February 28, 2013 – The Answers to Lester Perling’s Hypotheticals








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 Janine@gassmanpa.com.

This report and other Thursday Reports can be found on our website at www.gassmanlaw.com.


Last Tuesday, we presented a 45 minute webinar with Lester Perling of Broad and Cassel entitled “Florida Health Law Traps – 4 Hypotheticals and Discussion of Important Medical Structuring and Regulatory Issues.”

Thank you to all attendees for your excellent questions and comments.

The PowerPoint for Lester’s presentation, which includes the hypotheticals as well as the answers and explanations under Florida and federal law, can be accessed by CLICKING HERE.

Notably, under federal law, if a physician or practice becomes aware of an overpayment resulting from the practice’s coding error or from an error made by Medicare or Medicaid, failing to report the error and to refund all money associated therewith within 60 days is a felony!

This webinar can be viewed on our website under the “Webinar Library” section, along with past webinars that Mr. Perling has presented for us on Whistleblowers, Unannounced Medicare Audits, Pain Medication Laws, and other topics.


Chapter 24 of the book entitled “Creditor Protection for Florida Physicians: A Comprehensive Handbook for Physicians and Their Advisors” by Alan S. Gassman, Esq. provides an in-depth discussion of Buy/Sell Agreement Arrangements. To read this chapter, please CLICK HERE.


We are pleased to announce that our article entitled “Defective Grantor Trusts are Not Black Holes,” written by Alan S. Gassman, Esq. and Christopher J. Denicolo, Esq., has been published on Leimberg Information Services. To view this article, please CLICK HERE.


We thank Clearwater Johnson Pope tax lawyer Michael Little for pointing out the relatively new IRS SS-8 form used in determining whether an individual is an employee or independent contractor, and our newest Stetson Law student/law clerk Jon DeSantis for assisting with this portion of the Thursday Report.

Michael wins a gift certificate for the Kentucky Fried Chicken buffet once he sends us a box top from a Kellogg’s Fruit Loops cereal box and a receipt showing that he purchased the cereal box at Publix. We are also sending Michael a self-addressed stamped envelope for his convenience.

Most tax attorneys are familiar with the IRS’ traditional 20 Factor Test used to determine whether a worker will be classified as an employee or independent contractor for tax purposes. Many tax advisors are not aware that the IRS adopted a new approach in August 2011 by reorganizing the factors into a newly minted 3 Category Test on the most recent revision of the SS-8 Form, which can be accessed by CLICKING HERE.

The three categories are: a business’ behavioral control over a worker, a business’ financial control over a worker, and the type of relationship between the business and worker. Under each of these categories, there are multiple factual considerations that the IRS will use in gauging how a worker should be classified. Many of the factors in the traditional 20 Factor Test are specifically included within the 3 Category Test, and it is not clear whether the omission of certain factors reflects a material difference between the tests or merely a reorganization.

The IRS has provided substantial guidance regarding the 3 Category Test, including an outline of the test and examples in various industries, in the 2013 version of the Employer’s Supplemental Tax Guide (available by CLICKING HERE). Time will tell whether the evolution of the 20 Factor Test into the 3 Category Test will engender substantive changes in the IRS’ classification of workers as independent contractors or employees.

The categories and factors are set forth below:


These factors address the degree to which the business is able to direct and control how a worker performs the tasks for which he or she was hired.

A. Instructions. When a person is subject to a business’ instructions about when, where, and how to work, the worker is likely an employee. This control can include when to perform the work, where to perform the work, what equipment to use, where to purchase supplies and services, what order of tasks to follow, and which individual is to perform certain tasks. The critical question is whether the business retains the right to control how the work is performed. It is not necessary that instructions are actually given so long as the employer has the right to control how the work is performed.

B. Training. Training a worker by requiring an experienced employee to work with the worker, by corresponding with the worker, by requiring the worker to attend meetings, or by using other methods, indicates that the business wants the services performed in a particular manner and that the worker is an employee. Independent contractors typically utilize their own methods without specific training from the business.


These factors address the degree to which the business has a right to control the business aspects of the work to be performed.

A. Unreimbursed Business Expenses. Independent contractors typically have unreimbursed expenses, while employees do not. This is especially true for fixed ongoing costs that are incurred regardless of whether work is performed. If the person or persons for whom the services are performed ordinarily pay the worker’s business and/or traveling expenses, the worker is ordinarily an employee.

B. Extent of Worker’s Investment. Independent contractors frequently have a significant investment in the facilities or tools used in performing services. If the worker invests in facilities that are used by the worker in performing services and are not typically maintained by employees (such as the maintenance of an office rented at fair value from an unrelated party), this tends to indicate that the worker is an independent contractor. On the other hand, lack of investment in facilities indicates dependence on the person or persons for whom the services are performed for such facilities and, accordingly, the existence of an employer-employee relationship.

C. Extent worker’s services are available to relevant market. Independent contractors are generally able to seek out other business opportunities. Factors that demonstrate this include advertising, maintaining a viable business location, and availability to work in the relevant market.

D. How the business pays the worker. Payment by the hour, week, or month generally points to an employer-employee relationship, provided that this method of payment is not just a convenient way of paying a lump sum agreed upon as the cost of a job. Payment made by the job or on a straight commission generally indi­cates that the worker is an independent contractor.

E. Extent to which worker can make a profit or suffer a loss. A worker who can realize a profit or suffer a loss as a result of the worker’s services (in addition to the profit or loss ordinarily realized by employees) is generally an independent contractor, but the worker who cannot is an employee. An employee may be rewarded, disciplined, demoted, or fired depending on job performance, but only an independent contractor can realize a profit or incur a financial loss from his or her work. In other words, an employee will always get paid, while an independent contractor has a financial stake in the work to be performed.


These factors address the type of relationship between the business and worker.

A. Written Contract. If the business and worker have signed a written contract, it should specifically set out the parties’ intent to establish an employer-employee or independent contractor relationship in addition to addressing the factors discussed in this section.

B. Provision of Benefits. When the business provides benefits such as insurance, pension plans, vacation pay, and sick pay, it is more likely that the worker is an employee.

C. Permanency of Relationship. An expectation that the relationship will continue indefinitely demonstrates intent to create an employer-employee relationship.

D. Importance of services performed. When a worker performs services integral to a business’ regular operations, it indicates an employer-employee relationship. Conversely, it is more likely that a worker is an independent contractor when the work performed is not part and parcel of the business. For example, compare a law firm retaining an attorney to perform legal work with retaining a carpenter to repair a door.

For more information, see Renee Inomata, Perils of Misclassification of Workers as Independent Contractors, 2012 WL 3279180 (ASPATORE).


We were very pleased with the response we had from those who read both of the articles by Craig Hersch that we have shared in previous Thursday Reports.

Craig has been gracious enough to provide us with the following final article, which we hope you enjoy and consider sharing with friends, family, and clients:

In today’s world of “Assisted Reproductive Technology” (ART), do we really know who our heirs might be? I recently attended The Heckerling Estate Planning Conference, which is a weeklong preeminent continuing education course for professionals who practice trust and estate law. One of the sessions featured Miami Attorney Bruce Stone who lectured on how reproductive technology affects wills and trusts.

I was surprised to learn that nearly one out of every 100 new births today is a product of ART. Couples are waiting longer to have children, working against their biological clocks. It is therefore not uncommon for ART facilities to harvest and freeze a couple’s eggs and sperm in case they want to have children at a later time but can’t.

Stone described a client meeting that included not only the husband and wife, but also one of their adult sons. When Stone described the will and trust documents to his clients and got to the “per stirpes” provisions, he explained that if one of the couple’s three sons predeceased them, then that son’s children (the couple’s grandchildren of that son) would take the share of their predeceased son. If, at the time of the death the son had no heirs, then the other surviving sons would split the estate.

That’s when the son dropped a shocking revelation.

“Wait a minute,” he said. “My wife and I have embryos frozen in case we would want to have a child someday. What happens if I died but my wife hasn’t transferred one of the embryos in utero yet? We might not want to ever have children, but if I were to die suddenly we’ve discussed the possibility that she may decide to carry one of these frozen embryos.”

The room sat in shocked silence. When all parties gathered themselves to discuss the possibilities, much emotion poured out.

Florida law states that if an heir is “in-utero” when its parent dies, then it stands in line as a per stirpes heir. Once it is born it is then entitled to the share of the deceased parent. Stone explained that the unborn child would actually have to be in the womb at the time of the adult son’s death in order to be considered an heir.

“But what if my wife decides to wait some time and then have the child. Can it not be considered my legal heir at that time?”

Stone explained that the state law may be circumvented with proper legal drafting inside of the will or trust. In other words, if the clients put a provision that would call an afterborn child a direct heir, then it can certainly be considered one.

But this presents all sorts of problems. Consider a family that has three sons. The will is drafted to allow one of the son’s wives to conceive a child after the son’s death and have that child considered to be a legal heir, so long as the afterborn child’s DNA is that of the son.

Assume that the son predeceases his parents. When his parents die, there are two sons who survive them, but their daughter-in-law has not decided whether to go ahead with the embryonic transfer. How long must the personal representative (the executor) keep the estate open and not make distribution to the two surviving sons because no one is sure if they are entitled to 1/3 each (since the predeceased son’s heir could be born at some point in the future) or ½ each (assuming that the wife either will not go through with the procedure at some point in the future, or even if she does, whether the procedure will be successful)?

ART presents other problems. Consider the child who donates sperm to a sperm bank to earn some extra money in college. Could a child conceived from such a donation take a rightful share of the estate? State laws generally protect against this scenario, but not all state laws are similar. Different fact patterns may also affect the outcome.

To what extent should someone who has made or is making an estate plan ask his or her children whether an ART heir is possible? How long should a class of beneficiaries remain open, if at all, to accommodate this new technology?

Reports indicate that the percentage of ART children born when compared against those normally conceived will continue to increase over the coming decades as biological technology improves.

It would seem that clients should begin to open up these rather delicate issues with their adult children to ensure that their estate plan does not have unintended consequences. Further, if there is intent to accommodate the wishes of an adult child who is having difficulty conceiving, then those wishes should be conveyed to the estate-planning attorney so that they can consider the possibilities and draft detailed provisions to satisfy the intent.


Florida courts have long struggled with how to properly allocate passive (inflation or market-based) appreciation of non-marital property in divorce proceedings. Before the Florida Supreme Court’s opinion in Kaaa v. Kaaa, 58 So. 3d 867 (Fla. 2010), at least three Florida appellate courts contemplated whether such appreciation should even be considered a marital asset, and if so, how to properly divide it between the divorcing spouses. The appellate courts all reached different conclusions.

Resolving the circuit split, the Florida Supreme Court held that passive appreciation of non-marital property is an asset subject to equitable distribution when marital funds are used to service the property’s mortgage. Additionally, the Court adopted a formula for calculating how the passive appreciation should be divided. This formula, illustrated below, is: the passive appreciation of the home multiplied by the percentage of the property’s fair market value encumbered by a mortgage at the time of the marriage.

ILLUSTRATION: Going into a marriage, one spouse owned a home valued at $100,000 but subject to a $90,000 mortgage. During the course of the marriage, marital earnings were used to reduce the mortgage to $80,000, and the value of the property passively increased to $200,000. Title of the home was never amended to include the other spouse.

The math to calculate the division of the passive appreciation is as follows:

$100,000 (passive appreciation of home during the marriage)
x 90% ($90,000/$100,000 – amount of remaining mortgage obligation divided by home’s value at beginning of marriage)
=$90,000 (amount of the passive appreciation subject to equitable distribution)

Therefore, $110,000 ($200,000 – $90,000) of the property’s equity is reserved for the owning spouse, while $90,000 is subject to equitable distribution between the divorcing spouses.

The important omission in the formula is the amount of the mortgage actually paid during the marriage. In other words, it makes no difference whether marital funds are used to pay off all of a mortgage or a small portion of the mortgage. Thus, in the above example, the division of the passive appreciation would be unaffected had the couple paid down the mortgage by $5,000 or $50,000 during their marriage. So long as marital funds were used to service the mortgage, the passive appreciation will be subject to equitable distribution using the formula adopted by the Florida Supreme Court in Kaaa.

The takeaway from all of this is the importance of paying down mortgages prior to marriage. Alternatively, soon-to-be spouses should consider entering into a prenuptial agreement that specifically exempts passive appreciation of non-marital property from marital assets subject to equitable distribution. Both methods will assist in insulating the owning spouse from sharing the passive appreciation of the property.

For more information, see David L. Manz, The Marital Share of Passive Appreciation of Nonmarital Property: Deconstruction Kaaa for a Better Solution, 87 Florida B.J. No. 2 38 (Feb. 2013); Stevens v. Stevens, 651 So. 2d 1306 (Fla. 1st DCA 1995); Kaaa v. Kaaa, 9 So. 3d 756 (Fla. 2d DCA 2009); Raffanello v. Bode, 21 So. 3d 867 (Fla. 4th DCA 2009).


On February 13th, we presented a 178 page outline entitled Avoiding Disaster in the Sunshine State – Trick, Traps, and Nuances that Make Florida Planning Interesting and Unique to the All Children’s Hospital 15th Annual Estate, Tax, Legal & Financial Planning Seminar.

There were over 300 attendees at this excellent Seminar, and head speakers included Jonathan Blattmachr, Samuel Donaldson, and our ex-partner Tami Conetta, who is now with Northern Trust.

If you would like a copy of this outline, please let us know.

Many people were very interested in the section on rent, sales tax, and the passive loss rules associated with setting rent between active businesses or practices and passive real estate entities.

You can view our section of the outline on these topics by CLICKING HERE.


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



The Florida Bar Continuing Education Committee and the Health Law Section present Advanced Health Law Topics and Certification Review 2013. Location: Hyatt Regency, Orlando, Florida. Topics to be discussed include: Federal Anti-Kickback Prohibitions and Self-Referral by Lester Perling; Florida Restrictions on Anti-Kickback, Fee Splitting, Patient Brokering and Self-Referral by Sandra P. Greenblatt; Healthcare Tax Issues by Alan S. Gassman and many others.


THURSDAY, February 28, 2013, 4:00 – 4:50 pm
Please join us for The 444 Show, sponsored by the Clearwater Bar Association and moderated by Alan S. Gassman. This month we are pleased to have attorney David Brittain of Trenam Kemker as our guest speaker. His topic is What Real Estate Attorneys Don’t Tell Other Attorneys – What You Need to Know to Stay Out of Trouble. This webinar qualifies for 1 hour of continuing education credit. To register for the webinar, please visit www.clearwaterbar.org or email Janine@gassmanpa.com

MONDAY, March 4, 2013, 12:30 – 1:00 pm
Colleen Flynn, Esq. of the Johnson Pope Law Firm will speak on Lunch Talk this month on the topic of Hiring Procedures: What To Do and What Not to Do When You Hire a New Law Office Employee. Lunch Talk is a free webinar series moderated by Alan S. Gassman, Esq. and sponsored by the Clearwater Bar Association. To register for the webinar, please visit www.clearwaterbar.org or email Janine@gassmanpa.com

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 Agassman@gassmanpa.com.

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 member of the American College of Trusts and Estates Council (ACTEC). His email address is tom@gassmanpa.com.

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 Christopher@gassmanpa.com.

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 Ken@gassmanpa.com.

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 Kacie@gassmanpa.com.

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. Eric is also an Articles and Symposia Editor for Stetson Law Review. In 2009, Eric received a B.S. in Business Management from the University of South Florida. Eric’s email address is Eric@gassmanpa.com.

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 Carly@gassmanpa.com.