Articles

New Net Operating Loss Rules Benefit Larger Business - First Time Homebuyer Credit Extended and Expanded

2009-11-09T16:46:20Z

On November 6, President Obama signed the “Worker, Homeownership, and Business Assistance Act of 2009.” The bill, expected to cost about $24 billion, was originally intended to extend unemployment benefits. While that provision is still part of the bill, the bill is receiving more attention with respect to certain additional stimulus provisions.

The new law allows most (but not all) businesses, regardless of revenues, an expanded net operating loss carry-back provision. Another well publicized provision was an extension of the $8,000 first-time homebuyers credit for the purchase of a home prior to May 1, 2010 (and in some cases July 1, 2010.) There is also a new $6,500 homebuyer credit provision for existing homeowners. In addition, there is an increase in the penalty for failure to file both S-corporation and partnership income tax returns timely. Another provision requires most tax preparers to efile all individual and estate and trust returns beginning in 2011.

Net Operating Loss (NOL)
The Worker, Homeownership, and Business Assistance Act provides an election for most taxpayers (not just small businesses) to increase the carry-back period for an applicable NOL from 2 years to 3, 4, or 5 years. An applicable NOL is defined as a taxpayer's NOL for any tax year ending after Dec. 31, 2007, and beginning before Jan. 1, 2010. There are special limited rules for life insurance companies, and businesses in which the federal government has acquired an equity interest are often excluded. Under prior law, small businesses were defined as those with less than $15 million in average annual revenue (click here for a more detailed explanation from a previous article.)

Generally, the election may be made for either the 2008 or 2009 tax year. However, certain eligible small businesses that have already elected to carry-back a loss 3, 4 or 5 years may also make an election for their 2009 tax year. Businesses with losses in 2008 that were not an eligible small business may have an opportunity to carry that loss back five years rather than waiting until the 2009 year is complete. Once Treasury provides some guidance with respect to the new law, your Blackman Kallick representative can assist you in determining potential refunds available.

One difference between the prior small business net operating loss carry-back rules and this new provision deals with the 5th year carry-back provisions. The amount of the NOL that can be carried back to the 5th tax year before the loss year may not be more than 50% of the taxpayer's taxable income for that 5th preceding tax year determined without any NOL for the loss year or for any tax year after the loss year. For all others years, the net operating loss may offset 100% of the remaining taxable income in the carry back year.

One other difference: the Act suspends the 90% limitation on the use of any Alternative Tax net operating loss deduction. Without this provision, many large taxpayers find their refund to be limited by an unexpected alternative minimum tax liability.

First-time Homebuyer Credit Extended; Existing Home Owners May Qualify for $6,500 Credit
As part of the Act, the first time homebuyer credit (initially set to expire on November 30, 2009) has been extended through April 30, 2010. The credit, which is available on the purchase of a principal residence only, is equal to the lesser of $8,000 or 10% of the purchase price. The credit is now available to higher income taxpayers and is phased out with adjusted gross income between $125,000 and $145,000 ($225,000 and $245,000 for joint filers.) Also, the taxpayer will qualify if they enter into a binding contract prior to May 1, 2010 and close on the transaction prior to July 1, 2010.

In addition to the first time homebuyers credit, the Act also allows a homebuyers credit for “long-time residents.” This credit is available to any individual who has maintained the same principal residence for five consecutive years during the eight year period ending on the date of the purchase of the new principal residence. The maximum allowable credit for such individuals is $6,500. The same income phase-out provision applies for this credit, therefore, many higher income taxpayers will not receive the benefit.

Neither credit is available if the purchase price of the residence exceeds $800,000. This limitation is effective for residences purchased after November 6, 2009. Also, taxpayers may elect to treat a residence purchased after 2008 as made on December 31 of the prior year (amended returns then may be filed to receive the refund more quickly.)

Increased Penalty for Failure to File S Corporation or Partnership Returns
The monthly penalty for failure to file an S-Corporation or Partnership return on time has been increased to $195 per partner or shareholder per month or partial month late. For widely owned S-corporations and Partnerships, this can add up very quickly. Revenue projections due to the increased penalty were over $1 billion.

Electronic Filing Required of Most Return Preparers
In an effort to decrease administrative costs of the Internal Revenue Service, the bill requires most return preparers to file all individual and estate and trust returns electronically. This provision is effective for returns filed after December 31, 2010.

We will have additional information as it becomes available. The above represents the highlights of the bill. Please contact Brian Carter at 312.980.2994, Michael Calahan at 312.980.2996 or your Blackman Kallick representative for more information.

A Closer Look at Target Employee Groups for the Work Opportunity Tax Credit

2009-11-06T21:29:56Z

This article is a follow-up to our July 2009 Tax Highlights discussion of Overlooked Business tax credits and briefly describes the target group of potential employees that could generate tax credits for your business. Congress has identified 12 different categories of potential employees for your business. As an employer looking to reap the benefits of the Work Opportunity Tax Credit the most significant step in the process of claiming the credit is often the identification of potential candidates. While there are firms that will assist you in claiming these credits (for a fee, of course,) knowing the qualifications for each group will assist you in estimating the potential benefit. Each target group has unique characteristics that distinguish it from the others in the overall WOTC scheme. In practice, whether a potential employee may qualify is not known until after the person has been given an offer of employment. However, some state agencies and non-profit organizations have conducted up-front screening and may be able to send potential recruits to your business that do qualify for the credit.

Target Group One - Qualified IV-A Recipients
Qualified IV-A Recipients consist individuals who are members of a family receiving assistance under Part A of Title IV of the Social Security Act relating to the Temporary Assistance to Needy Families Program, also known as the TANF Program. In order to qualify as a member of this group, individuals must have received TANF program assistance for any nine months in the 18 month period before they hired.

For purposes of the WOTC, “family member” refers to the family member specifically listed on the grant. Only those recipients specifically noted on the TANF grant are eligible for the WOTC. It should be noted as well that Medicaid and Medicare recipients do not qualify as IV-A benefits.

Target Group Two - Qualified Veterans
Qualified Veterans can be any of the following:

A Veteran who is a member of a family receiving benefits under a food stamp program authorized by the Food Stamp Act of 1977 for at least three months during the previous 15 months before hiring.
A Veteran entitled to compensation for a service connected disability and is hired within 1 year after being discharged or released from active duty in the United States Armed Forces.
A Veteran who is entitled to compensation for a service connected disability and was not employed for at least 6 months in the year before hiring.

In order to be considered a veteran, the individual must have served on active duty, which does not include training time, in the U.S. Armed Forces for more than 180 days. The individual could also have been discharged or released from active duty for a service-connected disability. However, the individual must not have been on active duty (not including training) for more than 90 days that ended during the 60 day period ending on the hiring date.

Target Group Three - Qualified Ex-Felons
A Qualified Ex-Felon is an individual who has been convicted of a felony under any federal or state law, and is hired within 1 year after he or she was convicted or released from prison for that felony.

Target Group Four - Designated Community Resident
A designated community resident, formerly referred to as a high-risk youth, are individuals who are 18-39 years old and currently reside in an empowerment zone, a renewal community, or a rural renewal county. Note that the employee must reside in one of the noted areas – not the employer. Chicago, Illinois and Gary, Hammond, and East Chicago Indiana each have part of their city area covered by an empowerment zone and/or renewal community. The following web site gives more information about the locations of each of these areas, www.hud.gov/crlocator.

A rural renewal county is a rural area that lost population during the 5-year periods 1990 through 1994 and 1995 to 1999. There are eighteen counties in Illinois, thirty counties in Iowa and only one county in Indiana that meet this requirement.

Target Group Five - Vocational Rehabilitation Referral
This group consists of people who have a physical or mental disability that would result in substantial handicap to employment. They also need to be referred to the employer upon completion of, or while receiving, rehabilitation services by a state approved rehabilitation agency, an employment network under the Ticket to Work program, or the Department of Veterans Affairs.

Target Group Six - Summer Youth Employee
These are people who meet all of the following: they are hired between May 1st and September 15th, are at least 16 years old but not yet 18 years old on the hiring date or May 1st (whichever is later), have never worked for the employer before, and live within an empowerment zone or renewal community.

Target Group Seven - Recipient of SNAP Benefits (Food Stamps)
For this group, the individual must be between the ages of 18-39, and be a member of a family that has received food stamps for 6 months prior to hiring. The individual can also qualify if he or she is no longer eligible for assistance under the Food Stamp Act of 1977, but the family received food stamps for at least 3 months out of the last five months before the hire date.

Target Group Eight - SSI Recipients
These are individuals receiving supplemental security benefits for any month ending within the 60 day period prior to the hire date.

Target Group Nine - Long Term Family Assistance Recipient
This group consists of a member of a family that has received Temporary Assistance to Needy Families payments for at least 18 consecutive months prior to hiring. Individuals can also qualify if they receive TANF payments for any 18 months (consecutive or not) beginning after August 5, 1997 and the earliest 18 month period ends during the past two years, or he or she stopped being eligible for TANF payments because federal or state law limited the time they were able to receive TANF benefits and he or she is hired within 2 years after their eligibility for TANF benefits expires.

Target Group Ten - Hurricane Katrina Employee
As the name indicates, these are individuals who had a main home in what the IRS refers to as the “Gulf Opportunity Zone” when the hurricane hit on August 28, 2005. These individuals also need to be working principally in the Gulf Opportunity Zone and hired during a four year period after August 28, 2005. The good news is that this group does not require certification, but the qualifications are stringent.

Target Group Eleven - Unemployed Veterans
Unemployed Veterans are persons have been discharged or released from active duty in the U.S. Armed Forces any time within 5 years prior to their hiring, and who have received Unemployment Benefits for at least 4 weeks during the 1 year period prior to their hiring. In order to be considered a veteran, the individual must meet the same requirements of duty of Target Group #2.

Target Group Twelve - Disconnected Youth
Disconnected youths are people between age 16 and 24, who are not regularly attending any secondary, technical, or post secondary schools for at least 6 months prior to hire. They also cannot be regularly employed for at least 6 months prior to being hired.

As one can see, the definitions for each group can range from very simple, to quite complex. The important concept is to be aware that these groups exist, and that any potential hire could possibly qualify as a member of these groups. This way, employers can take advantage of the credits that em[ployees generate, and can save money.

For further information please contact Andy Popielec at 312.980.2966, Michael Calahan at 312.980.2996 or your Blackman Kallick representative.

Private Foundation Tax Planning Update

2009-11-06T21:19:04Z

As year-end approaches, it is a good time to evaluate your Foundation’s position with regard to the Section 4940 excise tax on investment income. The Section 4940 tax is typically applied at a rate of 2% of investment income. Investment income includes dividends, interest, capital gains and capital losses along with other types including rents and royalties.

Foundations should evaluate their portfolio to better understand the tax impact of having realized gains (including year-end mutual fund distributions) and losses.

Foundations with Net Capital Losses

Organizations with significant realized capital losses should assess whether there are appreciated assets in their portfolio. Capital losses do not reduce other investment income such as dividends and interest. Capital losses can only be offset by capital gains. Unused capital losses do not carry over to future years. Consequently, capital losses need to be offset by gains in the same year, if possible. Wash sale rules do not apply to gains. Therefore, appreciated assets can be sold and then re-purchased immediately without adverse tax effect. This strategy effectively uses offsets capital losses and reduces future excise taxes by increasing the cost basis of portfolio holdings.

If the foundation does not currently have any appreciated positions, now may be a good time to solicit a contribution of appreciated assets. The Foundation takes (inherits) the donor’s cost basis in the appreciated property. As such, the same sell/repurchase strategy as noted above can be utilized.

Foundations with Net Capital Gains

Foundations with significant realized capital gains should consider liquidating loss positions. However, this strategy has limitations since the wash sale rules operate to disallow losses if the same securities are repurchased within 30 days. This means that the sell/repurchase strategy suggested above for harvesting gains is not effective for harvesting losses. A purchase of another security in the same industry or the purchase of a mutual fund with a similar investment strategy will not be treated as a wash sale.

Many Foundations with unrealized gains sell appreciated property in order to satisfy liquidity needed to make required charitable grant distributions. These Foundations can avoid realizing gains by distributing their appreciated assets to charitable organizations to fund required distributions. These transfers of appreciated securities qualify as distributions for purposes of meeting the required minimum distribution requirement. In addition, an unrealized gain is removed from the portfolio.

Finally, Foundations with significant potential tax exposure should evaluate their ability to qualify for a special 1% excise tax rate by making distributions in excess of their five-year average distribution percentage. Foundations need to be certain that they have met their minimum distribution requirements in the prior five years in order to be eligible for the reduced tax rate.

Now is the time to act.

For further information on evaluating your Foundation’s tax planning options, please contact David Lowenthal at 312. 980.2954, Brian Whitlock at 312.980.2941 or your Blackman Kallick representative.

Are You Leaving Money On The Table?

2009-11-06T18:32:42Z

Your company might be eligible for reimbursement of up to 50% of employee training costs, if it meets the eligibility requirements set by the Illinois Department of Commerce and Economic Opportunity.

During the current economic climate with record breaking unemployment numbers, the federal government has made certain grant money available for training the underemployed. Such grant money is available to the Employers through State agencies – in Illinois it is through Illinois Department of Commerce and Economic Opportunity (DECO). This program is called Employer Training Investment Program or “ETIP”.

The ETIP program falls under the “Workforce Investment Act of 1998”. This Act provides the framework for a unique national workforce preparation and employment system designed to meet both the needs of the nation’s businesses and the needs of job seekers and those who want to further their careers.

The Illinois ETIP program is a streamlined, cost effective program to help Illinois workers keep their skills constant with changing technologies and business processes. Businesses benefit through increased productivity, reduced costs, improved quality and competitiveness.

Eligible businesses are Illinois companies that are re-training/upgrading the skills of their existing workforce. Grants may be awarded to individual companies or intermediary organizations offering training to meet the common training needs of multiple companies.

Eligible training programs include but are not limited to:

Information Technology/computer skills
Quality- ISO-Safety
Technical/Workplace Skills
Basic Skills

Eligible training costs include:

External vendor/trainer costs
Internal trainer wages and limited fringe benefits
Trainee wages and fringes
Training materials

The ETIP is a June/July program year cycle. Training grants such as Illinois’s ETIP exist throughout the country.

For more information please contact Vu Vinh at 312-980-2923 or your Blackman Kallick representative.

Beware: IRS to Conduct 6,000 Audits of Employee/ Independent Contractor Classifications

2009-11-06T15:44:27Z

Starting in February 2010 IRS officials will start random audits of approximately 6,000 US employers for employment tax compliance and proper worker classification. These random audits are intended to help close the estimated $15 billion "tax gap" that the GAO believes is attributed to workers being misclassified as independent contractors versus company employees. The IRS will also be reviewing for the proper issuance of Form 1099-Misc for any workers classified as independent contractors.

These audits will be conducted on employers of all sizes and types, including non-profit organizations, and will concentrate on workers classification, fringe benefits, non-filers, officers' compensation and employee expense reimbursement. Not only is this misclassification lowering the government’s tax revenue but it also effects the employees who are misclassified as independent contractors by denying them health benefits, overtime pay, retirement contributions and unemployment insurance. From a practical point, the larger cost to the employer could be the cost of having to provide retroactive health insurance and/or retirement benefits for misclassified “independent contractors.”

A study conducted by the Department of Labor in 2000 revealed that 10 to 30 percent of firms that were audited in nine states had misclassified some of their employees. Even though the IRS and most other agencies do not exchange information due to the restrictions in the tax code, some 34 states and the IRS share information on misclassification-related audits as permitted under the tax code.

There are also penalties for the failure to issue a Form 1099-Misc when required to independent contractors. A $50 penalty per 1099 that should have been issued and was not may be assessed. Also, if the business does not have the taxpayer identification number of the independent contractor (generally the social security number of an individual), they would have been required to subtract “backup withholding” from the payment. Upon audit, the IRS may find the business liable for the “backup withholding” amount if the taxpayer identification number can not be located.

What does this mean for you and your business? Be aware that these random audits will be in effect in the near future and review the classification and documentation maintained for any “independent contractor” associated with your business. In a future tax highlights, we will discuss many of the factors utilized to clarify the differences between an “employee” versus an “independent contractor”.

For further information, please contact Jennifer Peetz at 312.980.2952, Michael Calahan at 312.980.2996 or your Blackman Kallick representative.

IRS Waives RMD for 2009 and Allows Rollover of 2009 RMDs Already Distributed

2009-11-06T15:22:52Z

A required minimum distribution (RMD) is the smallest annual amount that must be withdrawn from an IRA or an employer’s retirement plan each year after reaching a required minimum age. Generally, this occurs when the account owner reaches age 70½. (There are exceptions, however.)

The Worker, Retiree, and Employer Recovery Act (WRERA) of 2008 waives the RMD requirement for 2009. It also allows certain amounts distributed as 2009 RMDs to be rolled over into an IRA or other retirement plan. Notice 2009-82, which was issued by the Internal Revenue Service on September 24, 2009 explains additional options for repayment.

If you haven’t yet received a 2009 RMD, you can hold off on taking a distribution until 2010!

Already received a RMD for 2009?

You may keep it as normal, and pay tax on it as usual.
You may rollover the distribution into your current plan (assuming your plan allows it) or a new plan by the later of:

November 30, 2009, or,
Sixty days after the date of the distribution was received.

This will remove the distribution from your 2009 taxable income and you will not have to pay tax on the distribution.

One important caveat: the taxpayer is only allowed one rollover in a one-year period and only for one distribution. Consequently, if you already rolled over an amount to an IRA within a one-year look-back period, you are prohibited from rolling over again. Also, only one distribution may be selected during the one-year look-back period. Thus, IRA owners who received 2009 RMDs in more than one distribution (i.e. monthly) may only rollover one of these distributions.

For further information, please contact Amber Larsen at 312.980.2964 or your Blackman Kallick representative.

Surviving the Upturn Resources

2009-10-12T22:00:49Z

Unemployment rates are dropping; housing prices are rising and many economists are tentatively predicting U.S. economic recovery.

Finally, some good news. But now what?

As a business owner, you have survived one of the most challenging periods in the life of your business and are looking to position your business to take part in – and take advantage of – the general recovery.

You’ve come to the right place.

Below you will find a number of resources aimed at helping you survive the impending ”upturn” in the economy, including advice regarding strategic planning, staffing and developing new tax strategies. And more are on the way.

If you have any questions or are looking for customized advice on “surviving the upturn” , please contact your Blackman Kallick engagement partner or any of the professionals listed below.

Together, we can make sure the upturn is YOUR upturn.

Selected Resources

Article: Surviving the Upturn... Be "The Other"
Surviving the Upturn webinar
Chicago Business Leaders Survey, September 2009
2009-10 Web Tax Guide
2009 Tax Law Stimulus

Upturn Resources Team

Audit and Assurance

Paul Oetter, Audit Partner
Manufacturing and Distribution Practice
312-980-2920
poetter@BlackmanKallick.com

Tax

Brian Whitlock, Tax Partner
Wealth Transfer and Philanthropic Services
312-980-2941
bwhitlock@BlackmanKallick.com

Mike Calahan, Tax Partner
Family Office Services and Private Equity and Venture Capital
312-980-2996
mcalahan@BlackmanKallick.com

Corporate Finance

Patrick McNally, Partner
Corporate Finance Consulting
312-980-2934
pmcnally@BlackmanKallick.com

Strategic Services

Barry Cain, Managing Director
Strategic Services
312-980-2976
bcain@BlackmanKallick.com

David Spitulnik, Director
Strategic Services
312-980-3339
dspitulnik@BlackmanKallick.com

Transaction Services

Mark Robertson, Practice Leader
Transaction and Lender Services
312-980-3263
mrobertson@BlackmanKallick.com

Surviving the Upturn... Be "The Other"

2009-10-12T19:48:13Z

In February 2008, Barry Cain and David Spitulnik provided a road map for surviving the impending recession in Getting Through 2008 and Beyond. Similarly, this article provides forward-looking strategies for seizing opportunity during the budding recovery.

According to many economic pundits, the recovery has started. While you might or might not be feeling it, the real question is: The recovery to what? More on that later, but first, a couple things to note:

“Normal,” at least as it was defined at the end of 2007, is not likely to be seen again. We will have a “new normal,” which will not necessarily be bad—just different.
Do not assume that the recovery is your recovery. Just because recovery is happening, does not mean that everyone will get to participate.

This article will help business owners and their management teams increase their chances of participating in the recovery and to help them prepare for business in the “new normal.”

It was likely painful and costly getting to where you are, but consider those sunk costs for survival and let them go. View the current environment as an opportunity to reinvent your company, what it does and how it does it.

Understanding where you want to go, where you are and what you need to do to achieve your goals are all critical elements to ensuring your organization will be positioned to enjoy benefits of the “new normal.”

Don’t be bound by what you did in the past. Instead use this opportunity to determine where you want to be tomorrow.
Odds are, you have less baggage than you did before this all started. Your business is still operating, but you probably made cuts—perhaps drastic ones. Simply put, your “new” business does not need to have the same look and feel as the old one.
Understand your possibilities. While it is critical for you to consider where you came from, the past should not be the determining factor for creating your company’s future.

If this makes sense at 30,000 feet, it’s time to hit the ground running and rebuild your business given the “new normal.” Accordingly, following are strategies to help you capitalize on the current economic climate.

1.) Readjust your past goals. To start, articulate your three-to-five-year goals and ask yourself: do they make sense now? Are they still achievable? Are they focused and valuable? Make sure your plans make sense to both you and your leadership team. Listen to their input, but ensure that any recommendations to ‘stay the course’ are based on analysis of the new reality rather than comfort with the old environment.

Important: Change is not optional. Resist the impulse to rebuild what you had before. Be ready to review, revise and rebuild your business model with the understanding that what worked before will not necessarily work again. Make sure to answer the following questions before taking action.

What is your value proposition? If the old concepts are no longer relevant, then they should be replaced. Think of what we went through as an earthquake. Evaluating a building in an earthquake zone involves looking not only at whether the building is still standing, but also at its underlying foundation. Similarly, look not only at outward appearances, but also at the assumptions on which the business is built to see if they are solid enough to support the company today.
Who are your customers? More importantly, who do you want them to be? Are there strategic benefits certain customers could give you beyond revenue? One of the more difficult processes for businesses is defining their target customers and then sticking to the plan. There might be a set of customers with whom you want to establish a “partnership” for win-win positioning. There are others with whom you will likely have a strictly buy-sell relationship.Take the time now to define the attributes and benefits of different types of customers.
What do I want out of this? You built your business with dreams and goals, but when the recession hit your mindset became “just survive.” As the skies clear don’t lose sight of the fact that you will be more motivated to meet your company’s goals if they match your personal ones.

2.) Build a road map and articulate 3 to 5 key actions to get to there. Without a specific plan of action, even the best goals cannot be achieved.

Are the goals specific, measurable and time-bound? Are they “make or break,” “bet the farm” type goals? Have you articulated the action plans to accomplish them? Keep the list short, as too many goals equate to no goals at all. Each of the goals will have a number of
underlying activities, but the overarching goals must be clearly understood across the organization and progress must measured and communicated. At the same time, the action plans to accomplish the goals must also be focused and clearly articulated. Once the main goals are established, communicate each department’s and employee’s roles in
meeting them and help them develop their own plans and action steps.

3.) Rebuild only what you need. Having articulated your goals and the actions you’ll take to get there, what are the resources you will need? A clear and concise analysis of the people and capital needed to carry out the plan is necessary.

Do you understand the attributes of the people you will need to accomplish your new reality? Are you trying to make do with the people you have or do you need to make further changes in the team to accomplish your goals? While you have likely been through a gut-wrenching period with your team, you still may not have all the right individuals onboard.
Furthermore, there are many great people available right now, perhaps even working for a competitor, who could strengthen your team and better position your organization in the marketplace. Don’t lose your soul, but don’t lose this opportunity.
Are you open to the notion that some of your needs might be met through outsourcing? Conversely, is the time right to consider bringing back in house some of what you outsourced in the past? The “earthquake” did not automatically destroy everything, but it is worth the time to consider rebuilding with a more comprehensive view of the current landscape around you.
Can you try before you buy? Consider the benefits of a phased approach to resource acquisition. There are many resources available, both people and capital, that can now be rented rather than bought. In order to better control your cash flow, consider hiring temporary rather than full-time staff. This is not necessarily the answer for the long-term, but it allows you to spend on resources as you need them rather than having to purchase them outright and build them in to full utilization later.

4.) Make it personal. Understand that in the “new normal,” relationships and trust are key to success.

What do you need to do to work together again with customers, suppliers and even employees—with trust and confidence? They have all experienced “earthquakes” of their own and will not trust quite so easily again. You will need to start building or rebuilding alliances with a fresh approach with those you know and with whom you’ve worked in the past. Make each relationship personal again, strive to understand how each entity or individual has changed. How have you changed? Help them understand your “new” business and what they should and should not expect.
Who should your customers be? You need to ask if your current and former customers can still benefit you as your business evolves. Focus on those with whom you can build your future. And if you’ve lost touch with contacts, reintroduce yourself with a renewed commitment to building a mutually beneficial relationship. Determine if there
are some who, given the new reality, you are no longer able to or interested in serving. If you have decided that any specific customers do not fit your new normal, take the time to provide them with alternative strategies for meeting the same ends. They might even do the same for you and help you meet your new goals.
Do you need to attack the market alone? Consider building alliances or partnerships with others who can help you achieve your goals and you, theirs; this might even include competitors. You don’t have to be “all things to all people.” In many instances, “together we stand” might be a better approach going forward.

5.) Build your think tank with the biggest brains you can. While at the point of redefinition, consider how third party, objective advice could be helpful.

Who are the people who can help you think outside the box? Take the opportunity to build a “think tank.” You and the rest of your leadership team might have an excellent understanding of the markets in which you operate, however, now might be a great time to bring in outsiders to help you chart your course and, just as important, stay on that course.
Identify and utilize outside advisors who can help you understand what you’re facing and the potential opportunities presented; ask for their insights, suggestions and even access to their contact lists. Your banker, attorney and accountant can be excellent resources; not only do they know your business, but they likely have an excellent perspective of the earthquake zone. They might be able to connect you with others who have experienced similar
issues with whom you can network. Additionally, consider engaging a strategic business consultant to help guide your progress through this turbulent period or forming an advisory board to provide outside advice and counsel to take your company to the next level.

6.) Be “the other.” We see companies in several industries waiting for other companies–their competitors– to make the first move. Don’t just react. You might end up following lemmings off a cliff. The time for action is now.

There are many examples of new products and services being created by first movers. Likewise, there are a myriad of examples of companies expanding their product offerings or capabilities through a strategic acquisition or hire of talent. However a company seizes an opportunity, the common denominator is usually that they looked at the prevailing wisdom of the market leaders and other players and changed the paradigm in their marketplace.

While we fully understand that there are still trials and tribulations ahead, it’s important to manage, lead and act from the perspective of the long-term. Clearly, there might be “aftershocks” in the general economy, or your market specifically, that will impact your business. But if you set your plan and follow it with bold determination, you can be “the other” that your competitors are watching with envy.

Keep in mind the quotes from the beginning of each episode of Hill Street Blues: “Be careful out there” and “Let’s do it to them before they do it to us.”

Blackman Kallick has the strategies and resources to help your company sustain its competitive edge during the uncertainty that lies ahead. We look forward to our discussions with you on this matter. To discuss your situation, please contact Barry Cain, David Spitulnik or your Blackman Kallick representative at 312-207-1040.

Read Barry and David's blog, Strategy Insights.

Survey of Chicago Area Business Leaders, September 2009

2009-10-12T14:15:07Z

Executive Summary

Our first survey was conducted in October 2008, immediately preceding the November 2008 elections, and the second survey was conducted immediately following President Obama’s January 2009 inauguration. The timing of this, our third survey, was also purposeful.

View survey results as PDF or right click on this link to download PDF only.

During the first week of September 2009, the media and many economic pundits reported that economic recovery had begun. But many questions still remained:

The recovery to what?
If we are indeed in a state of recovery, do Chicago-area business leaders feel it yet?
What are their plans for dealing with it?
And, will all Chicago-area businesses benefit equally from the recovery? (We expect not.)

The results of our survey provide insight into how Chicago-area business leaders view today's economy and the steps they are taking, or contemplate taking, going forward.

We encourage you to compare your own experience, viewpoints and assumptions to the findings of the September 2009 survey. Please feel free to share your thoughts with us. We welcome your comments on the results of the survey as well as your specific plans for ensuring that your company benefits from the economic recovery.

Interesting Observations

When comparing the earlier October 2008 (pre-election) and January 2009 (in the heart of the recession) survey responses to those of the September 2009 (impending recovery) survey, we noticed the following:

In October 2008, we were encouraged that survey respondents showed faith in the local economy. This was supported by the Midwest being a laggard into the recession. In January 2009, the responses leveled out. Now, in September, we see that local business leaders believe Chicago is lagging out of the recession as well. We expect that this will, in fact, be the case.(See page 13)
The majority of respondents believe the economy will recover to a “healthy” state eventually (only 5.7% responded “never”). More than half expect the recovery to take 24 months. (See page 14.)
One of the most noted and discussed results from the last two surveys was the majority of respondents’ lack of worry about obtaining financing, despite the media’s attention on how tight financing has become. The results across all three surveys have, for the most part, remained flat. (See page 11.)
Both hiring plans and profitability expectations are reportedly on the rise (as compared to January 2009). The changes here are dramatic and seem to provide a counterpoint to recently reported unemployment rates, as well as the expectation that the Chicago area will lag into recovery. (See pages 8–10.)
For this survey, we asked a new question: What Are You Doing Right Now to Seize Opportunities Presented by the Current Business Environment? While “tightening operations” received the highest number of responses, it was followed relatively closely by “revising strategic plans/restructuring,” “strategic expansion” and “adding additional product/service offerings.” (See pages 16–18 for the results, as well as a large number of verbatim comments.)

The previous surveys can be found online at www.BlackmanKallick.com/articles/business-surveys/.

View survey results as PDF or right click on this link to download PDF only.

View February 2009 survey results online.

Recovery Act Reminders for 2009

2009-10-09T21:23:44Z

Nora Stapleton, Tax Partner at Blackman Kallick, shares her expertise on the American Recovery and Reinvestment Act (ARRA) in the October issue of the Journal of Accountancy. The article, Recovery Act Reminders for 2009 summarizes some of the most prominent points readers should discuss with their clients including implications on income, deductions and credits.

Stapleton co-authored the article with Ellen Cook, Chair of the AICPA Individual Income Taxation Technical Resource Panel, Anna Fowler, past member of the AICPA Tax Executive Committee, Annette Nelson, Vice Chair of the Individual Income Taxation Technical Resource Panel and Joseph W. Walloch who practices in Redlands, California.

The Road to Recovery

2009-09-24T18:44:07Z

The Dow Jones Index has recovered from 8,776 points at the end of 2008 to a closing of 9,605 as of September 11, 2009. That’s certainly good, but not great. At the same time, the economy seems to be turning upward, leading many top U.S. economic policymakers to proclaim the recession over and the economy on the road to recovery.

Those last few words are key. “The road to recovery” does not mean that we are there yet. Rather, we are on the way back. We can begin to our hold our heads a little higher as we move away from survival mode. However, it would be a mistake to assume that “the” recovery will automatically be your recovery. Focused planning and diligent execution are key to transitioning successfully into the new economy.

In last month’s blog we addressed two areas germane to planning and execution for the long run.

Understand Your Employee Retention and Hiring Advantages...and Seize Them -- Now considered a recent BusinessWeek column by Jack and Suzy Welch and how small- and medium-size businesses have opportunities and advantages like never before with regard to their people. Your people are your most important business asset. Are you doing everything to ensure that they stick around once the job market improves?

The discipline of planning is crucial. In Decision Impaired or Impaired Decisions?, we reported on a presentation by Neil Novich, retired Chairman, President and Chief Executive Officer of Ryerson Inc. titled “How Can Such Smart People Make Such Bad Decisions … and Is There Anything We Can Do About It?” The article speaks to the five key areas in which bad decisions are made and suggests ways to avoid them.

Also, please be on the lookout for what we believe is a very important article we’ve authored on how you can address and attack the road to recovery in your world. In “Surviving the Upturn … Be ‘The Other’” we’ll present and discuss a series of critical actions you can take to positively impact and hasten your own company’s recovery. We’ll help you build a process to better understand your possibilities and then create your “new normal.”

We believe that sitting still in the current environment is not an option. Purposeful, focused action will serve you well. With that in mind, we leave you with the following thought:

“You create opportunities by asking for them.”
– Patty Hansen, co-author of many of the stories in the Chicken Soup for the Soul series.

Sincerely,

Barry S. Cain, JD, CMC, Managing Director, Strategic Services
Blackman Kallick • 10 South Riverside Plaza, 9th Floor • Chicago, IL 60606
Direct 312-980-2976 • Fax 312-756-3976 • Mobile 312-315-9495

David Spitulnik, Director, Strategic Services
Blackman Kallick • 10 South Riverside Plaza, 9th Floor • Chicago, IL 60606
Direct 312-980-3339 • Fax 312-928-5339 • Mobile 312-593-3181

Suzanne Lane, JD, Senior Manager, Strategic Services
Blackman Kallick • 10 South Riverside Plaza, 9th Floor • Chicago, IL 60606
Direct 312-980-3301• Fax 312-207-1066

抓住收购与兼并美国公司的时机

2009-09-04T15:42:39Z

目前中美商业投资形势

众所周知，中美两国在政治经济贸易等方面关系良好，目前在商业投资方面出现了新的趋势：一方面，一些美国企业有意向出售自己的资产或销售渠道，而中国方面由于政府鼓励企业进行海外投资以及充裕的中国资本，越来越多的中国公司开始投资美国企业，而且目光不仅仅局限于那些价值数十亿美元的技术型企业和石油公司。激发这些并购行为的另一大动力在于全球经济衰退导致外国企业价值下降，对作为买方的中国投资公司从中得益匪浅。今年一季度中国大企业不断出手收购海外行业巨头引起大家的广泛关注，部分专家认为2010年将是中国企业海外投资的热潮。在海外投资的中国企业以能源、制造业、信息技术以及纺织业为主，而在海外设立销售办事处是中国企业对外投资最常见的形式。

据商务部的统计信息揭示，近年中国企业走出去步伐不断加快。从2002年到2007年，中国企业海外投资平均年增速达到60%；截止2008年年底，中国累计对外直接投资达1300亿美元。2008年中国对外直接投资达到521.5亿美元，其中，非金融类直接投资406.5亿美元，占78%，同比增长63.6%；金融类115亿美元，占22%。2009年上半年中国投资者共对105个国家和地区的1016家境外企业直接投资，累计实现非金融类对外直接投资124亿美元，其中二季度投资87亿美元，同比增长37.6%，较上季（环比）增长182%。中国投资者对大多数行业的美国企业都感兴趣，如重工业企业、高科技与工程技术企业、承包企业和物流配送企业。

并购美国企业可以给中国公司带来的好处

美国企业的优秀管理人才和先进的管理机制；
有价值的销售渠道。并购美国企业之后，中国企业可以获得全球直销的新客户。中国的企业就此可以减少中间环节，增加企业的利润空间；
获得来自美国的稳定的原料供应来源。例如：一家备受金属生产原料困扰的中国制造企业并购了一家合适的美国废旧金属回收企业。其结果，这家企业不仅保证了稳定的生产原料供应，而且可以降低其原材料成本；
得到具有国际声誉的美国企业的品牌；
拥有先进的知识产权、设备和房地产；
充分利用中国市场过剩的生产能力。例如：一家汽车零部件制造商通过收购销售同类产品的美国企业，可以立即获得更多的客户，增加销售额；
企业主通过收购美国企业和创造就业机会可以获得移民美国的资格。

如何成功地兼并与收购

为了使资金尽快进入美国，一些中国大陆的企业会通过其在海外或香港的子公司转移资金。如果从中国大陆直接把大笔资金电汇至美国，则需要一个审批过程。
作为商务上的战略布局，中国公司在并购中可能愿意出稍高的价钱来打进国际市场。
尽量缩短谈判过程，中国企业或许希望花一定时间建立对美国同行的信任，而不仅仅把收购视为一笔生意。中国买家的缓慢反应会拖延交易过程，可能导致落选。
近期全球金融危机导致美国银行不愿轻易给企业贷款。中国鼓励银行给企业扩展提供低息贷款能为中国企业顺利有效地提供并购资金。美国卖方企业可以放心的转让其企业所有权。
在经济合理的情况下，尽量保证不把买到的企业转移到中国。美国公司最不愿意见到的就是中国买方把生产业务迁移到中国，导致他们多年的雇员失去工作。
成为美方信赖的‘有诚意的买家’。许多中国企业资金雄厚，可以用现金收购美国企业，而其它的美国买方需要卖方贷款或分期付款。提高买方财务报表的透明度和可信度，以显示买方有足够的并购资金可为交易成功铺平道路。
消除双方文化背景差异引起的误解。越来越多的中国企业拥有英语流利的人才或者带上英语翻译参与谈判。但是，有时候因为买方不熟悉业务上的英语词汇，在翻译过程中会遗漏信息。此外，不同的文化背景和谈判方式也会导致误解。您也许看过好莱坞电影“喜福会”。其中有这么一幕：一位善长烹饪的中国母亲出于中国式的礼节，不断地向她的白人女婿表示抱歉，说自己做的饭菜平淡无味，女婿信以为真，往“完美”的菜里添了很多酱油，结果成了笑话。有时候，中方人员会否认一份合同协议--这并不意味着这份合同不够好或者不想接受协议中的某项条款，或许只是希望美方卖主能多提几次，然后才正式接受，但是美国卖方会误认为中方拒绝合约而导致谈判中止。
协议条款可以灵活运用，比如可以增加美方获利分成、保留股权等条款。这类条款有助于降低中方收购风险。如果要求卖方保留部分股权，在中方收购大部分企业后美方卖主会仍然有动力把企业管理好。
做好尽职调查。挑选组织好一个有经验的尽职调查团队可以保证有效而迅速地调查美国卖方企业各方面的情况。例如，美国卖方财务报表多数遵守“美国公认会计准则”，此准则与“国际财务报告准则”不同，所以买方需要聘用有国际会计经验的顾问来审查卖方的财务实力。查清卖方的财务、环境、法律、员工、运营、管理、销售、客户及供应商等各方面的真情，可以避免以后产生意想不到的不利情况和损失。
买方必须确保所有合同条款都是可执行的。中国的商业法律体系尚在完善中，许多协议在中国仍然是口头协议，可能在与美方签订协议时把并购意向书作为协议声明书，此后又要求修改条款。美方则认为协议书一旦签署就不能修改。
需要建立一个可相容的商业计划。许多中国买家没有接手处理美方老客户的能力，需要帮助才能更好地理解美国文化和美国的经营方式。例如：一家中国公司收购了一家位于德克萨斯州的技术公司，随即从中国派来管理人员取代卖方的管理团队。他又解散了原来的销售团队，结果，原有的美国客户因为不满意新的销售团队而纷纷离去，公司的销售额在两年内下降了百分之四十。买家在中国运用自如的营销策略在德克萨斯州没能产生同样的效果。
美国和中国的工会概念与环境相差很大。有一家中国公司并购后采用自己带来的总经理管理一个有工会的工厂。当然，该企业在中国的工厂也有工会。但新的总经理不能有效地按照计划保证生产，而美国员工跳槽事件却不断发生。

中国公司如何处理企业的并购行为？中国的买家有可能帮助美国公司实现企业的最大价值。熟悉中国与美国文化的金融咨询顾问可以为您提供有关兼并与收购业务的各种建议与服务。与他们接洽，您定能受益匪浅。有关企业并购与估价的事宜请联系：

苏允菡--金融管理硕士∙注册会计师∙商业评估师

美国必凯会计金融咨询公司中国业务部总监兼国际金融咨询部董事
美国伊利诺州芝加哥市湖畔大厦路南 10号邮编60606
电话：(001) 312-980-2912

ssu@BlackmanKallick.cn
www.BlackmanKallick.cn

Residential Energy Credits Extended

2009-08-26T15:21:54Z

Home Improvements

The Emergency Economic Stabilization Act of 2008 (the 2008 Act) and The American Recovery and Reinvestment Act of 2009 (the 2009 Act) extend and modify the lifetime nonrefundable credit for qualifying home improvements, which expired for expenditures after December 31, 2007.

Under the 2008 Act, the credit was resurrected for property placed in service after December 31, 2008 and before January 1, 2010 with a maximum credit allowable of $500. The 2009 Act extends the credit through December 31, 2010, raises the maximum credit allowable to $1,500 and revises some of the standards for qualifying property.

The following requirements must be met to receive the credit (up to $1,500 total) for energy-efficient improvements on a taxpayer’s principal U.S. residence:

Credit of 30% of the cost of energy-efficient building envelope components that meet criteria established by the 2000 International Energy Conservation Code. These consist of insulation materials or systems that reduce heat loss and/or gain; exterior windows (including skylights); exterior doors; certain metal roofs with pigmented coatings; asphalt roofs with cooling granules that meet ENERGY STAR requirements designed to reduce heat gain. In addition, the components must be expected to last for at least five years.
Credit of 30% of the cost of residential energy property expenses for:
- Energy-efficient building property (electric-heat-pump water heater; electric heat pump; central air conditioner; natural gas, propane or oil water heater; or a stove burning biomass fuel to heat or provide hot water to a taxpayer’s U.S. residence)
- Natural gas, propane or oil furnace or hot water boiler
- Advanced main air circulating fan

Purchase of solar and fuel-cell property

The 2008 Act also extends the credit for the purchase of residential energy-efficient property so that it is available for property placed in service after December 31, 2008 and before January 1, 2017.

For years beginning after December 31, 2008 the annual credit for the purchase of residential energy-efficient property is equal to the sum of the following:

30% of the amount paid for qualified solar-electric property, up to a maximum credit of $2,000;
30% of the amount paid for qualified solar water-heating property, up to a
maximum credit of $2,000;
30% of the amount paid for qualified fuel-cell property, up to a maximum credit of $500 for each .5 kilowatt of capacity;
30% of the amount paid for qualified small wind-energy property, up to $500 for each half kilowatt of capacity, up to a maximum credit of $4,000; and
30% of the amount paid for qualified geothermal heat-pump property , up to a maximum credit of $2,000

Please note that installation costs are included as part of the “amount paid.” Also, “qualified” solar water-heating property is required to meet the certification of the Solar Rating and Certification Corporation or comparable entity endorsed by the state where the property is installed.

For tax years on or before December 31, 2007, the credit rate was 10%. Also, a $2,000 credit limitation applied to items (1), (2) and (5) above. A $4,000 credit applied to item (4) above. For tax years beginning after December 31, 2008, the Act removes the $2,000 and $4,000 credit limitations. The Act also increased the percentage rate of property cost in calculating the credit. For tax years beginning after Dec. 31, 2009, the credit can be claimed against both regular tax and AMT. Any excess credit is carried to the following tax year and added to the credit allowable for that year.

To qualify for the equipment in (1), (2), (4) and (5) above, the property must be installed in the taxpayer’s U.S. residence (including a vacation home located in the United States). The qualified fuel-cell property in (3) above must be installed in a taxpayer’s principal U.S. residence. There are specific energy standards that must be achieved in order for the property to qualify for the credit. Confirm with your contractor that the property purchased qualifies for the credit.

For more information, please contact Kira Wheat at 312-980-3331or Mike Calahan at 312-980-2996.

Should You Be Paying Your Taxes Electronically?

2009-08-24T06:45:59Z

The economic downturn has hurt state governments as much as taxpayers. With states in need of money, it’s no surprise that the number of states requiring electronic payment of taxes for both businesses and individuals is on the rise. Electronic payment is an easy way for states to quickly get much needed funds as well as generate additional revenue by assessing penalties for those who do not comply. Electronic payment requirements apply to individuals and/or businesses. Many states do not make an effort to make taxpayers aware of their electronic payment requirements.

While Illinois has a relatively high threshold, requiring those with annual tax liabilities exceeding $200,000 to pay electronically, other states require considerably smaller payments to be remitted electronically. For example, in Alabama, a single payment of $750 or more must be electronically remitted.

Some states require that taxpayers be notified of electronic payment requirements. However, other states such as Massachusetts, do not send out notices to taxpayers regarding electronic filing and expect all payments, including estimates and extensions, to be remitted electronically. In essence, taxpayers in Massachusetts are expected to know the electronic payment requirements even without notification of electronic payment requirements from the government.

Penalties for noncompliance can be substantial. Connecticut assesses a penalty of $5,000 for failure to comply with its electronic payment rules. A $1,000 penalty is assessed for each additional infraction.

With constant changes being made at the state level and the need for additional funds, state taxation has become very complex. There should be no reason for a taxpayer to pay penalties and interest due to not remitting tax payments electronically. It’s important to consult a tax professional to make sure that you are meeting all the requirements in the states in which you do business and thereby avoid costly penalties.

We recommend that those filing state tax returns in multiple states or having large state tax liabilities consult a tax professional to determine if they have electronic payment obligations. Blackman Kallick’s state and local tax (SALT) group has the insight and experience to properly advise taxpayers on their responsibilities.

For more information or to discuss any concerns regarding electronic payment, please call Deb Rood at 312-980-2995, Jason Parish at 312-980-2959 or your Blackman Kallick representative.

Service Providers Beware: You Could Have Nexus in California Without Having Physical Presence

2009-08-20T20:18:42Z

California’s 2009–2010 budget, which was signed by Governor Arnold Schwarzenegger on February 20, 2009, contains significant changes to California tax law. These changes could impact companies with sales to California customers even if the companies do not have a physical presence in California. Below are details on some of the significant changes.

“Doing Business” Definition Revised

Under existing corporate income tax law, “doing business” means being “actively engaged in any transaction for financial or pecuniary gain or profit.” Effective for taxable years beginning on or after January 1, 2011, a taxpayer will be considered “doing business” in California under any of the following conditions:

The taxpayer is organized or commercially domiciled in California
The taxpayer’s California sourced sales exceed the lesser of $500,000 or 25% of the taxpayer’s total sales
The taxpayer’s real property and tangible personal property in California exceeds the lesser of $50,000 or 25% of the taxpayer’s total of such property
Amounts paid in California by the taxpayer for compensation exceed the lesser of $50,000 or 25% of total compensation paid by the taxpayer

California appears to have effectively adopted an “economic nexus” standard, whereby physical presence in California is no longer required to have nexus. It should be noted that Public Law 86-272¹ still applies to taxpayers selling tangible personal property. However, the California tax law changes are of significant importance for service providers as Public Law 86-2721 does not apply to services.

An example of how the California tax law changes might impact taxpayers is provided below:

An Illinois-based consulting firm, which does not have employees or independent contractors entering into California, secures California clients based on word-of-mouth advertising. Total sales from the California clients are $600,000. Under the existing law, the consulting firm would have no income tax nexus in California as there is no physical presence. Under the new law, the consulting firm would have income tax nexus and filing obligations in California because sales to its clients located in California exceed $500,000. Similarly, if the company’s total sales amount to $1,000,000 and sales to the clients located in California total $300,000 rather than $600,000, the consulting firm would still have income tax nexus and filing obligations in California under the new law since the $300,000 exceeds 25% of the company’s total sales.

Sourcing of Service Revenue Based on Benefit Received

Under existing corporate income tax law, revenue from services are sourced based on the cost of performance. For tax years beginning on or after January 1, 2011, sales from services are considered to have taken place “in” California “to the extent the purchaser of the service received the benefit of the service” in California.

An example of how this California tax law change might impact taxpayers is provided below:

An Illinois-based law firm, which files a California income tax return, performs legal services for a customer located in California. Although the benefit of the services is presumably received in California, the greater cost of performing the service occurred in Illinois. Under the existing law, no sales would be sourced to California on the law firm’s California income tax return as the greater cost of performance occurs in Illinois. Under the new law, the law firm should source all of the sales to California as the benefit of the service was received in California.

Adoption of Finnigan Rule for Combined Filers

Effective for taxable years beginning on or after January 1, 2011, sales of tangible personal property to a person or entity located in California are included in the sales factor numerator if any of the companies within a combined group has California nexus. On the flipside, sales are not “thrown back” to the California sales factor numerator if the sales are made to a state where any member of the combined group is taxable in that state.

An example of how this California tax law change might impact taxpayers is provided below:

Company X, which has California-sourced sales, is included in a California combined income tax return but does not have California nexus on a stand-alone basis. Under the existing law, Company X’s California-sourced sales are excluded from the sales factor numerator as Company X does not have California nexus. Under the new law (Finnigan rule), Company X’s California sourced sales are included in the sales factor numerator since at least one of the members in the combined return has income tax nexus in California.

We Can Help Reduce the Tax Impact

Regarding the California tax law changes discussed above, California appears to be targeting out-of-state service providers, especially ones with revenue from California customers. Although these changes will not be effective until 2011, it’s important to identify possible tax exposure and implement tax planning strategies to minimize the tax impact as early as possible. Further, with the FIN 48 disclosure requirements, it is more important than ever to proactively address these issues.

If you would like to discuss possible California tax exposure and tax planning strategies for your company, please contact Vu Vinh at 312-980-2923 or Deb Rood at 312-980-2995.

¹The federal law that prohibits states from imposing net income tax upon companies whose activities are limited to the mere solicitation relating to the sale of tangible person property. It is important to note that service providers are not protected under this law.