Other than the EPA regulation of computer casings from business computers, currently there are no compliance requirements for the remainder of the computer equipment under federal or Illinois laws. In establishing a computer equipment disposal practice, for environmental soundness, businesses should take into account both the EPA and IEPA laws in regard to hazardous waste. Recycling of computer equipment seems to be the easiest policy to incorporate in the disposal practice. Alternatively, businesses should establish a disposal procedure specifically for computer casings, cathode ray tubes and batteries, including sending such parts to approved solid or hazardous waste disposal facilities.
Recent corporation, securities and business law section's Law Ed Seriesprogram
The Year 2001 Key Corporate Law Issues Law Ed Seriesprogram on May 11, 2001 was attended by more than 75 persons and was very well received. In fact, it was one of the highest rated programs ever presented by the Corporations, Securities and Business Law Section. Written comments received from attendees included "Excellent materials, speakers very helpful and generous with knowledge and materials," "Enjoyed the interaction of the panel, very effective," "Keep up the great work. Speakers very impressive," and "Excellent! Well worth the money." The program covered the representation of the buyer or seller of a business in the morning session, and fiduciary duties in the afternoon session. If you missed the presentation and would like to purchase the materials, please contact the Continuing Legal Education department of the ISBA at 800/252-8908.
Do charitable organizations have a safe haven from general real estate taxes?
By Brent Gwillim, Peoria
The Illinois statute 35 ILCS 200/15-65, entitled "Charitable Purposes" provides that facilities for the aged shall be exempt from real estate taxes when the premises are actually and exclusively used for charitable or beneficial purposes, and not leased or otherwise used with a view to profit. For purposes of this article, Petitioner shall be the entity which owns the premises subject of an Application for Tax-Exempt Status, in addition to additional adjacent parcels which are tax-exempt, and Petitioner does operate a home for the aged on the property already tax-exempt and the property subject of the Application for Tax-Exempt Status. Petitioner is an Illinois not-for-profit corporation which has a section 501(c)(3) exempt status from the Internal Revenue Service. Petitioner operates facilities for the aged and said premises and facilities located on the premises are used for charitable purposes and are not used for any purpose to generate a monetary profit.
Petitioner is presently in the process of expanding its facility with the proposed construction of additional independent living units and other related facilities. The premises in question in Petitioner's application are the premises where the independent living facilities are to be located. Planning for the expansion and development and construction of the new facilities began prior to 1998. During 1999 Petitioner's facility development was no longer an intended use, but by 1999 the subject premises were in actual process of development and adaptation for exempt use.
In 1999 Petitioner (a) owned fee simple title to the premises; (b) had given notice to the tenant farmer to terminate the tenant farmer's tenancy effective January 1, 1999 (notice dated March 11, 1998); (c) had commenced preparation of the master site plan and schematic drawings which were all preliminary architectural work, and in addition had hired and prepared a market feasibility study; (d) had the second phase of the zoning proceedings approved; and (e) an engineer was hired in the spring of 1999, and a subcontractor was contracted to commence and complete all soil testing work, in addition to the placing of stakes for commencing construction.
In 1999 Petitioner expended approximately $700,000 in development and adaptation costs. These costs were itemized on the financial information which was made available to the administrative law judge in the proceedings.
Petitioner's case is very similar to the facts set forth in Weslin Properties, Inc. v. The Department of Revenue 157 Ill. App. 3d 580 (1987). In this case the appellate court specifically stated that "exemptions have been allowed where property is in the actual process of development and adaptation for exempt use." As the evidence indicates as presented to this court, Petitioner expended large sums in its development and adaptation costs for the proposed project. As stated previously, in addition to a feasibility study and design development Petitioner actually had work performed on the premises in the form of soil testing and the setting of stakes for the commencement of construction.
The evidence presented at the hearing established the policies in force at Petitioner's entity and further established that Petitioner is a charitable institution using the premises exclusively for charitable purposes. This is the issue raised by the Department of Revenue, in that the Department has taken the position that the premises to be used for independent living facilities which are part of Petitioner's overall campus, are not utilized for charitable purposes and therefore are not subject to tax-exempt status. The evidence presented to the administrative law judge established that Petitioner uses a Use Agreement with the independent living residents that does provide of payments to Petitioner, with refunds to be made to the residents at such time as the residents vacate the independent living facility. The evidence also established that Petitioner uses funds paid by residents for furthering its charitable purposes and that it makes no profit and that all funds are used to further the organization's charitable goals. The case of Resurrection Lutheran v. Department of Revenue 212 Ill. App. 3d 964 at page 971, states "A charitable institution does not lose its tax-exempt status merely because the persons who are unable to pay for its services are required to do so, so long as the institution makes no profit and all funds are used to further the organization's charitable goals." The fees paid by the residents are used for construction of facilities and Petitioner's regular operating expenses. The Petitioner realizes no profit from any funds paid by the residents.
The evidence as presented in the administrative hearing proceedings by Petitioner supported and confirmed the guidelines set forth in Methodist Old Peoples Home v. Korzen 39 Ill. 2d 149 (1968), which guidelines are as follows: (1) The organization has no capital, capital stock or shareholders; (2) earns no profits or dividends; (3) derives its funds mainly from public and private charity and holds them in trust for the objects and purposes expressed in its charter; (4) dispenses charity to all who need and apply for it; (5) does not provide gain or profit in a private sense to any person connected with it; and (6) does not appear to place obstacles of any character in the way of those who need and would avail themselves of the charitable benefits it dispenses. The evidence has shown that (1) Petitioner is an Illinois not-for-profit corporation with a 501(c)(3) tax-exempt designation from the Internal Revenue Service and has no capital, capital stock or shareholders. (2) Petitioner earns no profits or dividends. All funds generated through payments by residents or funds received by donation from public and private organizations are used to further Petitioner's charitable purposes in developing its facilities and programs. (3) Petitioner derives its funds mainly from public and private charity and holds them in trust for the objects and purposes expressed in its charter and policies. (4) Petitioner dispenses charity to all who need and apply for it, as evidenced by the financial commitment and policy of the Petitioner where no individual has ever been denied access to its facility based upon financial need or asked to vacate the facility based on financial need. Each year the evidence has established that Petitioner has, through a subsidiary, distributed large sums each year to individuals who have financial needs. (5) Petitioner does not provide gain or profit in a private sense to any person connected with the organization. All funds expended are for operating services. (6) Petitioner does not place any obstacles of any character in the way of those who need or would avail themselves of the charitable benefits it dispenses. Petitioner is a full service home for the aged which provides independent living facilities, intermediate living facilities and skilled care facilities, the latter of which are licensed by the State of Illinois. The evidence has also shown that Petitioner maintains Medicare and Medicaid residents, in addition to meeting financial needs of residents. In addition, Petitioner admits individuals to its facilities without regard to race, creed, religious affiliations, sex or ability to pay.
In addition to the cases cited herein, Petitioner cites two additional cases that support the Application for Tax-Exempt Status of the subject premises. These cases are Decatur Sports Foundation v. Department of Revenue 177 Ill. App. 3d 696 (1988) and Illinois Institute of Technology v. Cal Skinner, Jr., County Treasurer 49 Ill. 2d 59 (1971).
The issue that needs to be addressed is the question of charitable use of premises used by charitable organizations for a purpose which the Department of Revenue may claim is not a charitable purpose. Are premises used for independent living facilities being used for charitable purposes? In planning or structuring a charitable organization which provides various benefits to its clients or residents one must keep in mind the charitable use of property if the entity wishes to obtain tax-exempt status for the premises.
Business Law FlashpointsSM May, 2001
By Donna J. Cunningham
No pass-through of losses because taxpayers' loan participation agreement essentially a guarantee of loan.
Taxpayers' loan participation agreement with bank for a loan to their Sub-S Corporation was correctly treated as a guarantee, denying taxpayers the ability to write off losses of Sub-S corporation to the extent of the loan participation agreement. Taxpayers made no loan to corporation, their guaranty was not an "investment" for purposes of permitting pass-through of corporate losses, and the significance of the loan participation agreement was to guarantee the loan up to extent of the loan participation agreement. Grojean v. Commissioner of Internal Revenue, No. 00-2252 (4/13/01). Appeal, U.S. Tax Ct. Aff@d. To read the case, go to click on "Judicial Opinions," and input case number 00-2252.
Employer's termination for employee's refusal to sign "draconian" non-compete insufficient to establish pretextual motive for discrimination.
After her employer became involved in a dispute with a competing business, Plaintiff's employer, on advice of counsel, decided to require all managers to sign an employment Agreement which included a "draconian" non-compete provision, to refuse to negotiate the terms of the Agreement, and to terminate employees who refused to sign the Agreement for cause. Plaintiff, on advice of counsel, refused, and was terminated. Although Plaintiff was a 47 year old female, and she was replaced by a 32 year old male, Plaintiff presented no direct evidence of discrimination. O'Regan vs. Arbitration Forums, Inc., No. 99-4044 (7th Cir., April 9, 2001). To read the case, go to click on "Judicial Opinions," and input case number 99-4044.
Where there's smoke ... loss of soybeans insured under policy.
Even though no one saw flames, where farmer's insurance policy excluded coverage for certain kinds of damage to crops, but provided coverage if a fire ensued, heat damaged soybeans were covered by the policy, where the policy failed to exclude coverage of damage to beans due to heat. Bruce Oakley v. Farmland Mutual Insurance Co., No 00-1655 (8th Cir., April 11, 2001).
Non-compete does not apply to friends and family.
Insurance agent who had relationships with friends and family prior to his employment for employer, whether or not he sold them insurance before then, was entitled to continue to sell to them in spite of non-compete agreement, when he left and went to work for different employer. Former employer had no protectable interest in customers known to former employee before his employment with them. Com-Co Insurance Agency, Inc. v. Service Insurance Agency and William J. Abplanalp, Jr., 1-00-1643, 1st District, 1st Division, April 16, 2001. Go to , and search for No. 1-00-1643.
Insurer entitled to credit for payment of lost inventory against business interruption loss claim.
Since insurer paid insured regular sales price for goods damaged by flood, insured received net profit and fixed charges, and therefore suffered no loss of earnings. As a result, insurer is entitled to credit for such payment against insured's business interruption insurance loss claim. Lyon Metal Products, LLC vs. Protection Mutual Insurance Co., # 2-00-0587. Go to and search for No. 2-00-0587.
Opposition to UCITA growing: Iowa, North Dakota and Oregon join New York in passing anti-UCITA legislation.
Designed as an update to the sales of goods provisions of the Uniform Commercial Code, UCITA was drafted to address the modern concepts of software and computers. Proponents of the law, including software vendors, say that it is good for consumers because it spells out their rights and responsibilities. Opponents, including consumers, say that the law avoids the concept of protection for consumer sales by making such transactions a temporary rental of a license to use software, and would permit vendors to disclaim warranties, repossess software with no notice, prohibit consumers and the press from saying negative things about their software, among other provisions. Last month, we reported that UCITA died a quick death in Illinois. Although the law has also been introduced in Arizona and Texas, to date, only Virginia and Maryland have adopted UCITA, and Virginia has already amended its statute. See the article at IT World.com, at
European Union: EU about to impose Value Added Tax (VAT) on net sales outside the EU to EU citizens.
While they are working out the details of how they will share the revenues, the 15 member-states of the European Union are close to agreeing upon a tax on digital sales made over the Internet outside the European Community to EU citizens. The tax would force US e-tailers to charge and collect VAT of perhaps as much as 17.5% on music and software downloads purchased by EU citizens on behalf of the European Union, which surely will not make US etailers very happy. As reported in The Register on April 21, 2001.
Email I: use of e-mail, chat implies consent to recording.
Even though they were private communications protected by Washington State statute, a defendant's use of email, knowing that such messages would be recorded on the recipient's computer, impliedly consented to the recording of the messages, so that their use by the police did not violate the privacy law. Washington vs. Townsend, Wash. Ct. App., Div. 3, No. 19304-7-III, (April 5, 2001). Electronic Commerce & Law Report, April 18, 2001.
Email II: employer's search through employee's stored e-mails not violation of wiretap laws.
Finding that wiretap laws are violated only when an e-mail is intercepted from "intermediate storage" or "back-up protection storage"--both of which automatically occur during the course of transmission--or if the e-mail is viewed before the intended recipient has a chance to open it, a Pennsylvania Federal District Court Judge has ruled that reviewing email messages in post-transmission storage does not violate wiretap laws. Fraser v. Nationwide Mutual Insurance Co., USDC, ED. Pa, No. 98-CV-6726, (March 27, 2001).
UK solicitors seek to practice in US.
The Law Society of England and Wales is preparing to ask New York State to relax its requirements for the requalification of U.K. solicitors who want to practice New York law. The move resumes an ongoing debate that stems in part from divergent cultural notions of what a legal education entails. Currently, New York makes a distinction between qualified solicitors with undergraduate degrees in law, who are allowed to take the New York bar exam immediately, and those with undergraduate degrees in non-law subjects, who must take 20 credits of course work (usually one year) at a law school in the United States before being permitted to sit for the bar exam. The UK seeks to have all solicitors treated equally. As reported in the New York Law Journal, April 11, 2001. (The link is too long to be reported here.)
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