This article came to me from my friend Attorney Phil Guttilla, a tax and estate attorney that is one of my go-to guys and who is helping people with the tax consequences of being part of entities that are in crisis due to the current market.
Yours, Ike
A recent Arizona Court of Appeals decision held that an Internal Revenue Service Form 1099-C sent by a lender to a delinquent borrower was prima facie evidence that the lender intended to cancel the debt.
In AmTrust Bank v. Fossett, 1 CA-CV 08-0840, the Court stated that this evidence may be rebutted by the lender; however, the lender's intent was a factual issue which barred both parties from obtaining an early decision by summary judgment.
Generally accepted accounting principals and Federal tax law require lenders to report a discharge of indebtedness, which may give rise to taxable income for the borrower.
Under Arizona law, a discharge of debt may occur when a lender agrees not to sue or otherwise renounces its rights against the borrower by a signed writing.
In AmTrust Bank v. Fossett, the borrowers argued that because they reported and paid taxes as a result of the lender's Form 1099-C, the lender was precluded from pursuing a deficiency under Arizona law. The Court recognized that under Federal law, certain conditions mandate that the lender file a Form 1099-C even if it still intends to pursue collection. The Court also noted that if the lender was not required to report under Federal law but did, then that is also a factor to be considered in determining whether the borrowers were still liable for the debt.
The concurring judges noted that other courts have remarked in similar situations that there is no reason why a lender can not include a statement with the Form 1099-C sent to a borrower explaining the reason for issuing the Form 1099-C and a notice of the lender's intent to continue to pursue collection. While not controlling, the comment was instructional and we believe that a lender should include a reservation of rights and explanation letter with each Form 1099-C.
For more information on when a lender must file a Form 1099-C or for more information regarding the suggested form of letter, please contact Attorney Phillip Guttilla, pguttilla@rcalaw.com , (602) 440-4845 or see more about Phil Here:http://www.rcalaw.com/View-user-profile.php?qsln=g&user=96
Thursday, February 25, 2010
Tuesday, February 9, 2010
9 Tips for Negotiating with Corporate Creditors
This is a great simple outline by my friend Sean Shepherd about negotiating with corporate creditors. As always, get good legal counsel and implement a professional asset protection plan NOW to help protect your family's assets from an infinite universe of personal and professional exposure. - Ike
Guest Column By Sean Shepherd
Negotiating with creditors to effect an out-of-court workout is certainly not an easy task. Facing a loss, creditor managers and banks often adopt an adversarial posture that initially may be difficult to overcome.
The goal is to establish a consensual tone and tenor while acting to protect your own interests. Despite what they may say, credit managers and banks will be acting in their best interest and it is important to realize that their goal is to maximize their recovery. Accordingly, here are some tips that will help during negotiations:
1) Liquidity Analysis - Start by performing a comprehensive liquidity and cash flow analysis that uses current operating characteristics as a base line. The goal is to first determine what the business can afford to pay on a periodic basis.
2) Game Plan - Have a game plan BEFORE approaching the creditor and never agree to pay more than what the cash flow analysis suggests is feasible.
3) Understand the Other Side – This is one of the universal keys to negotiating—i.e., understanding your opposition’s needs and objectives. During negotiations, attempt to uncover the creditor’s needs and their bottom line—that is, the absolute minimum that they will or can accept. Depending on individual circumstances, 50% to 70% percent of the current balance of the credit is generally not unreasonable.
4) Stay Calm - Credit managers and banks may use a variety of tactics to coerce the borrower into a revised arrangement that is ultimately unrealistic. Hence, stay calm and never become intimidated by the person that you're negotiating with, even if they threaten you with lawsuits or other actions. Studies indicate that a calm person thinks more clearly and effectively than one aroused.
5) Timing - Don't lose sight of the fact that most successful negotiations take place over a matter of days or even weeks, with several rounds of offers and counter-offers. Don't become discouraged if the process seems to be taking longer than expected.
6) Alternatives – Try to present a couple of different restructuring/repayment alternatives so that you’re presenting a ―choice‖ to select from. This is, again, a key tactic in successful negotiations. If the company can afford, for example, to settle an account by paying a lump sum (as opposed to a payment plan), you'll have much more negotiating leverage. This is the universal power of cash, and it works in all venues.
7) Opposing Tactics - Remember that the person you're negotiating with is a trained professional when it comes to debt collections. A common tactic is for them to use complex legal terminology (during conversation or in correspondence) in order to confuse or intimidate the counter-party. Attend very carefully to what's being said and make sure that you understand exactly what you're being asked to agree to. If a legal issue arises during negotiations, side-line the topic by simply indicating that you can’t agree or comment until you’ve consulted with the attorney involved in the process.
8) Draft & Execute the Agreement - Once a workout agreement has been reached, make absolutely sure that everything that's been agreed upon is accurately expressed in writing, and that the agreement is fully executed by all parties—i.e., signed and dated.
9) Know the Law - Never lose sight of the fact that anyone attempting to collect a debt outside of court must conform with the Federal Fair Debt Collection Practices Act—understand what this says and what rights it affords the borrower.
Sean Shepherd is the Director of Business Development for VALCOR Consulting. VALCOR provides a full menu of enterprise valuation services and restructuring support to the middle market. Mr. Shepherd can be reached at: sshepherd@valcoronline.com or 602.214.4321
Guest Column By Sean Shepherd
Negotiating with creditors to effect an out-of-court workout is certainly not an easy task. Facing a loss, creditor managers and banks often adopt an adversarial posture that initially may be difficult to overcome.
The goal is to establish a consensual tone and tenor while acting to protect your own interests. Despite what they may say, credit managers and banks will be acting in their best interest and it is important to realize that their goal is to maximize their recovery. Accordingly, here are some tips that will help during negotiations:
1) Liquidity Analysis - Start by performing a comprehensive liquidity and cash flow analysis that uses current operating characteristics as a base line. The goal is to first determine what the business can afford to pay on a periodic basis.
2) Game Plan - Have a game plan BEFORE approaching the creditor and never agree to pay more than what the cash flow analysis suggests is feasible.
3) Understand the Other Side – This is one of the universal keys to negotiating—i.e., understanding your opposition’s needs and objectives. During negotiations, attempt to uncover the creditor’s needs and their bottom line—that is, the absolute minimum that they will or can accept. Depending on individual circumstances, 50% to 70% percent of the current balance of the credit is generally not unreasonable.
4) Stay Calm - Credit managers and banks may use a variety of tactics to coerce the borrower into a revised arrangement that is ultimately unrealistic. Hence, stay calm and never become intimidated by the person that you're negotiating with, even if they threaten you with lawsuits or other actions. Studies indicate that a calm person thinks more clearly and effectively than one aroused.
5) Timing - Don't lose sight of the fact that most successful negotiations take place over a matter of days or even weeks, with several rounds of offers and counter-offers. Don't become discouraged if the process seems to be taking longer than expected.
6) Alternatives – Try to present a couple of different restructuring/repayment alternatives so that you’re presenting a ―choice‖ to select from. This is, again, a key tactic in successful negotiations. If the company can afford, for example, to settle an account by paying a lump sum (as opposed to a payment plan), you'll have much more negotiating leverage. This is the universal power of cash, and it works in all venues.
7) Opposing Tactics - Remember that the person you're negotiating with is a trained professional when it comes to debt collections. A common tactic is for them to use complex legal terminology (during conversation or in correspondence) in order to confuse or intimidate the counter-party. Attend very carefully to what's being said and make sure that you understand exactly what you're being asked to agree to. If a legal issue arises during negotiations, side-line the topic by simply indicating that you can’t agree or comment until you’ve consulted with the attorney involved in the process.
8) Draft & Execute the Agreement - Once a workout agreement has been reached, make absolutely sure that everything that's been agreed upon is accurately expressed in writing, and that the agreement is fully executed by all parties—i.e., signed and dated.
9) Know the Law - Never lose sight of the fact that anyone attempting to collect a debt outside of court must conform with the Federal Fair Debt Collection Practices Act—understand what this says and what rights it affords the borrower.
Sean Shepherd is the Director of Business Development for VALCOR Consulting. VALCOR provides a full menu of enterprise valuation services and restructuring support to the middle market. Mr. Shepherd can be reached at: sshepherd@valcoronline.com or 602.214.4321
Wednesday, February 3, 2010
Florida Court: Insurer of Physician is not obligated to indemnify based on business liability policy’s professional services exclusion
The District Court of Appeal of the State of Florida (the “Appeals Court”) recently affirmed the trial court’s determination that a doctor’s business owner insurer was not obligated to indemnify the doctor for a wrongful death suit that resulted, in part, from the mis-filing of laboratory results by the doctor’s assistant, although it did have a duty to defend.
SEE THE WHOLE STORY HERE: http://tinyurl.com/yar5tva
SEE THE WHOLE STORY HERE: http://tinyurl.com/yar5tva
Monday, February 1, 2010
Warning for small businesses and those who serve them about Employee Lawsuits
The link below is to a new article shedding light on the potential costs of employee lawsuits, an issue you have likely heard me talk about before. The Second link is to my piece on how we FIX this. Feel free to share with friends and clients who have employees.
Overtime lawsuits finding new targets :Small employers get hit as others wise up
http://sacramento.bizjournals.com/sacramento/stories/2010/02/01/story1.html?b=1265000400%5e2807911&ana=e_pft
SAFELY DEALING WITH EMPLOYEE EXPOSURE IN A DOWN ECONOMY:
http://arfinance.blogspot.com/2009/06/dealing-with-employee-exposure-in-down.html
Overtime lawsuits finding new targets :Small employers get hit as others wise up
http://sacramento.bizjournals.com/sacramento/stories/2010/02/01/story1.html?b=1265000400%5e2807911&ana=e_pft
SAFELY DEALING WITH EMPLOYEE EXPOSURE IN A DOWN ECONOMY:
http://arfinance.blogspot.com/2009/06/dealing-with-employee-exposure-in-down.html
Federal Estate Tax for 2010 - What you must KNOW and DO
What you need to know: The Congressional debate on estate tax legislation has been put on pause during its recess, allowing current legislation that repeals the federal estate and generation-skipping transfer taxes to take effect.
What you need to do: Individuals should determine whether these changes will affect their estate planning and stay abreast of the situation in Congress once discussion resumes.
See all the details and the full article from LEXOLOGY here: http://tinyurl.com/yejuhze
What you need to do: Individuals should determine whether these changes will affect their estate planning and stay abreast of the situation in Congress once discussion resumes.
See all the details and the full article from LEXOLOGY here: http://tinyurl.com/yejuhze
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