CDARS, Step Transaction Doctrine and New Internet Advertising Rules







We welcome contributions for future Thursday Report topics. If you are interested in making a contribution as a guest writer, please email Janine Ruggiero at


Clients who have concerns about bank failure and limiting deposits in CDs to $250,000 per entity may have an interest in our article that was published in September 2008 by Steve Leimberg’s Estate Planning Newsletter, which is still current, entitled “FDIC: Maximizing FDIC Insurance Coverage While Not Falling in the Ravine.” Our article can be viewed by clicking here.

An alternative to some of the strategies designed to maximize FDIC insurance coverage outlined in our prior article is The Certificate of Deposit Account Registry Service – CDARS for short. CDARS are more than a house of sticks – they are a house of bricks – and by our view stronger than any Swiss bank or other “super-safe derivative” on Earth. The CDARS program allows investors of all kinds, from individuals to business to public funds to trustees and lawyers, to obtain multi-million-dollar FDIC insurance on CD investments. CDARS were blessed by an FDIC Advisory Opinion in 2003. Click here to view the Opinion.

And the best part is that CDARS are relatively easy – everything is done through one bank of the investor’s choosing. Here is how they work:

First, the investor locates a CDARS Network Member. This will be the bank through which all of the investor’s deposit activity will go. The CDARS website offers a list of members by state.  To view the website click here.  There are no shortage of members in Florida – we found nearly 300 Florida members listed on the CDARS website.

Next, the investor determines what maturity date and rate is best for them. Despite the fact that the investment will be divided among multiple CDARS members, investors receive one interest rate and maturity period. Individual members of the CDARS network set CD rates at locally competitive rates. After deciding the terms, the investor and bank enter into a CDARS Deposit Placement Agreement.

After signing the paperwork and depositing the funds, CDARS divides the investment into CDs at other network banks. Each CD at another network bank will be covered by the FDIC insurance limit, currently $250,000. For instance, if a customer invests $2,000,000, nine CDs will be issued by nine CEDARS network banks, with each CD being under $250,000.

CDARS Network Members only include FDIC-insured banks. The bank initially invested in acts as custodian of the account while The Bank of New York Mellon serves as the sub-custodian.

All of the interest payments, statements, confirmations, etc. will all come through the bank at which the investor signed up.

If a bank that has one of the CDs as part of a CDARS account fails, an occurrence that is rare among CDARS banks according to their website, then the account goes through the normal FDIC failed bank process. First, the FDIC will try to transfer the account to a healthy institution. If for whatever reason a transfer is not possible (which CDARS also says is rare), the FDIC will arrange for the payment of the insured principal and accrued interest.

The downside to this level of convenience and the ability to avoid investing in multiple banks is that an investor may receive a lower return than could possibly be obtained if an investor shopped for individual CDs at separate banks. For instance, if an investor obtains a 2% return on a CD at the bank where they sign up for a CDARS account, and part of their CDARS account goes to another bank with a higher return on that same investment, the investor will still only receive the 2% they received from the initial bank. In addition, the banks must pay a fee to join the CDARS network and may also pay transaction fees. Those additional fees will likely come out of the investor’s return. But lower return rates can be considered a small price in exchange for the convenience and security of a CDARS account.

Please keep in mind, however, that despite the expiration of the recent, temporary unlimited deposit insurance for noninterest-bearing transaction accounts under the Dodd-Frank Act, lawyer trust accounts are covered under FDIC. Accounts held in a fiduciary capacity are still eligible for pass-through deposit insurance coverage, meaning that, assuming the account records are clear and in good order, each separate client in an Interest on Lawyer Trust Account will be insured for up to $250,000.


The new Florida Bar rules on law advertising take effect on May 1, 2013. The new rules span from Rule 4-7.11 to Rule 4-7.23. The new rules include the following highlights:

· Lawyer websites are no longer treated as “information provided upon request” and are now treated like traditional forms of advertising, and thus subject to all of the accompanying advertising rules.

· Social media is also covered by the rule requiring an attorney’s name and office as part of the advertisement. Before you ask, yes-this means that any and all Tweets or Facebook posts now require you to include your name, office, and location!

· The rule’s shift to the “Objectively Verifiable Standard” with regard to deceptive and inherently misleading advertisements. Subjective statements such as “the best estate planner in Florida” are not permissible under the rules. Statements that can be objectively verified, such as statements of past verdicts, are acceptable as long as such statements are not misleading. For instance, presenting atypical circumstances may be misleading.

Click here for a Summary of New Lawyer Advertising Rules and here for a copy of the Supreme Court of Florida opinion adopting the new rules.


The following is the final transcribed excerpt from a Bloomberg/BNA webinar that Alan Gassman and Chris Denicolo gave with John Porter of the Baker Botts law firm, and Professor Jerry Hesch of the Berger Singerman law firm and of the University of Miami, on March 7, 2013, entitled “Don’t Discount Discounts.”

 The below excerpt covers the step transaction doctrine as it relates to the use of valuation discounts.

Alan Gassman: There are some very practical and common issues that we have when we communicate with clients about taking discounts on the gift or sale of LLC or limited partnership interests and how we document how the discount was arrived at, which is always preferably by getting a valuation report.  Keep in mind that without discounting, some clients are going to pay a lot of estate tax.  If you’re not using proper discounting, taking advantage of the discounting opportunities, or utilizing discounting and other techniques, the result can be a lot of estate tax.

We can do a lot of good for our clients in the discount area, especially when the Administration is targeting discounts as something that they may do away with in the future. It’s really important to understand them and work with them properly.

One issue to consider with regard to proper use of discounts is the Step Transaction Doctrine.

The Step Transaction Doctrine has been used by the IRS to reduce or disregard valuation discounts if an entity is funded with assets, and ownership interests in the entity are transferred without allowing for sufficient time to elapse since the contribution of assets to the entity.  The IRS has taken the position that the transfer of ownership interests in the entity was essentially a transfer of the underlying assets of the entity, and therefore little or no discount should apply to the value of the transfer.

While there is no “hard and fast” time period that must elapse between the contribution of assets to the entity and the subsequent transfer of ownership interests in the entity, the consensus among commentators is that a “reasonable” amount of time must elapse.

John, what could happen if you don’t allow for a sufficient amount of time between the contribution of assets and the transfer of ownership interests, and how much time is “reasonable”?

 John Porter: Well, the issue ultimately is that there needs to be some timing between the date a partnership or LLC is formed and funded on one hand, and the date the that interests in the partnership or LLC are transferred.  This resulted out of several cases where the taxpayers funded an entity with assets, transferred ownership interests in the entity shortly after funding, and claimed a valuation discount on the gift tax return with respect to the value of the entity interest transferred.

Two of the most notable cases are  Senda and Shepherd, and a chart of other cases can be found by clicking here.

These cases essentially boil down to a burden of proof argument.  The government generally argues that where the funding occurs simultaneously or close to the date that the partnership interests are transferred there is essentially a gift of the underlying assets of the partnership.   The government says that the gift is measured by the value of the assets transferred to the partnership, which  therefore does not include a discount.  The taxpayers’ position has always been that if you are transferring limited partnership interests, the timing is important.  If you fund the partnership on the same day you transfer the interest, then you should have the appropriate discount because what you’re transferring under state law is a partnership interest.  However, the case law has evolved differently.

Chris Denicolo: Can you give us an example as to how the case law has evolved?

 John Porter: In the Senda case, if you look at the language in the Court’s dicta, the taxpayers presented no reliable evidence that they contributed this stock to the partnerships before they transferred interest in the partnerships to their children.  This is a burden of proof issue.  The taxpayer has to prove that funding occurred before the partnership interests were transferred.  There’s no bright line for how long we need to wait.  In the Holman case, there was a six day time period between the date the partnership was funded and when the interests were transferred.  There’s another case that came out a few months after Holman- the Gross v.Commr. case (T.C. Memo 2008-221).  In this case, the Court found that eleven days was okay where marketable securities were contributed to a partnership.  In both of those cases, there needs to be a little longer time if non-volatile assets like preferred stock or government bonds are transferred to a partnership.

The bottom line is that this is an easy issue to avoid.  You just need to let the partnership cook a little while before interests in the partnership are transferred.  How long?  Well, although six days was okay in Holman, my preference would be 30 days.  For non-volatile assets, you might want to wait a little longer, but I don’t think that it’s absolutely necessary.  But this is an easy argument to avoid with some planning. The client has to come into the office a couple of times- once to create the partnership and another time to transfer interests, but the bottom line is it avoids an argument that is clearly on the government’s radar screen.

Jerry Hesch: The problem occurs when the client says “Why don’t I just sign all the documents now and not have to make multiple trips to the office?”  I had a situation where the client said look, “I’ll sign all the documents now.  I’ll date the formation and contribution documents today and I’ll date the transfer documents 45 days from now and I’ll only have to make one trip.”  My answer is that it won’t work.  But the clients will put that kind of pressure on you, and you have to be very firm and inform them of the risks associated with their suggestion.

John Porter: I agree completely Jerry.  Whether it will work or not is a question, but there’s no client that we’ve ever had that wants to be a test case.  That’s what you can tell them.  Do you want to have your name on a Tax Court opinion?  Or do you want to give the IRS a reason to audit your return?  And most clients have an easy answer to that- the answer is no.

We thank Jerry Hesch and John Porter for their generous sharing of knowledge and advice in these areas.  Please note that this interview included their discussion on Balancing Costs and Client Resistance with Audit Exposure that was published in the March 21 Thursday Report, on Selecting, Drafting, and Implementing Valuation Adjustment Clauses that was published in the March 28 Thursday Report, and on Tiered Valuation Discounts that was published in the April 11 Thursday Report.  If you want to see any of these prior reports and do not have them on your system just let us know.


The HHS website, which can be accessed by clicking here, has an excellent 31 page explanation of the federal fraud and abuse laws that is intended as an introduction for physicians and covers the Anti-Kickback law, the Stark law, and the False Claims Act. The booklet is entitled “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse.”

This or similar literature is a must read for any new physician or other medical provider, and for advisors who are not familiar with these rules but interact regularly with one or more physicians.

A copy of “A Roadmap for New Physicians: Avoiding Medicare and Medicaid Fraud and Abuse” booklet, a companion PowerPoint presentation, and explanation of the PowerPoint presentation can all be downloaded for free on the HHS website. Click here for these materials.

More extensive treatment of these rules can be found in A Practical Guide to Kickback and Self-Referral Law for Florida Physicians by Alan S. Gassman and Lester J. Perling.  To purchase a copy of the book please click here.


Professor Dennis Calfee will be named Tax Attorney of the Year by the Tax Section of the Florida Bar at its 35th annual meeting this weekend.  It is not too late to attend this wonderful Gainesville event.  Click here to view the brochure.

We received many kind words about Professor Calfee and wanted to pass some of them along:

My favorite quote from Professor Calfee is “People are dying to come to Florida, and coming to Florida to die.”
§ Lee L. Haas, Haas & Castillo, P.A., Clearwater, Florida

Congratulations on a well deserved (and long overdue) honor!  I’m not sure about the endowed chair by Alan, and I know the bucket of fried chicken is not good for your cholesterol, so I hope the dinner this weekend brings something better.  Thank you for being an excellent teacher of the finer points of estate and gift tax law.  It has served me very well over the years.  More importantly, thank you for sending me to interview with Alan.  I truly enjoyed working with him, and consider Alan and Marcia dear friends to this day.
§ Tami Foley Conetta, Northern Trust, Sarasota, Florida

Congratulations on being named “Tax Lawyer of the Year” by the Tax Section of the Florida Bar.  I am a CPA and personal friend (He’s never given me a bucket of chicken, but he did take my wife and I to a Bon Jovi concert a few years back) of Alan Gassman.

I also note that you are a graduate of Gonzaga.  My son, Christopher is also a Gonzaga law graduate (’96) and is not a partner in a criminal defense firm in Austin, TX.
§ Steven F. Holub, Cherry Bekaert, LLP, Tampa, Florida

·Your ears must buzz every time I invoke your name when speaking to clients by telling them to read a complicated document or statute (like the Condominium Act) and move their lips as you taught us how to read the Tax Code back in much simpler times, 1981.

No wonder your hair turned white so soon, like Peter Lynch, founder of Fidelity Magellan fund.  Keeping up with Charlatans in Congress bought and paid for by the best corporations money can buy—they ought to be required to wear one piece outfits when in session, like Kyle Gordon, Jeff Busch, and the other drivers with their sponsor’s logo on it.  Of course I was a Political Science major undergrad…

All the best and may you continue to live your dream for many, many years to come.
§ Bob Tankel, Dunedin, Florida

Q: Did you hear the one about the oak tree?
A: It’s acorny one!

Q: Why was the pine tree sent to its room?
A: Because it was being knotty!

Q: Did you hear the one about the redwood?
A: It’s tree-mendous!

Q: What did The Thursday Report readers say when they read our selection of Arbor Day jokes?

A: “Stick” to your day job!


Please click here to view a chart of this month’s, last month’s, and the preceding month’s Applicable Federal Rates, because for a sale you can use the lowest of the 3.


Congratulations to the following people who answered the question correctly about whose vehicles these were and where they were stored:

 Benjamin P. Shenkman

Frank T. Adams

David A. Shulman

Ward Johansen

Daniel Bensimon


They correctly said that the vehicles were Jerry Hesch’s and that they were parked at his home in Florida.



· THURSDAY, MAY 16, 2013. 
The Florida Bar Annual Wealth Protection Seminar: “How a Lawyer Can Protect a Client’s Wealth.” Mark your calendars for this exciting event in Miami, Florida.  Speakers include Jonathan Alper, Esq. on Where Does Florida Law Stand on Fraudulent Transfers”; Mitchell Fuerst, Esq. on Introduction to Professional Privilege in Wealth Protection Cases – Civil v Criminal; Tax v Non-Tax; When to Claim the Fifth; How to Do it Right;  Michael Markham, Esq. on Recent Asset Protection Case Decisions, Legislation, and Their Importance in Protection Planning;  Denis Kleinfeld, Esq. onWhere to Situs a Trust – An Analysis of U.S. Asset Protection States; and Alan Gassman, Esq. on Using Estate Planning Techniques to Optimize Family Wealth Preservation. For more information please click here for the brochure or


THURSDAY, APRIL 25, 2013, 4:00 – 4:50 pm.  
Please join us for the 444 Show – a monthly CLE webinar sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman.  This month’s topic is Reading Surveys and Legal Descriptions: Reviewing Surveys in Actual Practice.  To register for the webinar please visit or

MONDAY, MAY 6, 2013, 12:30 – 1:00 p.m.  
On the first Monday of each month the Clearwater Bar Association presents Lunch Talk.  A free monthly webinar series moderated by Alan S. Gassman.  This month’s speaker is Mike Shea speaking on Your Law Firm Insurance Package.  To register for the webinar please visit or email

 Alan S. Gassman, J.D., LL.M. is a practicing lawyer and author based in Clearwater, Florida. Mr. Gassman is the founder of the firm Gassman, Crotty & Denicolo, P.A., which focuses on the representation of physicians, high net worth individuals, and business owners in estate planning, taxation, and business and personal matters.  He is the lead author on Bloomberg BNA’s Estate Tax Planning and 2011 and 2012, Creditor Protection for Florida Physicians, Gassman & Markham on Florida and Federal Asset Protection Law, A Practical Guide to Kickback and Self-Referral Laws for Florida Physicians, The Florida Physician Advertising Handbook  and The Florida Guide to Prescription, Controlled Substance and Pain Medicine Laws, among others.  Mr. Gassman is a frequent speaker for continuing education programs, publishes regularly for Bloomberg BNA Tax & Accounting, Estates and Trusts Magazine, Estate Planning Magazine and Leimberg Estate Planning Network (LISI).  He holds a law degree and a Masters of Law degree (LL.M.) in Taxation from the University of Florida, and a business degree from Rollins College.  Mr. Gassman is board certified by the Florida Bar Association in Estate Planning and Trust Law, and has the Accredited Estate Planner designation for the National Association of Estate Planners & Councils.  Mr. Gassman’s email is

 Thomas J. Ellwanger, J.D., is a lawyer practicing at the Clearwater, Florida firm of Gassman, Crotty & Denicolo, P.A.  Mr. Ellwanger received his B.A. in 1970 from Northwestern University and his J.D. with honors in 1974 from the University of Florida College of Law.  His practice areas include estate planning, trust and estate administration, personal tax planning and charitable tax planning.  Mr. Ellwanger is a Fellow of the American College of Trusts and Estates Counsel (ACTEC). His email address is

 Christopher Denicolo, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law.  He has co-authored several handbooks that have been featured in Bloomberg BNA Tax & Accounting, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters, and the Florida Bar Journal. He is also the author of the Federal Income Taxation of the Business Entity Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition. Mr. Denicolo received his B.A. and B.S. degrees from Florida State University, his J.D. from Stetson University College of Law, and his LL.M. (Estate Planning) from the University of Miami.  His email address is

Kenneth J. Crotty, J.D., LL.M., is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate tax and trust planning, taxation, physician representation, and corporate and business law. Mr. Crotty has co-authored several handbooks that have been published in BNA Tax & Accounting, Estate Planning, Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters, Estate Planning magazine, and Practical Tax Strategies.  Mr. Crotty is also the author of the Limited Liability Company Chapter of the Florida Bar’s Florida Small Business Practice, Seventh Edition. He, Alan Gassman and Christopher Denicolo are the co-authors of the BNA book Estate Tax Planning in 2011 & 2012. His email address is

Thank you to our law clerks that assisted us in preparing this report:

Kacie Hohnadell is a third-year law student at Stetson University College of Law and is considering pursuing an LL.M. in taxation upon graduation. Kacie is also the Executive Editor of Stetson Law Review and is actively involved in Stetson’s chapter of the Student Animal Legal Defense Fund. In 2010, she received her B.A. from the University of Central Florida in Advertising and Public Relations with a minor in Marketing, and moved to St. Petersburg shortly after graduation to pursue her Juris Doctor. Her email address is

Eric Moody graduated from Stetson University College of Law in December 2012 and is currently seeking admission to the Florida Bar. He is considering pursuing an LL.M. in estate planning. While at Stetson, Eric was an Articles and Symposia Editor for the Stetson Law Review. In 2009, Eric received a B.S. in Business Management from the University of South Florida. Eric’s email address

Carly Ross is a third-year law student at Stetson University College of Law.  She is the Notes and Comments Editor for Stetson Law Review, and a member of Stetson’s Jessup Moot Court Team.  She graduated from the University of North Carolina at Chapel Hill in 2010 with majors in History and Political Science. Carly’s email is

Jonathan DeSantis is in his final year at Stetson University College of Law. Originally hailing from Philadelphia, Jonathan received a B.A., with honors, in Criminal Justice from Temple University. Jonathan serves as a Senior Associate on the Stetson Law Review and is the immediate past president of the American Constitution Society. His email address is