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McGuireWoods LLP

Congress Changes Tax Rules Affecting Charities and Gifts
In the flurry of legislative activity last week that preceded the congressional August recess, the eyes of many clients, estate planners, and fiduciary advisers were on the substantial reductions of the estate tax hanging in the balance in the United States Senate. On August 3, 2006, the estate tax proposal fell just short of the 60 votes needed to be considered by the Senate. By some accounts, the two absent Senators, Senators Baucus (D-MT) and Lieberman (D-CT), might have been the 58th and 59th votes.

Meanwhile, however, the House and Senate concluded the long and sometimes tumultuous process of hammering out the Pension Protection Act of 2006 (H.R. 4). In late July, the House-Senate conference report on pension reform was eyed by Republican congressional leaders as a vehicle for the estate tax reductions, but the objection of Senator Snowe (R-ME) to that tactic erased the needed majority support of members of the conference. Next, a contentious maneuver stripped from the pension bill the two-year extension of a large number of popular provisions such as the research credit, so those extenders could be used as “sweeteners” for the estate tax cuts. Despite all that, the pension bill passed the House of Representatives on July 28 by a somewhat bipartisan vote of 279-131. Then, late on August 3, after refusing to take up the “sweetened” estate tax cuts, the Senate approved the pension reform legislation by an overwhelmingly bipartisan vote of 93-5, thus sending it to the President for his promised signature.

Overview of Changes
Title XII of the Pension Protection Act, entitled “Provisions Relating to Exempt Organizations,” contains a wide range of changes liberalizing some charitable contribution rules and restricting others, increasing reporting requirements, tightening the oversight of private foundations, and raising the standards that certain donor advised funds and supporting organizations must meet to avoid treatment as private foundations.

Charitable Giving Changes
There are a number of provisions in the Act that affect certain charitable contributions made by individuals or businesses. These provisions:

Permit a limited IRA charitable rollover (for up to $100,000 annually for persons over 70 ½).
Extend the enhanced deductions for food and book inventory.
Enhance the charitable deduction for certain contributions for conservation purposes.
Modify the rules applicable to contributions of façade easements, related use tangible personal property, fractional interests in tangible personal property, taxidermy property, and clothing and household items.
Modify the recordkeeping requirements for cash gifts.

Charitable Reform
The Act also includes a number of provisions that affect tax-exempt organizations, with a significant number of these provisions directed at limiting perceived abuses in the use and operation of supporting organizations and donor-advised funds. These provisions:

mpose a number of rules designed to improve the accountability of donor-advised funds, including a tax on prohibited distributions, a tax on prohibited benefits, and a tax on excess business holdings.

Impose a number of rules designed to improve the accountability of supporting organizations (particularly Type III supporting organizations), including new requirements for classification as a Type III supporting organization, negation of the charitable trust rule in the Type III supporting organization regulations, application of the excess benefit transaction to certain activities of a supporting organization, application of the excess business holding rules to certain supporting organizations, additional filing requirements, and a direction to the IRS to establish distribution requirements for Type III supporting organizations.

Double many of the excise taxes imposed on private foundation prohibited transactions (i.e., self-dealing, taxable expenditures, jeopardy investments, and excess business holdings).

Require public disclosure of a charity’s unrelated business taxable income return (Form 990-T).

Impose an annual notification requirement on organizations not required to file a return because their gross receipts are below the minimum required for filing.

08-09-2006

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McGuireWoods LLP

FTC Slams Rambus For Deceptive Standard-Setting Practices
On August 2, the Federal Trade Commission unanimously reversed the decision of an ALJ and held that Rambus, Inc., a developer of computer memory technology, engaged in a course of deceptive conduct to distort the process in a standard-setting organization and obtain an unlawful monopoly in four different technology markets relating to dynamic random access memory (DRAM). In the Matter of Rambus, Inc., Docket No. 9302.

In June 2002, the FTC staff filed a complaint against Rambus alleging that Rambus manipulated and deceived an industry-wide standard-setting organization, the Joint Electron Device Engineering Council (JEDEC), with the intent to obtain market power. In reversing the decision of the ALJ, the FTC found that Rambus had intentionally withheld information about its patents and patent applications from JEDEC, which in the early 1990s was considering memory-chip standards. In addition, the FTC determined that Rambus used information it gained from participation at JEDEC to amend and file patent applications to cover key parts of the standards JEDEC was considering. The FTC also found that Rambus waited until the industry was “locked-in” to the standards before asserting its patents against those companies adhering to the standards.

The FTC has asked for additional briefing on what penalty should be imposed against Rambus, but such sanctions could include royalty-free licenses for Rambus’ patents for SDRAM and DDR SDRAM, as well as an order that Rambus disgorge any profits obtained from its unlawful conduct. In the past, the FTC has obtained consent decrees prohibiting the enforcement of patents based on misconduct in a standard-setting organization. See, e.g., In the Matter of Dell Computer Corp., 121 F.T.C. 616 (1996).

The FTC is giving every indication that it intends to crack down on abuses in standard-setting organizations, and on August 1, Foundry Networks filed an antitrust suit against Alcatel SA, the French telecommunications company, accusing Alcatel of duping a global standard-setting body by withholding information of its pending patent applications. Foundry Networks, Inc. v. Alcatel USA Resources, Inc. et al., Case No. 1:06-cv-00470 (D. Del.). Companies that participate in standard-setting organizations should carefully review the patent disclosure obligations of that organization and make sure they comply with the organization’s policies, practices, and the duty of good faith.

08-09-2006

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Fredrikson & Byron, P.A.

Supreme Count Ruling Increases Costs and Complexity of Redevelopment
The Minnesota Supreme Court’s recent decision in Wren v. HRA of City of Richfield requiring the City of Richfield to pay relocation benefits to a residential property owner may increase the cost and complexity of redevelopment projects.

Richfield, through its Housing and Redevelopment Authority (“HRA”), initiated efforts to redevelop a “blighted and substandard” area within the city. In January of 1999, the HRA contracted with a private developer to develop the area with a mixture of residential, retail and office structures. The contract required the developer to diligently pursue property acquisitions through negotiation. If negotiations failed, the developer could ask the HRA to “undertake condemnation,” and the HRA agreed that it would make good faith efforts to acquire such property. The developer was responsible for any acquisition costs, relocation benefits, and assistance provided as a result of the development. In November of 1999, Wren purchased a residence within the redevelopment area for $116,900 without any knowledge of the redevelopment efforts.

In 2002, Richfield established a TIF district to finance the project. A real estate broker hired by the developer contacted Wren to negotiate the purchase of his property. The broker submitted a purchase agreement to Wren for $170,000 that stated Wren was waiving any claim to relocation benefits. Wren negotiated a $10,000 increase that the broker testified related to moving costs. After closing on his property, Wren claimed relocation benefits from the HRA. The Supreme Court analyzed the issue under the Minnesota Uniform Relocation Act (“MURA”), which provides that the acquiring authority, as a cost of acquisition, must provide any relocation assistance required by the Uniform Relocation Assistance in Real Property Acquisitions Policy Act of 1970. The Court determined that the HRA had, in fact, undertaken acquisition of Wren’s property. The HRA was contractually obligated to use its eminent domain powers to acquire the property if private negotiations failed, and its frequent communications with property owners made it clear that the purchase price would be determined through condemnation if they did not agree to a negotiated price. By initiating the project, controlling the developer, encouraging property owners to negotiate with the developer, providing financing to make the purchase possible, and, most importantly, assuring the developer that its power of condemnation was available, the HRA became an important partner in the acquisition. In addition, the Court determined that Wren’s waiver of relocation benefits was ineffective because the HRA failed to comply with certain statutory requirements.

To avoid paying relocation benefits, cities will have to be very careful not to become actively involved in the redevelopment process. A city must allow the developer to deal directly with property owners and not commit to use its eminent domain powers, even though this approach will make it much more difficult and expensive for developers to acquire property for redevelopment.

08-09-2006

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Epstein Becker & Green, P.C.

Texas Supreme Court Overturns $1.3-Million Verdict against Employer for Employee's Off-Duty Shooting of Police Officer
In a significant decision for employers, the Texas Supreme Court ruled in Loram Maintenance of Way, Inc. v. David Ianni that an employer was not responsible for the off-duty conduct of its employee, Roger Tingle, who shot and seriously injured an El Paso police officer. --- S.W.3d ----, 2006 WL 1791692, 49 Tex. Sup. Ct. J. 874, No. 04-0666 (Tex. June 30, 2006).

08-09-2006

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Chadbourne & Parke LLP

SEC Adopts Amendments to Executive Compensation Disclosure Rules
On July 26, 2006, the Securities and Exchange Commission adopted amendments to the rules requiring disclosure of executive and director compensation, related person transactions, director independence and other corporate governance matters, and security ownership of officers and directors.

08-09-2006

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Mayer Brown LLP

Mayer, Brown, Rowe & Maw advises Mergermarket on its sale to Pearson
International law firm Mayer, Brown, Rowe & Maw LLP has advised the shareholders of independent M&A intelligence provider The Mergermarket Group on their agreement to sell the entire issued share capital of the company to Pearson PLC. The transaction signed on 8 August.

Founded in 2000, mergermarket specialises in providing forward-looking origination and deal flow opportunities integrated with a comprehensive deals database, publishing its own proprietary data and regular legal and financial adviser league tables.

Caspar Hobbs, CEO of mergermarket, commented: ""Mayer, Brown, Rowe & Maw has supported mergermarket from the very start of our business to our most recent transaction, our sale to Pearson. The firm has carried out every aspect of our legal work. What marks them out is not just that they are outstanding lawyers, but even more importantly, they understand business, their advice is really commercial and they are hard negotiators.""

The Mayer, Brown, Rowe & Maw team advising mergermarket was led by corporate partners Paul Maher and Michael Wallin assisted by Louise Cracknell. Travers Smith provided specific advice to the management of mergermarket on tax and other issues.
Simon Marchant of Freshfields advised Pearson PLC.

08-09-2006

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Cravath, Swaine & Moore, LLP

GREG BATTISTA WRITES FOR ENVIRONMENTAL LIABILITY
Cravath senior attorney Gregory J. Battista's article, entitled "The Fragmented Evolution of Corporate Disclosure of Environmental Liabilities in the United States of America", appeared in the May-June 2006 issue of Environmental Liability, a UK journal published by Lawtext.

08-09-2006

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