Grand Forks Herald: Legal experts discuss changes in federal, state laws – Professor Nick Datzov is quoted
Business owners are advised to consult with their attorneys on new regulations.
Grand Forks Herald
Attorney Justin DiBona, a partner at Gunderson, Palmer, Nelson & Ashmore, LLP in Rapid City, South Dakota, has been busy consulting with his clients about a new federal law that became effective Jan. 1, 2024, the Corporate Transparency Act (CTA). His specialties include business and estate planning, probate and estate administration, business succession planning, and trusts.
The CTA will impose new disclosure obligations on most business entities in the U.S. The purpose of the act is to “help prevent and combat money laundering, terrorist financing, corruption, tax fraud and other illicit activity while minimizing the burden on entities doing business in the United States.”
He explained why businesses need to be aware of the new act.
“The purpose of the law is noble – to prevent against fraudulent transactions, prevent against money laundering, to keep everything above water,” he said.
Many companies in the U.S. will have to report information about their beneficial owners, such as the individuals who ultimately own or control the company. They will have to report the information to the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury.
“They’re establishing a database in 2024 where the owners of companies will need to be revealed and do annual filings. Before, there’s never been a rule like this and a lot of companies don’t know about this. It’s not well publicized,” DiBona said.
There are civil and criminal penalties for failure to comply – $500 for being late, up to a $10,000 fine and up to two years in prison.
For companies in existence before 2024, they have until the end of 2024 to comply, DiBona said, but for any new companies created in 2024 or later, they have 90 days to comply.
The types of information that need to be reported are basic – the person’s legal name, date of birth, street address, drivers license number and a photo of the license. Complying seems straightforward, but there are many ways it can quickly become cumbersome.
“What if you have a stock option – do you have to report? If it’s a company that owns another company, and you have a holding company, what does that look like? If a trust is the owner, what information has to be reported there?” DiBona said. “It can become pretty complex.”
Another change to watch for is the federal estate tax exemption reduction, effective in 2026. DiBona is advising clients on addressing this change sooner than later.
For the last five years, taxpayers have benefited from a high gift and estate tax exemption introduced under the Tax Cuts and Jobs Act of 2017, which doubled the exemption from 2018 from approximately $5.5 million to $11 million per person. In 2023, the exemption increased another $860,000 due to inflation, to $12.92 million per person. This exemption is going to sunset on Dec. 31, 2025, and end up back down somewhere between $6 million and $7 million, depending on inflation.
Business owners who are planning to transition their company to a relative or another employee should be aware of the change coming to the federal estate tax and plan accordingly.
“People who own businesses are prompted to start gifting these assets now and get the assets down while they have such a high tax exemption,” DiBona said.
MacKenzie Hertz is an employment attorney with Vogel Law in Fargo. She’s licensed in North Dakota and Minnesota, and represents management and employers.
New and upcoming changes on her radar include the federal Pregnant Workers Fairness Act, which became effective June 27, 2023.
“It extends protections to pregnant workers and requires employers to provide certain accommodations to those workers in the workplace. Employers are familiar with the ADA, which protects individuals with disabilities who can perform job duties with or without reasonable accommodations,” she said. “Pregnancy is not in itself a disability, and so what this act does is fill that gap – so pregnancy itself is a protected condition that employers must now reasonably accommodate.”
The Fair Labor Standards Act sets the minimum wage and overtime requirements for employers. The U.S. Department of Labor has proposed to make it harder to be exempt based on salary.
“For each of the exemptions, they require you also be paid on a salary basis. They are going to increase the threshold for the salary basis so that you have to be paid more to be considered exempt,” she explained. “They expect it will impact up to 3.6 million workers who are currently exempt based on their salary basis, but if these changes go into effect, they would no longer be exempt.”
The current salary basis for exemption is $35,000, and the proposed change is to increase that to $55,000. This is only a proposed rule with no estimated approval or enactment date set.
“We are just advising employers to take a look at that and plan ahead. We recommend they look at who falls in that gap between $35,000 and $55,000, how many people is it going to impact in your organization? Will they increase pay to avoid the overtime and stay exempt, or go to hourly?” Hertz said.
At the state level, Minnesota has been active, she said.
“The thing that’s been dominating my time is that Minnesota is putting in place, effective Jan. 1, 2024, a new pay protected leave, which is known as earned sick and safe time (ESST),” Hertz said.
Several large metros – Bloomington, Minneapolis, St. Paul and Duluth – already have something similar in place with ordinances of varying degrees.
“ESST says any employee who works at least 80 hours per year in the geographic boundaries of the state of Minnesota will be entitled to accrue certain protected leave for purposes related to sickness and safety. It’s very expansive and relates to not only the employee’s sickness and safety concerns but also the employee’s family members,” Hertz explained.
“The thing that differentiates ESST from PTO (paid time off) would be that you can use it basically without worrying about your employer denying it. We have a lot of clients who have a tight labor market and if someone’s already requested that time off, if it’s for one of these protected reasons, the employer can’t discipline you or deny your request for time off for ESST,” she said.
In 2026, Minnesota will also enact its own paid family medical leave act. The federal FMLA allows for unpaid protected leave, but this new state law will allow employees time off for things including pregnancy or surgery, and be paid for that. Although the specifics haven’t yet been defined on how the system will work, Hertz said the idea is to impose taxes on the employee’s taxable wages and that money will go into a state fund to pay employees.
“It will be sort of similar to unemployment insurance,” she said.
On the technical side, artificial intelligence (AI) is impacting every sector now, including the legal field. Some hot-button issues UND Law Professor Nick Datzov shared include privacy concerns, tort liability, discrimination laws, criminal law enforcement and how AI is used in that context, along with how AI will affect corporate transactions and licensing.
Datzov’s undergrad degree is in computer science, and he says AI has been around and has been a topic of computer science for a long time. ChatGPT and other chatbots have launched AI to the forefront of society only recently.
“The world generally has really started to notice AI as a mainstream technology and that’s only really happened in the last few years,” he said.
Large research tool companies like Westlaw and LexisNexis started exploring generative AI tech seven to eight years ago, Datzov said. They use an AI tool that runs on a large language model similar to ChatGPT, but it’s based on actual cases.
ChatGPT and other AI chatbots have been known to make things up, or hallucinate, which could lead to high-stakes consequences. There have been at least two cases where attorneys filed briefs with the court using ChatGPT that referenced fictitious cases. Once the judge discovered those cases didn’t exist, those attorneys were sanctioned because they didn’t appropriately review the material that they filed with the court, Datzov said.
“They’re (LexisNexis, Westlaw) representing to say, you can trust AI because it’s not going to just make things up. When it gives you a legal answer, it’s going to tell you which case it pulled it from (and then) you can read the case yourself and feel more confident that the information is credible. You’re going to have different spectrums of trustworthiness on the technology depending on which AI tech you’re using,” he said.
“The biggest way it’s impacted what lawyers do is that a lot of lawyers write. The ability to now very quickly draft a client letter, draft a legal brief to the court, those are pretty new things. There’s a lot of questions: Should lawyers even be doing that? Should they be using AI tech to draft this material?” he asks.
Some clients may be appreciative if it’s saving the attorney time, and in turn, that attorney is charging less time to the client.
“On the flip side, some clients may say, I really care about the quality of the work product and if you’re spending 10 minutes of eyeball time on something you’ve drafted with AI, how do I really know it’s a good work product? These are mutually exclusive things – you either spend the time or you don’t. At least now there’s the technology that can do it,” he said. “Drafting legal documents, AI has very new capabilities and we’re just starting to figure out what the ethical boundaries are, what lawyers can and should do, and how to use that technology.”
The major developers of chatbots and other large language models say they’re working to make them more truthful, and to better distinguish between fact and fiction.
“We’re just charting the course right now on how to regulate AI. There are trade-offs to a lot of the decisions we’ll have to make, but the good news is that we get to make them,” Datzov said.
