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From the tax treatment of a forfeited individual retirement account (IRA) to a US Supreme Court decision affecting Veterans’ disability claims and FinCEN’s issuance of an interim final rule limiting enforcement of the Corporate Transparency Act (CTA), we have recently seen significant developments in estate planning, elder and special needs law, and business law. To ensure that you stay abreast of these legal changes, we have highlighted some noteworthy developments and analyzed how they may impact your estate planning, elder law, and business law practice.
Estate Planning
Taxpayer Whose IRA Was Seized by IRS under Forfeiture Order Not Liable for Income Taxes When IRS Withdrew Funds
Hubbard v. Comm’r, No. 24-1450, 2025 WL 852366 (6th Cir. Mar. 16, 2025)
Former pharmacist Lonnie Hubbard was convicted of operating an illegal pill mill, which generated substantial income through the illegal sale of oxycodone and other drugs, and was sentenced to serve an extended prison sentence for drug and money-laundering offenses. In addition, the government confiscated his homes, vehicles, boats, and financial accounts, including an IRA, paid for by proceeds from his crimes. The forfeiture order granted the Internal Revenue Service (IRS) ownership of the IRA and other assets. When the IRS seized more than $400,000 from the IRA in 2017, it treated the seizure as a taxable distribution to Lonnie. However, Lonnie, confined in prison, did not file a 2017 tax return. In 2020, the IRS sent him a notice of deficiency for $274,979.91 in income taxes, interest, and penalties, which included income taxes owed on the IRA withdrawal.
Lonnie filed a petition in the Tax Court asserting that the IRS should pay the claimed deficiency because of the forfeiture of the IRA. The IRS moved for summary judgment and the Tax Court granted its motion.
On appeal, in a de novo review, the Sixth Circuit Court of Appeals considered the interaction of forfeiture and tax laws. It noted two types of forfeitures: (1) one that identifies specific property the defendant must relinquish and transfers ownership to the government and (2) another that allows courts to impose a money judgment for a specific amount the defendant must pay. Because Lonnie’s case involved the first type of forfeiture, which identified his homes, cars, and financial accounts and ordered the IRS to seize and dispose of them—not a lump-sum amount that he owed and the IRS could collect by seizing his assets—the government became the owner of the IRA. Further, the court ruled that the forfeiture triggered the relation-back doctrine, under which the IRS was deemed to have all the rights, title, and interest in the IRA when Lonnie committed the crimes. The court ruled that the IRS exercised its ownership interest to liquidate the IRA and deposit the cash into another government fund. I.R.C. § 408(d)(1) states that “any amount paid or distributed out of an individual retirement plan shall be included in gross income by the payee or distributee,” and the IRS became the payee or distributee of the IRA when it became the owner of it.
The court rejected the IRS’s argument that Lonnie had received income when the IRS withdrew the IRA funds because he was relieved of a debt. Because the forfeiture order did not impose a personal money judgment collectible by Lonnie’s assets—which would have left Lonnie as the owner of the IRA—the withdrawal of the funds did not create a tax obligation for Lonnie by reducing a debt he owed the IRS. Rather, the IRS withdrew funds that it—not Lonnie—owned due to the forfeiture order.
As a result, the court reversed and remanded the case for further proceedings consistent with its opinion.
Takeaways: The court’s decision in Hubbard highlights the importance of the type of forfeiture in the tax treatment of forfeited IRAs. As mentioned, in the case of forfeitures that are money judgments and do not transfer ownership of an IRA to the IRS, the individual subject to the forfeiture order will be considered the payee or distributee under I.R.C. § 408(d)(1); as a result, amounts distributed to satisfy the judgment would be included in the taxpayer’s gross income. This type of forfeiture is akin to situations in which an IRA owner must pay taxes on an involuntary withdrawal of IRA funds to satisfy a debt, for example, when IRA funds have been garnished to pay child support. In contrast, when the forfeiture order transfers ownership of the IRA to the government, withdrawals by the government do not discharge a debt of the former owner. Thus, the former owner has no tax liability.
Surviving Spouse Who Was Residuary Beneficiary of Deceased IRA Owner’s Will and Sole Personal Representative of Estate Not Required to Include Rolled-Over IRA Proceeds in Gross Income
I.R.S. Priv. Ltr. Rul. 2025-08-002 (Feb. 21, 2025)
On February 21, 2025, the IRS issued Private Letter Ruling 2025-08-002 addressing whether a surviving spouse was required to report the distribution of an IRA from the deceased spouse’s estate in the surviving spouse’s gross income in the year of distribution. The decedent died before reaching age 73 (the required beginning date for required minimum distributions), having established several IRAs that designated the decedent’s estate as the primary beneficiary and the decedent’s surviving spouse as the secondary beneficiary. The decedent’s will did not distribute any personal effects via a list attached to the will as permitted by its terms. In the will, the decedent bequeathed the residue and remainder of the estate to the surviving spouse and named the surviving spouse as the sole executor. The surviving spouse, who was appointed as the sole personal representative of the decedent’s estate, sought to be treated as acquiring the IRAs directly from the decedent rather than from the estate, to roll over the IRAs into IRAs established in the surviving spouse’s name, and to exempt the proceeds that are timely rolled over from the surviving spouse’s gross income for federal tax purposes.
Under I.R.C. § 408(d)(1), proceeds distributed from an IRA are generally included in the distributee’s gross income. However, under I.R.C. § 408(d)(3)(A), the general rule does not apply to amounts distributed from the IRA to an individual for whose benefit the IRA is maintained if the entire amount is rolled over into the individual’s own IRA within sixty days.
The IRS noted that the proceeds of a decedent’s IRA that pass through a third party, such as an estate, before being distributed to the decedent’s spouse are generally treated as being received by the surviving spouse from the third party rather than from the decedent’s spouse, precluding the surviving spouse from eligibility to roll over the proceeds into their own IRA. However, in a situation such as the present case in which the deceased spouse’s estate is the beneficiary of the IRA proceeds, and the surviving spouse is the sole beneficiary of the IRA proceeds that pass through the estate and the estate’s sole personal representative, “no third party can prevent the surviving spouse from receiving the proceeds of the IRA and from rolling over the proceeds into the surviving spouse’s own IRA.” I.R.S. Priv. Ltr. Rul. 2025-08-002, at 3 (Feb. 21, 2025).
Because the surviving spouse was the sole personal representative of the deceased spouse’s estate and the sole residual beneficiary under his will, she was “effectively the individual for whose benefit the [deceased spouse’s] IRA is maintained.” Id. at 4. As a result, the proceeds of the IRA would not be included in the surviving spouse’s gross income (unless it was rolled over to a Roth IRA). Thus, the surviving spouse would be treated as a distributee of the proceeds of the deceased spouse’s IRA and would be permitted to roll it over to her IRA.
Takeaways: Although private letter rulings are not binding precedents and cannot be relied upon by other taxpayers or IRS personnel, they are instructive regarding the IRS’s position on an issue. Private Letter Ruling 2025-08-002 addresses a common factual situation (i.e., designation of decedent’s estate as a beneficiary of retirement plan) and suggests that taxpayers in the same circumstances may be able to avoid including the proceeds of their deceased spouse’s IRA in their gross income by rolling it over to their own IRA.
Termination of Irrevocable Trust Resulted in Capital Gain, Not GST or Gift Tax
I.R.S. Priv. Ltr. Rul. 2025-09-010 (Feb. 28, 2025)
On February 28, 2025, the IRS issued Private Letter Ruling 2025-09-010, addressing the income, gift, and generation-skipping transfer (GST) tax consequences of a court-approved termination of an irrevocable trust. The trustmaker created an irrevocable trust prior to September 25, 1985, for the benefit of a grandchild (the beneficiary). The terms of the trust required the co-trustees to pay an annual annuity to the beneficiary, but no other distributions were permitted during the beneficiary’s lifetime. The trust provided that, at the beneficiary’s death, the annuity should be divided and paid per stirpes to the beneficiary’s lineal issue (i.e., direct descendants such as children, grandchildren, etc.): two living adult children and four living minor grandchildren. The trust would terminate upon the last to die of 10 individuals, including the beneficiary, and would be distributed outright per stirpes to the beneficiary’s lineal issue.
The beneficiary, her adult children, the corporate trustee, and a special representative appointed by the court to represent minor and unborn trust beneficiaries entered into an agreement to terminate the trust, which the court approved. Under the terms of the agreement, the trust would terminate 60 days after a favorable letter ruling by the IRS stating that (1) the termination and distribution would not cause the trust or trust distributions to be subject to the GST tax; (2) the termination would not cause the trust or beneficiaries to be treated as having made taxable gifts; and (3) the termination and distributions would be treated as a sale, subjecting distributions made to the beneficiary and her grandchildren to capital gains tax, and exchanges of property by the adult children would result in recognition of gain or loss on the property exchanged.
No GST tax. The IRS determined that the termination and distributions would not cause the trust or trust distributions to be subject to the GST tax because the trust was irrevocable before September 25, 1985 (see I.R.C. § 1433(b)(2)(A), which addresses grandfathered GST-exempt trusts). Further, the termination and distributions would not cause a beneficial interest to be shifted to a beneficiary in a lower generation or extend the time for the vesting of a beneficial interest (see Treas. Reg. § 26.2601-1(b)(4)(i)(D) for safe harbor).
No gift tax. In addition, the termination and distributions would not be taxable gifts to the trust or trust beneficiaries because the beneficial interests, rights, and expectancies of the beneficiaries would be substantially the same before and after the termination and distributions, so no property transfer would be deemed to have occurred.
Long-term capital gains. The termination agreement was, in substance, a sale of the interests of the beneficiary and her four minor grandchildren to her two adult children, and an exchange by the two adult children of their interests with the other beneficiaries. The amounts received by the beneficiary, whose holding period in her right to income for life exceeded one year, were amounts received from the sale or exchange of a capital asset, and the entire amount would be taxed as long-term capital gain. The amounts received by the beneficiary’s two adult children due to the distribution upon the termination of the trust were those received from the sale or exchange of a capital asset and would be taxed as long-term capital gain. If the adult children exchange property for the beneficiary’s and minor children’s interests, they will recognize gain or loss on the property exchanged.
Takeaways: Trusts and estates attorneys should be cognizant of the potential for substantial tax liability upon the termination, commutation, or modification of irrevocable trusts. See our January 2024 and October 2024 monthly recaps for discussions of I.R.S. Chief Counsel Adv. 2023-52-018 (Dec. 29, 2023) and McDougall v. Comm’r, Nos. 2458-22, 2459-22, 2460-22, 163 T.C. No. 5 (Sept. 17, 2024), which determined that certain trust modifications result in gift tax liability.
Elder Law and Special Needs Law
Determination of Approximate Balance of Veterans’ Service-Connected Disability Claims Predominately Factual, Warranting Clear Error Review
Bufkin v. Collins, 145 S. Ct. 728 (Mar. 5, 2025)
Joshua Bufkin and Norman Thornton are Veterans who applied to the US Department of Veterans Affairs (VA) for service-connected post-traumatic stress disorder (PTSD) disability benefits. The VA denied Joshua’s claim because it did not find a clear link between his military service and his PTSD. Norman had previously obtained service-connected PTSD disability benefits, but the VA denied his request to increase his disability rating.
Under 38 U.S.C. § 5107(b), when there is an approximate balance of positive and negative evidence regarding issues material to a determination of a matter, the VA must give the benefit of the doubt to the claimant. Joshua and Norman challenged the adverse determinations in the Board of Veterans Appeals, which rendered final decisions denying their claims. They then appealed to the US Court of Veterans Claims (Veterans Court), which is required under 38 U.S.C. § 7261 to take due account of the VA’s application of the benefit-of-the-doubt rule in its review. They asserted that the evidence supporting and against their claims was in approximate balance, and because they were entitled to the benefit of the doubt, their claims should have been granted. However, the court affirmed the Board’s denial of the claims, holding that its determinations were not clearly erroneous.
Joshua and Norman then appealed to the Federal Circuit Court of Appeals. On appeal, Joshua and Norman argued that the § 7261 requirement that the Veterans Court take due account of the VA’s application of the benefit-of-the-doubt rule required it to review the entire record de novo and make its own determination about whether the evidence was in approximate balance rather than review only for clear error. The Federal Circuit Court of Appeals rejected their argument, holding that the Veterans Court had properly applied the clear error standard of review. Joshua and Norman filed a petition for certiorari to the US Supreme Court.
The US Supreme Court granted certiorari to determine what it meant to “take due account” of the VA’s application of the benefit-of-the-doubt rule as required in § 7261(b). It held that taking due account “is not a freestanding task” but instead is one aspect of judicial review according to the standards set forth in § 7261(a): legal issues should be reviewed de novo, and factual issues should be reviewed for clear error, meaning the Veterans Court can only overturn the VA’s factual findings if they are decidedly or substantially against the weight of the evidence. The court held that the VA’s determination of whether positive and negative evidence in a Veteran’s service-disability claim is in approximate balance is predominately factual and warrants clear error review. In a 7-2 ruling, the court affirmed.
Takeaways: Although the Bufkin court did not rule in favor of the Veterans’ disability claims, it provides a clearer path to a successful benefits application by demonstrating that issues relating to the factual determination must be accounted for prior to appeal. Veterans with viable claims must build a strong case by meticulously documenting their disability and its relationship to their military service to enable them to establish at least an approximate balance of supportive and negative evidence, entitling them to disability benefits under the benefit-of-the-doubt rule. Information about filing disability claims is available from the VA.
Social Security Administration Restores 100 Percent Default Overpayment Withholding Rate; SSI Withholding Rate Remains at 10 Percent
On March 7, 2025, the Social Security Administration (SSA) announced that the default overpayment withholding rate for Social Security beneficiaries will again be 100 percent of the monthly benefit, beginning March 27, 2025. In 2024, the SSA decreased the default withholding rate to 10 percent of the monthly benefit. The withholding rate change applies to new overpayments; overpayments made before March 27, 2025, will continue to have the 10 percent withholding rate with no action required.
The default withholding rate for Supplemental Security Income (SSI) overpayments will continue to be 10 percent.
Takeaways: Social Security beneficiaries must be diligent in verifying the accuracy of benefit payments, as the consequences flowing from an overpayment are substantially more burdensome. Beneficiaries who cannot afford full recovery of an overpayment may contact the SSA at (800) 772-1213 or submit an online request for a lower recovery rate. In addition, they can appeal an overpayment decision or amount or request a waiver of collection of an overpayment. The SSA does not pursue recovery of overpayments during an initial appeal or when a waiver request is pending.
CMS Revises Long-Term Care Surveyor Guidance to Broaden Definition of Prohibited Third-Party Guarantees
On March 10, 2025, the Centers for Medicare and Medicaid Services (CMS) released Revised Long-Term Care (LTC) Surveyor Guidance, which expands the definition of third-party guarantees of payment that long-term care facilities are prohibited from requiring as a condition of admission, expedited admission, or continued stay in the facility. In addition to prohibiting language specifically requesting a personal guarantee of payment from a third party, any language that seeks to hold a third party responsible for paying the facility is noncompliant. The guidance provides several examples of noncompliant language not specifically mentioning a guarantee, including language that holds both the resident of the facility and their representative or another individual jointly responsible for paying the facility and language that holds a third party personally liable for breach of an obligation in the agreement, such as failing to timely apply for Medicaid.
Takeaways: Although the guidance is directed at CMS surveyors who inspect and survey healthcare facilities to ensure compliance with Medicare and Medicaid, it is important for elder law practitioners to be familiar with what is and is not acceptable language in long-term care admissions agreements to properly advise clients. The implementation date of the guidance was delayed from March 24 to April 28, 2025.
Mistake of Law about Effect of Transferring Ownership of House to Trust Not Grounds for Termination
In re Peterson Family Irrevocable Trust, No. 772 WDA 2024, 2025 Pa. Super. 60 (Pa. Super. Ct. Mar. 13, 2025).
In April 2011, Don and Marjorie Peterson (the Petersons) established the Peterson Family Irrevocable Trust (the trust). The Petersons’ daughter was the trustee, and their grandchildren were the beneficiaries. The Petersons’ personal residence was the only asset held in the trust. In January 2024, the Petersons filed a petition to terminate the trust, but their granddaughter, a named beneficiary, contested its termination. After a hearing, the orphans’ court denied the Petersons’ petition to terminate the trust.
On appeal, in a case of first impression, the Pennsylvania Superior Court addressed whether the Petersons’ mistaken belief when they created the trust that it would preclude their residence from being considered for Medicaid eligibility and used to satisfy Medicaid claims was an “unanticipated circumstance” under Pennsylvania’s Uniform Trust Act, 20 Pa. Stat. and Cons. Stat. Ann § 7740.2(a), which would permit the orphans’ court to terminate the trust. In its de novo review, the court stated that a plain reading of section 7740.2(a) revealed that the orphans’ court may terminate a trust if, due to unanticipated circumstances, termination would further the purposes of the trust. The court noted substantial precedent establishing that the intent of a trust’s settlor, as set forth in the language of the trust instrument, must prevail.
The Petersons asserted that their intent in creating the trust was to shield their personal residence from being considered in determining Medicaid eligibility and anticipated claims for long-term care and for it to pass to their grandchildren at their death. However, when their home was transferred to the trust and distributions were made to their estate, the residence became a countable asset for Medicaid purposes. Therefore, the trust’s purpose could not be fulfilled because, under the trust’s terms, their residence was a countable asset impacting their eligibility for Medicaid and subject to future claims under Medicaid.
The court found that the plain language of the trust agreement demonstrated the Petersons’ intention to create a trust that would provide income and support for their healthcare needs and protect their assets from creditors. Although the trust’s language did not explicitly provide that it was intended to shield the trust assets from Medicaid claims, it did specifically state that it was intended to protect the trust assets from claims arising from the Petersons’ debts or obligations, which would include claims for healthcare services provided by Medicaid.
The court agreed with the Petersons’ assertion that their personal residence may have been exempt from claims asserted under Medicaid if it had remained titled in their names instead of being held by the trust, and that due to the transfer of ownership to the trust, the residence was a countable asset if one or both of them applied for Medicaid and was no longer protected from claims made under Medicaid. However, the court determined that the Petersons’ misunderstanding of the legal consequences of the trust at the time of its creation was a mistake of law rather than “unanticipated circumstances”—i.e., unforeseen facts about the future—that would permit the court to terminate the trust under section 7740.2(a). Accordingly, the court affirmed the orphans’ court order denying the Petersons’ petition to terminate the trust.
Takeaways: Although In re Peterson Family Irrevocable Trust addresses when a trust may be terminated under Pennsylvania law, it highlights the importance of proper proactive Medicaid planning. Elder law practitioners must help clients achieve their planning goals by drafting trusts such as WealthCounsel’s Medicaid Asset Protection Trust that protect trust assets from being considered in determining Medicaid eligibility.
Business Law
FinCEN Issues Interim Final Rule Limiting CTA Reporting Requirements to Foreign Reporting Companies
Beneficial Ownership Information Reporting Requirement Revision and Deadline, 31 C.F.R. pt. 1010.380 (Mar. 21, 2025)
On March 21, 2025, the Financial Crimes Enforcement Network (FinCEN) issued an interim final rule narrowing the applicability of beneficial ownership information (BOI) reporting requirements under the Corporate Transparency Act (CTA) to foreign reporting companies and exempting domestic reporting companies and US persons. The interim final rule also extended the deadline for foreign reporting companies to file initial BOI reports, or to update or correct previously filed reports, to 30 days from the publication of the rule in the Federal Register—April 25, 2025.
Takeaways: Although the new final interim rule provides relief for US persons and companies during the Trump Administration, a future administration could once again propose and implement regulations enforcing the CTA against them. Please note that on January 15, 2025, the Repealing Big Brother Overreach Act was reintroduced in the US Senate and House of Representatives. If enacted, the bill would repeal the CTA. In addition, litigation regarding the constitutionality of the CTA remains pending, most notably in Smith v. U.S. Dept of the Treasury, No. 6:24-cv-00336 (E.D. Tex. Feb. 17, 2025) and Texas Top Cop Shop v. McHenry, No. 4:24-cv-00478 (E.D. Tex. Dec. 3, 2024), as well as in several other federal district courts. WealthCounsel members may visit the CTA page on the member website for additional information and updates.
Federal Appeals Courts Grant FTC’s Motions to Stay Appeals in Cases Challenging Non-Compete Clause Rule
On March 12, 2025, and March 20, 2025, the Fifth Circuit Court of Appeals and the Eleventh Circuit Court of Appeals, respectively, granted the Federal Trade Commission’s (FTC) motions to hold the appeals of Ryan, LLC v. FTC, No. 3:24-CV-00986-E (N.D. Tex. Aug. 20, 2024) and Properties of the Villages v. FTC, No. 5:24-cv-316-TJC-PRL (M.D. Fla. Aug. 14, 2024) in abeyance for 120 days. In Ryan and Properties of the Villages, federal district courts entered nationwide preliminary injunctions blocking the enforcement of the FTC’s final Non-Compete Clause Rule, which would have prohibited employers from entering into noncompete clauses with workers.
In its motions, the FTC stated that, in light of the change in presidential administrations and the appointment of a new FTC chairman, Andrew N. Ferguson, who has indicated that the FTC should reconsider its defense of the rule, a 120-day abeyance period would conserve judicial and party resources and allow time for the government to submit a status report regarding future steps in the case. The plaintiffs in Ryan and Properties of the Villages did not oppose the motions.
The FTC must provide status reports to the Fifth Circuit by July 10, 2025, and the Eleventh Circuit by July 18, 2025.
Takeaways: Andrew Ferguson, current FTC chairman, was an FTC commissioner when the final rule was released. He issued an oral statement in April 2024, dissenting from its issuance and providing insights about his views. He expressed sympathy for the policies underlying the final rule but indicated that he did not believe that the administrative state could legislate because Congress declined to do so:
I do not believe we have the power to nullify tens of millions of existing contracts; to preempt the laws of forty-six States; to declare categorically unlawful a species of contract that was lawful when the Federal Trade Commission Act (FCT Act) was adopted in 1914; and to declare those contracts unlawful across the whole country irrespective of their terms, conditions, historical contexts, and competitive effects. Accordingly, I respectfully dissent.
Oral Statement of Commissioner Andrew N. Ferguson, In the Matter of the Non-Compete Clause Rule, Matter Number P201200, Delivered at the Open Commission Meeting (Apr. 23, 2024).
For additional background regarding the final rule and related developments, see our May 2024 and September 2024 monthly recaps.
No Copyright Protection When Sole Author of Work Was Generative AI Tool
Thaler v. Perlmutter, No. 23-5233, 2025 WL 839178 (D.C. Cir. Mar. 18, 2025)
Dr. Stephen Thaler, a computer scientist, created a generative artificial intelligence (AI) tool called the Creativity Machine. The Creativity Machine generated a picture Dr. Thaler called “A Recent Entrance to Paradise.” On a copyright application that Dr. Thaler submitted to the United States Copyright Office, he listed the Creativity Machine as the artwork’s sole author and himself as the owner. The Copyright Office denied the application because there was no human author. The federal district court agreed with the denial, granting summary judgment against Dr. Thaler.
On appeal, the court reviewed the Copyright Office’s action de novo. The court determined that, as a matter of statutory law, the Copyright Act of 1976 requires all work to be authored by a human being to be eligible for copyright protection. Although the Copyright Act does not define author, the traditional tools of statutory interpretation revealed that authors must be humans: for example, the Copyright Act limits the duration of copyright to the author’s lifespan and contains inheritance provisions stating that when an author dies, their termination interest is owned by their widow or widower. Machines do not have lives or surviving spouses, revealing that the statutory provisions refer to human authors. In addition, the court noted that the Copyright Office has a longstanding rule requiring a human author.
The court determined that although the Copyright Act requires human authorship, it does not prohibit copyright for works made by or with the assistance of AI. However, it did not address the question of how much AI contributed to a human author’s work because Dr. Thaler listed the Creativity Machine as the sole author of the work. The court rejected Dr. Thaler’s argument that the human authorship requirement would hinder the creation of original work, holding that it was a policy argument for Congress and the Copyright Office, not the court, to address. The court’s job was to apply the Copyright Act as written. As a result, the court affirmed the district court’s denial of Dr. Thaler’s copyright application.
Takeaways: The Thaler court’s decision is consistent with a report recently published by the US Copyright Office concluding that content created by generative AI is only entitled to copyright protection if it has a human author who has determined sufficient expressive elements. However, unlike the court’s opinion in Thaler, the report discusses the degree to which the human being must contribute to a work for it to be eligible for copyright protection. See our March 2025 monthly recap for a discussion of the report and Thomson Reuters Enter. Ctr. GMBH v. Ross Intel., No. 1:20-cv-613-SB, 2025 WL 458520 (D. Del. Feb. 11, 2025), in which the court found that the use of Westlaw headnotes to train a nongenerative AI tool that would compete with Westlaw was not a fair use protected under copyright law.
Important Related Legal Developments
KPMG First Big Four Accounting Firm to Start Law Firm in Arizona
In 2020, Arizona became the first state to allow the use of an alternative business structure, “a business entity that includes nonlawyers who have an economic interest or decision-making authority in a firm and provides legal services in accord with the [Arizona] Supreme Court Rules 31 and 31.1(c),” to operate a law firm. In February 2025, KPMG became the first of the big four accounting firms to obtain a license in Arizona to operate a law firm, KPMG Law US, which will be a wholly-owned subsidiary of KPMG.
Takeaways: Arizona and Utah continue to be the only states that allow nontraditional business models for law firms. The District of Columbia also permits nonlawyer ownership of law firms. According to the Wall Street Journal, under the court order authorizing KPMG’s license, the firm will be barred from providing US legal services to audit clients globally to prevent conflicts of interest.
