Why It’s Important

Although the releases do not change the tax law, they are important because they dictate how and when taxpayers can receive written guidance, including letter rulings, determination letters, and technical advice.

Revenue Procedure 2026-1: Letter Rulings and Determination Letters

Rev. Proc. 2026-1 explains the revised procedures for requesting letter rulings, determination letters, and information letters on federal tax issues issued by the Large Business and International Division, Small Business/Self-Employed Division, Wage and Investment Division, and the Tax Exempt and Government Entities Division. This procedure also outlines which IRS offices handle specific requests, the information required for submission, user fee information, and circumstances under which the IRS may decline to issue guidance.

Revenue Procedure 2026-2: Technical Advice

Rev. Proc. 2026-2 discusses Technical Advice Memoranda (TAMs), which can arise during IRS audits or examinations where IRS personnel request guidance from the National Office on how the law applies to a specific set of facts. The updated procedure explains when advice can be requested by the taxpayer, how to participate in the process, how the results are issued, and the rights a taxpayer has when a field office requests a TAM.

Revenue Procedure 2026-3: Domestic “No-Rule” Areas

Rev. Proc. 2026-3 addresses areas of domestic tax law in which the IRS does not issue letter rulings. These areas generally involve issues that are otherwise unsuitable for guidance. If a topic appears on a “no-rule” list, the IRS will typically decline to rule, though in some cases they may choose to provide information letters on the subject.

Revenue Procedure 2026-4: Tax-Exempt, Government Entities, and Employee Plans

Rev. Proc. 2026-4 addresses procedures for government entities, tax-exempt organizations, and employee benefit plans. This procedure supports Rev. Proc. 2026-1 by addressing the considerations that apply to these entities.

Revenue Procedure 2026-5: Exempt Organizations

Rev. Proc. 2026-5 focuses on determination letters for exempt organizations specifically. This includes applications for tax-exempt status and other exempt organization issues. It also addresses remedies available under Internal Revenue Code Section 7428, which grants specific organizations the right to seek a declaratory judgment from certain U.S courts regarding their tax-exempt status. It provides a procedure to resolve disputes over qualifications and aims to protect from litigation.

Revenue Procedure 2026-7: International “No-Rule” Areas

Rev. Proc. 2026-7 mirrors the domestic “no-rule” list from Rev. Proc. 2026-3, however this applies to international and cross-border matters.

Overall, the updates presented by the IRS in its Annual Revenue Procedure for 2026 don’t represent a substantive shift in law or policy, rather just an annual update. As with previous years and anything presented by the IRS, it’s important for taxpayers to understand these changes and when, how, and under what circumstances a taxpayer may seek guidance from the IRS. It’s important to consult your tax professional for guidance on how these updates can impact you.

For more information or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

___
[1] https://www.irs.gov/irb/2026-01_IRB

The post IRS Revenue Procedure Updates for 2026 appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

New Limitations and Rules

The OBBB changed the rules for charitable deductions for both itemizing and non-itemizing taxpayers. Beginning January 1, 2026, itemizing taxpayers are now subject to a charitable deduction floor of 0.5% of their adjusted gross income and will continue to be subject to a 60% cap on cash contributions made to public charities. Additionally, the new rules cap the tax benefit of itemized charitable deductions at 35% for those in the 37% marginal tax bracket.  These rules will also impact charitable deduction carryovers for such taxpayers. For taxpayers that do not elect to itemize, taxpayers filing individually are now eligible to deduct charitable contributions up to $1,000 and taxpayers filing jointly are now eligible for a maximum $2,000 charitable deduction. Previously, charitable deductions were only available to itemizing taxpayers.

Similar to itemizers, a new floor applies to C-Corporations, which means donations are only deductible in excess of 1% of the company’s taxable income. The existing 10% taxable income ceiling for C-Corporations is unchanged.

Impact on Charitable Foundations

While these legislative changes are driven by a number of factors, the real-world impact on those affected is often overlooked. According to a new research report by Indiana University Lilly Family School of Philanthropy, the OBBB is projected to reduce charitable giving by roughly $5.69 billion annually (roughly 1%). That total is estimated based on the following:

• An increase of $4.39B of gifting by those non-itemizing taxpayers now motivated to give because of the new above-the-line deduction available to them.
• A decrease of $2.43B of gifting due to the 0.5% floor for itemizing taxpayers.
• A decrease of $6.1B of gifting due to the 35% cap on value of the deductions for those in the highest tax bracket.
• A decrease of $1.55B by C-Corporation gifting due to the 1% floor on corporate charitable gifting.

These effects may not be fully seen until one full year after the law is in effect.

Increase in Donor-Advised Funds

Based off the projected impacts of the OBBB, there has been a rise in the use of a Donor Advised Fund (DAF). DAFs are charitable giving accounts that allow donors to make a large deductible contribution in one year and then give to their chosen charities over a span of time as they choose.

Ultimately, the OBBB signals a notable shift in how taxpayers approach charitable giving. As these changes take effect, taxpayers and charitable organizations should reevaluate their strategies. While new thresholds and reduced incentives may limit immediate tax advantages, there are tools that exist that can play an important role in maximizing tax efficiency and charitable giving impact.

For more information, or to seek counsel from our Taxation group, please reach out to request a consultation or call us at 216-696-1422.

The post Charitable Deductions Impacted by the OBBB appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

What is the Residential Real Estate Rule?

FinCEN’s Residential Real Estate Rule took effect on December 1, 2025, with reporting obligations beginning March 1, 2026. The rule was designed to address money laundering risks in certain U.S. real estate transactions. It focused on non-financed residential purchases involving legal entities and trusts, particularly those structured as all-cash transactions.

To determine whether a transaction was reportable, parties were required to work through a step-by-step analysis. If certain elements were met, the transaction would have been subject to reporting. For transactions that met the reporting criteria, the rule required submission of detailed information to FinCEN, including:

• Identity of the seller and buyer
• Information about the transferee entity or trust
• Beneficial ownership details
• Individuals signing on behalf of the buyer
• Property and transaction details, including purchase price and method of payment

The rule also established a hierarchy to determine which party was responsible for filing a report. Responsibility generally fell first on closing or settlement agents, followed by other participants such as settlement statement preparers and title professionals.

What does this mean going forward?

FinCEN has acknowledged the Texas ruling and stated that reporting parties are not currently required to submit real estate reports and will not face liability for failing to do so while the ruling remains in place; however, this may change quickly. An appeal or other regulatory action could revive reporting requirements with little notice.

Businesses and advisors involved in residential real estate transactions should continue to monitor developments and remain prepared to adjust their processes if needed. In the meantime, now is a good time to revisit internal procedures and consider how reporting obligations would be implemented if reinstated.

If you have any questions regarding these changes or to seek counsel from our Real Estate & Construction group, please reach out to request a consultation or call us at 216-696-1422.

The post LEGAL ADVISORY: Texas Federal Court Vacates FinCEN’s Residential Real Estate AML Rule – What This Means for Industry Participants appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

What Are Common Income Streams for Performers?

Artists, entertainers, musicians, and “road crews” may receive both W-2 wages as employees for stage work and Forms 1099 for their services such as coaching and teaching. The IRS has had much success in challenging these taxpayers in the following three areas: (1) deductibility of expenses; (2) worker classification; and (3) income sourcing.

As previously discussed in our first installment, expenses are only deductible if they are ordinary and necessary expenses paid or incurred during the taxable year in the carrying on of a trade or business. Expenses that will be denied include wardrobe, general makeup, hair styles for auditions, or to maintain an image for these taxpayers. Additionally, these taxpayers often find themselves violating rules related to deducting expenses that have a dual purpose (i.e., both business and personal). There is a general presumption that meals, entertainment, gifts, all expenses paid trips, boats, and non-deductible personal expenses are not deductible, unless the taxpayer proves otherwise. This presumption is not easily overcome and requires significant documentation to be provided by the taxpayer to show that these expenses were ordinary and necessary business expenses.

Deductibility of Business Expenses

Employees are not permitted to deduct business expenses. As such, artists, entertainers, and musicians who are employed by a company cannot deduct any of their expenses spent from their own personal funds. However, there is an exception for a qualified performing artist when the artist (1) performs services for at least 2 employers; (2) has allowance expenses that exceed 10% of the artist’s gross income from performing arts; and (3) has an adjusted gross income (“AGI”) not exceeding $16,000. This exception is not that helpful, because the $16,000 AGI limit is not adjusted for inflation, and most artists have an AGI higher than $16,000 per year. As such, if the IRS is successful in arguing that an artist, entertainer, or musician is not an independent contractor but rather than employee, the IRS and state agencies will be able to deny virtually all deductions that were taken by the artist, entertainer, or musician.

State and Local Tax Obligations

The third issue is a state issue that involves sourcing income to the applicable state or states. An artist, entertainer, or musician may create nexus with multiple states by performing in a variety of states during each year. Many states have non-resident return filing requirements and use duty days formulas to allocate income across the state jurisdictions. Many cities, like Cleveland, also have an income tax on performers doing a show within city limits. Many artists, entertainers, and musicians fall into the trap of only filing state income tax returns in the state where they are domiciled (i.e., reside, have a permanent home, etc.). Many states allow taxpayers to take credits for taxes paid in other states to avoid double taxation, but these artists, entertainers, and musicians may find themselves paying significant penalties for non-compliance and interest (to the extent tax was owed to the jurisdiction).

Planning Ahead to Avoid Costly Tax Issues

In conclusion, it is imperative that artists, entertainers, and musicians consider the financial and tax implications of running their respective businesses and select the appropriate business structure to suit their needs. Mistake of law is never a defense in the course of a civil tax audit and if the IRS feels that a taxpayer has willfully failed to report income to the IRS or inflated its tax deductions, these taxpayers could find themselves facing criminal charges for tax fraud in addition to being slapped with civil liabilities.

For more information, or to seek counsel from our Taxation or Business & Corporate practice groups, please reach out to request a consultation or call us at 216-696-1422.

The post Tax Talk: Artists, Entertainers, and Musicians appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

A DST is a structure that sellers can implement to take the “bite” out of a tax bill. Generally, when owners sell their business, a large, one-time tax bill accompanies the sale. An owner is subject to tax because the business sold an asset with a low tax basis, but the asset’s fair market value was much higher. The difference between the fair market value and the tax basis is where tax is applied. For owners who have labored to grow their business, getting stuck with a hefty tax bill may cause them to feel like they are getting the short end of a deal.

Typically, when owners sell their business, the value of the business is greater than its tax basis. A classic example is the stock of a family-owned corporation. If a business owner sells the stock (and this stock likely has a very low tax basis), that same owner will owe capital gains tax on the difference between the purchase price and the tax basis. Despite the owner being taxed at capital gain rates on the asset appreciation, the tax bill could still be a tough pill to swallow. Instead, the selling owner may have saved money if the transaction had been structured differently.

By engaging a DST, an owner sells the business to the irrevocable trust in exchange for a promissory note. Now, the irrevocable trust owns the business, and the owner holds a promissory note payable by the irrevocable trust. Then, the irrevocable trust will sell the business to an end-buyer for cash. With the end-buyer holding the business, the irrevocable trust now has the cash, and the irrevocable trust can pay down the promissory note to the now-former owner. While the irrevocable trust makes payments on the promissory note, the proceeds from the sale are invested, and those investments can generate income to help pay down taxes on the original sale.

A DST structure is a complex arrangement. Before an owner implements a DST, an owner should engage a sophisticated advisor familiar with the tax code, mergers and acquisitions, and estate planning. Without proper implementation, a DST could come under the scrutiny of the IRS. This means that the IRS could challenge the tax deferral of the sale of the business and instead find that the taxes cannot be stretched over a period of years. A skilled advisor, well-versed in structuring these transactions, can help advise owners if preparing for sale with a DST is appropriate for their business.

While a DST is not a panacea for every owner, under the right facts, this structure may provide value to legacy business owners on exit. Because a DST defers taxes while creating an opportunity to invest proceeds, a DST may be the right tool for you to preserve the value on sale.

For more information or to seek counsel from our Mergers & Acquisitions group, please reach out to request a consultation or call us at 216-696-1422.

___
*This article was originally authored for publication in Crain’s Cleveland Business. To view this article on the Crain’s website, follow this link.

The post Sell Now, Pay Later? A Deferred Sales Trust May be the Answer appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

The Ames Decision

As many employment practitioners know, the Court’s recent decision in Ames v. Ohio Dep’t of Youth Servs., 606 U.S. 303 (2025), issued on June 5, discussed how to apply the “McDonnell Douglas burden-shifting framework.” This framework arose from an appeal of a bench trial to the US Supreme Court in the 1970s, and has since been applied to essentially all “indirect evidence” employment claims — that is, claims where the employee suspects that discrimination occurred, but the employer did not make any admissible statements that openly admit to discriminating against that employee. In such cases, McDonnell Douglas has provided an analytical framework to evaluate whether a plaintiff can prove, through circumstantial evidence, that discrimination occurred.

Of course, most employers are savvy enough to avoid admitting that they are illegally discriminating against employees, so circumstantial-evidence cases are the predominant style of employment discrimination claims. As such, McDonnell Douglas is “the presumptive means of resolving Title VII cases at summary judgment.” Tynes v. Fla. Dep’t of Juv. Just., 88 F.4th 939, 952 (11th Cir. 2023) (Newsom, J., concurring).

In Ames, the Court was reviewing McDonnell Douglas because certain courts (including the Sixth Circuit) have been adjusting the McDonnell Douglas framework when the plaintiff is a member of a “majority” group (e.g., race discrimination claims brought by white employees, sex discrimination claims brought by men, etc.). This majority-group McDonnell Douglas framework steepened the plaintiff ’s burden in these so-called “reverse discrimination” cases. Ames rejected this alternative McDonnell Douglas framework and held that all discrimination claims must be evaluated under a uniform standard. That decision, written by Justice Jackson, was unanimous and its outcome was not surprising.

Justice Thomas Uses Ames to Attack McDonnell Douglas

Justice Thomas, however, authored a concurring opinion that criticized a more fundamental facet of the lower court’s decision: he wrote that McDonnell Douglas should not be used at all. Instead, Justice Thomas, joined by Justice Gorsuch, wrote that McDonnell Douglas “has no basis in the text of Title VII” and is a “judge made evidentiary tool” “made out of whole cloth.” As a result, Justice Thomas declared that McDonnell Douglas “is incompatible with the summary-judgment standard.”

As a “conservative,” Justice Thomas (who was once the Chairman of the E.E.O.C.) may not be viewed as an ally by plaintiff ’s lawyers, so his advocacy for discarding McDonnell Douglas may feel like a trap. He is noticeably imprecise about what framework, if any, he would use in place of McDonnell Douglas. But he is also unequivocal in declaring that McDonnell Douglas requires “a plaintiff to prove too much at summary judgment.” More specifically, Justice Thomas criticizes how McDonnell Douglas forces plaintiffs through a judicially-crafted three-step process, with the first step requiring its own, often-onerous subparts, and none of which ask the basic question posed by Rule 56: is there evidence in the record from which a juror could conclude that the employer treated the plaintiff differently on the basis of a protected characteristic? Justice Thomas’s concurrence is quite similar to the concurring opinion in Tynes, written by Judge Newsom of the Eleventh Circuit two years ago, which criticizes McDonnell Douglas as “awfully made up,” with “no textual warrant,” enticing “reviewing courts to focus on non-core issues.”

Criticisms of McDonnell Douglas

To imagine how McDonnell Douglas leads courts astray, consider a typical wrongful termination age discrimination case. There is some debate about what exactly is required at the initial McDonnell Douglas stage in such cases. This confusion, standing alone, exposes how troublesome the framework is. But putting that debate aside, most formulations of the framework require the plaintiff to show, among other things, that he was “replaced by someone substantially younger” or that he was “treated less favorably than similarly-situated comparators.” These requirements are not in the text of the ADEA; they are judicially made-up.

It is easy to see how such a framework could improperly disrupt claims brought by older employees who, for example, occupy unique roles in organizations and thus have no readily identifiable “similarly-situated comparators.” If such an employee is fired and the employer does not directly “replace” him upon termination, the employer will then surely argue that the employee cannot satisfy the first step of the McDonnell Douglas framework. In that instance, summary judgment could be granted, even if there is copious other evidence that the employer was motivated by age-related bias.

Because it is a tool for evaluating “circumstantial” cases, McDonnell Douglas presents another unique problem: as Justice Thomas writes, “it requires courts to draw and maintain an artificial distinction between direct and circumstantial evidence.” In other words, before applying McDonnell Douglas, courts must engage in the messy business of determining whether specific pieces of evidence qualify as “direct” or “circumstantial” evidence. This direct-indirect dichotomy is not legally significant in other areas of the law and makes no sense: “[e]vidence must be considered as a whole, rather than asking whether any particular piece of evidence proves the case by itself — or whether just the ‘direct’ evidence does so, or the ‘indirect’ evidence. Evidence is evidence.” Ortiz v. Werner Enters., Inc., 834 F.3d 760, 765 (7th Cir. 2016). Courts should not be conducting separate analyses of evidence depending on whether it qualifies as “direct” or “indirect” — if there is any evidence of unlawful discrimination, summary judgment should not be granted.

Why Discarding McDonnell Douglas Is Important

“Over-granting” of summary judgment in employment cases is not a minor issue. Starting in 2009, and excluding all settlements and procedural resolutions (voluntary dismissals, consolidations, and transfers), approximately 70% (68.97%) of employment cases in the Northern District of Ohio resulted in summary judgment grants for the employer. The grant rate is 69.93% in the Southern District, almost identical. This high rate of summary dismissal is concerning, given that courts are not asking the litigants if there is an issue of fact as to whether discrimination or unlawful retaliation occurred, as required by Rule 56. Instead, courts are asking plaintiffs to run a gauntlet of judge-made elements that have no textual support in the relevant statutes.

As a result, some federal circuits have already adopted an alternative to McDonnell Douglas, sometimes called the “convincing mosaic” standard. Despite “its misleadingly florid label,” the “convincing mosaic” rule is “basically just Rule 56 in operation.” Tynes, 88 F.4th at 951. In assessing a “convincing mosaic,” courts simply evaluate direct and indirect evidence as a whole to decide whether a reasonable factfinder could conclude that a protected characteristic motivated an illegal decision by the employer. See, Ortiz, 834 F.3d 760. Judge Newsom acknowledges that courts are “over-granting” summary judgment, writing that “ditching [McDonnell Douglas] in favor of something that looks more like the convincing-mosaic standard would lead to more trials.” But while this may impose more burden on our court system, litigants and courts are not allowed to “jerry-rig” doctrines to avoid “time- and labor-intensive” claims that are legally viable. Tynes, 88 F.4th at 956.

Of course, it bears noting that, earlier this year, the US Supreme Court denied a petition for certiorari that sought reversal of McDonnell Douglas in a religious discrimination case. Hittle v. City of Stockton, 145 S.Ct. 759 (2025). Justices Thomas and Gorsuch dissented from that denial, leaving seven justices who declined to hear the issue. But while Justice Kavanaugh agreed to deny cert in that instance, it is noteworthy that, as a D.C. Circuit judge, he described McDonnell Douglas as a “largely unnecessary sideshow” “spawning enormous confusion and wasting litigant and judicial resources.” Brady v. Office of Sergeant at Arms, 520 F.3d 490, 494 (D.C. Cir. 2008). Thus, if the right case presents itself, the Court appears to already be three-fourths of the way towards accepting a petition for certiorari to evaluate whether McDonnell Douglas should be used at all. For that reason, lawyers and courts may want to heed Justice Thomas’s concurrence, which warned the employment legal community that the McDonnell Douglas framework was “underinclusive” of otherwise viable employment discrimination claims. Hittle, 145 S.Ct. at 762.

For more information, or to seek counsel from our Employment group, please reach out to request a consultation or call us at 216-696-1422.

___
*This article was originally authored for publication in the November/December 2025 Edition of the Cleveland Metropolitan Bar Journal. To view this article on the Cleveland Metropolitan Bar Association website, follow this link and visit Page 35.

The post Discarding McDonnell Douglas: A Shot Across the Bow From Justice Thomas appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

Social media can impact litigation in numerous ways, including giving rise to causes of action, generating damaging evidence, escalating costs, and escalating conflict between parties.

Potential Claims

First, social media can create potential causes of action and claims which might very well end up in litigation. For example, claims for defamation or invasion of privacy might arise when social media content is used to defame or disparage an individual or a company.  Defamation is a false publication that injures a person’s reputation.  A cause of action for defamation consists of five elements: (1) a false and defamatory statement; (2) about the plaintiff; (3) published without privilege to a third party; (4) with fault of at least negligence on the defendant’s part and (5) that was either defamatory per se or caused harm to the plaintiff.  Id. Written defamation, such as a statement on social media, is also known as libel.

Unfair and deceptive trade practices might arise when a person, in the course of their business, vocation or occupation, “[d]isparages the goods, services, or business of another by false representations of fact.”

Trademark Infringement and Unfair Competition

Claims for trademark infringement and unfair competition may also arise from misuse of social media. Unfair competition ordinarily consists of representations by one person, for the purpose of deceiving the public, that his or her goods are those of another. It may also extend to “unfair commercial practices such as malicious litigation, circulation of false rumors, or publication of statements, all designed to harm the business of another.”

Moreover, the use of social media may cause a person to be dragged into a court outside of the county or even the state where the person is sitting when typing a social media post, so caution is recommended.

Potential Evidence

The use of social media may also give rise to evidence that may hurt a person’s standing before a judge, a jury or any other finder of fact such as an arbitrator. In addition to potentially creating a cause of action, social media posts, when properly authenticated, can be used as evidence of motivation, opportunity, statements against interest, admissions, and other evidence of bad conduct. Social media posts can also be used to demonstrate a person’s background, qualifications, employment history, representations to the marketplace and other personal and professional qualifications. In this regard, what a person may say in court, in deposition, or in a pleading or motion, may be substantially different from what that person may have said in a social media post. These contradictions can be used to undermine credibility.

Potential Escalation of Costs

Because imprudent use of social media can create causes of action and be used as evidence in litigation, the costs and expenses of litigation can increase. It should go without saying that defaming another person on social media can result in expensive litigation. But engaging in imprudent use of social media can increase discovery costs and can also lead to embarrassment on a witness stand.

Potential Escalation of Animosity

Finally, it can be observed that imprudent use of social media, or taking your dispute public, can have a counterproductive result through the hardening of positions and the escalation of animosity. While a lawsuit may not have received much if any attention when filed, once a party takes the dispute to social media, the publicity that social media may generate may backfire. This is because both parties may dig in their heels and seek final and conclusive resolution in Court.

Conclusion

Social media is everywhere and it has affected our lives for good and bad. It may also impact litigation by creating causes of action, by providing evidence that can be used in litigation, by escalating costs and expenses, and by escalating animosity between the parties. One angry key stroke to social media can have very real consequences.

For more information, or to seek counsel from our Litigation practice group, please reach out to request a consultation or call us at 216-696-1422.

The post Impact of Social Media in Litigation appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

Digital assets do not constitute a single collateral type under the Uniform Commercial Code (UCC), and perfection and priority depend on the manner in which the asset is held and its classification under the UCC.  As of 2026, analyzing the perfection of digital assets increasingly must take into account the 2022 UCC “emerging technologies” amendments, including the new Article 12, though adoption varies by state—for example, Ohio’s HB 195 remains pending. Consequently, a layered approach remains the most prudent strategy.

The following provides a high-level roadmap for evaluating most transactions.

Begin with Classification

Prior to considering filings or custody arrangements, address two fundamental questions:

1. Is the asset held directly (self-custody) or through an intermediary or custodian?
2. How is the asset classified—as a controllable electronic record (CER) under Article 12 in adopting states, as investment property in an Article 8 or 9 securities account framework, as a deposit account (limited to banks, and often relevant for proceeds), or as a general or payment intangible (the default category)?

This classification determines whether filing suffices or if control is necessary for robust priority.

The Baseline: UCC-1 Filing

A UCC-1 financing statement, filed in the debtor’s state of organization, remains the simplest and most cost-effective method for perfecting interests in general intangibles, particularly when classification is uncertain or control is unavailable.

Its strengths include providing public notice and establishing priority under the general “first to file or perfect” rule for various collateral types. However, it has limitations: It does not grant the lender operational authority to prevent transfers, and for certain collateral, a party with control may take priority over an earlier filer. Therefore, file promptly, but view it as foundational perfection rather than a complete solution when control is feasible.

Track A: Article 12 & Control for CER-Style Digital Assets

In jurisdictions that have adopted the 2022 amendments, Article 12 introduces controllable electronic records (CERs), where control serves as the functional equivalent of possession for qualifying digital assets. Control entails the ability to derive substantially all benefits from the record, exclude others from doing so, and transfer control, supported by identifiable records or systems—often achieved through key management, multisignature setups, escrow, or contractual mechanisms.

For secured lending, this is significant because, in amended states, perfection by control can yield superior priority compared to filing alone, depending on the collateral and structure.

Practical implementations include lender-controlled multisignature arrangements (preventing borrower transfers without approval), smart contract escrows linked to repayment or default conditions, or qualified custodian setups that grant the lender exclusive transfer authority upon default.

A note of caution: Article 12 is relatively new, with developing case law. Clearly document the control mechanisms (e.g., who can transfer the asset, under what conditions) to substantiate it if contested. 

Track B: Article 8 & Intermediated Investment Property Structures

The framework under Article 8 and Article 9’s investment property provisions is well-suited for assets held through a securities intermediary, where the custodian maintains a securities account and treats the asset as a financial asset (parties may opt in via agreement under UCC §8-102(a)(9)). For true investment property, control-based perfection is established and reliable, with priority rules favoring control.

Institutions prefer this approach due to its operational familiarity, including account control agreements, entitlement orders, and integration with existing compliance and monitoring systems.

Addressing Proceeds: Tracing & Perfection

Even when the primary collateral consists of cryptocurrencies, NFTs, or tokens, proceeds frequently manifest as fiat in a bank account. Lenders should prioritize proceeds by identifying destination accounts, employing deposit account control, and incorporating covenants for tracing and reporting to follow the path from collateral to disposition to proceeds. Under Article 9, perfection in proceeds can often attach automatically if the original collateral is perfected but enhancing it through targeted strategies is advisable.

A Practical Best Practice Framework

For most lenders, a layered strategy offers the strongest defense: (i) File a UCC-1 statement encompassing relevant collateral categories and proceeds;  (ii) Secure control where available and commercially viable, whether through direct methods, multi-signature, escrow, or intermediary arrangements;  (iii) Implement operational safeguards, such as covenants restricting transfers, ongoing monitoring, reporting requirements, default provisions, and clear remedies;  and (iv) Develop a proceeds management plan, potentially including controlled or blocked accounts.

This method aligns legal perfection with practical enforcement capabilities.

Final Considerations

Perfecting security interests in digital assets requires a tailored approach, influenced by classification, custody, and jurisdiction. The UCC’s modern tools, particularly around control, enhance options, but success hinges on demonstrating control effectively while supporting it with filings and proceeds diligence. This approach substantially mitigates priority and bankruptcy risks.

This post is general information, not legal advice. Digital-asset collateral structures are highly fact-specific and state adoption of UCC amendments varies.

For more information, or to seek counsel from our Business & Corporate practice group, please reach out to request a consultation or call us at 216-696-1422.

The post Perfecting Security Interests in Digital Assets: Navigating UCC Options in 2026 appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

What’s Defined in Avery’s Law?

The law establishes new definitions for dogs that have committed acts causing harm to other dogs or people. A “vicious dog act” will be defined as an act done by a dog without provocation, resulting in the death of a person or serious injury. A “dangerous dog act” will be defined as causing injury other than killing or serious injury by physical contact, or serious injury even without physical contact, or the serious injury resulting in euthanasia or killing of another dog. A “nuisance dog act” will be defined as a variety of behaviors including chasing or menacing a person, attempting to bite or attack a person, causing injury to a person, or chasing other dogs or livestock in apparent attitude of attack.

Having established new standards for dog behavior, the new law requires owners of a “dangerous” or “vicious” dog which has acted in the manner set forth above (but not a “nuisance” dog) to register the dog with the auditor in their counties of residence and imposes numerous new annual requirements with the registration including:

• Providing proof of a rabies vaccine;
• Requiring the dog to be spayed or neutered or producing a statement from a licensed veterinarian that neutering or spaying is medically contraindicated;
• Requiring posting of visible signs warning of the presence of a dangerous dog on the property;
• Requiring dogs to wear a tag identifying them as dangerous or vicious;
• Requiring microchipping of the dog.[1]

The new law also imposes a new requirement that owners, harborers, or keepers of vicious or dangerous dogs obtain and maintain liability insurance in an amount of at least $100,000. Failure to comply with these requirements is a new criminal offense. Interestingly, some homeowners insurance policies specifically exclude insurance coverage for some types and breeds of dogs.

The new statute also requires that no owner, harborer, or keeper of any dog shall fail to keep the dog physically confined or restrained on the owner, harborer, or keeper’s premises by leash, tether, fence, supervision or secure enclosure or otherwise under reasonable control.[2] Failure to do so is now a crime punishable by fine or imprisonment upon multiple offenses. Courts will also now be able to require dogs to undergo obedience training or to be euthanized if they cause serious injury or death to a person.

The new law, at the same time, also includes protections for owners, keepers, and harborers of dogs that are legitimately defending themselves, their owners, or their property.

Potential Outcomes and Changes Within Dog Attack Law

While it is not anticipated that the new law will have major impacts for the civil liability of dog owners, it provides local officials with tools to better manage dangerous and vicious dogs. It now imposes criminal liability and insurance requirements where none existed previously. The statutory determinations of vicious, dangerous, and nuisance will likely be tested in court hearings subject to ordinary due process standards.

Importantly, the law does not make any changes to the existing dog attack liability statute.[3] Under existing law, owners, keepers, or harborers of dogs are generally legally liable for any harm caused by the dog so long as the victim was not trespassing, teasing, or tormenting the dog.

Previously, Ohio law limited or restricted the admissibility of certain facts in tort lawsuits. Avery’s Law does not contain any such restrictions on the admissibility of the new definitions of vicious, dangerous, or nuisance. Thus, if a dog that has been previously adjudicated under Avery’s Law goes on to commit further harm against others, its status is likely admissible in a subsequent suit.

Avery’s experience and other notable cases[4] evidenced that Ohio’s dog-regulation scheme previously left gaps that allowed harm to befall those who were victimized by dangerous dogs. Avery’s Law helps to increase responsibility burdens on owners of vicious and dangerous dogs and closes many of these loopholes. The criminal deterrence aspect will also hopefully increase the safety of Ohioans from dangerous and vicious dogs.

How Can We Help?

McCarthy Lebit attorneys Colin Ray and Christian Patno regularly represent individuals who have been severely injured by dogs through no fault of their own. Those who have been injured or have questions about the new law may call Colin for a free, no-obligation consultation to discuss their legal options.

For more information, or to seek counsel from our Personal Injury & Wrongful Death group, please reach out to request a consultation or call us at 216-696-1422.

_____________________________________________

[1] R.C. 955.01.
[2]  R.C. 955.21.
[3] R.C. 955.28.
[4] Schneider v. Kumpf, 2016-Ohio-5161 (2d Dist.).

The post Avery’s Law Brings Significant Changes to Ohio’s Dog Laws appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.

Many companies are already using AI without fully realizing it. It is embedded in software platforms, marketing tools, HR systems, analytics programs, and customer-facing applications. Even when a business does not build the AI itself, it remains responsible for how that AI operates, what data it uses, and what outputs it produces. If an AI system makes a mistake, discloses confidential data, or produces misleading or discriminatory results, the legal and financial consequences fall on the company.

AI & Data Privacy Are Now Inseparable

Modern AI systems rely on large volumes of data, much of which is personal, financial, or proprietary. That means existing privacy and data-protection laws already apply to AI, even where no AI-specific statute exists. Consent, notice, purpose limitation, data minimization, and security obligations all matter just as much when data is processed by an algorithm as when it is processed by a human.

Regulators increasingly view AI as an extension of data processing, not a separate category. When personal data is fed into an AI system, whether for training, analysis, decision-making, or otherwise, privacy obligations follow it. Companies that do not understand how data moves into and through their AI tools are exposed to compliance risk, whether they realize it or not.

AI Governance Is Becoming a Business Expectation

Across industries, regulators and counterparties are beginning to expect companies to know when and how AI is used in their operations. That includes having internal policies, employee guidance, vendor controls, and documentation that demonstrate responsible use.

This is not just about compliance. It is also about risk management. Without clear rules, employees may upload confidential information into public AI tools, rely on unverified outputs for business decisions, or use AI in ways that conflict with company values or legal obligations. Governance provides guardrails so innovation does not quietly turn into liability.

AI Raises Intellectual Property & Contract Issues

AI systems can generate reports, marketing materials, designs, code, and other business content, but ownership of that generated content is not always straightforward. Some platforms impose limits on how their outputs can be used. Others rely on training data that may include copyrighted or proprietary material, which can create infringement risk.

Businesses that rely heavily on AI-generated content need to understand what rights they actually have, what their vendors are promising, and where potential risk exposure exists. These issues belong in contracts, licensing terms, and internal usage policies, not just in the IT department.

Errors, Hallucinations, & Accountability

AI systems are powerful, but they are not reliable in the way traditional software is. They can generate incorrect or fabricated information that appears convincing. If those outputs are used in customer communications, advertising, financial reporting, or operational decisions, the company bears the risk. There is no legal concept of “the AI made me do it.” The business remains responsible for what it publishes, relies on, or communicates, even when it was created by an AI tool.

Using AI Responsibly Is Now Part of Running a Business

AI is here to stay. The companies that succeed with AI are not the ones avoiding it, they are the ones using it deliberately, with clear rules, strong data protections, and realistic expectations about what it can and cannot do. The challenge for businesses is learning how to use it in a way that supports growth while protecting the organization from legal, regulatory, and reputational harm. Balancing innovation with accountability in a rapidly evolving environment is key to success in the world of AI.

How We Can Help

If you have questions about how artificial intelligence is being used in your business, whether your current practices create risk, or how to put appropriate policies and contracts in place, now is the time to address them. AI is moving faster than the law, but regulators are paying close attention, and the law may soon be able to catch up. Working with counsel to evaluate and structure your AI use can help you stay ahead of problems rather than reacting to them after they arise.

For more information or to seek counsel from our Business & Corporate practice group, please reach out to request a consultation or call us at 216-696-1422.

The post Businesses & Artificial Intelligence: Avoiding Hidden Risks appeared first on McCarthy Lebit - A Cleveland/Ohio Law Firm.