Filing Tax Returns and Making Tax Payments: Best Practices During the Pandemic and Beyond

With staffing shortages and service center closures, it should come as no surprise that the IRS has faced a number of challenges during the pandemic. A couple of the biggest challenges have been in the opening and processing of taxpayer correspondence and in the processing of tax returns. As National Taxpayer Advocate, Erin Collins, stated in her Annual Report to Congress, “Paper is the IRS’s Kryptonite, and the IRS is buried in it.”

Going into 2022, the IRS has a significant backlog of unprocessed taxpayer correspondence and unprocessed returns. The estimates are staggering.

  • Five million pieces of unprocessed taxpayer correspondence
  • Over 11 million unprocessed tax returns, including:
    • Six million individual income tax returns
    • 2.3 million amended individual tax returns
    • 2.8 million business returns (income tax and employment tax returns)

The 2022 tax filing season, which opened on Thursday, January 24, for individual income tax returns, has the potential to create even more challenges for the IRS. Below is a list of best practices taxpayers can follow to ensure timely processing of their payments, tax returns, and claims for refund. These practices apply to individuals and required filing for businesses.

  • File returns and make payments electronically.
  • If you must file a paper return or mail in a payment to the IRS, send the return or payment to the proper address via USPS Certified Mail, Return Receipt Requested. Using this method will assist in resolving timely filing and/or timely payment penalties assessed by the IRS.
  • Properly notate your tax payment and include the form number, tax period and your social security number or employer identification number.
  • Respond to notices from the IRS in a timely manner. 

In addition to the above, the IRS has offered a few filing tips for individuals.

  • Fastest refunds by e-filing, avoiding paper returns: Filing electronically with direct deposit and avoiding a paper tax return is more important than ever to avoid refund delays. If you need a tax refund quickly, do not file on paper – use software, a trusted tax professional or IRS Free File.
  • Filing 2021 tax return with 2020 tax return still in process: For those whose tax returns from 2020 have not yet been processed, 2021 tax returns can still be filed. For those in this group filing electronically, here’s a critical point: taxpayers need their Adjusted Gross Income, or AGI, from their most recent tax return at time of filing. For those waiting on their 2020 tax return to be processed, make sure to enter $0 (zero dollars) for last year’s AGI on the 2021 tax return. Visit Validating Your Electronically Filed Tax Return for more details.

More individual filing tips from the IRS can be found here.

If you have unpaid taxes or unfiled returns, you need an experienced tax attorney to represent you in your dealings with the IRS or the Department of Justice. An accountant or enrolled agent is not protected by attorney-client privilege. Please contact Eric Nemeth of Varnum’s Tax Practice Team with any questions.

Data Privacy Day: When Was The Last Time You Had a Privacy Check?

Every year on January 28, Data Privacy Day is observed as part of an international effort to raise awareness about the importance of data privacy and security. Whether you are an individual interested in protection of your own personal data or a business trying to protect your clients, employees, or other personal information, we hope this article can serve as a reminder to review how you are protecting your valued personal data.

Here are some of our top data privacy and data protection reminders for businesses for the upcoming year.

Know What Type of Personal Data Your Business Collects

Personal data is defined by the European Commission as “any information that relates to an identified or identifiable living individual.”[1] Multiple pieces of personal information which, when put together, would identify an individual, is also personal data. Whether a country, state, or locality uses the term “personal data” or “personal information” in their laws or regulations, the general concept remains the same.

Examples of personal data include: first and last name, physical address, personal email address, location data (such as on a cell phone), IP address, driver’s license number, social security number, vehicle identification number, and even data held by a medical provider that could identify a unique individual.

Your business more than likely collects some type of personal data. Taking a first step to identify what type of personal data you collect will help your business comply with any applicable data privacy laws.

Review or Implement Your Privacy Policy

Your privacy policy is your best mechanism for communicating your data privacy practices to your customers and regulators. Besides its utility as a transparency and communication tool, several data privacy laws, including the California Consumer Privacy Act, require annual review and publishing of company privacy policies.

The annual review provides an opportunity for your business to confirm the information published in the policy is current and accurately reflects your practices. Knowing what type of personal data your business collects and why is pertinent, as you will need to disclose the type of personal data collected and scope of use for that data.

To provide the utmost transparency to customers and others interacting with your business, carve out an area of your website to house the current version of your policy, with a linked archive to versions from the past three to five years. When updating your policy, provide a summary at the top or bottom of the new document identifying what changed from the previous year.

Consider How Your Business Responds to a Data Subject Access Request

Knowing what type of personal data your business collects and being transparent about it are important steps toward compliance, but what will your business do if a data subject exercises their right of access under applicable law? What if they ask you to delete their personal data from your systems?

Jurisdictions with data privacy laws and regulations provide various rights for individuals, with an underlying right that a person can “access” the data a company holds about them. Under the EU-GDPR and CCPA, data subjects can ask a company the types of personal data collected and what specific pieces of their personal data the company holds. Both laws also provide a right of deletion: an individual can ask a company to permanently remove their personal data from their systems, and in most circumstances the company will need to comply with the request within the legal timeline.

Establishing an internal process and procedure for timely responding to these types of rights requests is vital for any business subject to a data privacy law or regulation creating these rights. The key is identifying where the distinct types of personal data are stored on your systems, understanding which individuals in your business have access to those systems in order to assist in processing these requests, and maintaining a structured workflow to ensure proper oversight and ownership of this process.

Create and Enforce a Data Retention Plan

Developing and maintaining a data retention plan for your company will help minimize the amount of personal data your business collects, facilitate internal organization to effectively respond to data subject access requests, reduce the amount of storage and personal data for which you are responsible, and overall increase your company’s strength in the area of data privacy and security.

In setting up a data retention plan, you should make sure it addresses (i) what information is covered; (ii) the timelines you are required to keep such information, which may differ under federal or state law; and (iii) how your company will destroy or remove personal data from your company’s document management system.

The timelines and requirements your data retention plan sets forth should be reasonably enforceable to ensure compliance is achieved.

Maintain Appropriate Privacy Contractual Controls

Knowing what personal data you hold and where it is stored is not enough. Your business also needs to be continuously aware of others with whom you share personal data, especially third-party sub-processors. Data sharing relationships are often spelled out in contractual provisions or addenda. If you work with entities in different countries, cross-border controls such as standard contractual clauses may also come into play. It is important for your business to understand how personal data flows through your company systems, and to keep in mind data sharing interactions throughout the course of your business functions, ensuring the proper controls are in place.

Layer Your Security Controls

An important step in ensuring your company is secure is addressing who has access to the personal data your company stores. Security controls and tools you should consider using include physical controls, digital security controls, and cloud security controls.

  • Physical security controls generally refer to traditional methods of security such as locks, guards, or access key cards that limit a person’s access to certain areas where personal data is kept, stored, or accessible.
  • Digital security controls limit a person’s access to your businesses systems through detailed password requirements, antivirus software, or multi-factor authentication (MFA). MFA is a highly-effective tool, as it has been found to prevent up to 99.9 percent of data security hacks.
  • Cloud security controls require coordination with your cloud services provider to ensure the necessary protections are in place to prevent unauthorized access to the stored data and workloads.

Educate Your Workforce

Lastly, your employees are your best defense against phishing and other cyberattacks. If you have not already done so, it should be your 2022 resolution to plan regular cybersecurity trainings for your employees. The trainings should make employees aware of what types of attacks exist and how to identify signs and risks that could expose the company to an attack.

Implementing clear and reasonable enforceable policies and procedures will help your employees know what their responsibilities are, how they can fulfill those responsibilities, and how to react promptly in the case of a data breach.

While cybersecurity and data privacy is sometimes focused on the technology itself to prevent data breaches, it’s important to account for the human element and ensure all employees understand their responsibilities in protecting your company’s security.

What’s New with U.S. State Legislation?

To date, three states – California, Colorado, and Virginia – have enacted consumer data privacy laws that cover many of the topics above.

  • California: Currently, the California Consumer Privacy Act of 2018 (CCPA)[2] governs consumer data privacy in California. On January 1, 2023, the California Consumer Privacy Rights Act (CPRA) will take effect, implementing additional consumer data privacy laws. The CPRA does not replace the CCPA but rather adds to it by expanding individual rights, introducing new governance measures, and creating the California Privacy Protection Agency.
  • Virginia: In Virginia, the Consumer Data Protection Act (CDPA)[3] also becomes effective at the beginning of next year on January 1, 2023. Similar to the CCPA/CPRA, the CDPA prescribes responsibility and privacy protection standards for businesses that handle or process personal data. Enforcement of Virginia’s CDPA will be by the Attorney General.
  • Colorado: In Colorado, the state legislature enacted the Colorado Consumer Protection Act (CPA)[4] which takes effect on July 1, 2023. The law addresses consumers’ rights and the responsibilities of businesses that handle or process personal data. Similar to Virginia, the Attorney General will be the enforcer for any violations.

In preparation for 2023, businesses will want to become more familiar with the additional requirements of the CPRA, the Colorado CPA, and the Virginia CDPA.

What’s Going On at the U.S. Federal Level?

The United States is lagging in producing a comprehensive data privacy law at the federal level. Dozens of privacy-related bills have been proposed over the past decade from both sides of the aisle and in both the House and Senate chambers. These bills deal with narrow data privacy-related issues such as facial recognition and artificial intelligence or access to records by law enforcement.

In the absence of a comprehensive federal privacy law, some suggest the U.S. Federal Trade Commission may promulgate and enforce an overarching, non-sector specific privacy rule, although any efforts in that direction have not yet been fully explored or finalized.

Please contact your Varnum attorney or any member of the firm’s Data Privacy and Cybersecurity practice team with questions on how you can best protect your or your business’s private information.

[1] There are multiple definitions of “personal data” or “personal information.” While worded slightly differently, they all promote the same understanding of what constitutes personal data. For the purposes of this article, we chose to use the definition provided by the European Commission. https://ec.europa.eu/info/law/law-topic/data-protection/reform/what-personal-data_en
[2] Cal. Civ. Code §§ 1798.100 et seq. Note: the CCPA/CPRA has certain threshold requirements before its provisions apply. Generally, a business is subject to the CCPA/CPRA if: (1) it does business in the state of California, and (2) it meets one of the following criteria: (i) have an annual gross revenue of more than $25,000,000 in the preceding calendar year; (ii) buys or shares personal information of, 1000,000 or more consumers or households; or (iii) derive 50% or more of its annual revenue from selling consumers’ personal information.
[3] 2021 H.B. 2307/2021 S.B. 1392. The CDPA also has threshold requirements for its application. Generally speaking, CPDA applies to business that either conduct business in Virginia or target Virginia residents through their products or services, and (1) controls or processes data of at least 100,000 consumers or (2) controls or processes personal data of consumers and derives over 50% of gross revenue from the sale of personal data.
[4] Colo. Rev. Stat. § 6-1-1301 et seq. The CPA also has its own threshold for application requiring that the business conduct business in Colorado or produces or delivers commercial products or services to Colorado residents, and (i) control or process the personal data of at least 100,000 consumers during the calendar year, or (ii) derives revenue or receive a discount on the price of goods or services from the sale of personal data.

Separate Property Basics Part III: It’s Yours, But Could Be Mine

This is the final installment in our three-part discussion of separate property in divorce. We previously covered common categories of marital and separate property. This week, we consider how one spouse’s separate property might be “invaded” in divorce.

Invasion of Separate Property

In general, each party will receive their own separate property, without any part going to the other party, and the Court will then seek to make an equitable division of all that remains in the marital estate. But there are two important exceptions wherein the Court may “invade” one spouse’s separate property and divide it up anyway: upon a showing of “substantial need,” or “contribution.”

The “substantial need” exception derives from Michigan statute MCL 552.23(1), which provides that separate property may be invaded if, after division of the marital assets “the estate and effects awarded to either party are insufficient for the suitable support and maintenance of either party….” As interpreted by Michigan courts, this means that invasion is allowed when one party demonstrates additional need, such that invading one party’s separate property is necessary to ensure that the other party has sufficient resources to support themselves.[1] 

The “contribution” exception derives from Michigan statute MCL 552.401, which provides that the court may invade separate property when the other spouse “contributed to the acquisition, improvement, or accumulation of the property.” Thus, “[w]hen one significantly assists in the acquisition or growth of a spouse’s separate asset, the court may consider the contribution as having a distinct value deserving of compensation.”[2] A common example of this is a home purchased prior to the marriage but which becomes the marital home after the couple marries. The longer the parties live in the home, the more marital the home becomes. There is no definitive rule as to timing but the theory is that the non-purchasing spouse is contributing to mortgage reduction and upkeep and maintenance.

Another example is closely held company stock that increases in value as a result of both parties’ efforts during in the marriage. In a recent case, the trial court found that certain private stock the husband acquired before marriage was the husband’s separate property and that his efforts working for the company during the marriage contributed to the increase in the value of the stock. The court noted that while the husband worked long hours for the company (as much as seven days a week and 12-hour days), the wife also worked for the company and was fully responsible for the children while the husband worked long hours. The trial court ruled (and the Court of Appeals affirmed) that the wife was entitled to 1/3 of the value of the stock because she contributed to its appreciation not only as an employee of the company, but also by managing “the household and childcare for the couple’s children.”[3]

Separating Expectations from Reality

Anyone contemplating divorce should resist the urge to rely on their gut instinct for determining what property may or may not be subject to division. While the law in this area is relatively clear and often well-reasoned, it may not coincide exactly with what seems fair on a surface level. Things like separate bank accounts or each spouse’s respective earnings may seem like they should be separate, but they are not. In addition, the application of the law will always depend on a judge’s view of the facts: how extensively were funds commingled? Is there substantial need for invasion? How significant was one spouse’s contribution to the other’s separate property? What did the parties really intend to keep separate? Understanding the analysis courts go through is certainly necessary for arguing your case to a judge, but it is also helpful in negotiating a property settlement outside of court. By knowing your legal rights, you know when it makes sense to concede and when it makes sense to push for a better deal.

[1] See Reeves, 226 Mich. App. at 494.
[2] Id.
[3] Sutariya v. Sutariya, No. 345115, 2021 WL 5019330, at *3 (Mich. Ct. App. Oct. 28, 2021)

Registration for H-1B Cap-Subject Petitions Opens in March

The electronic registration process for H-1B cap-subject petitions will open on March 1, 2022 and end on March 20, 2022. U.S. Citizenship and Immigration Services (USCIS) will utilize a random lottery process to select 85,000 petitions for the H-1B cap (65,000 for the general category and 20,000 for the U.S. advanced degree category). Applicants selected in the random lottery will be notified by March 31 and will have until June 30 to submit the H-1B petition for the beneficiary named in the registration. In previous years, USCIS has conducted second and third rounds of the lottery to meet the H-1B cap.

Varnum immigration attorneys have begun to collect information to be prepared for the March registration period. Employers with employees on F-1 Optional Practical Training (OPT) or candidates needing cap-subject H-1Bs should contact us by mid-February for assistance with registration.

US Supreme Court Halts Federal Vaccination Mandate for Employers, but Permits CMS Rule to Take Effect

Today, January 13, 2022 the U.S. Supreme Court issued two significant rulings regarding two of the federal COVID-19 vaccine mandates. First, the Supreme Court stayed the Federal Occupational Safety and Health Administration’s (OSHA) Emergency Temporary Standard (ETS) on COVID-19 for employers with 100 or more employees. This means the ETS is no longer in effect at this time, and employers are not under an obligation to comply with its requirements.

Second, the Court granted the federal government’s request that the preliminary injunctions blocking the Healthcare Centers for Medicare & Medicaid Services (CMS) Interim Final Rule (the “CMS Rule”) in certain states be lifted. This means CMS is allowed to move forward with its rule for healthcare workers nationwide, and that covered employers must comply with the CMS Rule.

The following is an update on the impact of the Supreme Court’s rulings for each rule.

OSHA ETS

As previously reported, the Supreme Court held an emergency hearing on January 7, 2022 regarding a judicial stay of OSHA’s ETS on COVID-19 for employers with 100 or more employees. Today, the Supreme Court ruled in favor of petitioners granting the judicial stay by a 6 –3 vote, with Justices Roberts, Thomas, Alito, Gorsuch, Kavanaugh, and Barrett voting in favor and Justices Breyer, Sotomayor, and Kagan dissenting.[1]

As a result, enforcement of OSHA’s ETS has been halted pending the disposition of the case in the United States Court of Appeals for the Sixth Circuit.

According to the Supreme Court’s ruling, the petitioners “are likely to prevail” on the merits of their case in front of the Sixth Circuit because COVID-19 impacts all areas of life and not just the workplace. The Supreme Court stated that “[p]ermitting OSHA to regulate the hazards of daily life – simply because most Americans have jobs and face those same risks while on the clock – would significantly expand OSHA’s regulatory authority without clear congressional authorization.”

While the Supreme Court acknowledged that OSHA has some authority to regulate occupation-specific risks related to COVID-19, it does not have such authority when OSHA takes an “indiscriminate approach” and “fails to account for” the crucial distinction between occupational risk and risk more generally.

The Supreme Court’s ruling today means that the ETS is stayed nationwide and that the vaccine and testing requirements for employers with 100 or more employees are blocked from taking effect. While this ruling is not the final decision of the case, such rulings are an indication of how the Supreme Court may ultimately decide should the case appear again in front of the Court. We will continue to monitor whether OSHA continues its efforts to defend the ETS after today’s ruling.

Healthcare Employers: CMS Interim Final Rule

As previously reported, the Supreme Court also held an emergency hearing on January 7, 2022 regarding the U.S. government’s request to issue a stay of the preliminary injunctions that are currently preventing the CMS Rule from taking effect in 25 states.

Today, the Supreme Court ruled in favor of the U.S. government, granting the judicial stay by a 5 – 4 vote, with Justices Roberts, Breyer, Sotomayor, Kagan, and Kavanaugh voting in favor and Justices Thomas, Alito, Gorsuch, and Barrett dissenting.[2]

According to the Supreme Court, the “challenges posed by a global pandemic do not allow a federal agency to exercise power that Congress has not conferred upon it.” However, “[a]t the same time, such unprecedented circumstances provide no grounds for limiting the exercise of authorities [an] agency has long been recognized to have.”

Here, the Supreme Court found that the CMS Rule fell within the authority that Congress had conferred on the Secretary of the Health and Human Services agency. Specifically, the Court stated that Congress has authorized the Secretary of Health and Human Services to “impose conditions on the receipt of Medicaid and Medicare funds” which are “necessary in the interest of the health and safety of individuals who are furnished services.” The Court noted that “COVID-19 is a highly contagious, dangerous, and – especially for Medicare and Medicaid patients – deadly disease.”

The Supreme Court’s ruling today means that the injunctions by the lower federal courts are lifted and the CMS Rule is in effect nationwide. We will have to wait and see if CMS issues any guidance for its compliance dates following the Court’s ruling.

Please contact your Varnum attorney, or any member of the firm’s labor and employment practice team, with questions about how this change will affect your workforce.

[1] National Federation of Independent Business, et al., v. Dep’t of Labor and OSHA, et al. and Ohio, et al. v. Dep’t of Labor and OSHA, et al.
[2] Joseph R. Biden, Jr., President of the United States, et al. v. Missouri, et al. and Xavier Becerra, Secretary of Health and Human Services, et al., v. Louisiana, et al.

To (b) Or Not to (b): Thinking Through a Potential Section 83(b) Election

Recently you came across an exciting startup company that is developing an app for business that could revolutionize an industry. After extensive discussions with its founder and the recognition that your skills could substantially benefit the company, the parties agree that you will soon receive restricted stock that will vest over a period of time in exchange for the valuable services you will provide over a multi-year period. After telling friends at a cocktail party about your exciting opportunity, they mention that you may want to make a section 83(b) election. Until this point you had successfully avoided anything to do with the IRS or tax, but after hearing of potentially “huge tax savings” from friends by simply making this election, you realize that you need to get a better understanding of this election and whether it’s right for you. Fear not, this article is here to help with your decision.

Receipt of Stock for Services

To understand a section 83(b) election, our service provider must first understand the default rule under section 83(a). Under section 83(a), when a service provider receives property in exchange for services, the service provider must recognize income computed as follows:

Fair market value (FMV) of the property received (more on this below) at the earlier of:

(1) the first time the property is transferrable, or

(2) the time the property is not subject to a “substantial risk of forfeiture” (SRF)

LESS: the amount paid for such property. 

An SRF exists if the service provider’s rights to the property (stock in our example) are conditioned on future events, such as future performance of services. For example, if a service provider receives restricted stock that vests 25 percent after one year of service with the remaining 75 percent vesting equally over 36 months, but the unvested stock is forfeited if they no longer provide services as required in the Restricted Stock Agreement, an SRF is in play. Thus, if our service provider above receives unrestricted stock of the company (i.e. can transfer immediately and the stock is not subject to an SRF) in exchange for services, there is no decision to make – they will have taxable income to the extent of the formula above. However, if our service provider receives stock that cannot be transferred and has an SRF, under section 83(a) they will not recognize income until the first tax year in which the stock is either transferrable or no longer has an SRF. That is, unless they make a section 83(b) election.

The Section 83(b) Election

Under section 83(b), a service provider can essentially elect out of the deferral of income under section 83(a) and include it in their gross income in the year the property is transferred. Instead of recognizing income as the stock vests, the service provider recognizes income in the year the stock is transferred to them to the extent, and in the amount, that the fair market value of the stock at the time of transfer exceeds the amount paid for it.

How do I decide whether to make a section 83(b) election?

If you’re asking yourself “why in the world would I trigger tax early that I could pay later?”, that’s certainly an understandable response. They answer lies in what you expect the value of the stock to be when it vests. Let’s return to our example where vesting occurs 25 percent after one year of service and 75 percent equally over the next three years provided services are still being provided. If the app is currently at the development stage with no revenue and little established value, but you expect development to be completed in the following year with an immediate substantial revenue stream, you have a prime situation where a section 83(b) election may be desirable. By making the election in the year the stock is received and picking up income at that point, the tax burden could be substantially less because it is based off a much lower FMV. On the other hand, if you wait until the stock vests to recognize the income and at that point the value of the company is substantially larger because the app is completed, there is substantial investment in the company, and there is a solid revenue stream, the burden could be substantially larger.

Are there downsides of making the section 83(b) election?  

Unfortunately, the section 83(b) election does not come without risk. As noted before, section 83(b) is only implicated where there is a SRF. Suppose that our service provider made a section 83(b) election because they felt the company had great potential and paid tax based on the current value, but decides to leave the company before it vests. Under that scenario, the service provider cannot take a deduction to offset the income picked up and tax paid in the year they received the stock, even though they never received the unrestricted stock.

When and how do I make a Section 83(b) election?

The timing of the section 83(b) election is crucial – it must be made within 30 days of the transfer of the stock. Thus, the company and the service provider should work together to ensure that this timeline is met. The section 83(b) election must be sent to the same IRS address to which the service provider sends their yearly tax return, and should include all of the following:

  1. Name, address and taxpayer identification number;
  2. A description of the property
  3. The date on which the property was transferred and the tax year for which the election is being made;
  4. Nature of the restrictions the property is subject to;
  5. The fair market value at the time of transfer;
  6. The amount paid for such property, if applicable; and
  7. A statement that any required notices have been furnished by the taxpayer. (For instance, the service provider must provide notice to the company that the section 83(b) election has been filed).

What are the tax implications to the company that issues the restricted stock?

The company that issued the restricted stock can take a deduction to the extent of the income recognized by the service provider in that same year.

Valuation Issues Pertaining to Section 83

Under section 83, whether income is recognized as the stock vests or done up front via a section 83(b) election, the FMV of the property must be computed without regard to any restriction other than a restriction on the property that never lapses. Thus, the service provider cannot reduce FMV for discounts and other items that reduce value.

Additionally, startups often issue restricted stock at a stage when it’s very difficult to determine the fair market value of the company, such as when the underlying IP is still in development or where there are little to no sales yet. The IRS standard for valuation is provided in Revenue Ruling 59-60, which states that FMV is “(t)he amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” Absent a buyer who comes forward to buy the company at a set price or other financial information (e.g, revenue numbers, etc.) that can establish a value that will satisfy Rev. Rul. 59-60, the service provider will have to work with the company to determine a proper value for the restricted stock. This could be satisfied, for instance, if the company is in the process of issuing securities or just completed a round to investors by using the valuations done in conjunction with those securities to determine FMV. It is important to note that if the service provider uses a value for determining their income from the section 83(b) election that differs from amounts used by the company for its activities, the IRS could use such documentation to support an income adjustment to the service provider.

Ultimately, if a section 83(b) election is made in the proper circumstances, it can generate substantial tax savings to the service provider, and an earlier tax deduction for the service recipient. It is important to note that there are additional nuances and restrictions in section 83 and the underlying authority that must be understood to reach the proper conclusion of whether to pursue such an election.

Varnum LLP advises businesses at all stage of development on issues including taxation, corporate, regulatory, employee benefits, mergers and acquisitions, and succession planning. Please contact us to set up a consultation.

Federal Vaccine/Testing Mandates Take Effect While Supreme Court Stays Silent

UPDATE: US Supreme Court Halts Federal Vaccination Mandate for Employers, but Permits CMS Rule to Take Effect

Today, January 10, 2022, the Federal Occupational Safety and Health Administration’s (OSHA) Emergency Temporary Standard (ETS) on COVID-19 for employers with 100 or more employees takes effect. Although many had anticipated that the U.S. Supreme Court might rule on the legality of the OSHA ETS prior to today, the Court’s failure to do so means that covered employers should be prepared to comply. A full discussion of the ETS’s requirements is available in our previous advisory: Here We Go Again: Sixth Circuit Lifts Stay of OSHA COVID-19 ETS for Employers With 100 or More Employees. Additional guidance from MIOSHA late last week suggests that covered employers in Michigan may have an additional two-week period, until January 24, 2022, to come into full compliance.

Background

On Friday, January 7, 2022 the Supreme Court heard expedited oral arguments regarding judicial stays facing two federal vaccine mandates concerning COVID-19: OSHA’s ETS on COVID-19 for employers with 100 or more employees and the Healthcare Centers for Medicare & Medicaid Services (CMS) Interim Final Rule (the “CMS Rule”) covering certain health care providers.

While many had anticipated some sort of preliminary ruling or even a stay of one or both mandates by today, as of the time this advisory was published there had been no ruling on either issue from the Supreme Court.

OSHA ETS and Recent MIOSHA Action

As previously reported, the U.S. Court of Appeals for the Sixth Circuit recently lifted a judicial stay that had previously prevented the implementation of OSHA’s ETS for employers with 100 or more employees. OSHA responded to this ruling by issuing new compliance dates for the ETS: Covered employers were given until today, January 10, 2022, to comply with all provisions, except for the testing requirement for unvaccinated employees. The testing requirement was rescheduled to take effect on February 9, 2022.

Several petitioners filed immediate emergency appeals to the Supreme Court asking the Court to reinstitute the judicial stay, pending a full hearing and decision on the matter. The Supreme Court granted the request and held an emergency hearing this past Friday, January 7, 2022 regarding a judicial stay of the ETS.

However, as of today, January 10, the Supreme Court has not yet issued a ruling. That means the federal ETS is in effect and will proceed according to the new compliance dates announced by OSHA, pending the Supreme Court’s disposition of the case. You can find a full discussion of those requirements in our previous advisory.

In the meantime, late last week the Michigan Occupational Safety & Health Administration (MIOSHA) issued a statement indicating that OSHA was not requiring states with state plans like Michigan to adopt the ETS or an equivalent until January 24, 2022. MIOSHA stated it is closely monitoring the status of legal challenges to the OSHA ETS while preparing for its deadline to adopt. You can read MIOSHA’s full announcement on the michigan.gov website: Labor and Economic Opportunity – COVID-19 Workplace Safety. This suggests that in Michigan at least, MIOSHA may not start enforcing the requirements of the OSHA ETS until January 24. Due to the lack of clarity, however, employers are urged to come into compliance with the OSHA ETS as soon as possible.

Healthcare Employers: CMS Interim Final Rule

As previously reported, on November 30, 2021 a federal judge in Louisiana issued a preliminary injunction to block the start of the CMS Rule, which applies to certain healthcare entities. The injunction from the Louisiana federal district court applied nationwide except for the ten states that were already under a preliminary injunction order issued on November 29 in Missouri.

On December 15, 2021 a three-judge panel for the U.S. Court of Appeals for the Fifth Circuit ruled that the lower Louisiana federal court only had the authority to block the mandate in the 14 states that had actually filed suit. The following day, a federal court in Texas granted a preliminary injunction to enjoin CMS from enforcing is vaccine mandate in Texas. Thus, the CMS mandate has been blocked from enforcement in 25 states but remains in effect in the remaining 25 states, including Michigan. On December 28, 2021, the CMS updated its FAQs indicating it is moving forward with implementation of the CMS in the 25 states not subject to the Stay and modified its compliance timeline to January 27, 2022 for phase one and February 28, 2022 for phase two. See External FAQ IFC-6 Guidance Memo 12 28 21 226 (508 Compliant).

The U.S. government applied to the Supreme Court asking for a nationwide stay of the injunctions issued by the lower federal courts, pending full review by the lower Circuit courts. The Supreme Court granted the request and also held an emergency hearing on the CMS Rule this past Friday, January 7, 2022.

Again, however, we have heard nothing further from the Supreme Court. Thus, the CMS Rule remains blocked in 25 states as of today, but continues on in the other 25 states.

Please contact your Varnum attorney, or any member of the firm’s labor and employment practice team, with questions about how these legal developments will affect your workforce and advice for bringing your organization into compliance with these mandates.

Michigan Announces Intent to Align With New CDC Quarantine and Isolation Guidelines

After a brief pause in which the Michigan Department of Health and Human Services (MDHHS) had stated it would not immediately adopt recently-updated CDC guidelines for COVID-19 quarantine and isolation, the MDHHS announced Friday, December 31, that it will update Michigan’s quarantine and isolation guidelines applicable to the general public to align with the new CDC guidelines.

Regarding this change, MDHHS stated: “The updated guidance is specific to the general public and does not change the current guidance recommendations for congregate settings, early childcare or K-12 settings – these settings should continue to use existing guidelines and policies regarding quarantine and isolation.”

Although MDHHS did not define “congregate settings,” it is likely, based on previous and CDC guidance, that the term applies to congregate living settings such as nursing homes, group homes, and correctional facilities. Michigan employers should continue to monitor MDHHS publications for the promised updated guidelines, as these may provide further clarity, and because rules are evolving quickly in the current changing environment. Varnum’s Labor and Employment Team will continue to monitor for new developments as well.