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HomeMy WebLinkAboutA4077 - GARDNER CARTON DOUGLAS BIA LAND LEASE TAX LOBBY Gardner, Carton&Douglas Lobbying Efforts,Tax GARDNER, CARTON & DOUGLA Deduct-LandLease Payments AGREEMENT#4077 Amend#1 1301 K STREET, N.W. M06422, 6-2-99 SUITE 900, EAST TOWER WRITER'S DIRECT DIAL NUMBER WASHINGTON, D.C. 20005 CHICAGO, ILLINOIS (202)408-7240 (202) 405-7100 FAX. (202) 269-1504 INTERNET gcd12Wdc@gcd Ci0R1 M E M O R A N D U M TO: Rob W. Parkins, City of Palm Springs FROM: Kathleen M. Nilles DATE: May 5, 1999 SUBJECT: Phase II of Tax Legislative Project You have asked me for an assessment of the viability of your legislative proposal to provide a tax deduction for ground lease payments made with respect to residential property located on Tribal trust land and allotted land. You have also asked me for an estimate of the costs associated with Phase Two. BACKGROUND Since your visit to Washington in early March, we have undertaken the following activities on your behalf: (1) follow-up with Representative Bono's office through regular telephone conversations and meeting with her staff--particularly, Chris Katopis; (2) meeting with Bob Winters, Legislative Director to Representative Bill Thomas; (3) research and preparation of a memorandum regarding the legal status of Hawaiian land (to distinguish Indian allotments from Hawaiian trust lands in response to concerns raised by several staff members, including Mr. Winters); and (4) contact made with the California Association of Realtors (a)regarding the Association's knowledge of any similarly situated homeowner/lessees; and (b)to obtain a copy of two studies commissioned by the Realtors regarding the economic impact of limiting the deductibility of mortgages in California. GARDNER, CARTON & DOUGLAS May 5, 1999 Page 2 We have also reviewed a recently released IRS document relating to the tax treatment of leas payments derived from Indian lands. What follows is my analysis of the significance of each of these items, followed by an assessment of the overall prospects for a tax bill and my recommendations. Contacts With Representative Mary Bono's Office Chris Katopis has taken a pro-active approach to working our issue on behalf of Representative Mary Bono. Chris attended my meeting with Bob Winters (Rep. Thomas) and calls me frequently with new developments. Following our meeting with Bob, Chris talked to Representative Bono's Chief of Staff (Brian Nestande) and reported back to me that they were still committed to working the proposal notwithstanding Bob's numerous list of objections (detailed below). Most recently, Chris called to report that the Joint Tax Committee staff had contacted him for more information to aid them in completing their estimate. This is an encouraging development, because it signals that we actually may receive an estimate soon. However, it was also discouraging in that the Joint Tax staff was seeking the very information we requested, but still have not yet received, from the Bureau of Indian Affairs ("BIA"). Specifically, Chris was asked whether Tribal land lessees in any locations other than Palm Springs would be in a position to take advantage of the proposed deduction. Meeting With Bob Winters On Monday, March 22, 1999, Chris Katopis and I met with Bob Winters, Legislative Director to Representative Bill Thomas. At our meeting, Bob raised the following concerns regarding our proposal: What is the justification for providing tax-favored status for leased Indian land, but not other long-term leased land; Indian allotments vs. Hawaiian land Indian land vs. California ranch land Indian land within reservation boundaries vs. newly purchased Indian land • Possibility of California constituents complaining about such favored status; • Difficulties of assembling accurate information for preparation of a revenue estimate; 11A3 GARDNER, CARTON & DOUGLAS May 5, 1999 1 tl v Page 3 • Difficulties of finding an appropriate revenue offset (the broader the proposal, the more expensive it will be to "fund"); • Possibility that other revenue-raisers (e.g., the imposition of a "UBIT" tax on tribes) may be raised in reaction to our proposal by Committee members and/or staff who are hostile to Indian tribes; and • Skepticism that enactment of the proposal would actually bring the City any more revenue in the short-run (although Bob agreed that it would accelerate the pace of development of Indian-owned land parcels). Following the meeting with Bob, we have conducted research and written a memo that distinguished the Hawaii situation from that of Indian allotments and Tribal lands. Also, after checking the California Association of Realtors, we are fairly certain that the Palm Springs situation is unique throughout the State. We have also determined, based on a review of an economic analysis, that any significant increase in deductibility of home ownership costs would result in an upward acceleration in home values which, in turn, would yield increased property tax receipts. Input From the California Association of Realtors The California Realtors have conducted two studies, both of which show a significant impact on home values and, consequently, on state and local governments where mortgage interest deductions are limited (in the case of a dollar value cap) or eliminated (in the case of a flat tax). Under a $250,000 cap on deductible mortgages, home values would drop about 1.5%; in the case of a flat tax, home values would drop approximately 20% in California. The Realtors' representative I spoke with did not know of any other situations in California comparable to that of Palm Springs. Status of BIA Review BIA is working on Representative Bono's request for information regarding other residential leases of tribally-owned and allotted land. However, Chris Katopis reports that BIA has not given him much hope of a timely completion. As we discussed, you are planning to call Brian Nestande to see if pressure could be applied to speed things up. An accurate estimate of the revenue cost of our provision cannot be completed by Joint Tax until we have this information. i i GARDNER, CARTON & DOUGLAS May 5, 1999 Page 4 IRS Document on Tribal Leases Earlier this year, the IRS released a Field Service Advice (FSA 1999-894) that upheld the tax exemption of rental income derived from a bare ground lease of Indian land. In this case, the lease payments were deductible because the property was used for business. In fact, the Indian owners leased the land to various S corporations that they owned. The IRS upheld the exemption, but acknowledged being "troubled by the fact that the S corporations formed by the Indians are presumably entitled to deduct the ground rental payments, resulting in a double tax benefit." PROSPECTS FOR TAX LEGISLATION The Republican Majority is strongly in favor of enacting a broad, multi-year tax package this year. Under the terms of the Budget Resolution, the House Ways and Means Committee will mark up a comprehensive tax bill in mid-July. The Senate Finance Committee will mark up its version shortly thereafter. Members of the Ways and Means Committee have already been invited by Chairman Archer to list their top three tax cut priorities. Such priorities generally reflect specific constituent interests as opposed to popular broad-based provisions (e.g., marriage penalty repeal) which are expected to be included regardless of their inclusion on any particular member's list. Chairman Archer has already cautioned his Members that very little tax relief will be able to be enacted until the projected budget surplus becomes less dependent on the current (albeit temporary) Social Security surpluses. This is not expected to occur until the year 2002. Tax relief measures that go into effect before that date will have to be funded with revenue offsets. In my opinion, our proposal stands its best chance of success if we were willing to agree to delay or phase-in the effective date. There are many popular and broad-based tax proposals that will be competing for inclusion in a relatively small tax package in the years 1999 through 2001. The tax package will have to be small because of the political hazards associated with most tax revenue offsets. Based on recent intelligence, it appears that Chairman Archer is determined to raise the issue of a tax on Indian tribes again this year. It appears that such a tax will be considered whether or not we attempt to move our proposal. RECOMMENDATION I would recommend that we make a concerted effort over the next three weeks to obtain the support of one or more Ways and Means Members. It is difficult to predict whether such 14SO50 GARDNER, CARTON & DOUGLAS May 5, 1999 I Page 5 Member support is likely to be forthcoming or not. Notwithstanding Bob Winters' initial negative reaction, I would not recommend that we give up on securing Rep. Thomas' support. However, it also seems to me that we have a window of opportunity to possible move our proposal forward. COSTS Total costs incurred on the project to date have been $17,487.10. This includes $711.63 (for April) that has not yet been billed. Of this amount, approximately $11,000 have been what I would consider Phase I costs, with an additional $6,500 incurred in actually advocating the issue (e.g., meeting with various members and staff and follow-up to those meetings). Assuming that you are willing to proceed, I would envision additional expenditures in the range of $10,000 to $20,000 to carry the project through to completion. However, if we are unable to get a firm commitment from a Ways and Means Member to make this issue a priority, the additional expense will obviously be much less than that amount. KMN:efs City Ma0ger City of Palm Springs, California 1 �O 77 256574.1 • Gardner, Carton & Douglas Lobbying Efforts, Tax GARDNER, CARTON & DOUGL Deduct-Land Lease Payments AGREEMENT #4077 1301 K STREET, N.W. M06363, 3-3-99 SUITE 900, EAST TOWER WRITERS DIRECT DIAL NUMBER WASHINGTON, D.C. 20005 CHICAGO, ILLINOIS KATHLEEN A NILLES (202) 408-7100 (202)408-7240 FAX: (202) 2a9-1504 I NTER N ET: gcdlawdc@gcd.com February 17, 1999 Mr. Rob Parkins, City Manager City of Palm Springs 3200 East Tahquitz Canyon Way Palm Springs, CA 92263-2743 Dear Mr. Parkins: Re: Scope of Engagement We are very pleased that you have engaged our firm to represent the City of Palm Springs in connection with seeking to change the unfavorable tax deduction rules that currently apply to non-business lease payments made with respect to land allotted to members of an Indian tribe. I would like to confirm our understanding of the scope of our engagement as your legal counsel in this matter, summarize our billing practices and advise you of our conflicts of interest policy. Scope of Engagement It is our understanding that you have asked us to convince Congress to treat allotted land lease payments at least as favorably as home mortgage interest allocable to land value. As we have previously discussed, we have broken down our representation into two phases. Phase One The first phase would involve determining whether the legislative change described above has a reasonable likelihood of being enacted in this Congress. This phase would involve developing a concise advocacy paper explaining the proposed change, meeting with the Joint Tax Committee and House Ways and Means Committee tax staff to determine their willingness to support such a measure, and weighing possible objections. GARDNER, CARTON & DOUGLAS February 17, 1999 Page 2 Phase Two The second phase would involve mounting a sustained lobbying campaign targeted at key members and staff of both the House Ways and Means and Senate Finance Committees. We will not embark on Phase Two until you have had an opportunity to evaluate its likelihood of success. In any event, you may limit or expand the scope of our representation from time to time, provided that any significant expansion must be agreed to by us. Moreover, either of us may terminate the engagement at any time for any reason by written notice, subject on our part to applicable rules of professional responsibility. In the event that we terminate the engagement, we will take such steps as are reasonably practicable to protect your interests in the above matter and, if you so request, we will suggest to you possible successor counsel and provide them with whatever papers you have provided to us. You are engaging Gardner, Carton& Douglas to provide legal and legislative services in connection with a specific matter. After completion of the matter, changes may occur in the applicable laws or regulations that could have an impact upon your future rights and liabilities. Unless you actually engage us after the completion of the engagement to provide additional advice on issues arising from the matter, Gardner, Carton & Douglas will have no continuing obligation to advise you with respect to future legal developments. Fees and Expenses I expect that our fees attributable:to Phase One will total approximately $8,000. We have provided a preliminary estimate for Phase Two of$40,000, but this figure is subject to further negotiation and possible reduction, depending our actual level of responsibility and involvement. We will bill separately for our out-of-pocket expenses, including, for example, travel, costs of courier service, long-distance telephone charges and photocopying. Our fees for services rendered will be billed monthly and will be based on a review of the actual time expended at our standard hourly rates for attorneys and attorney-supervised paralegals and will be determined in view of the complexities of the engagement, the difficulties encountered and the nature of the services rendered. A more detailed summary of our billing policies and procedures is enclosed as Attachment A. Staffin The attorneys who will initially be involved will be Kathleen M. Nilles, assisted by a tax associate, Jeff Shamberg. Our respective billing rates are $285 and $180 per hour. If we proceed to Phase Two, I may require the assistance of other legal and legislative professionals. To the extent feasible in each situation, we utilize personnel with lower billing rates who are qualified to perform the tasks assigned to them. These rates as well as hourly rates for other attorneys and personnel who may provide services to you may change over time. GARDNER, CARTON & DOUGLAS February 17, 1999 Page 3 Conflicts of Interest As we have discussed, Gardner, Carton & Douglas represents many other companies and individuals. It is possible that during the time that we are representing the City of Palm Springs, some of our present or future clients will have disputes or transactions with the City of Palm Springs. Please refer to Attachment B., which provides a detailed explanation of our Conflicts of Interest Policy. We look forward to the opportunity to assist you in this matter. I hope that you will contact me whenever you have a questions about the bills or legal service provided to you. Please sign and return a copy of this letter to me acknowledging your agreement to the conditions of our engagement. Sincerely, f� e.G� K thleen M.Nilles KMN:efs Enclosures cc: Committee REED: � _ Date: Rob arkins, City Manager CITY OF PALM SPRINGS APPVZOVID BY TES[. CITY COUNCR GARDNER, CARTON & DOUGLAS Attachment A BILLING POILICIES AND PROCEDURES TO OUR CLIENTS: This statement is being furnished to you in the interest of enhancing your understanding of our billing policies and procedures. We encourage you to discuss these matters with our attorneys at the inception of an engagement, and to continue to do so should you have any questions during the course of the engagement. Billing Procedures Statements will be rendered to you on a monthly basis and are payable within 30 days. Certain substantial financial and commercial transactions and probate and trust matters may be subject to alternative billing arrangements. We make every effort to include disbursements in the statement for the month in which the disbursements are incurred; however, some disbursements, such as telephone, messenger or computer service charges, are not available to us until the following month, in which case a supplemental statement will be rendered to you for these additional charges. Checks should be made payable to "Gardner, Carton&Douglas" and should be sent to: Gardner, Carton& Douglas P.O. Box 92688 Chicago, Illinois 60675-2688 Charges for Legal Services-General Policy Legal services rendered by our firm are generally charged at an hourly rate. Each attorney, paralegal, research assistant and proofreader is assigned an hourly rate and records his or her time for each client and matter. The hourly rates vary, so that each statement typically reflects a composite of several hourly rates. Hourly rates are reviewed periodically and may be changed without notice based upon our periodic determinations of the value of each individual's services. All time spent traveling on client business is recorded on the time records of the client and billed accordingly. The billing attorney responsible for preparation of your statement reviews the time records before rendering a bill for legal services. This review may result in upward or downward adjustments in the statement where appropriate in the judgment of the billing attorney. For example, time may be adjusted downward for duplication of effort, for training time beyond the normal adjustments for attorney experience already factored into our hourly rates, or in other situations where it appears appropriate to the billing attorney not to charge you for the full time spent on your engagement. Significant downward adjustments require the approval of our New GARDNER, CARTON & DOUGLAS Billing Policies and Procedures Page 2 Business and Billing Committee. The statement also may be adjusted upward to reflect more accurately the value of our services because of a special level of expertise in the subject matter of the engagement, the results obtained due to innovation or other special efforts not accurately reflected in hourly rates, or other special circumstances. .Special Billing Arrangements There are three principal exceptions to our general policy of charging at an hourly rate for services rendered. Financial and Commercial Transactions. Fees for financial transactions, including secured and unsecured loans, note purchases and securities offerings, and other substantial commercial transactions, such as business formations, combinations, acquisitions, divestitures,joint ventures and tax oriented transactions are determined by taking into account our experience in these transactions, the risk to us in passing on their validity either by the rendition of a formal opinion or otherwise and the magnitude and significance of the particular transaction. Estate and Trust Administration. Fees for administration of estates and trusts often are determined by taking into account our experience,the risk involved in administration matters and the magnitude and significance of the problems anticipated as part of the administration process. Special Projects. Periodically we are retained by clients in connection with projects which require highly specialized services or experience in various areas of practice. In these instances, we may arrange for alternative fee arrangements, such as charging for our services on a fixed fee basis or on the basis of a fixed retainer plus additional charges based on the hours recorded on the project. In the discretion of the billing attorney or upon request by a client in any of the foregoing cases, we will prepare periodic informational statements setting forth the approximate level of fees incurred through a specific date. Such statements may be subject to adjustment as appropriate at the conclusion of the transaction to reflect the factors or arrangements referred to above. Retainer Policy It is our general policy to obtain an advance retainer from new clients and from existing clients under certain circumstances. The amount and terms of any advance retainer arrangement are determined by our New Business and Billing Committee after consultation with the attorney responsible for the engagement. GARDNER, CARTON•& DOUGLAS Billing Policies and Procedures Page 3 Charges for Disbursements and Costs General Policy. It is our policy to serve you with the most effective support systems available, while at the same time allocating the costs of such systems to the clients who use them. Therefore, in addition to fees for legal services, we also charge for: telephone, telex, facsimile transmission, courier and other communication costs; duplication; binding; bulk mailing charges; major supply items; library and computer research time and facilities (LEXIS and Westlaw); and court reporters and other out-of-pocket or allocated costs incurred on your behalf. In situations where the urgency of a project requires staff overtime and after hours and weekend secretarial and word processing services we may charge for these services. We generally require that larger disbursements be forwarded to clients for direct payment to the supplier. Our experience indicates that disbursements generally total approximately 10% of the amount incurred for legal services, although disbursements on specific engagements may vary substantially. Closely-Held Corporate Services. Our closely-held corporation services include a system to remind clients of certain corporate filings, such as annual reports and franchise tax reports, and of annual meeting dates and other important deadlines. Each corporation so served is assessed quarterly one hour of a corporate paralegal's time to cover these routine reminder services. Alternatively, the foregoing services may be provided through the computerized docket system referred to below and charged on a monthly basis as described therein. These charges do not cover the cost of completing reports, preparing minutes and resolutions and other services. Docket Charges (Litigation and Other Matters). Each active litigation matter will be assessed on a monthly basis for docket charges relating to our use of a computerized docket system which is available from a third party service provider. This system may also be used for other client matters such as the closely-held corporate services referred to above. We hope this letter answers your questions regarding our billing practices and that you will not hesitate to contact the billing attorney responsible for your legal matter with your questions and comments. Sincerely, GARDNER, CARTON & DOUGLAS 216832.1 GARDNER, CARTON41DOUGLAS ATTACHMENT B CONFLICTS OF INTEREST POLICY Legal conflicts of interest have become an increasingly difficult problem for law firms and their clients. You are aware that Gardner, Carton& Douglas is a relatively large law fnzn, which represents a diverse group of organizations, companies, and individuals. It is our ethical obligation to advise you in the event we become involved in an engagement which is directly adverse to the City of Palm Springs. We have conducted an internal review and have not identified any apparent conflict of interest. However, conflicts of interest are at times extremely difficult to identify and can sometimes arise as a result of client activities or other developments of which we may be unaware. We will make every effort to identify and resolve these conflict situations and will establish appropriate mechanisms to safeguard the interests of the City of Palm Springs. It is possible that during the time we are representing the City of Palm Springs some of our present or future clients will have disputes or transactions with the City of Palm Springs. We are undertaking this representation with the understanding that one or more of our attorneys may continue to represent or may undertake in the future to represent existing or new clients in any matter that is not substantially related to our work for the City of Palm Springs, even if the interests of such clients in those other matters are directly adverse. We agree, however, that the City of Palm Springs' prospective consent to conflicting representation contained in the preceding sentence shall not apply in any instance where, as a result of our representation of the City of Palm Springs, we have obtained proprietary or other confidential information of a nonpublic nature that, if known to such other client, could be used in any such other matter by such client to the City of Palm Springs' material disadvantage. X- �- /' 0 GARDNER, CARTON & DOUGLAS February 17, 1999 250062.1