- Maintain Post-Madoff Skepticism
- Plan for Government's Increased Hunger for Tax Revenue and Business Accountability
- Take Advantage of Low Valuations (and Interest Rates) Now Before They Rise; and
- Work to Negotiate with Banks Before they Really Need to
- Clouds on the tax horizon. While federal income taxes are
unlikely to go up significantly during 2010, they probably will in 2011.
Accordingly, the generally accepted approach of deferring income and
accelerating expenses as a tax-mitigation strategy may need to be
rethought. Some companies and individuals might be better off doing the
opposite. "This, more than ever, is a case-by-case call," said Mr.
Eliach.
- When it comes to offshore money, don't be an ostrich: Come clean
now, and get some help doing it. Even though the October 15, 2009
deadline for the IRS Voluntary Disclosure Program has passed, the
government's ongoing revenue drive, plus an apparent willingness on the
part of overseas banks to reveal the names of U.S. account holders, mean
proactive disclosure is, in almost every case, the smart approach. Those
with offshore money should seek experienced legal and accounting help to
steer clear of fraud, penalties, even criminal charges, and to maintain
legitimate tax minimization strategies.
- Mark-to-market probably applies: Check the balance sheet. Most
people think of mark-to-market accounting as an abstract concept associated
with the financial crisis and banks. But it's actually a real-world
practice that affects and can cause serious issues for just about any
business, of any size, with assets on its books. This is especially true in
times of economic volatility. The reason: Certain assets may be carried at
too-rosy valuations. Mark-to-market rules say that assets need to be valued
at what they can be sold for today (not their ultimate value). Therefore,
companies and executives should take a hard, skeptical look at their
balance sheet before they enter 2010.
- Increased risks for executives and board members: more blame for
you. "The government and its agencies are now dealing with fallout from
governance and accountability failures that have happened for a number of
years, so pressure is increasing sharply," said Michael L. McNee,
CPA, partner-in-charge of the Nonprofit and Government Services Group
at Marks Paneth & Shron. Individuals, board members and executives will
increasingly be held accountable for failure to have appropriate systems in
place to prevent conflicts and other abuses. "Multiple agencies (IRS, state
attorney generals, government funders, etc.) won't just fine the
organization, but will also hold individuals responsible. Behavior changes
will occur quickly if there is the threat of personal liability, fines and
even possibly criminal charges," he said. "So, be especially careful when
serving on or joining a corporate board, and spend now to put proper
compliance in place. 'I didn't know' is not an answer that will get you
very far."
- Make better business decisions by maintaining post-Madoff
skepticism. Individuals and businesses are now making more informed
business decisions. They're seeking service reports which means doing their
own due diligence on a range of service providers, including professional
service firms and investment advisors. "Keep doing this if you're taking on
new providers, and be aware of the new scrutiny if you're a service
provider," said Harry Moehringer, CPA, partner-in-charge of the Real
Estate Group at Marks Paneth & Shron.
- Deal strategically with the banks. Credit may be easing a bit,
so act early to refinance debt before interest rates go up. Also, companies
and organizations that believe they'll have trouble meeting loan covenants
should seek to restructure before they hit a wall, not after it happens.
"Try to act before trouble strikes so that you can negotiate from
strength," added Mr. Moehringer.
- Low valuations: a rare opportunity to pass along assets.
Accelerating succession and estate planning moves could save taxes, as
businesses and other assets are worth less than they might be in a year or
two. So taxes could be lower if assets get transferred now rather than
later on in the future.
- Government: more, and less, opportunity. Doing business with
government agencies could be great for organizations -- for-profit and
non-profit -- that can take advantage of untapped stimulus money and
various entitlements, such as inner-city empowerment programs. But the
government shouldn't be seen as an eternal source of funds. Stimulus money
will run out, and many state and local governments are in dire straits and
will cut budgets.
- The new question for new international businesses: where to
incorporate? Among the many key questions for new businesses is, "where
should the entity be located?" Now more than ever, the question can make a
big difference in terms of tax liability for companies that will have
overseas operations. In fact, U.S. entrepreneurs may want to consider
forming their new corporations offshore at the outset in order to minimize
tightened deferral and transfer penalties.
- Those considering a fresh start through bankruptcy should investigate "fresh-start" reporting. While bankruptcy is a challenge in the life of any business, it represents an opportunity to take a structured path toward improved financial health. This is particularly true for companies that qualify for **fresh-start reporting. It allows a company that meets certain criteria to effectively clear its books and establish itself as a new entity with a clean balance sheet.
Contact Information: Media Contact: Adria Greenberg Sommerfield Communications 212-255-8386 adria@sommerfield.com