major league baseball.  Bobby Bonilla was married at one time to Migdalia Bonilla.  They were divorced on May 22, 2009 by way of a decision in Connecticut Superior Court.  In a 2009 divorce decree, the court ordered that ownership of certain companies Bobby Bonilla owned had to be divided up equally within 30 days. 
One of the companies owned by Bobby Bonilla was one called Bobby Bo Investments, Inc., which as of February, 1994, he was 100% owner, the sole shareholder, officer, director, and President.  However, the Florida Division of Corporations administratively dissolved Bobby Bo Investments, Inc. on August 25, 1995.  It was never reinstated.
Nearly a year later, Ms. Bonilla filed a Motion for Contempt, claiming that Bobby Bonilla had not yet done this.  At a hearing in May 2010, Mr. Bonilla’s counsel represented to the court that Bobby Bonilla was willing to give his ex-wife all of the companies other than Bobbie Bo Investments, Inc. (“BBI”), a Florida corporation.  Mr. Bonilla’s counsel filed a motion to amend the 2009 decree as part of an effort to keep BBI.
On December 14, 2010, the court held a hearing at which time it was discussed that no transfers of stock certificates for BBI had occurred.  At the hearing, the parties agreed that Ms. Bonilla “will actually be the owner and “will have ownership of” BBI.  The burden to effectuate a transfer of the interests was placed on Ms. Bonilla’s counsel.
Despite being administratively dissolved, BBI in fact held Bobby Bonilla’s interest in a LLC company known as Performance Imaging.  For many years, BBI contributed money to Performance Imaging but did so from Bobby Bonilla’s personal income.  Bobby Bonilla first invested money into Performance Imaging in 1996, contributing $100,000.  Performance Imaging had other “investor members” and K-1s were issued each year to them.  Performance Imaging never made income distributions to its members, nor has it covered members’ tax costs.
The K-1s for Performance Imaging as issued to BBI list it as having a 69.51 percent interest in profits, loss, and capital. 
BBI did not even file S corporation tax returns in the years 2009, 2010, or 2011.
On September 16, 2010, Ms. Bonilla received the BBI Performance Imaging K-1 via e-mail.
On September 30, 2011, Ms. Bonilla’s attorney sent Performance Imaging a copy of the 2009 divorce decree and a transcript of the December 2010 hearing, and her address.  The address listed for BBI on these Performance Imaging K-1s for the years 2010 through 2016 is Ms. Bonilla’s residence.  Each year, Ms. Bonilla forwarded these K-1s to her accountant.
For the 2010 tax year, the BBI Performance Imaging K-1s reported a business income of $908,871.
For the 2011 tax year, the BBI Performance Imaging K-1 reported a business income of $61,112.
The IRS conducted a TEFRA audit of Performance Imaging.  (A TEFRA audit was mandated because Performance Imaging was an LLC, with an S-corporation as one of its members).  As a result of this TEFRA audit, the IRS determined that Performance Imaging’s ordinary business income was understated, and should have been $1,122,706, but Ms. Bonilla did not report ANY portion of BBI’s portion on her 2010 and 2011 tax returns.  
The IRS came in, and automatically increased Ms. Bonilla’s ordinary income by $780,393, and $55,117, equal to 69.51 percent of Performance Imaging’s corrected 2010 and 2011 ordinary business income.  These adjustments resulted in assessments of tax by the IRS against Ms. Bonilla of $235,783 and $19,291 for the 2010 and 2011 tax years.  When fees and penalties are added, Ms. Bonilla owed to the IRS $323,164, $21,871.74 for the 2010 and 2011 tax years.
Ms. Bonilla eventually pays these tax liabilities on April 11, 2016, and then files a claim for refund, which the IRS administratively then denies on October 3, 2016.  While the government eventually conceded that $372,023 of the $780,393 increase to Ms. Bonilla’s income for the 2010 tax year was incorrect, and directed the IRS to abate the tax, penalties, and fees levied against Ms. Bonilla to this extent, they refused to abate the amounts any further.  This led to the Federal refund suit. 
One of the first arguments raised by the Government was that the “variance doctrine” precludes the court from reviewing Ms. Bonilla’s claim BBI could not have acquired an interest in Performance Imaging because BBI had been administratively dissolved and that any agreement reached in December 2010 hearing resulted in an unenforceable agreement “to agree.”
The court looked at Ms. Bonilla’s administrative claim.  In that claim, she specifically argued that against the IRS’ determination that she was the owner of BBI (and not contesting issues related to the TEFRA audit of Performance Imaging).   However, the administrative claim made no mention of BBI’s ability to obtain an ownership interest in other companies–and specifically, made no mention of the argument that administrative dissolution itself barred BBI from holding an interest in Performance Imaging.  Therefore, the Federal Court ruled that it was without jurisdiction to rule on the merits of that particular argument.
Ms. Bonilla’s administrative claim did not expressly make the argument that the divorce proceedings court decree was an unenforceable “agreement to agree.”  However, the Federal court noted that her stated view in her claim was that the divorce proceedings were insufficient to transfer ownership of BBI from Bobby Bonilla to her.  In other words, whether or not an effective transfer of ownership took place was the focus of her administrative claim and Ms. Bonilla took issue with the IRS over its finding that she was the owner pursuant to the divorce proceedings.  Thus, the court found that this was not a substantial variance from the arguments put forth in the administrative claim.  Thus, the Federal court found that it did have jurisdiction to address this particular argument.
The Federal Court held that there was no genuine issue of material fact as to whether the parties intended to enter into an agreement to resolve all outstanding divorce issues at the December 2010 hearing, including, in particular, ownership of BBI.  With a court-approved stipulation and order, this was sufficient and deemed akin to a judgment obtained through litigation. 
Ms. Bonilla then argued that she should have been awarded summary judgment because the IRS “improperly determined her ownership interest in BBI without first issuing a statutory notice of deficiency.”  This she could not do because the question before the court is limited to whether a genuine issue of material fact exists as to whether Ms. Bonilla overpaid her tax.
The court then turned to whether Ms. Bonilla was entitled to summary judgment on the arguments that BBI, as an administratively dissolved corporation, could not transfer its shares to her, that Ms. Bonilla was never issued any BBI shares under Florida law or the UCC, and Ms. Bonilla was not a beneficial owner of BBI in 2011 or 2011. 
The Government contends that summary judgment should be awarded in its favor because irrespective of whether Ms. Bonilla received legal title to BBI shares, she was a beneficial owner of BBI in 2010 and 2011.  
The Federal Court agrees with the Government.  First, the Federal court finds that pursuant to the divorce decree, ownership could be transferred and that the Government is right–for federal tax purposes, stock ownership is determined by beneficial ownership, not legal title.  Second, that there is no genuine dispute of the material fact that Ms. Bonilla was a beneficial owner of BBI during the tax years in question.  The Federal Court looked at whether it was required to apply the factors set forth by the Tax Court in Dunne v. IRS, T.C. Memo 2008-63.  The Federal Court then established that it is not bound by Dunne, that it was a state law that was to determine whether a taxpayer has a beneficial ownership interest.  Since the divorce decree issued in May 2009 ordered that BBI was to be divided equally by the parties within 30 days from the date of the decree, it was after the expiration of these 30 days that Ms. Bonilla had an enforceable interest in a 50% interest in BBI.   Then, in December 2010, when the parties entered into an enforceable agreement, later incorporated into a court order, that resolved all outstanding issues in the divorce, such that beneficial interest in all of BBI rested with Ms. Bonilla as of December 14, 2010.  
As an aside, the Federal court points out that Florida courts have held that one may be a beneficial owner of the stock, notwithstanding the lack of legal title to the same.  Smallwood v. Moretti, 128 So.2d 628, 629 (Fla. Dist. Ct. App. 1961); Phillips v. Zimring, 284 So.2d 233, 235 (Fla. Dist. Ct. App. 1973); Acoustic Innovations, Inc. v. Schafer, 976 So.2d 1139, 1145 (Fla. Dist. Ct. App. 2008).
By their ruling, the Federal court thus held that the beneficial owner of shares in an S corporation is liable for the taxes owed on her pro-rata share of the corporation’s income, regardless of whether distributions are made.  See 26 C.F.R. Section 1.1366-1(a).  Here, three is no genuine issue of material fact that the Connecticut divorce vested beneficial ownership of BBI in Ms. Bonilla, as to half of the company, at least 30 days following the 2009 Divorce Decree and, as to all of the company following the December 2010 hearing.  Thus, Ms. Bonilla was responsible for the taxes owed on her pro-rata share of BBI’s income in the 2010 and 2011 tax years.” 

If you have any questions or need assistance with K-1 or 1099 issues, T. Scott Tufts is able to address these and can be reached , please contact Mr. T. Scott Tufts Senior Tax Counsel at CPLS, P.A., 407-647-7887.

T. Scott Tufts

T. Scott Tufts

Tax Law Attorney