Post-2017: Is It Time To Kick Your Corporation’s “S”?

by Farrell Fritz, P.C.
Contact

Choice of Entity

Following the enactment of the Tax Cuts and Jobs Act,[i] tax advisers were inundated with inquiries from the individual owners of closely held businesses regarding a broad spectrum of topics.[ii] Perhaps the most often repeated question concerned the form of legal entity through which such a business should be operated. Of course, the impetus for this heightened interest in the “choice of entity” for the business was the Act’s significant reduction in the federal corporate tax rate.[iii]

This question, in turn, took several forms; for example, “Should I incorporate my single member LLC as a C corporation?” and “Should we incorporate our partnership?”[iv]

In the end, the flexibility that the LLC and partnership structures afford the closely held business and its owners from a tax perspective, plus the single level of tax that is imposed on their profits,[v] will probably result in a decision by the individual owners of such entities to retain their unincorporated status, notwithstanding that the owners do not enjoy any tax deferral for these profits, and despite the fact such profits are taxable to them up to a maximum federal income tax rate of 37 percent,[vi] though this may be reduced to as low as 29.6 percent if the qualified business income deduction is fully utilized.[vii]

Which leaves us with the “runner-up” question among business owners: “Should we revoke our corporation’s ‘S’ election?”

The S Corporation

Ah, the S corporation.[viii] Not more than 100 shareholders.[ix] Not more than one class of stock outstanding. No nonresident alien shareholders.[x] No shareholder who is not an individual (other than an individual’s estate, or certain trusts[xi] created by an individual).[xii]

Yes, it is a pass-through entity and, yes, it is not itself taxable.[xiii] As in the case of a partnership, its items of income, deduction, gain, loss and credit pass through to, and are reported by, its shareholders – based on the S corporation’s method of accounting – regardless of whether or not the income is distributed by the corporation to its shareholders.[xiv] Thus, there is no way to defer the shareholders’ inclusion of the corporation’s net operating income in their own gross income, where it will be taxable as ordinary income at a maximum federal rate of 37 percent, though the shareholders may benefit from the qualified business deduction.[xv]

When that S corporation income – which has already been taxed to the shareholders – is then distributed to the shareholders, the applicable basis adjustment and distribution rules generally prevent it from being taxed a second time.[xvi] In contrast, when a C corporation distributes its after-tax income to its shareholders as a dividend, that income is taxed to the shareholders at a federal income tax rate of 20 percent;[xvii] it may also be subject to the 3.8 percent surtax on net investment income.

But the S corporation is still a corporation and, so, it cannot do certain things that a partnership can; for example, it cannot distribute appreciated property to its shareholders in respect of their shares – either as a current or as a liquidating distribution – without being treated as having sold such property for consideration equal to its fair market value.[xviii]

In light of the foregoing, one might characterize the S corporation as an entity in limbo. Although its shareholders enjoy a single level of tax – albeit at the 37 percent ordinary income tax rate applicable to individuals[xix] – the single class of stock requirement limits the corporation’s ability to vary the terms of the economic arrangement among its owners. One might also add, because of the single class of stock rule and because of the limitation on which persons can be S corporation shareholders, that an S corporation cannot attract the same range of investments and investors that a partnership and C corporation can, though this may be a less important consideration in the case of most closely held businesses.[xx]

Converting from “S” to “C”?

Under those circumstances, the shareholders of an S corporation may decide that they would be better off with a C corporation. No single class of stock requirement, and no limitation on types of shareholders. Moreover, no taxation of the corporation’s profits to its shareholders unless the corporation pays a dividend.

In other words, why be saddled with the pass-through taxation of a partnership without having the flexibility of a partnership structure?

Of course, the corporation itself is taxed at a federal rate of 21 percent. That leaves a significant portion of its after-tax profits available for the replacement of depreciable properties[xxi] and for expansion, whether by acquisition or otherwise.[xxii] This should be compared to an S corporation that will typically distribute funds to its shareholders in an amount that is at least enough for them to satisfy their individual income tax liabilities attributable to the S corporation’s income.[xxiii]

Which brings us back to the question raised above: Should the shareholders of an S corporation revoke the “S” election? In other words, should the corporation be converted to a C corporation?

In addition to the “primary” factors touched upon above – which go to the question of whether to revoke an “S” election and operate as a C corporation – the shareholders of an S corporation also have to consider a number of “secondary” factors, including those tax consequences that are an ancillary, but potentially immediate, result of the decision to revoke the “S” election. Among these are the effect of the conversion on the corporation’s method of accounting, and its impact on the tax treatment of certain post-conversion distributions.

Accounting Method

Taxpayers using the cash method generally recognize items of income when actually or constructively received, and items of expense when paid.[xxiv] Taxpayers using an accrual method generally accrue items of income when all the events have occurred that fix the right to receive the income and the amount of the income can be determined with reasonable accuracy. Taxpayers using an accrual method of accounting generally may not deduct items of expense prior to when all events have occurred that fix the obligation to pay the liability, the amount of the liability can be determined with reasonable accuracy, and economic performance has occurred.[xxv]

A C corporation generally may not use the cash method, though an exception is made for C corporations to the extent their average annual gross receipts do not exceed a prescribed threshold for all prior years (the “gross receipts test”).[xxvi] Thus, it is conceivable that an S corporation that revokes its election may be required to cease using the cash method if it fails the gross receipts test, and to adopt the accrual method. This change is often accompanied by the immediate recognition of accrued income that had been deferred under the cash method; it may also result in the immediate deduction of certain items.

The Code prescribes the rules to be followed in computing taxable income in cases where the taxable income of the taxpayer for a taxable year is computed under a different method than used in the prior year; for example, when changing from the cash method to the accrual method. In computing taxable income for the “year of change,”[xxvii] the taxpayer must take into account those adjustments which are determined to be necessary solely by reason of such change, in order to prevent items of income or expense from being duplicated or omitted.[xxviii]

Net adjustments that decrease taxable income generally are taken into account entirely in the year of change, and net adjustments that increase taxable income generally are taken into account ratably during the four-taxable-year period beginning with the year of change.[xxix]

The Act contemplated that many S corporations and their shareholders would consider such a revocation in light of the greatly reduced corporate tax rate.

In order to reduce the economic “pain” stemming from such a change, the Act amended the Code to increase the threshold for the gross receipts test from $5 million to $25 million – thereby expanding the number of taxpayers that may use the cash method of accounting, even after a change in tax status[xxx] – and it provided that any adjustment in income of an “eligible terminated S corporation”[xxxi] attributable to the revocation of its S corporation election (i.e., a change from the cash method to an accrual method) would be taken into account ratably during the six-taxable-year period[xxxii] beginning with the year of change.

Following on this relief provision, the IRS announced that even if an eligible terminated S corporation is not required to change from a cash to an accrual method of accounting, but nevertheless chooses to change to an accrual method, the corporation may take the resulting adjustments into account ratably over the six-year period beginning with the year of change.[xxxiii]

Post-termination Distributions

Prior to the Act, in the case of an S corporation that converted to a C corporation, distributions of cash by the corporation to its shareholders – to the extent of corporation’s accumulated adjustments account[xxxiv] at the time of the conversion –during the post-termination transition period (the one-year period after the S corporation election terminated[xxxv]) were tax-free to the shareholders to the extent of the adjusted basis of the stock.[xxxvi]

Under the Act, in the case of a distribution of money by an eligible terminated S corporation after the post-termination period, the corporation’s accumulated adjustments account may be allocated to the distribution (a tax-free distribution), and chargeable to its accumulated earnings and profits (a taxable distribution), in the same ratio as the amount of the accumulated adjustments account bears to the amount the accumulated earnings and profits as of the effective date of the revocation.

Mechanics of Revocation

Let’s assume that the S corporation’s board of directors has decided that it would be in the best interest of the corporation and the shareholders to revoke the corporation’s “S” election. Let’s also assume that the shareholders agree – by whatever measure may be required by the corporation’s by-laws, their shareholders’ agreement, or any other governing agreement – to the revocation.[xxxvii] Finally, let’s assume that there are no contractual restrictions imposed by third parties – for example, a bank from whom the corporation has obtained a loan – that may prevent the revocation. What’s the next step?

Statement and Timing

An “S” election is terminated if the corporation revokes the election. To revoke the election, the corporation files a statement to that effect with the IRS service center where the “S” election was filed. It must include the number of shares of stock (including non-voting stock) issued and outstanding at the time the revocation is made.

If the revocation is made during the taxable year, and before the 16th day of the third month of the taxable year, it will be effective on the first day of the taxable year; a revocation made after the 15th day of the third month of the taxable year will be effective for the following taxable year.

If a corporation specifies a date for revocation, and the date is expressed in terms of a stated day, month, and year that is on or after the date the revocation is filed, the revocation is effective on and after the date so specified.

Short Year Returns and Allocations

If the revocation of an S election is effective on a date other than the first day of a taxable year of the corporation, the corporation’s taxable year in which the revocation occurs is an “S termination year.” The portion of the S termination year ending at the close of the day prior to the termination is treated as a short taxable year for which the corporation is an S corporation (the S short year). The portion of the S termination year beginning on the day the termination is effective is treated as a short taxable year for which the corporation is a C corporation (the C short year).

The corporation may allocate income or loss for the entire year (and between the two short years) on a pro rata basis. If the corporation elects not to allocate income or loss on a pro rata basis – by closing the books with the last day of the S short year – then these items are assigned to each short taxable year on the basis of the corporation’s normal method of accounting.[xxxviii] Either way, the due date for filing both short year returns is the due date for the C short year.

Re-Electing “S” Status

In general, the shareholders of an S corporation whose election is revoked may not make a new “S” election for five taxable years.[xxxix] However, the IRS may permit a new election before the five-year period expires, provided the corporation can establish that, under the relevant facts and circumstances, the IRS should consent to a new election. The fact that more than fifty percent of the stock in the corporation is owned by persons who did not own any stock in the corporation on the effective date of the revocation tends to establish that consent should be granted.[xl]

Wish I Had a Crystal Ball

The choice of entity decision is a difficult one. In the case of an established S corporation, however, it is somewhat less difficult – the shareholders are pretty much stuck with the corporate form.[xli] That said, the decision boils down to retaining or revoking “S” status for the corporation.

Because all of the corporation’s shareholders are U.S. individuals or domestic trusts created by them,[xlii] the “permanent” reduction of the corporate tax rate has made the C corporation an attractive entity choice, especially when one considers that the Section 199A qualified business income deduction will not be available to the shareholders of an S corporation after 2025.

In the end, the decision may depend upon two factors:

  • the likelihood that the corporation will be periodically distributing its profits to its shareholders, rather than reinvesting them in the corporation’s business, and
  • the period of time within which the shareholders plan to dispose of the corporation’s business.

In the context of a closely held business, these two considerations are not necessarily independent of one another; it all depends upon where the corporation is in its life cycle.

For example, in the case of a newer business, the corporation’s profits may have to be reinvested over time so as to grow the business. During this period, only those shareholders who are employed by the corporation will be able to withdraw any value from the corporation, albeit in the form of compensation for services. Under these circumstances, it may be reasonable for an S corporation to consider revoking its election; doing so would allow it to forego making a “tax distribution” to its shareholders (whether for a 40.8 percent or 33.4 percent individual tax rate),[xliii] while causing it to pay corporate level tax at a rate of only 21 percent.

By the same token, if the corporation is already approaching the point at which its shareholders will want to liquidate their investment by selling the business, the conversion from an S corporation to a C corporation may not be a reasonable move. If the anticipated sale transaction is likely to take the form of a sale of assets, followed by the liquidation of the corporation, the revocation of the corporation’s “S” election could double the tax liability from the sale.[xliv]

The difficulty lies somewhere in between these two scenarios. Where the business has matured to the point where it can pay dividends, and where its shareholder base has expanded beyond the individuals whose “sweat equity” grew the business, it will probably make sense to retain the corporation’s “S” status, especially when one considers that such an established business will probably be a target for a purchaser in the not-too-distant future.


[i] P.L. 115-97 (the “Act”).

[ii] Let’s face it, there was, and there remains, a lot to chew on.

[iii] From a maximum graduated rate of 35 percent to a flat rate of 21 percent. In addition, the corporate alternative minimum tax was repealed.

[iv] Remember, it is not necessary, from a tax perspective, that a new corporation be organized and the LLC or partnership somehow be transferred over (though there may be non-tax reasons for pursuing such a “physical” change; should one decide to pursue that route, Rev. Rul. 84-111 is the place to start). Instead, one may “check the box” in accordance with Reg. Sec. 301.7701-3, and thereby convert an unincorporated entity (i.e., a partnership or one that is disregarded for tax purposes) into an association that is treated as a corporation for tax purposes.

[v] Not to mention the gain from the sale of their assets.

[vi] An owner with respect to whom the business is a passive activity may also be subject to the 3.8 percent federal surtax on net investment income, for an effective federal rate of 40.8 percent. IRC Sec. 1411.

[vii] IRC Sec. 199A, which was enacted in conjunction with the reduced corporate tax rate in order to “level the playing field” for pass-through entities. You will recall that certain businesses do not qualify for this deduction. In addition, there are limitations on the amount of the deduction that may be claimed based, in most cases, upon 50 percent of the W-2 wages of the business. Finally, the deduction disappears after 2025.

[viii] I picture it as a slow-moving earthbound caterpillar that looks at its C corporation and LLC brethren with envy, as though they were butterflies. (No, I do not indulge in any hallucinogenic substances.)

[ix] An almost ridiculous number when you consider the effect of the counting rule for members of a family. IRC Sec. 1361(c)(1). For example, I’ve seen at least two S corporation with well over 100 shareholders as a matter of state corporate law – for purposes of the S corporation rules, however, they each had fewer than a dozen shareholders, thanks to this counting rule.

[x] The Act allows such individuals to be potential current beneficiaries of an ESBT.

[xi] See IRC Sec. 1361(c)(2), (d), (e). Individuals have to be able to plan for the disposition of their estate. That’s why the ESBT rules were enacted, for example.

[xii] IRC Sec. 1361(b). Yes, a charity may be a shareholder – but not really; just to generate a charitable contribution deduction, after which the corporation will quickly redeem the charity’s shares because, frankly, that’s what both the charity and the corporation want. From the charity’s perspective, its share of S corporation profit is treated an unrelated business income.

[xiii] There are exceptions: the built-in gains tax under IRC Sec. 1374, LIFO recapture under IRC Sec. 1363, and the excise tax on excess net investment income under IRC Sec. 1375. These, however, are the result of vestigial C corporation attributes.

And if the S corporation is doing business in New York City, it will be subject to the City’s corporate level tax at a rate of 8.85%.

[xiv] IRC Sec. 1366. This pass-through income is not subject to self-employment tax, though the corporation is required to pay reasonable compensation to its shareholder-employees. In contrast, the employment tax generally applies to the flow-through income of a partnership.

[xv] Add another 3.8 percent for a shareholder who does not materially participate in the business. IRC Sec. 1411.

[xvi] IRC Sec. 1367 and 1368. In general, an S corporation shareholder is not subject to tax on corporate distributions unless the distributions exceed the shareholder’s basis in the stock of the corporation.

[xvii] Assuming a qualified dividend. IRC Sec. 1(h)(11).

[xviii] IRC Sec. 311(b). What’s more, depending on the type of property, the gain may be treated as ordinary income. IRC Sec. 1239.

[xix] Before considering Sec. 199A.

[xx] As a general rule, I almost always advise against the “admission” of new owners, whether these are key employees or potential investors – I’ve seen too many instances of the new owner claiming abuse or mismanagement, and then seeking redress therefor, usually by asking a court to dissolve the business. In the end, only the litigators come out ahead. Better to incentive the employee through compensation, including upon a change in control. As to the investor, it will depend upon where in its lifecycle the business finds itself, and what other sources of funding it has available.

[xxi] Vehicles, machinery, other equipment, etc.

[xxii] Product lines, geographically, etc.

[xxiii] Let’s illustrate this point:

  • an S corp. has $100 of profit
    • this is taxable to its shareholders at 37%;
    • the S corp. distributes $37 to the shareholders;
    • this distribution is not taxable to the shareholders;
    • they use this $37 to pay taxes;
    • the S corp. is left with $63;
  • a C corp. has $100 of profit
    • it pays corporate tax of $21;
    • that leaves the C corp. with $79;
    • if the C corp. paid a dividend of $16 to its shareholders – so that it is left with the same $63 left in the S corp. – they would pay tax of $3.81;
  • the C corp. and its shareholders will have paid total tax of $24.81 (20% + 3.8%), or an effective rate of 24.81% on the $100 of profit;
  • this is compared to the 37% for the S corp. and its shareholders (perhaps more if the 3.8% surtax applied to any of the shareholders);
  • both corporations have $63 remaining;
  • the shareholders of the C corp. have $12.2 remaining from the dividend;
  • the shareholders of the S corp. have no part of the $37 distribution remaining.

Query: Does the fact that the C corporation – after making the above dividend distribution – end up with the same amount of funds as the S corporation – after making its “tax distribution” to its shareholders – support an argument that the C corporation retained earnings should not be subject to the accumulated earnings tax in the above circumstances? It ends up exactly where the S corporation did, and the latter is not subject to the tax.

Query also this: Granted that an S corporation may distribute all its income to its shareholders without incurring additional tax – but would it be wise to do so in the absence of a shareholders’ agreement that required shareholders to contribute additional funds to the corporation when needed? Will the corporation’s management be willing to enforce the capital call? Will the capital, instead, be provided through loans from the shareholders?

If a C corporation were to distribute all of its after-tax profits – a questionable move where a reasonable reserve would be prudent and where it may be difficult to bring the funds back if necessary – the combined effective tax rate would be 39.8 percent.

This would leave the C corporation shareholders with $60.2, whereas the S corporation shareholders would be left with $63 following the same distribution.

[xxiv] IRC Sec. 451.

[xxv] IRC Sec. 461.

[xxvi] IRC Sec. 448.

[xxvii] The year of change is the taxable year for which the taxable income of the taxpayer is computed under a different method than for the prior year.

[xxviii] IRC Sec. 481.

[xxix] Rev. Proc. 2015-13, Section 7.

[xxx] Consistent with present law, the cash method generally may not be used by taxpayers, other than those that meet the $25 million gross receipts test, if the purchase, production, or sale of merchandise is an income-producing factor.

[xxxi] An eligible terminated S corporation is any C corporation which (1) was an S corporation the day before the enactment of the Act, (2) during the two-year period beginning on the date of such enactment revokes its S corporation election, and (3) all of the owners of which on the date the S corporation election is revoked are the same owners (and in identical proportions) as the owners on the date of such enactment.

The two-year period referenced above began on December 22, 2017.

[xxxii] Instead of the usual four years.

[xxxiii] Rev. Proc. 2018-44.

[xxxiv] IRC Sec. 1368.

[xxxv] IRC Sec. 1377.

[xxxvi] IRC Sec. 1371(f).

[xxxvii] More than one-half of the number of issued and outstanding shares of stock (including non-voting stock) of the corporation must consent to the revocation of the S election. Reg. Sec. 1.1362-2. The shareholders may agree to a greater threshold among themselves.

See Reg. Sec. 1.1362-6 for details regarding the form of the shareholder’s consent.

[xxxviii] IRC Sec. 1362(e); Reg. Sec. 1.1362-3.

[xxxix] A C corporation that is starting to think about the sale of its business (assets) may be considering an “S” election so as to avoid the double taxation problem. However, it must be mindful of the built-in gains tax and its five-year recognition period.

[xl] Reg. Sec. 1.1362-5.

[xli] Unless they are willing to incur an immediate tax liability for the corporation’s built-in gain.

[xlii] Thereby eliminating the consideration of accepting capital contributions from other investors.

[xliii] S corporations will often make distributions based on the highest rate applicable to any of its shareholders: 37 percent + 3.8 percent, or (if the full Sec. 199A deduction is available) 29.6 percent + 3.8 percent.

[xliv] For example: sale of assets by C corp. for $100; $21 of corporate tax paid; $79 liquidating distribution to shareholders (who are active in the business); tax of 23.8%, or $18; total taxes paid of $39; net proceeds to shareholders of $61.

Compare to an asset sale by an S corp. for $100: no corporate tax; distribution of $100 to shareholders; no tax on the distribution: shareholders (who are active in the business) pay tax of 20% on the gain; total taxes paid of $20; net proceeds to shareholders of $80.

[View source.]

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Farrell Fritz, P.C. | Attorney Advertising

Written by:

Farrell Fritz, P.C.
Contact
more
less

Farrell Fritz, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at www.jdsupra.com) (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at privacy@jdsupra.com.

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at privacy@jdsupra.com or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to privacy@jdsupra.com. We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to privacy@jdsupra.com.

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at: privacy@jdsupra.com.

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at www.jdsupra.com) (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit legal.hubspot.com/privacy-policy.
  • New Relic - For more information on New Relic cookies, please visit www.newrelic.com/privacy.
  • Google Analytics - For more information on Google Analytics cookies, visit www.google.com/policies. To opt-out of being tracked by Google Analytics across all websites visit http://tools.google.com/dlpage/gaoptout. This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit http://www.aboutcookies.org which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at: privacy@jdsupra.com.

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.