Was 2019 the “Year of Privacy” in the U.S.? (Or Will It Be 2020?)

By Matt Cordell

What a year it has been!  As one year closes and another begins, let us take a moment to reflect on the significance of 2019.  It may not be an exaggeration to say that 2019 brought some of the most important changes in privacy and data security law that most of us have seen in our professional careers.

Yet, with all the momentum toward heightened consumer data protection, there remain conspicuous absences: Congress again considered, and again failed to deliver, a comprehensive privacy and data security bill.  The North Carolina General Assembly declined to meaningfully revise the State’s core privacy and cybersecurity statute (the Identity Theft Protection Act or ITPA); House Bill 904, the most recent incarnation of Representative Jason Saine’s and Attorney General Josh Stein’s bipartisan update to the ITPA, languishes in the General Assembly.  The General Assembly did, however, approve some modest updates to the data security laws affecting North Carolina government entities, in HB 217/SL 2019-200, giving the State Chief Information Officer greater oversight of State agencies’ cybersecurity controls.

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MacCord’s List: IP News & Notices From Art MacCord

Art MacCord is a patent attorney with 40 years of experience. He keeps an eye on the U.S. Patent and Trademark Office and the U.S. Copyright Office for new rules and practice tips of interest to intellectual property attorneys. Find his latest updates here:

NCBA IPL Section Blog News Blasts for December 31, 2019

U.S. Patent and Trademark Office releases policy statement on standards-essential patents subject to voluntary F/RAND commitments

National Patent Application Drafting Competition sign-up extended to Jan. 14


By Herman Spence III

On November 7, 2019, John Hodnette posted an article on the Tax Section’s blog regarding employee educational fringe benefits.  As noted in the article, Section 132(a)(3) provides an exclusion from gross income for working condition fringes.  A working condition fringe is any property or service provided to an employee to the extent, if the employee paid for such property or service, the payment would be allowed as a deduction under Section 162 or 167.  The 2017 tax act, however, eliminates individuals’ miscellaneous itemized deductions through 2025, including an employee’s expenses related to his or her job.  That raises the issue of whether working condition fringe benefits remain nontaxable given an employee cannot deduct employment related expenses.

It seems clear Congress did not intend to make working condition fringe benefits taxable.  In other cases in which Congress eliminated a nontaxable benefit, it did so directly, including moving expenses in Section 132(g)(2) and bicycle commuting benefits in Section 132(f).  Also, Section 132 only requires a payment be allowable as a deduction under Section 162 without mentioning Section 67.  Reg. § 1.132-5(a)(1)(vi) states the limitation of Section 67 is disregarded in determining the amount of a working condition fringe.  IRS publications, including Publication 15-B, continue to describe working condition fringe benefits as nontaxable.  Therefore, notwithstanding the suspension of employees’ ability to deduct employee expenses, working condition fringe benefits should continue to be nontaxable.

Herman Spence III is an attorney with Robinson Bradshaw in Charlotte.

Glory Days

Before They Became Great Lawyers, These Three NCBA Members
Were Part Of The “Greatest High School Football Story Ever Told”


In their younger days, Chip Gibbons (with ball), Steve Coggins (60) and Bill Farris were part of “the greatest high school football story ever told.”

By Russell Rawlings

In a previous life, it was my good fortune to write a book about my childhood heroes, the Fike High School Cyclones of Wilson, state 4-A football champions of 1967, 1968 and 1969.

Little did I know, while working on “Cyclone Country: The Time, The Town, The Team,” that three of those players – Bill Farris, Steve Coggins and Chip Gibbons – would take on larger meaning in my career as members of the North Carolina Bar Association.

Their names are familiar to many within the legal profession.

Farris practiced with Farris & Farris (now Farris & Thomas) in Wilson for 23 years before becoming a District Court judge.

Coggins spent 25 years practicing in Raleigh, including the last 13 of those years as a partner with Parker Poe. He has been a partner with Rountree Losee in Wilmington since 2002.

Gibbons practiced in Wilson for one year with his father before joining Poyner Spruill in Raleigh, where he is a partner and highly regarded tax attorney.

In their previous lives of some 50 years ago, they were part of “the greatest high school football story ever told.” Individually their names will not likely be found in the record books, roles reserved for their head coach, Henry Trevathan, and their superstar running back, Carlester Crumpler, both of whom are members of the N.C. Sports Hall of Fame.

But collectively, in their youth as in their adult lives, all three have embodied what is meant when it is said that the sum is greater than its parts.


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By Keith A. Wood

This is the first of two installments of this article.  The second installment will soon be posted on the Tax Section blog.

I.     Damages for Emotional Distress Not Excludable from Taxable Income Unless Directly Associated with Physical Injury.

A.     Background.
Section 104(a)(2) provides an exclusion from gross income for damages received by a taxpayer for personal injury or physical sickness.  Generally, emotional distress is not physical injury or physical sickness.  Taxpayers, therefore, must report as gross income damages they receive for emotional distress unless they are reimbursements for medical care to treat the emotional distress.  IRC § 104(a).  Damages for emotional distress are excluded from gross income only when the emotional distress is attributable to a physical injury or a physical sickness.

B.     Doyle, TC Memo 2019-8.
Doyle was terminated from his employment after he raised concern with his employer’s president that the company was involved in illegal anti-competition schemes.  After he was terminated, Mr. Doyle began experiencing physical ailments such as nausea, vomiting, headaches, and backaches.  Ultimately, after a confidential settlement with his employer, Mr. Doyle was paid $350,000 “as settlement for unpaid wages” and $200,000 “as settlement for alleged emotional distress and damages”.  The Tax Court held the damages for the emotional distress were not excludable from gross income under Section 104(c)(2).  The underlying wrong committed by Mr. Doyle’s former employer was based on employment or contact matters and had nothing to do with physical injury.


II.     Custom Home Builder Not Entitled to Ordinary Loss on Deemed Sale of Lots. Ferguson vs. Commissioner, TC Memo 2019-40.

Mr. Ferguson was a custom home builder operating through an S corporation.  Mr. Ferguson had a dispute with some of his customers regarding a new development project.  In settlement of the lawsuit, Mr. Ferguson’s S corporation transferred lots to the homeowners.  The S corporation claimed an ordinary loss deduction on the deemed sale of three of the lots by the S corporation.  The court disallowed the ordinary losses on the grounds that Mr. Ferguson was unable to prove the lots were not capital assets as defined in Section 1221(a).  The main factor that worked against Mr. Ferguson was he claimed capital gain treatment on six other lots that were transferred to other plaintiffs.


III.     Golf Course Operations Were “For Profit” Notwithstanding Long History of Significant Losses. WP Realty LP vs. Commissioner, TC Memo 2019–120.

Corbin Robertson was a 99% limited partner of WP Realty Limited Partnership and the sole owner of Olympia Enterprises, Inc., the general partner of WP Realty.  WP Realty operated a golf course that had years of significant losses totaling millions of dollars.  During the years at issue, Mr. Robertson was CEO and chairman of the board of the directors of two publicly traded companies.  His adjusted gross income for 2011 through 2014 was close to $175 million.  Mr. Robertson also was a very active real estate investor and developer.  The IRS took the position the primary purpose of the golf course was not to earn a profit.  Based on the following factors, the court determined the golf course activities were conducted for-profit:

  1. The partnership kept accurate books and records.
  2. The partnership had a business plan outlining capital improvements to contribute to the golf club’s growth.
  3. The partnership took steps to make the club more marketable.
  4. The golf course was operated in a businesslike manner. Over time the partnership took significant steps to increase its club membership, such as making major capital improvements.
  5. The partnership relied on experts and hired and consulted with experienced professionals in the golf industry.
  6. The partnership hired professionals to manage the golf course. The golf course club hired executive chefs to prepare meals.
  7. Mr. Robertson had been exceedingly successful in many other similar ventures.

The court stated the only factors that weighed against Mr. Robertson were the long history of losses, and anticipated appreciation of club assets were not expected to overcome those losses.  However, considering the other factors, the court concluded the golf course activities were operated with a for-profit motive.  The court noted, however, if the losses continued now that the partnership had initiated a new membership goal and finished major improvements, the partnership “may again find its profit motive before this court.”


IV.      Horse Breeding Activity Determined Not For Profit. Donoghue, TC Memo 2019–71.

A married couple incurred significant losses from their horse breeding activity.  The Donoghues owned horses but boarded them at farms and stables owned by others.  Mr. Donoghue was employed full-time, and Mrs. Donoghue was disabled.  From 1985 to 2012, the horse breeding activity incurred over $1 million of expenses but realized only about $34,000 of income.  The activity never turned a profit in any of those 27 years.

The Tax Court agreed with the IRS that the Donoghues did not operate their horse breeding activity for profit during 2010 – 2012.  The court viewed the following factors against Mr. and Mrs. Donoghue:

  1. Manner of conducting business.   The Donoghues did not breed, race or sell any of the horses.
  2. Expertise of advisors.   The Donoghues never hired experts nor sought the advice of experts on how to run a profitable horse breeding activity.
  3. Time and effort devoted to the activity.   Mr. and Mrs. Donoghue did not create any contemporaneous documentary evidence to corroborate the hours they spent on the activity.
  4. Expectation that assets used in the activity may appreciate.    The only assets owned as to the activity were the horses themselves.  and Mrs. Donoghue were unable to provide any evidence the value of the horses would ever exceed the losses of the activity.
  5. History of income and losses.   The activity never earned a profit in any year.
  6. Financial status of the taxpayer.   Mr. and Mrs. Donoghue received more than $100,000 in each of relevant years, but that income was completely wiped out by the losses of the horse farm.
  7. Personal pleasure and recreation. Mrs. Donahue loved her horse operations.  The Donoghues relied on employees to perform the more grueling aspects of the horse breeding business.

The court also upheld assessment of the Section 6662 substantial understatement penalty.  The Donoghues contended they had reasonable cause and acted in good faith because they had a prior audit for 2007 in which the IRS ultimately conceded the hobby loss issue in Tax Court.  However, as stated in Transupport, Inc. v. Commissioner, T.C. Memo 2016-216 at 41:

“Petitioner again argues that the methodology was used consistently over years and was therefore correct.  Petitioner apparently believes that repeating a fallacy over and over again and ignoring contrary evidence will succeed.  It does not.  A well established principle is that what was condoned or agreed to for a previous year may be challenged for a subsequent year.  Auto Club of Mich. v. Commissioner, 353 U.S. 180 [50 AFTR 1967] (1957); Rose v. Commissioner, 55 T.C. 28 (19709).  Thus, the results of a prior audit do not constitute substantial authority.”


V.      Bankruptcy Court Refuses to Allow Partnership to Convert to C Corporation Status.

In In Re Schroeder Brothers Farms of Camp Douglas LLP, 123 A.F.T.R. 2d 2019-2080,  the U.S. Bankruptcy Court refused to allow the debtor, an entity taxed as a partnership for tax purposes, to convert to C corporation status by making a check the box election on Form 8832.  The bankruptcy court held that allowing the partnership to convert to a C corporation was not in the best interests of the debtor, the estate, or its creditors.


VI.     IRS Rules S Election was Inadvertently Terminated by Operating Agreement Amendment.

In PLR 201930023, the IRS concluded an LLC’s S election was inadvertently terminated after its members adopted an amendment to the distribution provisions in the LLC operating agreement.  The taxpayer was an LLC that elected to be taxed as an S corporation.  Thereafter, the LLC and its members amended the agreement to provide liquidating distributions would be made in accordance with positive capital account balances.  Later, the operating agreement was amended again to provide for distributions on a pro rata basis.

The IRS ruled the S election was terminated by virtue of the first amendment.  However, because all distributions were actually made to the members in proportion to their membership interests, the IRS ruled the termination was inadvertent, and therefore the LLC would continue to be taxed as an S corporation in all periods.

Keith A. Wood is an attorney with Carruthers & Roth, P.A. in Greensboro.

Checking In: Dec. 20, 2019


Compiled by Sidney Shank
Holly Benton has joined Smith Anderson’s Data Use, Privacy and Security team as counsel. She is a Certified Information Privacy Professional (CIPP/US) in addition to being certified in Healthcare Privacy Compliance (CHPC). She holds a bachelor of arts, magna cum laude, from Wellesley College and a juris doctorate from the University of Washington.




Jordan Bernstein has joined the Charlotte office of Cranfill Sumner & Hartzog as an associate attorney. Her practice is focused on workers’ compensation. She holds a bachelor’s degree from Ohio Wesleyan University and a Juris Doctorate, with honors, from the University of North Carolina at Chapel Hill.




Martha Bradley joined the Asheville office of Hall Booth Smith as an associate attorney. She holds a Bachelor of Arts from the University of North Carolina at Chapel Hill and a Juris Doctorate from Campbell University. Bradley currently serves on the Board of Governors for the North Carolina Bar Association.




Frank Emory Jr. has been named Executive Vice President and Chief Administrative Officer of Novant Health. In the past, Emory has worked as a partner at Hunton Andrews Kurth LLP, an international law firm.





Patrick Hansen joins the Raleigh office of Harrity & Harrity. He specializes in patent applications in electrical, computer, and mechanical technologies.






Sarah Crotts has joined the Charlotte office of Parker Poe, where she will work on the Health Care Industry Team as special counsel. She comes to Parker Poe from Wall Babcock LLP in Winston-Salem.





Hedrick Gardner Kincheloe & Garofalo LLP has opened its fifth office, located at 49 Broadway Street in downtown Asheville. Partner Kristie Hedrick, a Western North Carolina native, has relocated from the firm’s Raleigh office to lead this new Asheville office.





Nichole Hayden has been elected partner of Nelson Mullins Riley & Scarborough, effective Jan. 1, 2020. Her practice focuses on intellectual property. Hayden holds a Bachelor of Science, magna cum laude, from Wofford College and a Juris Doctorate with highest honors from Drake University.





Jason Kerr, alternative investments attorney, has joined the Charlotte office of Robinson Bradshaw. Before joining Robinson Bradshaw, Kerr worked as an attorney for Axiom in New York City. He holds a bachelor’s degree from the University of California at Berkeley and a Juris Doctorate from Columbia Law School.





Robert Lindholm has been elected partner of Nelson Mullins Riley & Scarborough, effective Jan. 1, 2020. His practice focuses on government investigations, white collar defense, complex business litigation, and class action defense. Lindholm holds a Bachelor of Arts, magna cum laude, from Union College and a Juris Doctorate, magna cum laude, from Albany Law School.





McCord Rayburn joins the Charlotte office of Harrity & Harrity. His practice focuses on patent preparation and prosecution in both domestic and international cases.






Bret Tingey joins the Raleigh office of Harrity & Harrity. He focuses his practice on patent preparation and prosecution for inventors in the mechanical and electrical technology fields.





Dan Hartzog, Dan Hartzog Jr., Katie Weaver Hartzog, Katherine Barber-Jones and Michael Cohen have recently left Cranfill Sumner & Hartzog and formed Hartzog Law Group. The office is located at 1903 N. Harrison Avenue, Suite 200, in Cary.

Dan Hartzog Jr.

Dan Hartzog

Katherine Barber-Jones

Katie Weaver Hartzog

Michael Cohen








NC Hosts 2019 State Administrative Law Judge Central Panel Directors National Conference

By Ann B. Wall

North Carolina was recently the site of a national conference that, it is hoped, will improve the managerial efficiency of Administrative Law Judge (ALJ) central panel operations across the country.  The State Administrative Law Judges (ALJs) Central Panel Directors National Conference (CPDC) was hosted by Julian Mann, III, co-chair of the National Conference, as well as Director and Chief Judge of North Carolina’s own central panel, the Office of Administrative Hearings (OAH).

Issues common to central panels have either already arisen in North Carolina, or may yet arise here.  Such issues may be appropriate for discussion by the Administrative Law Section as we look to the future of administrative law in North Carolina.

“Central panels are panels of [ALJs] who, instead of being attached to a single administrative agency, are assigned to a “central,” “independent” panel that supplies [ALJs] to conduct contested case hearings for a variety of agencies.” Hon. W. Michael Gillette, “ALJ Central Panels: How is it Going Out There?”, The NJC Experience (September 17, 2015), https://www.judges.org/alj-central-panels-how-is-it-going-out-there/.  The alternative to a central panel is a system such as that of the federal government, in which ALJs are employees of the agencies whose cases they adjudicate.

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Thank You! From the North Carolina Bar Foundation

Jessica Thaller-Moran, bottom right, is one of many YLD members who provide vital support annually to the North Carolina Bar Foundation’s signature pro bono and public services programs, including 4ALL Statewide Service pictured here.

In this season of thanks, the North Carolina Bar Foundation would like to thank the Young Lawyers Division for generously giving of your time to pro bono and public service for the Foundation’s programs and access to justice programs all across the state. Your commitment to serve those who would otherwise not have access to legal representation is inspiring.

The YLD has long been the volunteer force behind the signature pro bono and public service programs of the Foundation. Our work would not be possible without your active engagement and participation. In addition to the supporting the Foundation’s annual programs, we are proud to have the YLD as an organization who benefits from annual grants from the Foundation’s Endowment. Your work is impactful, and the Foundation is proud to be aligned with you.

The work of the Foundation is 100% funded through private support. We would like to invite all members of the YLD to make a financial commitment, of any size, to the Foundation. The YLD is full of talent boasting a membership of over 6,000 members. Imagine how many North Carolinians we could serve if every member gave between $10-$20 to the Foundation’s Annual Fund. There is power in your membership.

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Purrington Award Nominations

By Ben Baldwin

The Business Law Section of the North Carolina Bar Association seeks nominations for the Alfred L. Purrington III Memorial Public Service Award. This award (which was established earlier this year and would now be given for the very first time) honors the memory of Alfred L. Purrington III, a distinguished member of the North Carolina Bar Association and a founder of the Business Law Section, who served his community freely and quietly in multiple capacities including leadership roles in the United Way of Wake County, United Way of North Carolina, Triangle Land Conservancy, Raleigh City Museum, vestry of Christ Church, Episcopal Church Foundation, North Carolina Literary and Historical Association Endowment Trust, Wake County Phi Beta Kappa, and Penick Village in Southern Pines.

The intent behind the award is to recognize outstanding public service by a member of the Business Law Section. The award may be given to an attorney who, through application of his or her professional skills, has given freely and selflessly of his or her time and energy in public service, through charitable and service organizations, for the benefit and betterment of his or her community.

If you wish to nominate a candidate for the Alfred L. Purrington III Memorial Public Service Award, the deadline for nominations is the close of business on Friday, January 24, 2020. Nominations received after Friday, January 24, 2020, will not be considered.

The award ceremony, if a candidate is selected, will take place during the Annual Meeting of the Business Law Section of the North Carolina Bar Association, to be held on Friday, February 14, 2020, at the Carolina Hotel in Pinehurst, North Carolina.

You can access the nomination form by clicking here.

Nominations must be submitted no later than close of business on Friday, January 24, 2020.

North Carolina Bar Association, Business Law Section – Julianne Dambro – 8000 Weston Parkway – Cary, NC – 27513 or via EMAIL at jdambro@ncbar.org

Construction Law Section Nominations

To all Section members:

As chair of the Section’s Nominations Committee, I am pleased to invite your nominations for the next class of at-large members of the Section’s Council as well as for the Evelyn M. Coman Award for Distinguished Service in the Field of Construction Law.

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