Many businesses rely on non-compete clauses in employment contracts, severance agreements, and other types of contracts. These clauses can help businesses protect their interests and prevent unfair competition by restricting former employees, independent contractors, or other types of workers from working for competitors or starting their own competing businesses. However, under the administration of President Joe Biden, the federal government is looking to take action to restrict the use of non-compete clauses or even prohibit them altogether.

Proposed FTC Rule Regarding Non-Compete Clauses

On January 5, 2023, the Federal Trade Commission (FTC) proposed a new rule that would affect the use of non-compete clauses in the United States. Under this rule, the use of non-compete clauses would be defined as an "unfair method of competition," and employers would be prohibited from using these clauses in employment contracts or similar agreements. In addition, the rule would require employers to rescind any existing non-compete clauses and notify employees or other workers of this rescission. This rule would supersede any state laws or regulations that specify when non-compete agreements can or cannot be used.

Notably, the rule would not only apply to non-compete clauses that have been included in an employment contract or a similar agreement but also to "de facto" agreements that function in a similar fashion. For example, non-disclosure agreements that are so broad that they would prevent a person from working in the same field after leaving an employer would be considered to be non-compete agreements. Other contractual terms that would restrict a person's ability to seek future employment, such as the requirement to pay an employer for training expenses that are not functionally related to the actual costs of training the employee received, may also be considered to be non-compete clauses. Employers would also be prohibited from claiming or implying that a worker is subject to a non-compete agreement when they do not have a good-faith basis for believing that an enforceable non-compete clause applies to a person.

Since Proposition 64 legalized the personal use and cultivation of marijuana in California in 2016, many business owners have been able to take advantage of the legal cannabis market. However, there are a variety of laws and regulations that apply to these businesses, and it is important for business owners to keep abreast of changes to the laws that may affect them. One change that recently went into effect involves the cannabis excise tax. California cannabis businesses will need to make sure they are following the correct procedures to avoid potential tax penalties while addressing any other small business tax issues that they may encounter.

What Is the Cannabis Excise Tax?

Excise taxes are levied on specific products, services, or activities. There are multiple types of federal and state excise taxes that apply to products such as gasoline, cigarettes, or alcohol. The state of California levies a 15 percent excise tax on cannabis businesses and microbusinesses.

Changes to the Cannabis Excise Tax for 2023

Previously, the cannabis excise tax applied to marijuana and marijuana products sold by distributors to retailers. Distributors were required to collect excise taxes from retailers, and these taxes were calculated based on the average market price of cannabis and cannabis products.

Businesses that operate in the United States must meet a variety of legal requirements, including disclosing information to the government. In addition to submitting the proper information to the IRS when filing tax returns and other required forms, other types of disclosures need to be made to government agencies. This now includes reports required under the Corporate Transparency Act (CTA). This law was passed in 2019, and the final rule regarding reporting requirements was released in September 2022. Businesses will need to make sure to file the proper reports to avoid potential civil and criminal penalties.

What Is the Corporate Transparency Act?

Congress passed the CTA with the intent of preventing money laundering by people and organizations involved in drug trafficking, fraud, and other illegal activities. These activities often involve the creation of shell companies that conceal the identities of the owners and allow criminals to access and use assets in the United States. To combat these activities, the CTA requires companies to submit reports detailing their beneficial ownership information (BOI).

What Are the CTA's Reporting Requirements?

The new rule that was issued by the Financial Crimes Enforcement Network (FinCEN) goes into effect on January 1, 2024, and it states that "reporting companies" are required to file reports identifying a company's beneficial owners, as well as people who are considered "company applicants." Beneficial owners include any individuals who either exercise substantial control over how a company operates or who own or control at least 25 percent of a company's ownership interests. Company applicants include the individuals who file the documents that establish a company as a legal entity or those who direct or control applications filed by other parties.

Taxpayers who own foreign assets, earn income in more than one country, or may otherwise be required to pay taxes in multiple countries may need to address a variety of tax-related issues to ensure that they are in compliance with all applicable requirements. This can be a significant concern during tax audits, and in some cases, information about a person's finances and tax obligations may be shared with other countries by the IRS. By understanding when this can occur and how the sharing of information may affect tax liabilities, taxpayers can make sure they take the correct steps to avoid penalties in the United States or other countries.

Court Ruling Highlights Tax Information Sharing Practices

A recent court case that took place in California demonstrates the issues that taxpayers may face regarding the sharing of information by the IRS. In the case of Zhang v. United States, the Canadian government requested tax information from the IRS related to a married couple. The taxpayers challenged this request, claiming that the Canadian government made the request in bad faith. However, the Ninth Circuit Court of Appeals ruled against the taxpayers and found that the IRS had acted in good faith to provide the requested documents based on the terms of a bilateral treaty between the United States and Canada.

When Will the IRS Exchange Information With Foreign Tax Authorities?

The case described above demonstrates that when foreign countries request information from the IRS, taxpayers usually will not be able to challenge the release of this information. These types of information exchanges may occur in a variety of situations, including:

There are multiple different types of taxes that apply to the income a person earns and the assets they own. Wealthy individuals and families will need to be aware of the estate taxes that may apply, as well as how they can transfer wealth while minimizing taxes. The federal estate tax is levied after a person's death. Fortunately, exemptions are available, and estate taxes will only apply to estates that are worth more than the amount of these exemptions. The Tax Cuts and Jobs Act of 2017 significantly increased the estate tax exemption, but this law is scheduled to sunset in 2026. This change may have an impact on how a person or family may address issues related to estates.

What Are the Current Estate Tax Exemption Levels?

For 2022, the exemption level for the estate tax is $12.06 million per person. This means that an individual can have up to $12.06 million worth of property at death without incurring any estate tax liability. For married couples, the exemption level is doubled, meaning they can have up to $24.12 million worth of property at death without incurring any estate tax liability. This exemption also applies to lifetime gifts given by a person or couple. That is, an individual may give gifts of up to $12.06 million to others during their lifetime without being required to pay taxes on these gifts.

What Is Changing in 2026?

In 2026, the exemption levels for the estate tax are scheduled to revert back to their pre-2017 levels. For individuals, this means that the exemption level will be $5 million. For married couples, the exemption level will be $10 million. These amounts are adjusted for inflation, and it is estimated that the individual exemption will be between $6.5 million and $7 million.