Blockchain+ Bi-Weekly; Highlights of the Last Two Weeks in Web3 Law: March 13, 2025
Among the biggest news that dropped in the past two weeks was the Trump administration’s announcement of a national Bitcoin reserve plan, a move whose mere discussion marks a significant shift from the federal government’s previous stance on digital assets and crypto. The SEC has continued its trend of closing non-fraud-related investigations and enforcement actions, providing some long-awaited relief for the industry. On the litigation front, Uniswap secured a key victory at the Second Circuit against the SEC, marking another win for DeFi. Meanwhile, the SEC continues to make waves with its statement on memecoins, asserting that the tokens themselves are not securities in many contexts unless tied to an investment contract. This statement has sparked widespread debate and heightened expectations for further developments and related classifications in the coming weeks.
These developments and a few other brief notes are discussed below.
National Bitcoin Reserve Plan Announced: March 6, 2025
Background: After a few weeks of teasing it, President Trump has released his Executive Order establishing a Strategic Bitcoin Reserve and Digital Asset Stockpile capitalized with digital assets that were forfeited as part of criminal or civil asset forfeiture. On the day the Executive Order was signed, Crypto/AI Czar David Sacks released a statement on social media that under prior administrations (which includes Trump’s first term) “the federal government sold approximately 195,000 bitcoin for proceeds of $366 million. If the government had held the bitcoin, it would be worth over $17 billion today.”
Analysis: In practice, this order primarily directs federal agencies to account for and retain, rather than sell, digital assets, seized digital assets—a move that, while noteworthy, is not particularly groundbreaking. There was some interesting text in the Order about it being a “strategic advantage” to be among the first nations to create a bitcoin reserve due to its limited supply. However, beyond this symbolic step, it does little to shift the broader landscape. That said, the absence of federal government sell pressure for the next four years is a welcome development for Bitcoin markets.
More SEC Investigations and Cases Dropped: March 3, 2025
Background: The creators of Bored Ape Yacht Club NFTs and related products, Yuga Labs, have announced the SEC has closed its investigation into the company, stating on X (formally Twitter), “NFTs are not securities.” At the same time, the SEC appears to have reached an agreement with Kraken to drop its pending case against the second largest digital asset exchange in the U.S. This leaves only the Ripple and PulseChain lawsuits still active, with the Cumberland DRW case dismissed while we were finalizing this update, highlighting just how quickly things are changing. The PulseChain case, meanwhile, is effectively dead if the jurisdiction dismissal holds up.
Analysis: While it remains unclear how Ripple and the SEC can coordinate a dismissal at this stage in the appeal process, with nearly every other non-fraud case either closed or in the process of closing, it is reasonable to assume that this case is also likely to wind down or end in the near future. While fraud cases will continue and new cases may emerge, it is highly unlikely that we will see new non-fraud enforcement actions related to failure-to-register as a security until clearer regulatory rules are established. The substantial costs and uncertainty these cases have imposed on the industry make their resolution a much-needed reprieve.
Uniswap Wins with the SEC and at the Second Circuit: February 25, 2025
Background: The SEC’s Enforcement Division issued a Wells notice to Uniswap in April of last year, signaling its intention to recommend enforcement action against the decentralized exchange. Last week, Uniswap announced that it has been informed that the SEC has officially closed its investigation with no further action. In the same week, the Second Circuit upheld the dismissal of a civil securities class action filed against Uniswap.
Analysis: The closure of the SEC’s investigation into Uniswap follows similar decisions regarding the NFT platform OpenSea and the online exchange Robinhood. The ruling in the Second Circuit, meanwhile, is seen as a broader win for DeFi, holding that social media posts about the security of the platform and transactions executed via its smart contracts do not make its developers statutory sellers or solicitors of securities transactions. Combined with the SEC dropping its case against Consensys over the Metamask wallet swapping and staking functionalities (which facilitate transactions with third-party DeFi providers), DeFi had a strong week—despite market-wide token price declines.
SEC Stays Busy with Flurry of Developments: February 26, 2025
Background: In addition to the Uniswap and Consensys closures noted above, the SEC also has called off its investigation into the Winklevoss-backed platform Gemini. It also acknowledged 4 crypto ETFs, released a Staff Statement on Memecoins, had six Crypto Task Force meetings, released Commissioner Peirce’s statement on litigation by enforcement, and two statements from Commissioner Crenshaw decrying recent Agency actions.
Analysis: It is hard to imagine all of this would be happening so quickly if there wasn’t unofficial buy-in from the likely future Chair of the SEC, Paul Atkins. The biggest development by far was the statement on memecoins, which is seemingly an official shift in the SEC’s interpretation of the Howey test as well as an official statement that the tokens themselves aren’t securities in certain situations and need a separate investment contract, which is basically the exact opposite position the SEC took in LBRY and Kik.
Briefly Noted:
OCC Permits Banks to Engage in Cryptocurrency Activities: The Office of the Comptroller of the Currency (OCC) has issued Interpretive Letter 1183, clarifying that national banks and federal savings associations can engage in cryptocurrency-related activities, including custody services and certain stablecoin operations, without needing prior regulatory approval. This marks a significant policy shift, removing previous barriers for banks offering crypto services.
White House Crypto Summit: The White House hosted a summit of leaders in the crypto industry. While not much in terms of developments came from that meeting, it is nice to see this level of interaction between government officials and industry leaders.
Richard Heart Beats SEC: It looks like the court overseeing the Richard Heart/Hex/PulseChain case has agreed that his interactions with the U.S. were not sufficient to create specific jurisdiction or satisfy what is required for application of U.S. securities laws to his (alleged) conduct.
OKX Exchange Settles with DOJ: OKX has agreed to pay over $500 million for serving as an unregistered money transmitter for U.S. customers from 2018 until 2024.
ByBit Hack Developments: There appears to be conflicting information on whether Bybit had its own systems compromised or if the breach was solely due to a hack of its SAFE multi-sig provider. The attack resulted in significant fund losses, though the full extent is still being assessed. Notably, the founder gave a full 1-hour interview in the days following the incident—an unusual level of transparency in the aftermath of a major security breach and possibly even a level of pretty radical transparency.
Senate Banking Hearing on Digital Asset Legal Framework: The Senate Banking Subcommittee on Digital Assets held a hearing titled Exploring Bipartisan Legislative Frameworks for Digital Assets, demonstrating that lawmakers are following through on their commitment to prioritize the fast-tracking of digital asset regulations in the coming months.
Senate Passes CRA to Overturn IRS Crypto Broker Rule: In a strong bipartisan move, the Senate passed a 70-28 resolution to overturn a controversial tax reporting rule enacted in the final days of the previous administration. This rule would have broadly classified internet service providers as brokers, requiring them to collect tax information, including Social Security numbers, from users. President Trump has already stated that he will sign this resolution into law if and when it passes in the House. If enacted, this legislation will prevent the IRS from reintroducing similar tax reporting requirements in the future without Congressional approval.
SEC Sets First Crypto Roundtable: The SEC is set to host their first roundtable for the crypto task force, conveniently scheduled for the Friday before the D.C. Blockchain Summit. The SEC also named a number of industry veterans as the staff of its Crypto Task Force, with a promising sign that those with hands-on experience in the space will have a role in shaping policy.
Bi-Partisan “Congressional Crypto Caucus” Formed: Republican House Majority Whip Tom Emmer and Democrat Ritchie Torres are creating a “Congressional Crypto Caucus,” which is intended to create a unified and bipartisan coalition to spearhead bills that support the growth of digital assets in America.
Senate Bill to Stop Chokepoint 3.0: The chair of the Senate Finance Committee is proposing a bill that eliminates “reputational risk” as a component of the supervision of depository institutions after it was used to debank unfavored industries in Operation Chokepoint and Chokepoint 2.0.
Houlihan Capital Issues Q4 2024 Crypto Market & VC Industry Report: Houlihan Capital released its latest report analyzing crypto market trends, venture capital deal activity and sector performance. A key takeaway is that while early-stage investments slowed, later-stage crypto deals saw an uptick, reflecting growing investor confidence in established blockchain projects.
Crypto Market Sees Price Declines, Over the past two weeks, Bitcoin (BTC) dropped about 21% to $78,000, while Ethereum (ETH) fell nearly 15% to $1,873. Despite prices still being much higher than six months ago, the decline suggests that crypto remains viewed as a high-risk asset rather than a hedge like gold, reflecting its continued correlation with equities.
Conclusion:
Although the current iteration of the national Bitcoin reserve strategy is quite limited—essentially just preventing the federal government from selling Bitcoin it otherwise would have—it is symbolically significant and has the potential to evolve into something much more impactful. The SEC appears to be following through on its commitment to wind down non-fraud-related litigations and investigations, providing some regulatory relief for the industry. Beyond the SEC, Congress has been increasingly active in exploring and advancing crypto-related legislation and regulatory frameworks, further intensifying focus on the industry.
FedEx Defeats Government’s Loper Bright Gambit
On February 13, 2025, a Tennessee federal district court handed FedEx Corporation its second win in a refund action involving the application of foreign tax credits to what are known as “offset earnings.”[1] Offset earnings are earnings from a taxpayer’s profitable related foreign corporations that are offset by losses from other related foreign corporations. FedEx previously prevailed on the question of whether it was entitled to foreign tax credits related to such earnings.[2] In this most recent ruling, the court rejected the Government’s reliance on a certain regulatory provision called the “Regulatory Haircut Rule”[3] to argue that the amount of FedEx’s claimed refund should be reduced. The case now appears to be set for appeal.
Revisiting the analysis in its first ruling, the court explained the error of the Government’s reliance upon the Regulatory Haircut Rule. In short, the court said that the rule’s application conflicted with the best construction of the governing statutes, primarily Internal Revenue Code (IRC) Sections 960, 965(b)(4), and 965(g). The Government defended its reliance by appealing to Loper Bright’s instruction that courts must respect legitimate delegations of authority to an agency.[4] Citing IRC Section 965(o), which authorized the Secretary of the Treasury to prescribe regulations “as may be necessary or appropriate to carry out the provisions of” Section 965 and to “prevent the avoidance of the purposes” of this section, the Government argued that the Regulatory Haircut Rule furthered the IRC’s broader goal of preventing tax avoidance and that Loper Bright required the court to respect the Secretary’s exercise of his delegated authority.
While acknowledging that legitimate delegations of authority to agencies remain permissible after Loper Bright, the court reminded the Government that an agency does not have the power to regulate in a manner that is inconsistent with the statute, even when a delegation provision grants the agency broad discretionary authority:
Assuming that Congress delegated authority . . . to promulgate regulations implementing section 965 . . . that authority cannot, under Loper Bright, encompass the discretion to promulgate regulations that contravene the “single, best meaning” of section 965, as determined by the courts.[5]
In other words, a statute’s delegation provision should not be interpreted to allow Treasury to eliminate rules that Congress established in other parts of the IRC.
Practice Point: Referencing Loper Bright’s acknowledgment that Congress may “confer discretionary authority on agencies,”[6] the Government has defended (and likely will continue to defend) its regulations on the theory that its exercises of such authority should be respected. But as Loper Bright reminds us, courts have an independent duty to decide the meaning of statutory delegations. Thus, taxpayers should closely examine whether regulations purportedly derived from a statute’s delegation provision comport with the rest of the statute. Those that do not should be challenged.
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[1] FedEx Corp. & Subs. v. United States, No. 2:20-cv-02794 (W.D. Tenn., Feb. 13, 2025)(electronically available here).
[2] FedEx Corp. & Subs v. United States, No. 2:20-cv-02794 (W.D. Tenn., Mar. 31, 2023)(electronically available here).
[3] See Treas. Reg. § 1.965-5(c)(1)(i) (limiting foreign tax credits by the amount of withholding taxes paid to a foreign jurisdiction). The court also rejected the Government’s reliance upon what it called the “Statutory Haircut Rule” based on IRC section 965(g)(1). This discussion focuses on the regulatory counterpart.
[4] See Loper Bright Enters. v. Raimondo, 144 S.Ct. 2244, 2268 (2024).
[5] FedEx, No. 2:20-cv-02794 (W.D. Tenn., Feb. 13, 2025).
[6] Loper Bright, 144 S.Ct. at 2268.
Rising Construction Costs in 2025: Tariffs, GMP, and Fixed-Price Contracts
Tariffs are a top concern in 2025, with postponements on imports that have been looming on the U.S. construction industry for the past month. A planned 25% import tariff is positioned to affect construction materials from Canada, Mexico, China, and soon several other countries., Economists fear the financial impact of the tariffs, amid other executive orders, on increasing costs for Americans, including for major construction projects.
Luckily, debate about the impending tariffs goes back farther than just the beginning of the year, so the construction industry has been proactive in considering the effects of these added costs on their prices.
What does this mean for construction law?
Contractors and construction companies that bought up materials at the beginning of the year ahead of tariffs have at least some leeway with the price of goods and project timing. Those that did not now face an increased cost of 1.4% on input prices that do not include the tariffs that, as of March 10, 2025, have yet to be implemented. Contractors that are still negotiating contracts will need to consider the financial impact that tariffs will have on material prices and project timeline. For those that have existing contracts or are in the middle of a project, the outlook is more grave.
Two types of contracts may have a severe financial impact on the contractor:
Guaranteed Maximum Price (GMP): an agreed-upon amount that sets the highest possible reimbursement on material, labor, and fee costs by the client. This allows wiggle room to find cheaper materials.
Fixed-price contracts: an agreed-upon price that remains the same from negotiation to project completion.
For contracts negotiated prior to the Trump Administration’s tariff announcement, the additional cost for materials may have a negative financial impact on the contractors. With GMP and fixed-priced contracts, contractors may lose money if they did not proactively negotiate for the impending tariffs on construction materials such as cement, lumber, steel, and aluminum. Addendums on these contracts may be referenced as “material price escalation” clauses rather than mentioning “tariffs.” Most construction contracts have such terminology built in following the COVID-19 pandemic supply chain demand.
As tariffs are uncertain, what is certain is that the contracts for construction projects must have clauses and amendments that consider the economic influences on material cost, whether it’s imposing tariffs, environmental causes, a pandemic, etc. We cannot plan for these events, but we can plan for what we do if they happen.
EU to Impose Tariffs on US Goods – Steel, Aluminum, and More – in April 2025
Go-To Guide:
The EU will impose new tariffs on U.S. goods starting April 1 and April 13, 2025, in response to U.S. tariffs on EU steel and aluminum.
Affected U.S. goods will face 25% customs duties, impacting industries like steel, aluminum, textiles, and more.
The EU’s countermeasures may affect U.S. exports worth up to EUR 26 billion.
Importers of U.S. goods into the EU should explore duty mitigation and supply chain strategies to manage increased costs.
The EU remains open to negotiations with the United States to resolve the tariff dispute.
Key Aspects of the Measures
On March 12, 2025, the European Commission announced additional tariffs on U.S. goods. These measures respond to U.S. tariffs on EU steel and aluminum imports. The Commission believes that the measures are strong, but proportionate. The counter measures involve a two-step approach:
First, the Commission decided that the 2018 and 2020 countermeasure suspensions against the United States will expire April 1. These tariffs, which impact a broad range of U.S. goods, may be tied to the economic damage caused to EUR 8 billion worth of EU steel and aluminum exports to the United States. Examples of affected products include motorcycles, bourbon, and boats.
Second, in response to new U.S. tariffs affecting more than EUR 18 billion worth of EU exports, the Commission has proposed a package of new countermeasures on U.S. exports. These measures will take effect by April 13. On March 12, the Commission consulted EU member states and stakeholders about a preliminary list, after which the EU will pick certain product categories and decide on the final list of targeted goods. The proposed targeted products include steel and aluminum, textiles, home appliances, plastics, poultry, beef, eggs, dairy, sugar, and vegetables.
Considerations for Companies Importing U.S. Goods to the EU
There are numerous duty mitigation and supply chain strategies EU importers may consider to reduce the impact of the increased duty burden.
Duty mitigation strategies, for example, focus on the imported products’ origin and whether products qualify as U.S. origin if they were produced or assembled outside the United States. A (limited) revision of the production and supply chain may result in savings on EU imports. However, relocating U.S. production to another country solely to avoid additional EU duties may be perceived as manipulation and disregarded.1
Another approach involves reviewing the customs valuation of imported goods. It may be possible to calculate the customs value differently or make legal deductions from the transaction value used for customs. Additionally, when importing U.S. goods subject to the 25% EU tariffs for distribution within both EU and non-EU markets, importers may consider storing these goods in a customs warehouse rather than clearing them through EU customs immediately.
Conclusion
While the EU tariffs pose challenges, a proactive approach may help mitigate the EU customs duty burden and enhance overall compliance with EU trade and customs legislation. Staying informed and prepared is crucial for regular importers, as the tariff landscape could change if the United States and the EU initiate talks. Understanding the global trade landscape and implementing strategic measures may help organizations better mitigate the overall duty burden and safeguard their interests in an increasingly complex environment.
1 Judgment, European Court of Justice, 21 November 2024, case C‑297/23 P.
The Salaried Members Rules and the ‘Significant Influence’ Test – Does the BlueCrest Case Affect Me (As a Partner) or My Firm?
Salaried Members Rules
Limited liability partnerships or “LLPs” are common corporate vehicles utilised by the financial services sector to establish UK investment management operations and other financial businesses and, more recently, implement carried interest structures or act as fund investment/feeder vehicles. The most contentious aspect, and the subject of this client alert, has been the use of LLPs as business operating vehicles. As well as being more flexible than limited companies, in that it is easy to admit members and for them to leave the LLP, they are also commercially competitive since members (colloquially referred to as “partners”) of LLPs benefit from self-employed tax status.
When the Limited Liability Partnership Act 2000 introduced LLPs, it was relatively straightforward to become a member and benefit from self-employment status for tax purposes. The principal tax benefit was that partnership profit drawings are not subject to the employer’s national insurance contributions (NICs), currently 13.8 percent and rising to 15 percent on 6 April 2025, which applies to employee and director remuneration.
The Salaried Members Rules (Rules) were introduced in 2014 to tackle what HM Revenue and Customs (HMRC) perceived as widespread avoidance of employer NICs via “disguised employment” through LLPs. The Rules are intended to ensure that members of LLPs who provide services on terms more like those employees rather than self-employed partners are treated as employees for tax purposes.
Under the Rules, LLP members are deemed to be “disguised employees” of an LLP if an individual meets all three of the following conditions:
Condition A – 80 percent of the member’s profit share is “disguised salary,” i.e., remuneration that is fixed, or variable without relation to the overall profits of the LLP, or not in practice affected by those profits;
Condition B – the member does not have significant influence over the affairs of the LLP; and
Condition C – the member’s capital contribution to the LLP is less than 25 percent of their “disguised salary.”
If all the conditions are met, the member will be treated as a disguised employee or “salaried partner,” subject to the normal income tax and NICs deductions under Pay As You Earn (PAYE). Critically, the LLP itself will be obliged to pay the employer’s NICs with respect to that “disguised employee” or salaried partner.
On the other hand, if an individual fails any one or more of the above conditions, they will be treated as a partner (i.e., as self-employed) for tax purposes, and no employer’s NICs will be payable by the LLP, so somewhat counter-intuitively, it is a “good thing” to fail a condition if the aim is to be taxed as self-employed.
HMRC v BlueCrest Capital Management (UK) LLP
The interpretation of the Rules has been the subject of ongoing disagreement between industry and HMRC. One principal area of contention related to Condition B which relates to the “significant influence” over the affairs of the partnership. Given that the LLP legislation does not define the meaning of “significant,” HMRC has been issuing fairly extensive guidance setting out its view of the concept mainly via practical examples. However, on several occasions, HMRC has subsequently amended its guidance, which has generally created a disadvantage for the taxpayer.
The first time that the interpretation of Condition B came before the English courts was in the case of HMRC v BlueCrest Capital Management (UK) LLP. BlueCrest sought to claim that a number of its members should not be taxed as employees, while HMRC sought to invoke the “salaried member” legislation to claim that they should be. It is fair to say that in both tax tribunals, the taxpayer prevailed in its challenge of HMRC’s guidance on Condition B, including that influence over the LLP’s affairs did not mean the LLP as a whole.
The case was most recently heard by the Court of Appeal (CoA), which considered the scope of Condition B. The CoA focused on whether an individual member has “significant influence” over the affairs of the LLP and whether Condition B could be failed if the member only had influence over a part of the affairs of the LLP (as opposed to the whole affairs of the LLP). The CoA stated that significant influence over the whole affairs of the LLP is likely to be had in cases where the individual is part of the strategic decision-making function of the LLP. By contrast, if the individual only has influence over the financial matters of the LLP, for example, then this is likely to be controlled only over part of the LLP, and therefore, Condition B would not be failed.
The CoA judgment stated that Condition B would only be failed if (i) a member has significant influence over the whole affairs of the LLP; and — critically — (ii) that authority must be rooted explicitly in the LLP agreement itself.
This decision overturned that of the lower courts by confirming that the scope for failing Condition B is much narrower than previously thought. Notably, the CoA rejected the parties’ agreed interpretation of Condition B, which was that significant influence could include de facto influence outside the provisions of the LLP agreement. In other words, the CoA ignored the position which — notwithstanding disagreements as to certain aspects — both industry and HMRC had been labouring under via the HMRC guidance since the legislation came into force. The case has now been remitted to the First Tier Tribunal for another review of the facts in light of the CofA’s construction of Condition B, and BlueCrest has requested leave to appeal to the Supreme Court. As a result, this issue likely has a long way to go before it is finally resolved.
What Should LLPs Do In the Meantime?
This case will be particularly important for those LLPs who have relied on failing Condition B in their assessment of whether the LLP’s members are true members.
In our experience, professional services firms have tended to rely predominantly on failing Condition A or C, so this decision may not require you to revisit your assessment of the Rules. However, if failure of Condition B has been central to your analysis (as is often the case of larger investment management firms), we recommend the following next steps:
Review your LLP agreement to understand how significant influence is articulated in the agreement;
Consider whether it is possible or necessary to rely on either Condition A or C being failed instead of Condition B; and/or.
Consider whether any shares or partnership interests have been issued to LLP members in any investment vehicles because “salaried member” treatment could turn these into employment-related securities (which may have different tax treatment).
Thinking of Selling Your Med Spa? Here Are Six Things to Do to Prepare
Numerous legal, regulatory and operational issues will arise when selling a med spa. Proper preparation by ensuring the business is regulatory compliant, assembling the right group of professionals and documents will save time and costs and ensure that the transaction is as smooth as possible.
Ensure your business is properly organized and licensed
You should ensure that the business complies with applicable law from a structural and regulatory standpoint. Illinois follows the legal doctrine known as the “corporate practice of medicine,” which requires that a facility that provides medical services be owned solely by a physician or a physician-owned entity. It is important to analyze the scope of services being provided by your med spa to determine if you are compliant with Illinois law.
If a med spa is not organized in a compliant manner, it could cause issues for the med spa from a legal and regulatory standpoint and raise flags for the purchaser. In such a case, it would be prudent to restructure the entity to comply with applicable law. Such restructuring may include creating a management service organization (MSO) structure, in which a new non-medical MSO is created to perform all non-clinical services with respect to the med spa entity. These non-clinical services may include human resource matters, marketing, payroll, billing, accounting, real estate issues, etc. It is important that any MSO arrangements, including compensation structures, be carefully structured to comply with applicable law. The MSO structure is critical for any med spa with a non-physician owner that intends to render services that may constitute the practice of medicine.
Review the business’s governing documents
It is crucial that the med spa’s governing documents are complete and accurate. A sophisticated purchaser will review the business’s articles of organization or incorporation, operating agreement or bylaws and timely filed annual reports. A purchaser will raise issues and have concerns if a med spa cannot provide complete and accurate corporate records.
The owner of a med spa with multiple shareholders or members selling the business via an asset sale should review the bylaws or operating agreement to confirm the percentage of owners that must agree to the sale in order for it to occur. The sale of all or almost all of the business assets is a standard situation that requires majority consent.
A business owner intending to sell via a stock or membership interest sale should review all governing documents to confirm whether there are drag-along or tag-along rights. A drag-along right allows the majority shareholder of a business to force the remaining minority shareholders to accept an offer from a third party to purchase the entire business. There have been situations where a minority shareholder objects to the sale and prevents it altogether. A tag-along right is also known as “co-sale rights.” When a majority shareholder sells their shares, a tag-along right will allow the minority shareholder to participate in the sale at the same time for the same price for the shares. The minority shareholder then “tags along” with the majority shareholder’s sale. Any drag-along or tag-along rights provided in the business’s governing documents should be addressed as soon as possible to ensure such rights are provided and to deal with any disputes.
Retain an attorney at the onset of the transaction
After a med spa is offered for sale, a purchaser may prepare and submit a letter of intent (LOI) for the med spa’s review and approval. A LOI is a legal document that sets forth the form of the transaction (whether it’s an asset or stock sale), purchase price, manner of payment, deposit terms, transaction conditions, due diligence terms and timeline, choice of law and other relevant terms of the sale. Business owners often make the mistake of not engaging an attorney until after the LOI has been signed. By failing to retain an attorney to negotiate the LOI, a business owner may be stuck with unfavorable terms or may have missed the opportunity to ask for something valuable at the onset, including taking into account tax implications of the proposed deal structure.
Engaging an attorney can save significant costs and time because imperative business issues can be discussed and agreed upon in the early stages and if the parties cannot come to an agreement, they can go their separate ways as opposed to wasting time, costs and the efforts involved with both negotiating a purchase agreement (PA) and conducting due diligence. Using an attorney will also ensure that the LOI contains a timeline or expiration so that if the sale is not completed by a certain time, the med spa can move onto another interested party without issue. The LOI will continue to be a material part of the entire transaction even as the PA is negotiated. If something is agreed upon in the LOI and one party tries to differ from the LOI terms during the PA negotiation, the other party will point to the LOI for support — often successfully.
Gather information on financials and assets
One of the most important and lengthy parts of any business sale is due diligence. Due diligence is the process in which the purchaser requests to review various documents, data and other information in order to familiarize itself with the business’s operations, background and to identify potential liabilities or issues related to the business or transaction’s closing. The results of the due diligence process can cause the purchaser to react in a variety of ways, from requesting more documents, a reduction of the purchase price or terminating the transaction altogether. Some of the critical documents a purchaser will request access to include the med spa’s tax returns, income statements, balance statements, a list of accounts receivable, accounts payable, a list of inventory and a list of personal property and equipment. A med spa owner can do itself a huge favor by gathering such documents and saving them electronically in an organized fashion. This way they can be easily sent to the purchaser or uploaded to a data site. The med spa and/or med spa owners will also have to make representations and warranties based upon the accuracy and completeness of such documents so it is in the med spa’s best interest to have organized and complete files.
Gather existing contracts
Another standard due diligence request from a purchaser is to review all of the med spa’s existing contracts, purchase orders, vendor and supplier agreements. The purchaser will want to determine, among other things, what work is ongoing and what liabilities and expenses it can expect. A med spa owner considering a sale should gather and save all of such agreements electronically and in an organized manner so they can be easily uploaded for the purchaser’s review.
Consider third party consents
The business’s existing agreements will need to be reviewed to see if they are assignable or able to be terminated as the purchaser will likely want to assume some and terminate others. Therefore, it is imperative that a med spa identify and understand the assignment, change of control and termination provisions of all existing contracts so that they can plan ahead and be prepared to take action at the appropriate time. A med spa owner should review existing agreements, including leases for such provisions, to identify whether an agreement can be assigned or terminated and, if so, what is required for each assignment or termination.
Typically, an agreement requires a certain number of days’ notice to the third party or the third party’s written consent to assign the contract from the med spa to the purchaser. For stock sales, the med spa should identify whether the existing agreements have change of control provisions. If consent of the third party is required then it may be prudent for the med spa to contact the third party as soon as possible to determine whether the other party is willing to consent, subject to coordination with the purchaser and appropriate confidentiality protections. For contracts that a purchaser may not want to assume, a med spa should review the termination provisions and identify if there are any fees or penalties for termination. Closings can be delayed over a med spa’s failure to receive an important third party consent. This issue arises often with landlords that do not wish to consent to the assignment of the lease from the med spa to the purchaser.
GeTtin’ SALTy Episode 48 | State Fiscal Trends and Challenges: Uncertainty Ahead [Podcast]
In this episode of GeTin’ SALTy, host Nikki Dobay discusses state tax revenue trends and challenges with Lucy Dadayan, principal research associate at the Urban-Brookings Tax Policy Center.
The conversation highlights the mixed fiscal performance of states in 2024, including modest overall growth, declining sales tax revenues, and fluctuating personal income tax collections influenced by stock market performance.
Looking forward to fiscal year 2025 and beyond, they examine issues such as inflation, federal policy uncertainty, tariffs, and the impact of state tax changes.
Lucy emphasizes that states should approach upcoming fiscal challenges cautiously by avoiding additional tax cuts, diversifying revenue streams, and considering regional partnerships.
She also anticipates potential impacts from federal workforce reductions and the expiration of key provisions from the Tax Cuts and Jobs Act.
The episode wraps up on a lighthearted note as Nikki and Lucy discuss whether a hot dog counts as a sandwich!
For a link to the research Lucy discussed in the podcast click here.
Companies in Mexico Must File Annual Tax Reports by March 31, 2025: What to Know About Profit-Sharing Obligations
By March 31, 2025, companies in Mexico need to file their annual tax returns for the prior fiscal year with the Tax Administration Service (Servicio de Administración Tributaria (SAT)). In addition to complying with tax obligations, filing the annual tax return sets the starting point for complying with the statutory profit-sharing (PTU) obligation mandated by the Mexican Federal Labor Law (FLL).
Quick Hits
Companies in Mexico must file their tax returns by March 31 of each year.
Annual corporate tax returns show the yearly financial results of any entity and whether there were gains or losses. Tax returns are the starting point for the obligations mandated by the FLL regarding profit sharing.
General Content and Rules for the Annual Tax Return
In the annual tax return, taxpayers file a report of their income, deductions, withholdings, and tax payments during the tax year—which in Mexico runs from January 1 to December 31. March 31, 2025, is the last day to file the financial report for the 2024 tax year. A failure to timely file the annual tax report may result in SAT fines ranging from MEX $1,800 to $35,000 (USD $88.02 to $1,711.52), as well as fines and/or sanctions that may arise from the FLL.
Annual Tax Return’s Relevance for Profit-Sharing Obligations
Employees need to be notified of the filing of the annual tax return with the SAT, and once the employees are notified, a joint commission consisting of an equal number of representatives for the employees and the company is required to analyze the tax return, define whether profits have been generated, make the necessary calculations, determine the 10 percent of the profits (if any) to be distributed among the employees (with some exceptions), and/or determine if some caps apply for the distribution.
The final PTU amount must be paid to the employees, at the latest, on May 30, 2025.
Regardless of whether profits are generated during the tax year, the FLL requires employees to be notified about the filing of the yearly tax return.
Failure to comply with profit-sharing requirements—starting with properly filing the tax return—could result in fines between MEX $28,285 to $565,700 (USD $1,382.04 to $27,640.76) from the Ministry of Labor and Social Welfare (Secretaría del Trabajo y Previsión Social (STPS)). Note that fines may be imposed per each affected employee, depending on the Labor Ministry’s consideration.
Ten Minute Interview: Tax Cuts and Jobs Act (TCJA) [Video]
Jason Kohout, partner and co-chair of the Family Offices group, sits down with John Strom, federal lobbyist and member of Foley’s Public Policy & Government Relations group, for a 10-minute interview to discuss the extension of key parts of the Tax Cuts and Jobs Act (TCJA). During this session, Jason and John discussed whether the TCJA’s doubled estate and gift tax exemption will be extended and potentially made permanent, including the timing for the extension to be enacted before the current provision expires at year end.
Venezuela TPS Update: 18 State Attorneys General File Amicus Brief Supporting Plaintiffs Challenging TPS Termination
On Feb. 19, 2025, the National TPS Alliance, an advocacy group for immigrants who have been granted Temporary Protected Status (TPS), and seven Venezuelans living in the United States, filed a lawsuit in U.S. District Court for the Northern District of California challenging the decision of Department of Homeland Security (DHS) Secretary Kristi Noem to terminate Venezuela TPS. Noem had decided not to extend the 2023 Venezuela TPS designation. That designation will expire April 7, 2025.
On March 7, 2025, the attorneys general of 18 states, including California, Massachusetts, and New York, filed an amicus brief in support of the plaintiffs. The attorneys general contend that Secretary Noem’s decision to terminate Venezuela TPS was “baseless and arbitrary” and founded on unsubstantiated claims that Venezuelans with TPS cost the United States billions in tax dollars and threaten the nation’s economy, safety, and public welfare.
The attorneys general argue, “The vacatur and termination at issue in this litigation, which aim to strip legal protection from a community that comprises more than 50 percent of all [temporary protected status] holders, rest largely on such erroneous and unsubstantiated assertions. … Far from being a burden or threat to our States, Venezuelan TPS holders are a resounding benefit.”
In response, DHS argues that the court lacks the authority to review its discretion to terminate Venezuela’s TPS designation and that the plaintiffs have failed to provide evidence demonstrating Secretary Noem’s decision to terminate the designation was motivated by discrimination or animus.
San Francisco Board of Supervisors Moves to Recommend Implementation of Two Prop M Programs
On March 5, 2025, the San Francisco Board of Supervisors (BOS) held a hearing to discuss the San Francisco Office of the Treasurer & Tax Collector (Office)’s implementation of two key programs promulgated by Proposition M: the Voluntary Disclosure Agreement (VDA) Program and the Advance Written Determination (AWD) Fee Authorization Program. Ultimately, the BOS moved to recommend the programs for full board consideration.
Proposition M: In General
On Nov. 5, 2024, San Francisco voters approved Proposition M, initiating a comprehensive restructuring of the city’s business tax system. Among the multitude of changes resulting from the approval of Proposition M are the newly-created VDA and AWD Programs.
VDA Program
This ordinance empowers the Tax Collector to waive certain taxes, penalties, and interest for taxpayers who voluntarily disclose and settle unpaid back taxes and interest. Eligible taxpayers can report and pay unpaid taxes and interest for the previous six years, provided they do not possess a current business registration certificate and have not been previously contacted by the Office regarding unreported taxes or failure to register. Applications for the VDA Program will be accepted from Jan. 1, 2025, through Dec. 31, 2027. Since 2019, California’s informal VDA process has generated $2.9 million in back taxes and $1.6 million in ongoing tax revenue. Based on this data, projections estimate $1.5 million in prior-year tax revenue and $1 million in ongoing tax revenue over the official Program’s authorized three-year span.
During the hearing, state representatives confirmed that the VDA Program proved especially helpful in cases of mergers and acquisitions where due diligence led to the discovery of unpaid tax liabilities.
AWD Fee Authorization
Mandated by Proposition M, the AWD Fee Authorization Program allows taxpayers to obtain advance determinations of their tax liability. This ordinance authorizes the Tax Collector to charge fees for reviewing applications and providing these determinations. The fee schedule is set at $250 for applications filed on or before Dec. 31, 2025. For applications submitted after this date, the fee will not exceed the Tax Collector’s cost of providing the determination.
During the hearing, state representatives confirmed that the AWD Fee Authorization Program is on track to commence in spring of 2025.
Proposition M Proposed Sourcing Regulations
Proposition M requires the Tax Collector to promulgate regulations interpreting how businesses should interpret where gross receipts are allocated. The Office has now released proposed sourcing regulations.
The proposed regulations generally follow the California Franchise Tax Board’s sourcing regulations, with a few exceptions. The proposed regulations: (1) incorporate a waterfall approach to sourcing receipts for services and intangible property in certain instances; (2) incorporate a waterfall approach when sourcing financial instruments; and (3) exclude certain special industry rules (e.g., partnerships, contractors, banks, etc.). A Tax Collector Hearing will be held April 8 at 2 p.m. to discuss the proposal.
Closing Thoughts
The Proposition M initiatives aim to enhance compliance and provide clarity within San Francisco’s restructured business tax framework. Businesses operating in San Francisco should consult with their tax advisors to understand the implications of these initiatives.
25% Duties on U.S. Imports from Canada and Mexico Lifted for USMCA-Eligible Merchandise
Yesterday, March 6, President Trump signed two Executive Orders significantly curtailing the scope of the emergency tariffs he imposed on Tuesday, March 4, impacting U.S. imports from Canada and Mexico. Effective today, U.S. imports from Canada and Mexico that are eligible for preferential treatment under the U.S.-Mexico-Canada free trade agreement (USMCA) are exempt from these additional emergency duties.
On March 4, President Trump allowed most U.S. imports from Canada and Mexico to become subject to tariffs initially announced on February 1, 2025, and imposed under the International Emergency Economic Powers Act (IEEPA). Effective that day, imports of covered products of Mexico and Canada (except for Canadian energy and energy resources) became subject to 25% additional duties; covered Canadian energy and energy resources imports became subject to a 10% duty rate. Only limited products were not impacted, generally encompassing certain products qualifying for duty-free treatment under Chapter 98 or de minimis provisions, informational materials, donations intended to relieve human suffering and items ordinarily incident to travel to or from any country.
President Trump’s actions yesterday amend those prior announcements. Effective today, March, 7, products qualifying for USMCA preferential treatment will also be exempt from the March 4 IEEPA tariffs. Note, imports that entered between March 4 and yesterday, March 6, will still be subject to duties even if otherwise qualifying for USMCA preferential treatment. In addition, Canadian and Mexican potash imported into the U.S. that is not otherwise eligible for USMCA preferential treatment and, therefore, IEEPA duty-free treatment will be subject to 10% duties rather than the 25% duties originally imposed. Importantly, despite informally announcing this action as a deferral of IEEPA tariffs until April 2, these orders do not merely pause IEEPA tariffs on USMCA-qualifying imports until a new implementation date – meaning, President Trump would need to sign new Executive Orders on April 2 (or another date) further modifying the IEEPA tariffs to resume coverage of the now-exempt imports.
In implementing this modification, President Trump’s executive orders focus on the impact his tariffs have had on the automotive industry. “The American automotive industry as currently structured often trades substantial volumes of automotive parts and components across our borders in the interest of bringing supply chains closer to North America,” he stated, justifying the modification as being necessary to “minimize disruption to the United States automotive industry and automotive workers.” However, the scope of the excluded tariffs is far broader than automobiles and automotive parts, instead encompassing all U.S. imports qualifying for USMCA preferential duty treatment. According to a White House official’s statement to reporters, approximately half of all imports from Mexico and more than one-third of all imports from Canada are utilizing USMCA preferential treatment and will be exempt from IEEPA tariffs.1 U.S. Customs and Border Protection has already issued guidance regarding import classification codes to be utilized for shipments from Canada and Mexico under the modified tariffs.
U.S. imports are eligible for USMCA preferential treatment if those imports meet the requirements of the USMCA Rules of Origin, which are implemented General Note 11 of the Harmonized Tariff Schedule of the United States (HTSUS).
[1] See, e.g., https://apnews.com/article/tariffs-trump-economy-mexico-canada-bfed103a11a2a71d8353350f94c78814