Baker Botts has assembled a cross-disciplinary team with an integrated suite of services to help our clients respond to the complex business issues that Hurricane Harvey and its aftermath have created. We have already fielded dozens of inquiries and mobilized support from our offices around the country to help our clients and friends through this difficult time. Below are just a few examples of the many types of ways in which we are helping our clients through their own particular Hurricane Harvey crisis response efforts.
Many businesses are focused on how best to help their employees in need, particularly employees who have suffered substantial personal losses. One of the most effective ways a business can help its employees is by establishing a tax-exempt employee relief organization. Employee relief organizations are attractive because, when properly structured, these organizations can make hardship relief grants to employees in need that are funded by tax deductible contributions from other employees looking for ways to help their colleagues and from the company. In addition, the relief grants are not treated as taxable income to your employee grant recipients.
Baker Botts is relying on its existing employee relief organization to help many of our own employees affected by Hurricane Harvey. In addition to employee relief organizations, qualified disaster relief payment programs (including through donor advised funds) provide additional tax efficient ways for companies to assist employees in need resulting from Hurricane Harvey. We have assisted many of our clients with establishing and implementing their own organizations and other qualified disaster relief programs to support affected employees.
We are counseling on environmental issues relating to, among other things, shut down and start-up of facilitates, including navigating air and water regulatory concerns. As the waters recede, there will be many environmental issues facing companies as part of the hurricane clean-up efforts.
Oil & Gas, Power, Midstream and Downstream Operations
Many facilities affected by Harvey have or will experience operational, construction or maintenance delays (including “knock-on” delays from key suppliers and contractors). All of these will require thoughtful consideration to preserve or assert key rights and protections. Some of the issues we have been dealing with include consideration for potential force majeure relief, changes in construction schedules, delays in deliveries, non-performance relief and obligations to mitigate costs.
We are counseling on property and business interruption insurance claims, as well as recent changes to Texas insurance law. We are prepared to guide insureds through the process of submitting claims, negotiating with insurers and, if necessary, litigating to achieve appropriate relief. We expect to see even more inquiries as the water recedes and the extent of the losses are more fully realized -- both for companies and employees who suffered personal losses.
Litigation, Dispute Resolution and Regulatory
We are fielding questions regarding a wide range of litigation, dispute resolution and regulatory issues, and we expect these inquiries to increase as more urgent and immediate rescue efforts are concluded. Clients are concerned about a variety of issues, such as contract compliance, contract performance, potential insurance disputes, real estate lease disputes, regulatory and compliance issues arising out of storm-related damages and the impending clean-up, worker safety issues, and potential disputes that often arise from significant disasters and service/business disruptions like the one Houston and other hard hit areas in the Gulf region are facing.
In some cases we are helping clients whose own staff is overwhelmed by the disaster. We also provide crisis response counseling, as needed, to help clients think through the range of issues they may face, depending on the nature of their business and the extent to which they have been affected.
Employee Benefit Plans
We are counseling clients on recently issued IRS relief for employee benefit plans and participants affected by Hurricane Harvey. For instance, the deadline for Form 5500 filings of certain employee benefit plans affected by Harvey has been extended to January 31, 2018. In addition, 401(k) plans (and similar plans and accounts) can quickly provide hardship distributions and plan loans to participants affected by Harvey. The red tape that normally applies for processing a hardship distribution or plan loan will be waived or may be dealt with at a later time, even for plans that do not include a hardship distribution or plan loan provision.
Texas Tax Issues
As clients go about repairing or restoring property damage in a disaster, there may be exemptions from sales tax on what would otherwise constitute taxable services.
There also are exemptions from Texas sales and franchise tax nexus for out of state entities that come into the State to perform disaster related work.
Tax Incentive Agreements and Federal Tax Issues
Based on what we have seen, we believe force majeure clauses in tax incentive agreements may need to be interpreted and invoked (if agreement holders will miss construction or job deadlines due to Harvey and forfeit incentive benefits as a result).
In addition, losses incurred from Harvey may qualify for deductibility as a casualty loss or destroyed property may be able to be replaced tax efficiently by reliance on the involuntary conversion provision of the Internal Revenue Code.
Baker Botts lawyers are here to assist our clients, answering any questions they may have as we navigate this crisis. If you are in need of support, please contact the State Bar of Texas Disaster Hotline – 1-800-504-7030 or State Bar of Texas Disaster Relief Resources