In the Pit and Piercing the Corporation Veil

By Elizabeth A. Whitman

Recently, I saw a flyer for an upcoming performance of George Gershwin’s Porgy and Bess, a remarkable opera based upon DuBose Heyward’s[1] 1925 novel, Porgy.  Porgy and Bess was at the time of its first performance, extremely progressive, as it featured a cast consisting entirely of classically-trained African-American singers though it was considered by others to be racist.

In his will Gershwin stated that the opera was to be performed only by an entirely black cast, which may be seen as a desire to provide opportunities for talented singers who traditionally have been underrepresented in opera[2]  Nevertheless, the controversy surrounding Porgy and Bess continued until Houston Opera managed in 1976 to assemble a cast of classically-trained African-American performers from around the US who were willing to perform in the opera.

The report of an upcoming performance brought back fond memories, as I was fortunate to be among the violinists in the pit orchestra for more than a dozen sell-out performances of Porgy and Bess with an African-American cast at Indiana University in 1980. Those performances drew an audience from as far as New York City, as Metropolitan Opera would not undertake a performance Porgy and Bess with the required all-black cast for five more years.[3]

Playing in a pit orchestra is very different from performing in an orchestra on stage. For the uninitiated, an orchestra pit is located in between the front row of chairs and the stage. Typically, the orchestra pit floor is at least 4-5 feet lower than the floor of the seating area, usually sunk low enough that only the top of the conductor’s head is visible to those on the stage. Frequently, the pit will be even lower so that it is entered from and extends below the stage so the winds and percussion typically will be sitting under the stage

Orchestra pits are notoriously cramped quarters and sometimes loud acoustics (imagine trumpets and percussion playing in closed quarters). Further, because the orchestra pit is in effect in the basement and is not lit during the performance (musicians use small stand lights to read the music), the audience cannot see what the musicians are doing.  As a result, it is not unusual for wind players and percussionists, who may have lengthy rest periods, to read books, knit, work on their reeds, or otherwise quietly entertain themselves while their colleagues in the violin and other sections perform pretty much continuously.

These conditions, a need for pit space for staging, and improved technology have brought with them an even stranger, phenomenon — pit musicians who are not even in the orchestra pit during the performance. Rather, they perform in another part of the theater, taking cues by a live-stream of the vocalists and having their performances piped in real-time back into the theater all but instantaneously.[4] If it was difficult for the audience to tell who was performing the music with a traditional pit orchestra, it may well be impossible for the uninitiated to tell the difference between a live, “remote pit orchestra” and piped-in music.

Corporations and limited liability companies (which I will refer to collectively as a company) can be like a pit orchestra. Depending upon how they are set up, it may or may not be obvious who is behind them. What is referred to as a “corporate veil” protects the shareholders, manager, and members of a company from undesired personal liability for company obligations.  The corporate veil also separates what may be unknown owners from obligations that the company has assumed.

Sometimes, however, a company’s creditors may be able to lift, pass through or “pierce” the corporate veil to impose liability on the company’s owners. Typically, this occurs where business owners have failed to observe the separateness of the company from the owners.

Piercing of the corporate veil can occur with single member limited liability companies or single-shareholder corporations where the owners fail to separate company assets from their own. Other times, the corporate veil may be pierced where the company’s owners have removed assets from the company or have committed fraud or other wrongful acts.

Nevertheless, since protection of the owners from liability is the reason for setting up a business in corporate or limited liability company format to begin with, it is important that all companies take steps to assure that protection remains intact. A clear delineation between the company and related parties can go a long way in preventing creditors from piercing the corporate veil and pursuing claims against the company’s owner(s) and affiliate(s). A company can minimize the likelihood of someone piercing the corporate veil through careful business operations, including the following:

  1. Start out with adequate capitalization so that the company can support its needs. If additional capital is needed, obtain it through well-documented loans or formal capital contributions from the owners.
  2. Work with the company’s attorney to assure not only that appropriate by-laws or operating agreements are in place, but that appropriate corporate governance, such as minute books, stock ledgers, board meetings, corporate resolutions, and other business formalities, are observed on an ongoing basis.
  3. Hold the business out to others as a separate company, with separate letterhead, business cards, contracts, and leases.
  4. Assure that the company’s assets are not comingled with those of the owners or any other business. Open a separate bank account for the business and make sure that company revenues and expenses are deposited into and paid from that bank account. Do not use that bank account to pay the owners’ personal bills. Rather, make distributions to the owners and have the owners pay their personal expenses from their personal bank accounts.
  5. Do not make distributions to owners if that would result in the company being unable to pay its obligations. This can result in a claim for fraudulent conveyance.
  6. If an affiliate’s employees are expected to perform services for the company, have the company’s attorney prepare written contract that describes the services and the amount to be paid for them. Make sure the contract is honored and the bills are actually paid.

Corporations and limited liability companies are formed because their owners wish to limit their liability for business obligations. However, forming the company is just the beginning.   Retaining that limited liability requires the guidance of an experienced business attorney, good legal documentation, and careful business operations on an ongoing basis.


1]  OPERA GEEK FACTS: Deboise Heyward was an early 20th century American author from South Carolina and is most famous for his novel, Porgy, which was set in the African-American community in Charleston. Together with his wife, Dorothy, a playwright he met at an artists’ colony, adapted Porgy to a play called Porgy and Bess, which formed the basis of the opera by the same name. Although Heyward was the descendant of a signer of the US Declaration of Independence who was a South Carolina plantation owner, many of his writings centered around the Gullah people of South Carolina’s low country. Heyward was recognized posthumously by the My Hero Project, which seeks to use “media, art and technology to celebrate the best of humanity, one story at a time.”

[2]  The opera has been performed, with some controversy by all white casts in Europe, as noted by Alexandra Ivanoff in “Porgy and Bess” with a White Cast Stirs Controversy, New York Times January 30, 2018.

[3] George Gershwin reportedly turned down a commission to have Metropolitan Opera perform Porgy and Bess in 1935, because it would have been done in blackface.

[4] See  Patrick Healy, To Clear Space, a Pit Orchestra in the Basement, New York Times March 23, 2012.

©2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

How Choosing a Musical Instrument to Play is Like Selecting a Structure for Your Business

By Elizabeth A. Whitman

Recently, a mom in one of my social media groups submitted a post asking for advice about the best musical instrument for her children to learn. I posted a reply saying that there is no one best instrument, but rather, the instrument must meet child’s interests and needs.

Today, a rite of passage for many fourth graders it to choose a musical instrument to play. Children learn about three major instrument groups – strings, brass, and woodwinds, each of which has within it several options suitable for elementary school students, including violin, viola, and cello for the string instruments, trumpet, trombone, and baritone for the brass instruments, and flute, clarinet, and perhaps, saxophone, in the woodwinds.

Each group of instruments and each instrument, itself, has benefits and detriments. In the end, the decision should be made by finding the instrument which provides the best fit for the student and his/her physique and of course, interest. For instance, it can be difficult for a child to play certain wind instruments unless he or she has a certain number of adult teeth. And, although string instruments now come in a variety of sizes, most wind instruments do not, making the larger instruments, such as trombone and baritone, unwieldy for a small child.[1]

Likewise, the student’s goals should be considered when selecting the instrument. Cello would not be a good choice for a child who wants to play in the high school marching band, and saxophone or trumpet would be better choices than flute or baritone for a child who wants to play in jazz band.

New business owners face a similar dilemma in selecting the type of structure to use when forming the business. There are four main business structures:

  1. Sole proprietorship, a business which has a single owner and has not formed a business entity;
  2. Partnership, a business which has more than one owner and has not formed a business entity. The partnership may or may not have a written partnership agreement. For instance, two spouses who form a business together usually are a partnership, even if they do not enter into a partnership agreement;
  3. Limited Liability Company (LLC), which can have any number of owners and is formed by filing paperwork with the state. Limited liability companies; and
  4. Corporation, which also can have any number of owners and is formed by filing paperwork with the state. Corporations must have boards of directors and officers, so they usually operate more formally than limited liability companies; although that does not have to be the case.

As with musical instruments, there are options within each group. For corporations, there is the decision whether to be taxed as a C corporation or an S corporation.[2]  For partnerships, there are general partnerships and limited partnerships.  Finally, limited liability companies, there can be member-managed or manager-managed LLCs, and there is the possibility of electing to tax an LLC as if it were a corporation.  Further, there are decisions to be made about owner rights, including whether there will be both preferred and common equity, who will make major decisions, buy-sell rights, and how profits and losses will be allocated.

Important factors in deciding which of the four primary structures include:

A.  Who the Business Owner Expects to Be the Current and Future Members and How Involved They Will Be In the Business Operations. Although any business structure can accommodate owners who all are actively involved in the business, a corporation or limited liability company may work best where many of the owners are investors who will not be involved in the daily business operations.

B.  Desire for Protection from Personal Liability for Business Obligations. Owners of a sole proprietorship or partnership have full, personal liability for all business obligations. Owners of a limited liability company or corporation generally will have liability for business obligations beyond their capital contributions only if they sign personal guarantees. Liability protection is a major reason why small business may choose to operate as a limited liability company or corporation.

C.  Tax Issues. With a sole proprietorship or partnership, the owners usually can expect to pay income taxes at the regular rates on all business income. Further, if structured as a sole proprietor or single member limited liability company, the owners actively work for the business, and he or she may have to pay self-employment taxes on all of the business income.

Limited liability companies with multiple members and partnerships usually will be taxed as partnerships. If so, owners can expect to pay income taxes at the regular rates on all business income, but they might be able to structure the payments from the business so that they do not pay self-employment taxes on all of their income.

Although owners of corporations can arrange to receive part of their money as dividends so that they do not pay FICA on it, such dividends will still be subject to what is known as “double taxation.” This means that the corporation pays taxes on the income, and then, the owners will pay taxes on the same income again when they receive it from the corporation as dividends.  This is why many corporations make what is known as a “Subchapter S election” to become S corporations, which results in the tax structure looking more like a partnership.  However, there are limitations on who can own shares of an S corporation.

Finally, on the tax issue, in the Tax Cut and Jobs Act passed in December 2017, there is the potential for a 20% deduction for businesses that operate as pass-throughs (which generally is anything except a corporation which is not an S corporation), which can provide a significant tax savings for some businesses. I discussed this in my previous blog, “A String Quartet, a Nothing Special Diner, and a Famous Chef Diner take a Random Walk through the New Section 199A Pass-Through Deduction.”

Although it may cost some money up front, this is a complicated area, and everyone considering forming a business should consult with a business attorney and the accountant who will handle the business’ accounting before setting up the business structure. That is the best way for a business owner to assure that the structure will meet both the business’ current and future needs.


[1] Pitch for a string depends on a relationship between string length and thickness.  However, on a wind instrument, any particular note requires a certain length column of air which can’t be changed. That is why child-sized string instruments can exist, but you’re not likely to see a child-sized tuba. Flutes are an exception, as they are made in a “child-sized” version by bending the long tube into a U shape. Rarely-seen alto flutes also are in a U shape.

[2]  Clients frequently come to me asking that I form an S corporation for them. Under state corporations law, both S corporations and C corporations are the same types of entities – a for-profit corporation (sometimes called a stock corporation). The S corporation/C corporation distinction is a distinction under tax law.  By default, a corporation will be a C corporation under federal and state tax law, but by making a timely election for S corporation treatment, the corporation can be taxed as a pass-through, S corporation.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

“Greening” Your Business with a Document Retention Policy

By Elizabeth A. Whitman

My parents grew up during the Great Depression. As children they had, by necessity, been trained to save everything that had any possible future use, and that carried into their adult lives.

As a result, our house was the epitome of today’s “green” idea of “reuse.” Our basement storage room was full of a wondrous collection boxes, jars, and plastic containers of various sizes in shapes, waiting to be recommissioned when needed. Plus, there was a craft cabinet in our home that boasted fabric, yarn and ribbon remnants, old buttons, holiday cards (which I fondly remember turning into gift tags), and used wrapping paper to be reused for increasingly smaller gifts until it was too small to reuse again.

Saving Used Violin Strings

It is no surprise that I carried the idea of savings things which might become useful. When I became a violinist, that extended to used violin strings. When I started playing the violin, there was a logic to saving used strings in that they had already been “stretched out.”

At that time, the better violin strings were metal wrapped gut strings.[1] Gut strings take several days at minimum to stretch out and “settle.” Until this happens, they go out of tune and need to be retuned frequently.

Although I tried to plan my string changes so that the new strings would have time to settle in before a major performance, there were occasional “emergency” string changes when, for instance, the metal on a string started unwinding or a string broke. If that happened with a gut string, it was extremely useful to have an old “pre-stretched” string to put on the violin to assure tuning stability in a performance.

Now, however, most musicians use synthetic strings[2], which are wrapped in metal.  One huge benefit to the synthetic strings is that unlike a natural substance like gut, the synthetic strings do not need to be stretched out.  As a result, synthetic strings are much more stable in tuning from the start, and there isn’t as much of a reason to save used strings.

Yet, old habits are difficult to break, and for many years, I found myself hanging onto the habit of saving those old strings, even though they take up space in my violin case and are unlikely ever to be used. Sometimes, just having the old strings even caused a problem, because I thought I had an ample supply of new strings when what I really had were a lot of old, used strings, some of which were even tarnished by the passage of time.  Fortunately, through self-discipline, I finally created a policy where I keep only one set of old strings in my case.

A Document Retention Policy Determines How Long and in What Format to Save Documents

Just as I hung onto old strings after their usefulness was over, a company, also, can fall victim to keeping records so long that they interfere with the company’s business.

Paper records can take over company offices and off-site storage locations and electronic records can clutter up the company’s servers and cloud storage sites. The company may find itself seeking to secure ever increasing record and data storage space to feed an insatiable need that all records be saved – or perhaps just a fear of discarding the wrong thing.

As important as it is that some records be kept, it is equally important that the business discard records on a timely basis. Yet, when it comes time to clean up, both for individuals and business, the task can seem overwhelming – particularly without guidance about which items should be saved and which should be discarded.  It also is important that the company establish protocols about where and how records should be saved.

The consequences of inadequate document or record retention practices can be significant. The news regularly reports data breaches caused when an employee saved private, unencrypted data on a laptop, only to have the laptop stolen, resulting in a costly and embarrassing privacy breach.

In one company without a document retention policy (DRP), instead of saving records to the company’s cloud drive, some employees were saving their records to their individual office PC hard drives. This lapse was discovered only after the PCs were replaced as a new computer system was implemented.  Unfortunately, this occurred during a government investigation.  The resulting penalties to the company far exceeded the cost it would have spent on the development and implementation of a DRP.

Customizing Your Business’ Document Retention Policy

DRPs are not “one size fits all”. A business’ DRP should be customized by the business’ attorney in collaboration with management to not only to ensure that the company complies with legal requirements but also to meet the practical needs of the industry and the business itself.  For instance, some records may be retained longer than legally required to adhere to industry standards, meet customer needs, or in anticipation of litigation.

A DRP also must address the fact that not all “documents” are in traditional written form. Records can include audio and video, as well as the written word. Some company records may be stored electronically on company computers, in company cloud space, on company mobile devices, on flash drives, or even with company contractors.  An inventory which determines how and where the business’ records are stored, therefore, is a critical step.

The DRP should establish in what format and for how long each type of document should be retained. It also should establish security protocols, including any special protocol (e.g., shredding) required for disposition of documents which are no longer needed.

Adopting a DRP is only the beginning of the process, however. Implementation and consistent application of the DRP at every level in the company is critical.  After adoption of a DRP, the company should select an individual document retention manager inside the company who is responsible for implementation and compliance with the DRP.

Using the company’s DRP as a guide, the document retention manager should develop storage systems both on-site and off-site as needed with a goal of minimizing both storage and retrieval costs. The document retention manager also should confirm that the business has the processes and means in place to retain documents longer than is typical should that become necessary due to pending or threatened litigation or otherwise.

Every employee, regardless of function, should receive training about the DRP and be enlisted to assist with DRP compliance on a daily basis. Because breaking old habits can be difficult, training should be repeated regularly, and the document retention manager should also routinely evaluate compliance with the plan.

Using a Document Retention Policy to “Green” Your Business

“Reduce, reuse, recycle” is a common refrain as our society strings to “go green.” A DRP can help a business save money and cut back on use of natural resources. For example, some businesses retain documents in paper format, even though they are already in electronic format. By eliminating unneeded duplication in paper files, the business both can save money while cutting back on the use of paper (and toner, and storage space).

A modern DRP can and should evaluate what documents can be maintained solely in electronic format, assure that safeguards are in place so that documents which should be preserved and in fact preserved, and also can prescribe how documents are to be disposed of. A “green” DRP might, for instance, include not only minimization of use of paper documents. It also might include a quarterly business-wide paper document recycling day to help assure that unneeded paper documents not only are discarded but also are appropriately recycled (with shredding if necessary), rather than thrown in the trash.

Keeping Your Document Retention Policy Current

Finally, just as my need to keep old strings changed over time, a company’s needs may change, also. New technology or business practices may change how or where documents are stored, and new legal requirements may change what needs to be retained or for how long a business must retain its documents.

Therefore, the document retention manager should supervise regular compliance audits and retaining, to assure that the company operations conform to the DRP and work with the business’ attorney to assure that the DRP continues to meet the company’s needs.

A DRP won’t clean out file cabinets, offices, or storage unit for a business. However, a DRP created in collaboration between the business’ attorney and management, is important to business continuity and can eliminate much of the stress and risk from the decision about when, where, how, and how long to save documents, while also helping the business to go green.


[1]  Early violin strings, through the 19th century, were made of pure sheep (not cat) gut. The lower or largest strings were frequently wrapped in silver wire. By increasing the mass of the lower strings, it, therefore, was possible to tighten the lower strings to a similar tension to upper strings, which were pure gut. In the early 20th century, metal (usually silver) wrapped gut strings were the most popular type of string used by professional musicians (with the exception of the high-pitched e-string, which typically was a metal string).  Steel strings came into the market in the early 20th century, and soon, with improved technology, steel core strings wrapped in metal were developed.  These quickly surpassed popularity of gut strings for student instruments and for e-strings due to durability and bright, direct sound and pitch stability. However, steel strings were not popular among professional musicians because their sound was not as warm or rich as that produced by gut strings.

[2] In the 1970’s Tomastic-Infeld was the first manufacturer to create a synthetic core string, which used nylon perlon with a metal wrapping, resulting in a warmer sound closer to gut strings with a pitch stability that is closer to metal strings. Today, there are dozens of different brands of synthetic-core strings, boasting various tensions, resonance, brightness, and warmth of sound. With the variety available, the choice of string depends upon violinist preference, purpose for which the strings will be used (a more powerful sound might be desired for a soloist than for an orchestra musician, for example), and how the instrument responds to the strings.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at            (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

Bach to Business: Building a Sustainable Foundation that Will Survive the Test of Time

By Elizabeth A. Whitman

Sustainability simply means the ability to be maintained or to continue. Today, we usually think of sustainability in the context of energy or the environment. However, sustainability also is important to every individual and every business, because without a sustainable foundation, the individual or business will “burn out.”

The Bachs were an esteemed musical family, which produced some 50 musicians and composers[1] in central Germany from the 16th into the 18th century.  One might say that family had created a “sustainable” family occupation that had been passed from generation to generation.  Yet most professional musicians would be unable to name most of the Bach family, except for one:  Johann Sebastian Bach, who lived from 1785-1750.

There was nothing remarkable about J.S Bach’s career. Like most of his family members, Bach lived most of his life within a 50-mile radius in central Germany. He was a sought-after and respected organist and spent much of his career as the chief musician for a princely court or a community of churches.

As was the custom, he composed prolifically for his employers, but was far from an esteemed composer during this life. In fact, J.S. Bach was a second choice to Georg Philipp Telemann[2] for a major post at Leipzig, which J.S. Bach obtained only after Telemann turned it down.

Why J.S. Bach’s Music Was Extraordinary and Sustainable

Why, then, is J.S. Bach one of the greatest and most extraordinary western composers who ever lived?

J.S. Bach became extraordinary and his music was sustainable because he stepped outside of the comfort zone of the Central Germany music community and found novel solutions to overcome obstacles that prevented musical innovation.

During Bach’s time, each keyboard instrument was tuned to a particular key. Music played on a keyboard not tuned for that key would sound terribly out of tune, limiting the selection of pieces that could be played before the instrument would need to be re-tuned.  Bach promoted tempering[3] of keyboard instruments, so that they could play in every key, a radical departure from the norm of the time. Bach wrote his famous collection “The Well-Tempered Clavier,” consisting of 24 pieces (one in each major and minor key) to demonstrate the value of tempering.  Today, it is difficult to find a keyboard instrument which does not use tempered tuning.

Some businesses are like Bach contemporaries, such as Reinhard Keiser[4], Johann Aldolf Scheibe[5], or Christian Pezold[6] (none of whom are known today outside perhaps of Baroque music academia).  Or the businesses may even be like Telemann, who is known to have secured a salary three times that which J.S. Bach commanded during his lifetime, but who now is known as a prolific and solid, but not particularly creative composer.  Those business are running well:  there is a nice profit, the owners and employees are happy and successful; they are doing the same thing they have always done and expect their fortune to continue forever.

Yet without good legal infrastructures that include solid formation documents, strong contracts, and protection of intellectual property, those businesses lack sustainability. Unless they have a creative business attorney helping to guide them, those businesses may find they are built on legal quicksand without anyone around to keep them from sinking.  Without innovation and a creative approach, they are less likely to be sustainable for the long haul.

Creative General Counsels Help Ordinary Businesses Become Extraordinary and Sustainable

Some business owners avoid dealing with attorneys, because they view attorneys as the people who put restrictions on their businesses. However, a creative attorney can help business owners find solutions to their legal problems and to create a sustainable legal framework and infrastructure that frees the business and its owners to do extraordinary things that help the business to attain long-term sustainability.

A creative and detail-oriented business attorney can help business owners form a legal infrastructure that:

  • Includes the best business structure (corporation, limited liability company, or partnership) for your business’ current needs, while providing for flexibility as your business grows;
  • Proactively evaluates the tax consequences of business options and minimizes tax liability for you and your business;
  • Identifies and assures compliance with laws and regulations specific to your business;
  • Includes carefully negotiated strong contracts and leases that accomplish your business goals, while protecting your business from the unexpected;
  • Prevents lawsuits by employees, customers, and vendors and minimizes the damages if your business is sued;
  • Protects the business’ intellectual property and helps the business comply with intellectual property laws relating to websites, social media, and other business activities; and
  • Plans for the unexpected so that the business can continue to operate in the case of partner disputes, death or disability of the owner, divorce, or simply a change in the economy or the industry.

An Outside General Counsel Has the Business’ and its Owner’s Backs

For nearly a decade, I was in-house general counsel for a national company. A general counsel develops an intimate knowledge of a company – not just of the company’s business but also of the company’s leaders and their personal and business goals, risk tolerance, and the business culture they want to create.

With this specialized knowledge about your particular business, a general counsel can:

  • Assure that your business is up-to-date on its “routine maintenance,” so that it remains in good standing and in compliance with legal requirements;
  • Provide highly customized service to your business;
  • Quickly identify and prevent potential legal problems before they become big legal problems;
  • Get up to speed much more quickly than an attorney who doesn’t know the company well when legal concerns do arise, saving money and frequently producing a faster and more suitable result for the company; and
  • Proactively address developments which threaten the long-term sustainability of the business.

Although small businesses usually cannot afford a full-time inside general counsel (and many larger businesses choose not to do so for a variety of reasons, including cost allocation or privilege concerns), even small businesses can benefit by engaging an experienced outside general counsel who has their back and is there to pull them out of the legal quicksand onto a sustainable foundation.

Outside General Counsel May Help Sustain Privilege for Sensitive Matters

As most business owners know, communications to their attorney are privileged, which means they are confidential, and generally, the attorney cannot be required to disclose the communications in Court proceedings. In-house counsel frequently provide both provide legal advice and participate in the business operations, which can make it difficult to determine which communications are privileged.  This challenge is exacerbated where the in-house counsel serves both as counsel and as an officer or director of the business.

This mixed role generally does not exist with outside general counsel, who are not officers or the business and nowadays rarely will serve on the board of directors. Therefore, even where a business has in-house counsel, it may be in the best interest of the company to have outside counsel handle certain investigations and highly sensitive matters where preservation of the attorney-client privilege is key.

A business can have the “best of both worlds” if in addition to in-house counsel, it has a regular outside counsel who functions as an outside general counsel has developed an intimate knowledge of the business through frequent and routine representation of the business. An outside counsel with intimate experience of the business is uniquely suited to handle the business’ most sensitive matters while also preserving the attorney-client privilege for communications and reports.

Sustainable Business

Every business has in its future. For some businesses, the day will come when a new legal or other development will threaten very existence of their businesses due to unsecure business foundations.  Other businesses, which have built a sustainable legal infrastructure, are likely to be able survive the test of time.


[1] Vitus Bach, the great, great grandfather of Johann Sebastian Bach, started the family music tradition in Germany in the latter part of the 16th century. The family was so tightly connected that Johann Sebastian Bach’s first wife, Maria Barbara Bach and the mother of his first seven children (including twins who died soon after birth and a third child who died before he reached one year of age) was his second cousin.

[2] Georg Philipp Telemann, just four years older than J.S. Bach, came from a non-musical family and was largely self-taught as a musician. At one point planned to pursue law as a career, but musical activities soon overwhelmed his law studies. His personality and energy made him a popular composer and sought-after musical director. During his lifetime, his music was published and distributed not only throughout Germany, but also abroad, such that during his lifetime, Telemann was widely considered to be the greatest living composer. Telemann was not only a contemporary of J.S. Bach but also was a friend, and was godfather to J.S. Bach’s son Carl Philipp Emanuel, who became a famous musician in his own right.

[3] At the risk of oversimplifying a topic on which treatises have been written, for unfretted string, vocal, and wind instruments, it is possible for a performer with an excellent ear to adjust the tuning to the music so, for instance, a C-sharp is slightly higher than a D-flat. However, a keyboard instrument has a limited number of keys, and they are set up so that the same key is played for both C-sharp and D-flat. Fretted string instruments have a similar challenge, as they have pre-set divisions of the string lengths. Therefore, traditionally, a keyboard or fretted string instrument would be tuned for the key of the music (since key signatures never include both C-sharp and D-flat, that particular key would be tuned to one or the other depending upon the key signature).  Tempered tuning was first suggested in the 15th century by musical theorists for instruments like keyboards in which the performer cannot easily adjust the tuning of a note during a performance. Tempered tuning, referred to as even temperament, involves dividing an octave into equal semitones, so that most intervals are slightly out of tune from an acoustical standpoint but still are not dissonant to the human ear.

[4] A prolific and popular opera composer of the early 18th century.

[5] A friend of Telemann’s who was a German-born composer and music theorist of the early- to mid-18th century.

[6] A German composer who was a contemporary of J.S. Bach, most of whose works have not survived to the present day. Ironically, the Minuet in G from J.S. Bach’s Notebook for Anna Magdalena Bach, now is believed by many actual to have been written by Petzold. Nevertheless, Minuet in G continues to be attributed to J.S. Bach in modern repertoire, including the highly popular Suzuki string method books.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

‘Tis the Season for Tax Returns and Tax Scams

By Elizabeth A. Whitman

My violin was made in 1962 by a luthier[1] named Umberto Lanaro[2], but it bears the label of Eligio Puccini[3] and says it was made in 1947.

Lanaro chose in effect to use Puccini’s identity when making my violin, as Lanaro received no obvious benefit from doing so. Lanaro came from a well-known family of luthiers, and Puccini did not, so the Lanaro name, if anything, would have been more impressive than Puccini’s. Further, Puccini, who was 30 years older than Lanaro, made very few violins, and Lanaro was to become a much more prolific and famous luthier than Puccini ever was. Finally, Lanaro’s use of Puccini’s label was not secret – the well-known dealer from which I acquired my violin was well-aware of the situation, as was I when I purchased the violin.

Although it is a mystery why Lanaro used Puccini’s “identity” when he made labeled my violin, money and theft were clearly the motives when, two years ago, an unknown person used my name and social security number to file an income tax return seeking a hefty tax refund. That identity thief almost got away with the crime too, as the attempted theft was thwarted only when the electronic tax refund bounced, causing the IRS to send me a very large check for my “refund.”

Since I had not yet filed my tax return, I quickly returned the refund check. I did not lose any money because of this theft. However, in order to file a tax return (even one without a refund), I have to provide additional identification in the form of a random PIN chosen by the IRS and changed every year.

Common Tax Scams

My experience is not an uncommon one. As tax season once again approaches, the scammers are likely to be out in full force.

Therefore, it is important for individuals, businesses of all sizes, and even tax professionals, to be aware of the most common methods of identity theft and to guard against them. Here are a few of the ways identity thieves have committed fraud in the tax area:

Wire Instruction Change. In a previous blog, When it Looks Like a Stradivari Violin but Isn’t: Protecting Yourself from Wire Fraud in Your Real Estate Transaction, I shared how by hacking into title companies’ e-mail, fraudsters were able to trick buyers into wiring large sums of money to the hacker’s bank accounts, instead of into the title companies’ escrow accounts. In the tax field, hackers have similarly hacked into or spoofed taxpayers’ e-mail accounts and requested that tax preparers change the taxpayers’ returns so that legitimate refunds are wired into the hacker’s bank accounts.

Tax preparers and taxpayers alike should be caution about relying upon changes of key information, such as a bank account number, via e-mail. It is best to relay that information via another communication method, or at least to verify it via a phone call to the phone number in one’s records (i.e. not the phone number on the e-mail).

W-2 Scam. Another popular scam in the tax area by identity thieves involves a request for payroll information. Typically, a hacker will hack into or spoof the account of a company executive and write to human resources (HR) or payroll expressing a need for payroll information or W-2 forms.  If the unwitting HR or payroll employee complies, then confidential personal information for all of the company’s employees goes into the hands of the fraudster.  In addition to this providing names and social security numbers, which can be used for a myriad of identity theft schemes, the Form W-2 information can be used to file fraudulent tax returns, which may be more difficult for the IRS to detect as such.

Tax Collection Scams. There are a number of tax collection scams. Some of the most common include:

Fake Private Collection Company Fraudsters may call, claiming to be a collection company hired by the IRS and threatening serious consequences, such as arrest, deportation, or home foreclosure if a tax bill of which the taxpayer previous was unaware is not paid immediately. Although the IRS has, in some instances, sent a small number of long-overdue tax accounts to private collection companies, that only has occurred when the taxpayer should have been well aware of the tax debt for years.  Furthermore, though the IRS can foreclose on a tax lien or cause a passport revocation, threats of imminent arrest, deportation, or foreclosure without any right of appeal are signs that a call may not be legitimate.

Phone Calls Offering an Opportunity for Credit Card Payment of Taxes Over the Phone Fraudsters may call claiming to be the IRS and offer the ability to take a credit card payment over the phone. The fraudsters can be quite convincing and may even have a spoofed caller ID or know part of the taxpayer’s social security number. Although the IRS does now have a mechanism to accept credit card payments under some circumstances, those payments are not accepted over the phone.

E-Mails Purporting to be from the IRS A fraudster may ask a taxpayer to log into a supposed online tax account or to pay supposedly past due taxes online via credit card or e-check. The IRS nearly always will first contact taxpayers via US Mail.  The IRS does have the ability to accept some payments via credit card or e-check, but those should be accessed through the IRS’ website, rather than clicking on an e-mail link.

Phishing Scams may target tax professionals or taxpayers. Fraudsters may send an e-mail mimicking a tax software provider instructing the recipient to download a software “update,” which may be a keystroke tracker. Similar scams may instruct a taxpayer or tax professional to sign onto their tax software website. Once the fraudster has the login information, the fraudster can access tax information, including names, addresses, and social security numbers.

Fight Tax Scams

         Here are some things you can do to combat tax scams:

If you receive a phone call, do not give information to the caller. Instead, hang up and call the IRS’s general number at 1-800-829-1040. Legitimate IRS employees at that number should be available to help you determine if you truly have a tax problem.

Do not click on links in e-mails. Do not click on a link in an e-mail. Tax software providers nearly always provide the opportunity to download updates directly from their websites or though an option inside of the software installed on your computer. Use those in lieu of any links.

Do not provide credit card or bank account information to anyone who contacts you. If you want to make a tax payment, either mail a check or use the IRS’ online payment system, available on the IRS website, (click on “Pay” on the landing page).

Immediately Report to the IRS any fraudulent use of your social security number to file a tax return. In my instance, I immediately called the IRS, reported the fraudulent check, and received information on where to return the check. I did not cash the check but instead returned it via a traceable delivery method. I also filed IRS Form 14039 to officially report compromise of my personal information to the IRS.

Report the theft to the Federal Trade Commission at and consider having a fraud alert placed on your credit report. If you lost money because of identity theft, you may also need to file a police report, particularly if you have insurance to cover the loss.

Change passwords for any accounts you believe may have been compromised, using complex passwords that would not be easy for a fraudster to guess. One approach is to use the first words of a sentence that is near and dear to you, but which will result in a password with lower case and capital letters and numbers. For instance, I might use “My violin was made by Umberto Lanaro in 1962” to create the password “MvwmbULi1962.”     

Close any bank accounts or credit card accounts you believe may have been compromised and open new accounts with different account numbers AND different online user names and passwords.

Unlike my violin’s luthier, the motives of the tax scammers are obvious; they want to collect money at the expense of unsuspecting taxpayers. The scammers are creative, and they take advantage of the natural pressure taxpayers and tax preparers experience as they prepare tax returns and make final tax payments. However, taxpayers and tax preparers can, with care, stay a step ahead of the scammers and prevent unlawful access to and use of their personal info.


[1]  Music Geek Fact: A “luthier” is an individual who makes or repairs string instruments. Although nowadays, luthiers typically work on violins, violas, and cellos, originally, luthiers made only lutes.  Thus, the term “luthier” is derived from the French word for lute, which is ”luth.”

[2]  Umberto Lanaro was born in 1930 and trained under his older brother, luthier Luigi Lanaro. Umberto mostly worked out of Padua, although he spent several years with his brother in Argentina in the 1950’s. Unlike many luthiers, including his brother Luigi (who worked from Stradivari models) Unberto Lanaro shunned copying the work of others and rarely entered violin-making competitions, instead relying on the quality of his work to sell his instruments. Lanaro is an innovative luthier, particularly known for his uniquely-carved fittings and his violas, but he also made violins and cellos.

[3]  Eligio Puccini was born in 1900 and worked as a luthier in Empoli, Italy from approximately 1925-1950. Despite his sharing his surname with the famous opera composer, Giacomo Puccini (who was born 42 years some 30 miles away in Lucca, Italy), Eligio Puccini’s work as a luthier was neither prolific nor particularly well-known.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

Tax Reform Changes for Sexual Harassment Settlements May Bring Harassers Out of the Shadows, But May Not Help Victims

By Elizabeth A. Whitman

Suppose you are a professional cellist in your 40’s. Over nearly two decades, you have worked your way to first chair of a well-known orchestra, but like most professional orchestras, it’s still a part-time job, and money is tight.

Then, disaster hits – you learn that you have developed tendonitis in your hand, a problem which has ended many a string player’s careers. You quietly seek out medical treatment and medication, maybe even narcotics which dull the pain but prevent you from feeling the warning signs that you should slow down to prevent further injury. It seems worth it so you can keep performing.

Despite your efforts, apparently your tendonitis, and its impact on your playing, has not gone unnoticed. The orchestra conductor, a handsome, gentile, and respected musician in his 60’s whose professional reach is national if not international, says he has noticed your struggle and wants to help. This could be the boost you need; he is wealthy and has a history of mentoring female musicians and boosting their careers. Maybe he can arrange for you to see a specialist physician and help you to afford it.

He suggests you meet in his office after the rehearsal. When you arrive, the conductor motions for you to sit down on the sofa in his office. Standing, says he admires you as a musician and that he sees your struggle and he wants things to work out for you. Then, he sits down next to you.  He strokes your hair and comments that he has always found you attractive.  You are already in a relationship and not interested in looking elsewhere.  Plus, the conductor is married. You like his wife and know she doesn’t deserve his disloyalty.

On the other hand, he is respected and influential in the music world and could ruin your career if you turn him down. Now that you think about it, rumor has it that after a violinist turned down his advances, he told his colleagues not to hire her, and she now is waiting tables to support herself.

Fans of “Mozart in the Jungle,” an Amazon original television series, might recognize this as one of many possible unwritten, back stories about the start of the intimate relationship between Cynthia and Thomas.

In the television show, the relationship is portrayed as consensual, with no back story given. Yet, over and over in the news we also have seen similar stories, where influential people are accused of using their power, authority, and prestige to put sexual pressure (or worse) on less-established individuals trying to climb up the career ladder.

Recently there has been public outrage over learning that a number of powerful individuals and institutions repeatedly had entered into confidential settlements of sexual harassment and sexual abuse claims (I’ll call both sexual harassment for the remainder of this blog), only to have the perpetrators move on to victimize others – sometimes dozens or even hundreds of others.  When reports came out that those “hush-money” settlements were tax deductible, there was a demand for action to stop what was seen as an effective public subsidy these settlements via tax savings.

With tax reform already on the table, Congress responded by adding Section 162(q) of the tax code. Section 162(q) prohibits taxpayers from deducting as business expenses any payments or settlements or attorney fees related to sexual harassment or sexual abuse if the settlement or payment is subject to a nondisclosure agreement (NDA).

Many have praised Section 162(q) as a progressive approach to reducing the financial incentive for “hush money,” reasoning that this will draw predators into the public eye and hopefully, stop their pattern of sexual harassment. Publicizing sexual harassment settlements may also increase both the financial and reputational cost for those engaging in sexual harassment and sexual abuse, which in turn, may deter repeat behavior.

Although no one questions the importance of eliminating sexual harassment, some have expressed concerns that Section 162(q) might hurt victims of sexual harassment. If settlements are made public, parties to settlement agreements or others bringing attention to the accused also might publicize the victim’s, as well as the perpetrator’s name, thereby publicizing traumatic experiences that some victims would prefer to keep private.

Section 162(q) also may reduce the dollar amount of sexual harassment settlements. Under Section 162(q), victims who desire a NDA to maintain their privacy might be forced to accept a lower settlement amount to offset the additional “cost” in taxes to the accused or his/her employer.  Likewise, those accused of sexual harassment who want the privacy a NDA affords might offer to pay a smaller settlement to the victim if the payment is not tax deductible.

Further, Section 162(q) may require that victims who want an NDA so that their ordeal remains private pay more in taxes on settlements, because they in turn are not able to deduct attorney fees (which can be 33% or more of the settlement amount) and would be forced to pay taxes on money they never receive.[1]

Back to the cellist. Suppose that we are back in 2017.  The cellist reports him to the orchestra board, but because the orchestra is in the middle of a huge capital campaign, the board doesn’t want the publicity of firing the conductor and doesn’t want the claim to be made public. Therefore, the board offers to pay the cellist a $250,000 settlement and will use the board’s resources to find her another principal cellist job if she will resign from the orchestra and sign a release and mutual NDA.

The cellist could view the settlement offer as favorable to her. Perhaps, $250,000 would pay her therapist’s bill and cover treatment for her tendonitis that her insurance will not cover. There might even be money left over for a Sartory[2] cello bow she had been eyeing.  A move to an orchestra as principal cellist might boost her career, particularly if she there were an NDA that assured that her history of tendonitis would not be disclosed and taint her reputation. Although she might want the conductor’s behavior to be publicized as a warning to other musicians, she might not want his wife to suffer humiliation along with him.

With a nonprofit orchestra, the situation may be no different under Section 162(q). If the orchestra doesn’t pay taxes, then it should not be concerned about whether it can deduct the settlement.[3]  Let’s assume, however, that it is 2018 and the orchestra makes the same offer $250,000 to the cellist, but without the NDA because it is a rare “for-profit” orchestra.

The cellist accepts the settlement, uses it to undergo counseling and quietly receive treatment for her tendonitis (which fortunately is fully healed as a result), and she buys the Sartory bow.

All of us would like to imagine an outcome where the cellist emerges from counseling, strong and brave, to share her story and encourage other victims to come forward. She appears on talk shows as an image of the strong woman, and, in the process, several additional victims are inspired to come forward with accusations of their own. In this outcome, the harasser ends up in shame, his wife divorces him, and the victims end up victorious, admired for their heroism.

Yet, without an NDA, that isn’t the only possible outcome. As we look at Section 162(q), it is important to remember that victims have always had the right to make their accusations public and to have their case heard in a Court.  Yet many have chosen not to do so for one reason or another.

Imagine that our victim is a private person and after counseling, she decides that the best thing for her is to move on with her life and perform on her cello. Then, one day when she reports for rehearsal at her new orchestra, everyone stares at her oddly. Her stand partner tells her in that morning’s newspaper, there is an expose about a pattern of sexual harassment by the conductor of her former orchestra. The reporter has spoken with a source “close to her former orchestra,” and the cellist’s name is mentioned as having received a large settlement. In response, the conductor protests his innocence, claiming he did the cellist a favor by overlooking her unreliable performance due to an “ongoing tendonitis problem.”

Overnight, several of the cellists’ regular free-lance gig sources stop calling her. At next year’s auditions, the cellist is moved to fourth chair of her new orchestra, a pay cut. Two years later, she has sold her Sartory bow and finds herself out of the orchestra entirely, waiting tables to make ends meet. If there had been an NDA, she could have sued the conductor and orchestra for breach of the NDA, but since there is no NDA, and the cellist did experience tendonitis, she likely has no legal remedy.

Unquestionably, there is a public interest in eliminating sexual harassment from our society. Although Section 162(q) might move this process forward, it is far from clear or perfect. For victims who find healing by testifying in Court against their abuser (as more than 150 women did in Michigan in January), Section 162(q) is a step in the right direction.  However, Section 162(q) may make things more difficult for those equally brave victims who stand up against their harasser by reporting sexual harassment, but who prefer personal healing outside of the public eye.[4]  Plus, Section 162(q) has no impact on settlements by non-profits, including certain educational institutions, which do not pay taxes and may increase taxes on settlements for some victims who hire attorneys to help them pursue justice.


[1] Taxation of settlements for sexual harassment can be complicated and is beyond the scope of this blog post. Although it is too early for IRS guidance interpreting Section 162(q), it is likely that to the extent a settlement is not taxed to begin with, Section 162(q) would not impact it. However, for a settlement that is taxable if it, for instance, is characterized as compensation for lost wages or income, then it would seem that the attorney fees for obtaining the settlement would not be deductible by the victim.

[2]  MUSIC GEEK NOTE: Eugene Sartory was a famous 20th century archetier (bowmaker). His gift for bow making revealed itself when he was in still his teens, and he opened his first workshop when he was just 18 years old, after only a few years of apprenticeship. Unlike some of the old master luthier, Sartory bows, while pricey, are not rare.  They typically will sell somewhere in the five-figure range, with the highest reported auction price being just over $85,000 for a cello bow.

[3]  This also would apply to any settling party that does not pay taxes, including, for instance, some religious and educational institutions, some of which have been accused of ignoring sexual harassment and abuse for years or even decades.

[4]  For example, based upon recent news reports, there were more than 250 reports of abuse in the Michigan case, but about 100 of the victims, for one reason or another, did not testify, so most of their identities remain private.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

A String Quartet, a Nothing Special Diner, and a Famous Chef Diner Take a Random Walk Through the New Section 199A Pass-Through Deduction

By Elizabeth A. Whitman

Recently, some friends and I formed a string quartet. We all have full-time day jobs, and we don’t expect for the quartet to be a source of income. However, let’s imagine for a moment that our string quartet (which we can refer to as the TCJA Quartet[1]) is asked to provide chamber music for a community event.  We set an open instrument case in front of the group.  As we perform, people drop bills into the case, and at the end of the evening, we are surprised to see that we have collected $100.

What should we do with the $100? Well, the TCJA Quartet hasn’t formed an official legal entity such as a corporation or limited liability company and it doesn’t have a bank account or any expenses. It seems like the best thing to do is just to split the money four ways so each of us receives $25.

The TCJA Quartet is a lot like a “pass-through” under new Section 199A of the Tax Cuts and Jobs Act (the “2017 Tax Law”). Under this law, a “pass-through entity” is any entity which is not taxed as a corporation.  Under the simplest reading of the law, this means that any individual or entity which reports income on Schedule C of Form 1040 (individual tax return) or on Form 1065 (for partnerships and trusts) or Form 1120S (for S corporations) can be a pass-through entity under Section 199A.  What these “pass-throughs” have in common is that they involve business income, but the business itself “passes through” items of income and expense to the business’s owners.[2]

Under Section 199A, it is good to be a “pass-through,” because taxpayers may deduct the twenty percent (20%) of their “qualified business income” (roughly equal to net income) from pass-throughs when computing their tax obligation, provided the taxpayer’s taxable income does not exceed a “threshold amount” of $157,500 ($315,00 for a joint return).

For taxpayer’s whose income exceeds the threshold amount, there is a phase-out period of $50,000 ($100,000 for a joint return), after which the pass-through deduction is the lesser of 20% of qualified business income or the greater of either 1) 50% of the pass-through’s W-2 wages or 2) 25% of W-2 wages plus 25% of the unadjusted basis of “qualified property” immediately after acquisition (roughly equal to the acquisition cost for depreciable property owned by the pass-through).

In case you are not already confused, not all pass-throughs are treated the same under Section 199A. Specifically, pass-throughs which are a “specified service trade or business” completely lose the deduction after the $50,000 (or $100,000) phase-out period.

This limitation for pass-throughs which are a “specified service trade or business” has been widely touted as preventing higher income attorneys, accountants, real estate brokerage, and financial advisors from benefiting from the deduction, but it excludes taxpayers in other fields, as well. Specifically, a pass-through is a “specified service trade or business” if it is engaged in the provision of services in health, law, accounting, performing arts, consulting, athletics, financial services, and brokerages services, or “where the principal asset [of the pass-through] is the reputation or skill of 1 or more of its employees or owners.”

As a result, a pass-through which is, the Nothing Special Diner which is owned and operated by a local family and serves unmemorable omelets, meatloaf, and macaroni and cheese using recipes from a collection of church cookbooks might not see a complete phase-out of its deduction. However, the nearby Famous Chef Diner selling the same menu items, but which is owned by a celebrity chef who lends his/her name to the restaurant and helps formulate recipes might see a phase-out of its deduction. After all, the skill or reputation of the celebrity chef, which is the primary asset or at least a major asset for the Famous Chef Diner, but the Nothing Special Diner does not appear claim the reputation or skill of is owners or employees as a major asset.

Perhaps more paradoxically, a corner bodega owned by local family, which sells fresh-cut flowers might not see a complete phase-out of its pass-through deduction, but a family florist business of no particular fame, which sells floral designs with the same type of flowers, might be subject to the phase-out. That is because the floral design skill of the owners and employees of the florist business might be considered to be the principal asset of that business.

Going back to the TCJA Quartet, even though we aren’t quite ready for our Carnegie Hall debut, because we are providing services in “performing arts,” we likely would be considered a “specified service trade or business,” which would be subject to potential phase-out of the deduction, provided our income from our day jobs exceeded the threshold amount plus the $50,000/$100,000 phase-out amount. We would be subject to this phase-out based upon income, even if we remained unknown.

The phase-out also would apply to any US income of The Really Terrible Orchestra[3] (yes, it really exists), an amateur orchestra which prides itself in its mediocrity, but which now travels and the members of which possibly, might have significant income as a result. The same phase-out potentially could be applied to a pass-through providing piano lessons, soccer coaching, or home health services, but paradoxically not to pass-throughs providing painting lessons, math team coaching, or babysitting services.

Section 199A is nine-pages long and contains cross references to existing Internal Revenue Code sections, some of which are better “fits” into the concepts in Section 199A than others. The IRS has not, to date, issued any guidance on how it expects to interpret any part of Section 199A, and it’s a fair guess that it likely will be well over a year (and probably longer) before the IRS is able to complete the regulatory process to give clarity on exactly how Section 199A will work for specific taxpayer situations.

Until then, taxpayers may be able to maximize the likelihood that they will benefit from the pass-through deduction by doing the following:

  1. Confirm that they have a business structured as a pass-through. Although it seems clear that taxpayers filing corporate tax returns on Form 1020 and individuals whose only income is W-2 wages do not qualify as pass-throughs, it is not as clear whether an individual who is what some call a 1099 employee [4] will be able to take the pass-through deduction. The safest course of action for individuals is to consider operating under a true “pass-through,” such as an S corporation or limited liability company. [5]
  2. Take opportunities of retirement savings and other “above the line” deductions, which reduce taxable income. To avoid the phase-out of the pass-through deduction, taxpayers whose business might be considered a “specified service business” will benefit by keeping their taxable income as low as possible. At this time, it appears that pre-tax deposits into retirement funds and other “above the line” deductions may help those taxpayers keep their income below the threshold amounts for the phase-out. Even taxpayers who are not in a “specified service business” may benefit from this strategy so that they are assured of having the flat 20% deduction available to them, rather than having to compute and compare W-2 wages and qualified property.
  3. Do a quarterly review of their tax situations. All taxpayers should, on a quarterly basis, look at their anticipated taxable income and deductions and try to fine-tune their withholding or make quarterly payments if necessary to assure they are making appropriate tax payments. Taxpayers who might be eligible for the pass-through deduction additionally should evaluate what business expenses, retirement account deposits, and other strategies might be appropriate to maximize the likelihood they will be eligible for the deduction at the end of the year.

As for the TCJA Quartet example, each of us will have a huge $25 income for our efforts. Assuming the TCJA Quartet is a “trade or business,” it would be considered a special services business due to our performing arts focus. It is possible, however, that the four of us would each receive different tax treatment of our $25.

If, for example, the first violinist was single and had taxable income of $100,000, she could deduct the full 20% (or $5) under the pass-through deduction, so she would pay taxes on only $20 of her quartet income. On the other hand, if the second violinist filed a joint return and together with her spouse had taxable income of $365,000, then she would be subject to a partial phase-out of the pass-through deduction (50% reduction to be exact), so her pass-through deduction would be only $2.50, and she would pay taxes on $22.50 of her quartet income. If the cellist also filed a joint tax return and she and her spouse have taxable income of $420,000, above the phase-out period; she would pay taxes on the entire $25.00 of her quartet income.  And as for the violist, I’ll be polite and save the viola joke for a later article.


[1]  Named after the newly-passed Tax Cuts and Jobs Act

[2]  Insert explanation of why sole proprietorship wasn’t traditionally a pass-through, and why a SMLLC is disregarded entity.


[4]  An individual who works as an independent contractor form whom form W-2 need not be filed but who also is not considered to be engaged in a trade or business, if such an individual can exist.

[5] Noting that single member limited liability companies are disregarded entities under the tax law, but like multi-member limited liability companies, do not pay their own taxes, but instead, taxes are paid by the owners of the limited liability company.  Limited liability companies can elect to be taxes as an S corporation, but that election is subject to strict time deadlines.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

New Tax Law Changes Incentives for Fund Managers

By Elizabeth A. Whitman

Imagine you are a professional musician who is building a performance career. You hire an artist manager to promote you, obtain performance gigs, and to negotiate contracts for your gigs for a period of five years. Your manager’s primary compensation is a percentage (let’s say 20%) of the compensation you receive from your gigs, plus reimbursement of certain of the manager’s costs.  This arrangement is designed to incentivize your artist manager to work hard to get you as many bookings as possible as soon as possible.

The artist manager in this arrangement may be compared to a sponsor of a real estate or manager of a private equity or hedge fund (I will use the term “fund sponsor” in this post to refer to all of these). Although many fund sponsors invest cash into the funds they sponsor, fund sponsors also receive what is known as a “carried interest” in addition to reimbursement for their costs and certain other fees.

When the fund is formed, the fund sponsor receives an interest in the future gains or income from the fund, for which the sponsor pays nothing. However, the carried interest entitles the fund sponsor to receive a percentage of the proceeds upon the sale of the fund’s assets and/or a percentage of operating revenue received by the fund during the hold period for the assets.

Details vary, but typically, the fund sponsor will not receive payment on the carried interest until at least the investors receive a return of capital, most frequently with an additional return on their investments. Payments resulting from a carried interest typically will be a percentage of the fund revenue/proceeds, and it is not uncommon for that percentage to increase so that the fund sponsor receives a higher percentage as the fund’s performance improves.

Although there is debate and there are misconceptions about the nature of carried interests (which are beyond the scope of this post), carried interests do benefit fund investors by providing incentivize compensation for the fund sponsor that does not require a cash outlay from the fund unless and until the fund is profitable, and usually not until the fund investors have received a return of all of their capital.

Simply put, the carried interest, like the music manager’s compensation, aligns the fund sponsor’s incentives with those of the fund investors. The fund sponsor has every reason to manage the fund so that the investors receive a return of their capital plus their minimum return so that the fund sponsor can receive payments on its carried interest.  Plus, the fund sponsor is incentivized to maximize the fund’s performance, because that may result in the fund sponsor receiving a higher percentage of the revenue/proceeds as performance increases.

However, let’s go back to the professional musician. Imagine that in years two and three of your five-year contract, your manager receives only ten percent (10%) of your compensation, but that in years one, four, and five of your contract, the manager receives twenty percent (20%) of your compensation.

It’s clear in this new arrangement that the artist manager’s and the professional musician’s interests are no longer aligned, because your manager is incentivized to obtain bookings for you in years one, four, and five rather than in years two and three. After year one, the artist manager would have a conflict of interest, as the artist manager would be tempted to encourage venues to book your performances in year four, rather than year three, for instance, which of course, would slow the growth of your career and income and therefore, not be in your best interest.

Although this new artist manager scenario makes little sense, this is the situation Congress created in the 2017 tax law with regards to carried interests.

Under federal tax law, payments resulting from a carried interest upon sale of fund assets traditionally have been treated as capital gains. They idea is that when acquired, the carried interest is worthless and therefore, has a tax basis of zero. As a result, any payments resulting from a carried interest due to sale of a fund asset represent a gain, the same as a gain on a fund investor’s investment.

Before 2018, if the fund asset sale occurred less than one year after the fund sponsor received the carried interest, then it would be a short-term capital gain, taxed at ordinary income rates. But, if the fund asset sale occurred more than one year after acquisition of the carried interest, then it would be taxed at the lower, long-term capital gains rate.  Since the fund investors’ returns (after return of their equity) receive similar treatment, until the 2017 tax law was passed, the fund sponsor’s and fund investors’ interests were aligned with respect to asset sales.

However, the 2017 tax law changed this. Now, although fund investors still will be taxed at long-term capital gains rates upon sale of fund assets held for one year or more, a fund sponsor must wait for three years before it can claim long-term capital gains treatment for these same assets.  As a result, like the artist manager in the second scenario, the fund sponsor’s interests no longer are aligned with those of the fund investors.

Depending on the investment goals of a fund, this change could create a conflict of interest for the fund sponsor. For existing funds, this conflict of interest did not exist when the fund was created and therefore, has not previously been disclosed to fund investors.  More critically, carried interest structures and fund exit structures for existing funds may not be consistent with the new tax law.

Under the 2017 tax law, it still makes sense for fund sponsors generally to hold fund assets for a year so that the fund investors can claim long-term capital gains treatment. However, in a time of increasing interest rates, it could be advantageous for a real estate fund to dispose of some assets fewer than three years after acquisition. This will particularly be the case if, for instance, those assets are encumbered by a below-market, assumable mortgage.  Indeed, many funds may have been formed with that specific exit strategy in mind.  Although the interest rate spread and investor return might end up being greater after a three-year hold, there is the old saying about a “bird in the hand being better than three in the bush.”

Yet, the 2017 tax law changes likely will impact the forecasted sponsor return on its carried interest. Even though the fund sponsor’s return under the fund documents remains unchanged, the after-tax return to the fund sponsor has changed.  This may create a significant incentive for the fund sponsor to wait out the three-year old period. To extrapolate on the saying, the fund sponsor may have “six birds in the bush” to the fund investors’ “three birds,” because if the fund sponsor can extend the hold period on the asset to three years or more, the fund sponsor will have larger after-tax return on its carried interest.

In addition to creating an unanticipated conflict of interest for fund sponsors of existing funds, the 2017 tax law could impact the way new funds are structured, so that longer hold periods are planned and change the assets that are attractive to fund sponsors. It is important to remember that fund sponsors put together the funds at the outset, and although they want to produce a fund that provides an attractive return to the fund investors, fund sponsors also expect to make money for their efforts.

Since fund sponsors will know that their after-tax returns on their carried interest will be reduced after a three-year hold period on fund assets, it makes sense for the fund sponsor to structure new funds to contemplate at least a three-year hold period. Needless to say, the types of assets appropriate for a three-year (or greater) hold might not be the same as those with one-year hold period.  For instance, funds geared towards buying value-add real estate, renovating it, and reselling it or funds established to buy distressed debt instruments likely to result in foreclosure or maturity in less than three years might not be as attractive of a business model for fund sponsors not wanting to pay high tax rates on the resulting gains from their carried interests.

One of my favorite reminders to clients is “be careful what you incentivize.” Here what probably was a compromise designed to make it look like Congress was being tough on wealthy fund sponsors may well end up creating incentives which hurt fund investors by creating conflicts of interest for fund sponsors, delaying return of investor capital, and reducing the availability of funds for investors desiring a shorter-term investment.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.

Orange Groves, Pay Phones, Visas, and Violins: Why Your Real Estate or Small Business Investment May be Subject to Securities Regulation

By Elizabeth A. Whitman

A recent Wall Street Journal (WSJ) headline announced “SEC Looks Into Kushner Cos. Over Use of EB-5 Program for Immigrant Investors.”[1]

It is not unusual to hear that a company is being investigated by the government over immigration issues. But, what is unusual about this particular investigation, however, is that it is being conducted by the Securities and Exchange Commission (SEC), which regulates securities, rather than the United States Citizenship and Immigration Services (USCIS), which regulates immigration and visas, including EB-5 visas.

To understand why the SEC has jurisdiction over Kushner Co.’s EB-5 program, one needs to go back more than 70 years.

In 1944, the then ten-year-old SEC failed to convince a Florida federal court that the sale of Florida orange groves with an optional management and production agreement (for buyers who did not have the knowledge to manage an orange grove themselves) was in the nature of agriculture and was not under SEC jurisdiction.[2]  A youthful, but determined SEC appealed but once again lost, when in 1945, a federal appeals court agreed with the Florida district court.[3]  Not to be outdone, the SEC appealed to the United State Supreme Court.

In 1946, the Supreme Court held in SEC v. W.J. Howey Co. [4] that the sale of the orange groves with the optional management agreement was an “investment contract” under the Securities Act of 1933. In Howey, the Supreme Court developed the investment contract test, which is still in use today.  Simply put, a business dealing or transaction is an investment contract if:

  1. There is an investment of money (or other assets).
  2. The investment is in a common enterprise (generally this means a pooling of assets).
  3. There is an expectation of a profit.
  4. The profit comes from the efforts of a promoter or a third party.

The Howey test brings many routine transactions under securities law regulation, much to the chagrin of clients coming to me wanting to move into a new business venture. They may want to build a new hotel, buy and operate an assisted living community, flip houses, or engage in another commercial real estate project.  They may want to buy an existing business, or they may have an idea for an entirely new business involving a cloud-based application or to provide a service to busy parents.  Many times, those clients need funding to start their business or pursue their commercial real estate venture, and they may turn to friends and family to invest in their new business venture.

Many of these new businesses or commercial real estate investment structures, however, meet the requirements in the Howey test because they involve an investment of money by the family or friend into a common enterprise with an expectation of profits from the efforts of my client. Unfortunately for my clients, there is no securities exemption for investments by relatives or friends, so even though the only investors may be friends and family, my clients in those situations must comply with securities laws.

Indeed, over the years there has been a surprising variety in the types of investments which have been found to be investment contracts. Whiskey warehouse receipts, commercial real estate funds, pay phones and ATMs with placement contracts, interests in a lumber mill, fine art collections, certain time share arrangements, and, of course, investments as part of the EB-5 immigrant visa program have been found to be investment contracts subject to SEC regulation based upon the Howey test.  Generally, those investments have involved situations in which investors expected a profit from a passive investment.

Further, when the stock market is high and there is a concern bond values might drop due to future interest rate increases, many people turn to alternative investments for diversification. Those alternative investments, traditionally available only to high income or high net worth accredited investors, include commercial real estate funds, oil and gas investments, and even musical instrument collections.[5] For instance, even fine violins are becoming more popular as investments and could be sold to a syndication of investors.[6] Most of those alternative investments are structured so that they are investment contracts under the Howey test.

Yet, not every investment in a common enterprise is an investment company subject to SEC regulation.

In 1975, the Supreme Court held in United Housing Foundation, Inc. v. Forman[7] that investments in stock in a New York City cooperative housing project were NOT investment contracts even though the investors might expect a profit from that common enterprise from the efforts of the developer.  The Supreme Court differentiated the housing cooperative from the investment in, for instance, the Howey orange groves or commercial real estate funds, because the primary purpose of the investment in the housing cooperative was to obtain housing, not to generate a profit.

Investors in EB-5 visa programs, are primarily investing to obtain one of a limited number of available annual immigrant visas from USCIS leading to conditional permanent resident status. To qualify, they must invest at least $500,000 ($1,000,000 under some circumstances) in an investment that results in the creation or preservation of a requisite number of permanent, full-time jobs for US workers.[8]

EB-5 investors typically receive a small, fixed return on their investment, but their main incentive for investment is to obtain permanent resident status in the US, rather than to make a profit. Nevertheless, the SEC treats EB-5 investments as securities under the Howey test, and most reputable EB-5 sponsors attempt to comply with US securities laws when offering and selling EB-5 investments.

It’s not clear why the SEC is interested in Kushner Cos.’ EB-5 commercial real estate investment program. However, traditionally, the SEC has used its regulatory authority over EB-5 investments to combat fraudulent use of funds.  For instance, in 2017, the SEC resolved a complaint against Serofim Muroff, an Idaho EB-5 sponsor, who allegedly used EB-5 money for his personal expenditures and for other projects outside of the purposes for which the investments were made.[9]  A similar case is underway involving EB-5 investments in Vermont ski resorts, which the SEC alleges were used by Ariel Quiros and his partner for personal expenditures.[10]

Unless the SEC believes there has been a violation of securities laws, we may never find out why the SEC is interested in Kushner Cos.’ EB-5 program. However, what we do know is that the SEC has jurisdiction over a commercial real estate investment through a vehicle created by Congress to be administered by USCIS. That, in and of itself, should serve as a reminder to businesses, commercial real estate sponsors, and even to future violin syndicators that if they are asking others to invest money with the expectation of a profit, the securities regulators also may have jurisdiction over them, as well.

Before attempting to raise funds from third parties, everyone should consult with an experienced business and securities attorney, who can help assure that the transaction is in compliance with any applicable securities laws.


[1]  Article by Erica Orden, The Wall Street Journal, Politics, January 6, 2018.

[2] SEC v. W.J. Howey Co., 60 F. Supp 440 (S.D. Fla. 1945).

[3] SEC v. W.J. Howey Co., 151 F.2d 714 (5th Cir. 1940).

[4] 328 U.S. 293 (1946).

[5] E.g.,

[6] There have always been investors interested in vintage violins. Some invest out of a philanthropic desire to support the arts, but yet, investments in violins can result in a steady gain in value, without the need to pay taxes on the gain until the violins are sold. According to a 2017 article by Emily T. Lane, President & Curator of Elan Fine Instruments, in Futures Magazine, interest in violin instruments has moved from the famous Cremonese masters, such as Stradivari and Guarneri del Jesu, which have a minimum value in seven figures, to more “moderately” priced instruments in the $100,000-$500,000 range, including Vuillaume (who was mentioned in my previous blog You Now Can Trade Up Your Violin, but Not the Bow or Case – New things to Consider in Section 1031 Exchanges After the 2017 Tax Law) and Balestrieri, an 18th century violin-maker from Mantua.  See . Although I am not aware of any violin-specific syndications, Liquidity Exchange (mentioned in the previous footnote) does offer a musical instrument syndication, which includes the possibility of investment in violins.

[7] 421 U.S. 837 (1975).

[8] For more information about the EB-5 program, check out the USCIS website at



© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.
This blog’s reference to any third-party website is for illustration and attribution purposes only and does not indicate endorsement or approval of the website or any product mentioned on or sold through the website or its owner.

Fraud and Forgery: From Vintage Violins to Today’s Real Estate Transaction

By Elizabeth Whitman

Fraud has a long history.

In a recent blog You Now Can Trade Up Your Violin, but Not the Bow or Case – New Things to Consider in Section 1031 Exchanges After the 2017 Tax Law, I discussed how famous violin maker Jean-Phillipe Vuillaume started his career in a violin forger’s shop, only to become a violin maker whose work was so valued that it, ironically was forged by others.

Although Vuillaume turned away from forgery, in the early 20th century, a trio of luthier brothers, William, Charles and Alfred Voller, were less scrupulous. Although the Vollers are known to have created nearly perfect “copies” of a number of early Italian violins, it was their forgery of the Balfour Stradivari violin, which was so good that it was certified as a real Stradivari by a famous London violin dealer.[1]

Violin fraud aside, real estate investors, title companies, and yes, real estate attorneys, are finding themselves to be the target of cyber fraud in real estate transactions and in connection with real estate closings. Last summer, inspired by a local story of an incredibly blatant real estate fraud, I wrote a blog post entitled When it looks like a Stradivari but Isn’t: Protecting Yourself from Wire Fraud in Real Estate Transactions. Little did I know that in just a few, short months, I would be put to the test to follow my own advice.

My previous blog post on fraud in real estate transactions focused on financial wire fraud in connection with the real estate settlement, where a hacker takes over a title company’s e-mail account and causes closing funds to be wired to the fraudster’s bank account. However, I experienced a different type of attempted fraud in connection with a real estate transaction.

My Close Encounter with a Real Estate Transaction Fraudster

A few weeks ago, out of the blue, I received an e-mail purporting to be from a real estate paralegal at a law firm with which I had been working on a real estate transaction several months before. The e-mail included a link, which appeared to be a legitimate link from a well-known electronic signature processor, asking me to securely download a document for electronic signature. In the course of a real estate closing, it would not be uncommon for me to receive such e-mails, mainly so my clients can securely sign documents.

However, this particular e-mail made me suspicious because I had no open real estate transactions with the law firm that sent me the link. I thought it was possible that the paralegal had sent the link to me in error, meaning to reach another Elizabeth. But it was also possible that it was an attempt at fraud, possibly to load a virus or ransomware onto my computer.

Remembering my own blog’s instructions about verifying information, I responded to the paralegal asking her two things 1) whether the e-mail was in fact intended for me, and 2) the real estate transaction to which it related. I had done only one real estate transaction with this particular law firm months before, and I thought it was unlikely that a fraudster would be able to identify the transaction accurately.

I then went one step further. I blind copied a partner real estate attorney in the same law firm with whom I had worked and asked that attorney also to confirm the e-mail was legitimate. By blind copying, if the e-mail from the paralegal was fraudulent, the fraudster would have no way of guessing I had sent the e-mail to someone else at the firm. Plus, if the paralegal’s account hand been compromised my e-mail to the attorney also would alert the law firm of the breach of security.

Almost immediately, I received a response from paralegal, confirming that the link was legitimate and in fact was intended for me – but not identifying the real estate transaction to which it related. I replied to the paralegal and asked her to please identify the transaction for additional security. She did not respond with the requested information, so I did not download the document. Apparently, my e-mail to the senior partner did its job, because less than an hour later, I received another e-mail from the law firm telling me that the original paralegal e-mail I received was in fact a virus and that I should delete it.

How to Protect Yourself from Cyber Fraud in Real Estate Transactions

Although I was not hurt by this attempt at real estate fraud, this experience has caused me to realize how important it is to slow down and think before clicking on a link, downloading a document, or providing sensitive information. The fraudsters are always thinking up new ways to try to trick us, but with care we can prevent them from getting the upper hand.

Having almost been the victim of real estate fraud, this seems a good time to reiterate and expand upon my previous advice to individuals involved in real estate transactions:

Verify all e-mailed wire transfer instructions or requests for personal information via a phone call. Do not use the phone number in the e-mail sending the request. Instead, go to the company’s website to obtain the phone number or obtain the phone number off a business card or letterhead received in paper format.

Confirm that the sender really sent any e-mail that requests that you click on a link, even if no financial information is requested. As part of the confirmation, ask the sender to provide very specific information that a hacker would not know and could not easily obtain from a hacked e-mail account. When in doubt, make a phone call (again, not to the phone number in the e-mail) to confirm.

Encrypt e-mail messages containing sensitive data. If you enter sensitive information into a website, both confirm its authenticity and be sure that the data connection is secure. In popular browsers, this is typically indicated by a symbol (such as a padlock) next to the URL. In Chrome, a green padlock indicates a private, encrypted connection using https. I also have Internet security software which will open a special, secure browser upon request.

Maintain your software. Be sure that your operating system and application software is up-to-date, and be sure that you have reliable virus and malware protection installed.

Protect your laptop and portable devices by turning on a firewall on any public network. If you can avoid using a public network, do so. For instance, I have sufficient data in my mobile plan to enable me to use my own mobile hotspot when working with sensitive information in a public location.

Use Passwords for documents containing sensitive data, and keep passwords in an encrypted file.   Use complex passwords containing a combination of capital and lower-case letters and numbers, and do not use the same password for every account. If others have access to your data through file sharing, require that they also use complex passwords. Your data is only as secure as the weakest password that can be used to access it.

Use Double-Factor Identification where it is available. Yes, it is annoying to have to wait to receive a code on your cell phone before signing into a website, but that will prevent a hacker (who won’t have your cell phone with him/her) from gaining access to your account.

Use Less Common Security Questions for websites that require security questions, select questions for which the answer is not easily available online. If you have your high school on your public social media accounts, then the name of your high school or its mascot is not secure. If you cannot select the security questions, then consider intentionally including the wrong answer – for instance, use your mother’s first name instead of her maiden name as the response or the name of your college instead of your high school.

Inform parties with whom you do business if you believe that their account may have been hacked. Yes, you will be the bearer of bad news (like my post-holiday text), but knowledge of the hack will help the victim to minimize the risk.

It took the Voller brothers years to create a forged violin, but a hacker can commit fraud in a matter of minutes. In our fast-paced world, it is important that we all slow down and take the time to verify authenticity of wire transfer instructions, embedded links, and requests for sensitive information, lest we become the victims of today’s cyber fraudsters in our real estate transactions.


[1]   Music Geek Info: The Voller brothers were not only master luthiers, but they also were clever fraudsters. They initially started by “copying” famous violins by Guarnari del Jesu and Stradivari, two of the greatest violin makers ever. However, when they realized that violin experts were highly familiar with the work of del Jesu and Stradivari, as well as the provenance and current ownership of most of the know violins made by those masters, the Voller switched to copying violins made by a slightly less well-known early Italian maker, Gagliano. Like Vuillaume, the Voller brothers’ work was so masterful that “authentic” Vollers today are sought after and demand a price in six figures.

© 2018 by Elizabeth A. Whitman

For more information, please contact Elizabeth A. Whitman at (301) 664-7713 or

Disclaimer: The content of this blog is intended for informational purposes only. It is not intended to solicit business or to provide legal advice. Laws differ by state and jurisdiction. The information on this blog may not apply to every reader. You should not take any legal action based upon the information contained on this blog without first seeking professional counsel. Your use of the blog does not create an attorney-client relationship between you and Mirsky Law Group, LLC or any of its attorneys.