40 Government Sites You Can't Live Without

I ran across this article from Entrepreneur.com and sent it to several of our Private Equity clients. It's a good compilation of informative government sites, particularly the government grants catalog.

http://www.entrepreneur.com/startingabusiness/startupbasics/findinghelp/article65696.html

Dangers of Internet Legal Research: Misinformation Aplenty

A client recently was conducted some legal research on the Internet, and came across the following, which he then showed to me and asked me about:

Subject: Re: Closing down a california S-corp
Answered By: taxmama-ga on 31 Jan 2005 14:38 PST
Rated:
Dear Yarbles,

The State of California would like you to believe that you must file each back year and pay the annual $800 fee AND all the penalties and interest related to that fee. They also will want all the fees and penalties for not keeping up with the annual report of officers taht the Secretary of State requires. (That's a $20 fee if you file it on time; $250 penalty if you don't.)

However, under the Ralite case, where the owner of the corporation was permitted to walk away from all these liabilities, by simply doing nothing. Do NOT file the closure paperwork with the State Franchise Tax Board or Secretary of State. Do nothing.

You can read the particulars here. http://www.boe.ca.gov/legal/pdf/90_sbe_004.pdf

You may want to have your tax professional review the case and make sure that you qualify. In fact, they may be happy to see this for their files. It's a very valuable piece of information that most people don't seem to know.

Just be patient. The notices will stop. Someday.

Best wishes,

Your TaxMama-ga

Google Answers: Closing down a california S-corp

My response to the client, who had hoped this answer proved that dormant California corporations would be dissolved automatically and that the corporate veil could never be pierced to provide for personal liablity to the shareholders for California corporate tax obligations:

Dear [Client]:

1 – There is no indication that the answerer is an attorney or accountant. What are their qualifications to be giving legal or tax advice? There are reasons why attorneys and accountants have to meet certain educational, training, and licensing standards.

2 - The annual report fee referred to in the answer is actually $25, not $20.

3 – While not invalidating the law as precedent, it is worth nothing that the case refers to tax year 1980, and to a California code section that no longer even exists (R & T Code Section 25701(a)).

4 – The answerer does not claim the corp. will be dissolved automatically by the state, only that the back taxes won’t have to be paid.

MOST IMPORTANTLY, THOUGH…

5 - Contrary to what the answerer, who apparently did not read or understand the case, the shareholders of the corporation in the cited Ralite case were found personally liable and ordered to pay the franchise taxes. See paragraph 2 of page 29 of the case cited: “the shareholders are liable for Ralite’s [the corporation’s] tax.”

However, this result was because of fraudulent transfers by the shareholders; otherwise, the case does indeed provide that shareholders will not be personally liable for corporation franchise tax non-payment. But (A) without the assistance of an attorney and tax advisor, fraudulent transfers may inadverdently be made by shareholders closing down a corporate business and (B) it is possible California's legislature will change the law on this at some point. Until that time, it is true that many shareholders walk away from their corporations and allow them to become suspended and continue to accrue franchise taxes, penalties, and interest. This is not the proper or legal way to do things, however, and I believe the majority of business attorney or tax advisors would not routinely counsel a client to do this.

6 - Note that the person asking the question comments at the bottom of that they consulted their tax professional, and their tax advisor told them to pay the tax and dissolve the corporation properly.

7 - A tax clearance certificate is no longer required to dissolve a corporation, so there is little reason not to dissolve the corporation, to stop the tax clock from ticking, even if taxes are owed and cannot or will not be paid by the corporate shareholders.

This is a perfect example of the legal misinformation and half-truths that are all over the Internet and a good reason why you should take “advice” like this with a grain of salt and consider its (unknown) source, as well as the the fact that the law may have changed, or the one person's circumstances may not match yours....

Gramm Leach Bliley Act and the Mortage Crisis

Ok, I will have to admit that this is about to be somewhat unfair to congressional men and women that passed GLB, since I have the benefit of hindsight. Nonetheless, I think I can safely say I have been on record since the beginning in condemning the repeal of the Glass Steagall Act by GLB.

Given that Birmingham is such a big banking town, I think we in Jefferson County have a sometimes unrecognized unique perspective. First off let me say I love banks, they have been great for our area and many individuals in our community. However, one of the reasons I love banks as an investment vehicle is due to their semi-protected status. Banks are so vital to our economy that they have to be protected, sometimes (such as is now clearly evidenced by the current mortgage crisis) from their own bad decisions. As such, it is appropriate for them to have additional oversight to minimize the risk of a necessary public bailout. GLB goes against that grain and allows many additional opportunities for companies with cross sector exposure to get into trouble, even while following all the rules. This is true even if you want to ignore the obvious enhanced risk for acting on conflicts of interest.

Applied to our current mess, GLB's repeal of the restrictions on cross ownership in the financial services sector likely would not have prevented the current mortgage crisis, but it may have added a few more barriers and thus created more opportunity to catch bad decisions before they got completely out of hand.

Nonetheless, even if Glass Steagall wouldn't have prevented the current situation it should scare the heck out of everyone. By allowing consolidation, GLB has opened the door for single source disasters to shut down or significantly damage our entire financial system. Banks are simply too important to our economy to allow the additional unnecessary risks created by GLB.

If our congressional elects have their wits about them hopefully they will see the current liquidity crisis as a shot across the bow and move to place some meaningful segregation of financial services back into the system.

Leverage your Private Equity

I periodically have companies seeking private equity or venture capital funding that need LOTS of funding. Such companies are quite often in the industrial services or products realm, but can come in almost any industry.

Companies that have viable business models, but capital requirements that exceed what typical PE or VC funding will provide have additional and sometimes prohibitive hurdles to overcome in order to make their visions a reality.

If a company is to make the leap from great idea to business reality, then the management team is going to have to strategize a way to leverage the PE or VC funding in order to reach even greater sources of capital. Those other sources of capital could be a public-private partnership, public debt or even a private-private partnership, but in any case there will need to be substantial thought given to the source of that second round of financing because the quality of the plan for realizing the second round will likely play a large role in whether or not the company gets the first round of financing.

Don't forget Uncle Sam

After reading Jeff McIntire-Strasburg's recent post titled: "Ecopreneurist: How to Approach a Venture Capital Firm with a Cleantech Business Idea" I was struck by the thought of a company I am working with at the moment in the Green Technology world.

One of our early conversations centered around their financial projections and pro-forma statements in which the company president proudly said "our figures don't include any tax based income or incentives, these are straight numbers." Of course, I wanted to see the non-tax based numbers in an overall evaluation of the business, but one of the things that really makes the green industry potentially above average regarding investment returns is the proliferation of numerous tax and government incentives and our management team was really missing the boat on potential tax strategies that could have a dramatic effect on both capital requirements and overall returns of the business.

Thankfully, we have now begun an analysis of the available tax strategies and we have already uncovered federal benefits that will significantly add to our bottom line.

So the moral of the story is...don't forget Uncle Sam.

John McCain, Republican for President, on the Estate Tax

Although U.S. Senator (Republican - Arizona) John McCain's has been criticized by conservatives in his party for his inconsistent support of President Bush's tax cuts, his recent no-new-taxes pledge and his prior Senate votes on the estate tax seem to indicate that as president he would be likely to preserve the status quo on the estate tax: in 2007, McCain voted to increase the estate tax exemption to $5 million and to reduce the maximum estate tax rate to 35%; and in 2006, McCain voted to permanently repeal the death tax and to make the Bush estate (and income) tax cuts permanent.

Source: OnTheIssues.Org: John McCain on Tax Reform

The conservative Club for Growth, which favor repeal of the estate tax, rated McCain's voting record 76 out of 100 for 2006 for pro-growth economic policies.

See also:

Barack Obama, Democrat for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
John McCain Official Site: McCain Tax Cut Plan

October 2008 update: McCain has clarified that he supports raising the estate tax exemption amount to $10 million for a husband and wife and cutting the tax rate on larger estate to 15 percent. He also supports lowering the federal corpoarte tax rate from 35 to 25 percent.

Barack Obama, Democrat for President, on the Estate Tax

U.S. Senator (Democrat - Illinois) and presidential candidate Barack Obama's view on the estate tax:

We have to stop pretending that all cuts are equivalent or that all tax increases are the same. Ending corporate subsidies is one thing; reducing health-care benefits to poor children is something else. At a time when ordinary families are feeling hit from all sides, the impulse to keep their taxes as low as possible is honorable. What is less honorable is the willingness of the rich to ride this anti-tax sentiment for their own purposes.

Nowhere has this confusion been more evident than in the debate surrounding the proposed repeal of the estate tax. As currently structured, a husband and wife can pass on $4 million without paying any estate tax. In 2009, this figure goes up to $7 million. The tax thus affects only the wealthiest one-third of 1% in 2009. Repealing the estate tax would cost $1 trillion, and it would be hard to find a tax cut that was less responsive to the needs of ordinary Americans or the long-term interests of the country.

From Obama's book, The Audacity of Hope, 2006, pp. 191-2.

In the Senate, Barack Obama has consistently voted against repealing or reducing most taxes, including the estate tax, and in favor of increasing most taxes, including the estate tax. Senator Obama, for example, voted no on increasing the estate tax exemption to $5 million and reducing the maximum estate tax rate to 35%, voted no on extending the sunset of the Bush estate tax and GST tax exemption increases (which lower the number of families affected by the estate tax), and voted no on permanently repealing what those who oppose it usually refer to as the death tax.

Source: OnTheIssues.Org: Barack Obama on Tax Reform

The conservative Club for Growth, which favors repeal of the estate tax, rated Obama's voting record 7 out of 100 for 2006 for pro-growth economic policies, and most liberal Senator overall for 2007 by the National Journal.

See also:

John McCain, Republican for President, on the Estate Tax
Hillary Clinton, Democrat for President, on the Estate Tax
Barack Obama Offical Site: Fiscal Issues

October 2008 update: Obama opposes repeal of the estate tax and supports repeal of, or allowing the expiration of in 2010, the Bush (estate and income) tax cuts. He supports one-time or short-term tax rebates for most individual taxpayers (and many filers who don't earn enough to pay federal income tax and pay only payroll taxes) and overall higher estate, payroll, income, and corporate taxes over the longer term.

In response to a question about raising taxes, Obama said that he intends to "spread the wealth around."

January 2009 post-election update: President-Elect Obama's Big Tax Plan by Bill Bischoff, SmartMoney's "Tax Guy":

$300 billion in tax cuts are probably on the way -- and soon.

Right after the election, I was virtually certain that upper-income individuals would face higher federal income tax bills as early as this year. And I didn’t see anything very good on the business tax horizon, either. But after two more months of horrifying economic data, it’s a whole new ball game.

Now, President-elect Obama is proposing a $775 billion economic stimulus package that does not appear to impose higher taxes on anybody or anything for 2009. Instead, it looks like we will immediately see some of the "middle-class tax cuts" Obama promised, plus some unanticipated business breaks too. All in all, these tax cuts could add up to $300 billion (or more) over the next two years....

February 2009 post-election update: Obama's Budget: Almost $1 Trillion in New Taxes Over Next 10 yrs, Starting 2011:

President Obama's budget proposes $989 billion in new taxes over the course of the next 10 years, starting fiscal year 2011, most of which are tax increases on individuals.

ABC News, February 26, 2009.