Life insurance proceeds received by limited partnership not included in gross estate of insured limited partner

In Private Letter Rulings 200947006 & 200948001, the IRS considered whether a series of transactions among a partnership, corporations and trusts which altered the ownership and beneficiary designations of two life insurance policies required inclusion of the policies in the insured's estate.

See the Whole Article here: http://tinyurl.com/y865vlp

MUNI BOND BOND EXPOSURE - WARNING

This article by investment expert Jeff Christenson was originally published in this month's issue of WORTH magazine. It sheds light on how the economy and depressed tax revenue threaten the value of Muni Bonds, what many consider to be the safest part of their portfolio. A must read for advisors, investors and CPAs. - Ike

As State Budgets Troubles Worsen, What’s Next for Muni’s?

A new crisis, that has not yet been addressed, exists within state and municipal
budgets. According to the Center on Budget and Policy Priorities in Washington, DC, an unprecedented level of state fiscal problems have been brought on by the worst decline in tax receipts in decades and these revenue declines show no signs of letting up.

The current recession is expected to be more severe than the last one, causing state fiscal problems to deepen and last longer than previous recessions. At least 48 states are addressing budget shortfalls for fiscal year 2010 totaling $168 billion and an unusual number of these states are still struggling to adopt a budget for fiscal year 2010, two months after the July 1st start date.

These fiscal problems are expected to continue into fiscal year 2011 and likely beyond. At least 36 states are anticipating significant deficits for fiscal year 2011, and these shortfalls are estimated at an additional $180 billion. Combine the shortfalls for the 2010 budget and those estimated for 2011, and the estimated total is at least $350 billion.

Unemployment, which peaked after the last recession at 6.3%, has already exceeded 10%, and many economists expect it to continue to rise. This continued rise in unemployment would further reduce state income tax receipts, thereby significantly increasing demand for Medicaid and other state-provided services. Also, sales tax receipts have fallen more severely than during the previous recession due to a reduction in the consumer’s access to sufficient lines of credit. This reduction in state revenue has forced states to implement a combination of spending cuts, withdrawals from reserves, and use of federal stimulus dollars. When combined with falling property tax receipts due to rising residential and commercial delinquencies and defaults, state and municipal revenues may continue to decline for some time.

Although we see a high level of risk in the municipal bond markets currently, with equity markets rallying, municipal bonds trading at premiums, and more cash moving off of the sidelines and into the markets each day, market conditions may stay positive through year-end or early next year before the sentiment reverses.

Investors who cannot afford to lose their current unrealized gains from the recent rally should be cautious and mindful of the increased risk to capital and strongly consider moving out of municipal bonds to protect capital.

During last year’s financial crisis, municipal bond prices fell by an average of 20%. The current rally has led to a recovery in pricing, with many municipal bonds again trading at premiums. This recovery in pricing is concerning, given the increasing budget shortfalls and the most extensive expense cuts by states and municipalities in history. Given the relatively low yield of most municipal bonds, the ratio of risk to reward seems out of balance. In fact, this may be one of the greatest selling opportunities in history.


Link to the article in WORTH: http://worth.com/index.php/advice?id=168&view=single

Disclaimer:

The views are those of Jeff Christenson and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Past performance does not guarantee future results.

Securities and Advisory Services are offered through Multi-Financial Securities Corporation, member FINRA, SIPC. Christenson Wealth Management is not affiliated with Multi-Financial Securities Corporation.

SCAM - “Brokers” and ‘Up Front Fees’ for Venture Capital

This is a guest column by Greg George, a professional due diligence expert that I use as a resource. There are a huge number of people looking for financing due to the current lending climate and the bad guys know it. Here's what one expert has to say.

Yours, Ike


Risk and Threat Management – Presented by Greg George

Posted in Awareness by gtiadvisors on January 7, 2010

I’ve been monitoring what appears to be the longest discussion string in LinkedIn history (up to 223 comments now) going on at the Private Equity and Venture Capital Group.

The discussion question is: What do you think about ‘up front’ fees..? (for funding a deal)

There has been very good information posted, there has been very bad information posted, smart ass comments and bullying here and there (yes, very professional), those postulating their own ‘expertise’ – “…this is how good I am, I’ve done these $20mm+ deals, and…” etc etc (never tout yourself as an expert, it diminishes your credibility – If you’re worth the recognition, others will do that for you), and I’ve even seen a few spamming in trying to sell their services/deals – astonishing…

A few thoughts on ‘brokers’ and other middle men/women requiring fees ‘up front’ – usually under the guise of due diligence work that needs to be done, we have to better position your business plan and pro-forma’s, along with all the assurances and window dressings of how they will get your deal funded – these are great sales people, and most are frauds.

You’ll never get to a closing, they will stall and stall and stall… for months – and you may never see the ‘up front’ fees you gave them again. If you think an alternative financing or equity funding program might be the right deal for you, at minimum, at least find out:

•Who these people really are
•Talk to several past success deal client references they ’should’ provide
•Who do they represent as potential investors on your behalf
•What are the sources of funds (don’t get sucked in to a money laundering or tax evasion racket)
See if the person and firm are even licensed in the U.S: do a FINRA broker check.

FSA (UK) – also provides alert lists of EU and other international players in the finance and equity funding game not registered or vetted.

Another growing dimension of these economic times, new groups and angel investors charging ‘up front’ fees just to hear your pitch – a good example of what’s going on with these guys see: VentureHype (a great resource for many VC, Angel, start-up and investing topics) – the article also links to a well done ‘rant’ by Jason Calacanis on these practices.

Bottom line 1: If you do not have the expertise and require consulting help to get your business plan, pro-forma’s, your perfect 7-slide ppt for your pitch, and everything else up to speed (and rehearsed many times) to be received as an attractive, fund-able opportunity – set a budget, hire a competent firm or person and pay them to help you accomplish this.

Consulting services to get this right the first time, has nothing to do with capital raise.

Bottom line 2: Assume any “up front ‘broker’ fees” to arrange funding are frauds. Period (I’ve been dealing with these kind of people for a long time).

$4mm in up front fee frauds have come across my desk the past many months, especially since the real financial crash began to fall in September, 2008. In some cases we have been able to get the “up front fees” back on behalf of clients, even those fee’s that were wired offshore before the ink on the check was dry. We continue to work on others (leveraging RICO is a wonderful thing).

I have participated as an advisor to investors and as a decision panel member riding shotgun over the due diligence drill on companies seeking funding… during the past 12 months, the several organizations, equity firms, angels, family offices and high net worth individuals I’ve worked with have funded more than $30mm in start-ups, acquisitions and expansions – not one dime of any ‘up front fee’ was involved.

_________________________________________________

Greg George is Managing Partner of GTI Advisors; Threat Management Practice Group. A senior advisor to executives, business owners, private equity investors, M&A teams and transaction lawyers, Greg provides guidance on matters of enhanced due diligence research, threat analysis, security issues, actionable intelligence, fraud avoidance, and corporate espionage realities. For further information please visit http://gti-advisors.com or contact Greg directly: greg@gti-advisors.com

What you must know about Selling a business in a depressed economy.

There are certain things we always warn our clients about when they are selling a business.

One of the issues we regularly address is making sure that the seller and their unrelated personal and business assets are adequately protected from any potential future litigation, including that often created by the buyer if he or she can't make the business work like you did and existing employees that may not be happy about the change or losing their jobs.

Our advice; plan for the worst (implement legal, proactive asset protection strategies) hope for the best, and have professional counsel in the sale and valuation of the business. For help in the valuation area I turned to our friend Sean Sheppard with Valcor, a professional business valuation company that works with clients nationwide.

Preparing a Business for Sale in a Depressed Economy
By Sean Shepherd

Economic tidal waves have crashed against the shores, affecting every business sector. Enterprises that have been in operation for 20, 30 and more years are now hanging on by a thread. In every sector you will find a business that faces an uncertain future, finding someone to buy the business and prepping the company for sale could be their best remaining option.

Like most economic crunches, cash is king. However, many business leaders do not have experience managing a business around cash flow. They have spent their entire careers focused on earnings and growth, and now find it hard to change their tact in such stormy seas.
Assess your financial condition. Is the company financially under performing or distressed? This assessment should show how much cash you need to generate and how quickly you need it.

Short-term cash requirements will trump a long-term strategy. In a less severe marketplace, it is smart to develop a sound long-term strategy and stay on course. If a short-term cash crisis drives a company out of business, your long-term strategy becomes irrelevant.

Cash flow wins vs. earnings per share. The key to survival is cash flow. That becomes an epic shift in mind-thought for most CFOs and managers. Since companies don’t normally focus on cash, that have troubles determining what their cash position is - or how long their cash will last. Distressed companies should track and forecast cash flow weekly, or even daily.

Attack from all angles. To build a war chest of cash, the company requires all of the leadership to be on the same page in making cash the top priority. All potential cash sources must be thoroughly examined over and over again. These sources include everything from uncovering price leakage to reducing cost and working capital to selling underutilized assets.

Build a portfolio. Develop a portfolio to generate cash. Focus on cost and working capital to generate an immediate liquidity cushion and to fund longer-term structural programs such as selling off business units or closing stores. A tactical combination of activities will strengthen the balance sheet and help to capitalize on the rebound.

Action speaks louder than analysis. Companies do not have time for detailed analysis or extended period of times pondering and thinking. The longer the company waits to choose a path, fewer options become viable.

Fire drill. Develop multiple downside financial scenarios for the business to learn what the key trigger points are, and more importantly, what specific actions you will immediately take to save cash.

Dig in and get back to growth a later date. Businesses focus on growth, except in the current economy. That usually means closing plants, laying off staff, liquidating underused assets, spinning off non-core businesses, and terminating unprofitable customer relationships. After digging in, there will be a reduction in cash erosion and new cash generated through asset sales.

Play for time, without stalling. Distressed sellers have only so much time available to arrange a sale. It depends upon liquidity: it’s a straight forward concept, the less capital you have, the less time you have to sell, and the lower the purchase price you’ll likely receive. The cost of accepting a new co-owner, or even taking on additional debt, may be worth it for the extra weeks or months to find the right buyer. Short-term cash infusions at this juncture also may provide you with an alternative to unappealing offers from opportunistic buyers. In this environment that sort of buyer will be the norm, and will seek out companies in desperate straits. The company will be so anxious to sell that it will accept a low price and unfavorable terms.

Court your buyer(s) and be flexible. The liquidity situation also will determine how to market a company to prospective buyers. From a tactical point of view, they may want to confine your efforts to a short list of prospective buyers that are willing to conduct abbreviated due diligence in exchange for pricing concessions or strong material adverse clause provisions that enable the buyer to pull out without repercussions.


Which type of acquisition makes the most sense for the company? If they have two or three distinct operations, it may be easier and more lucrative to sell each division to separate buyers. A buyer may anticipate synergies with one a certain product lines, but have no use for another part of your business. For example one of your divisions is in better financial condition than the others, meaning they may get a higher amount for that piece than if it were bundled with the-troubled segments.

Recognize the buyer’s needs in advance. Although due diligence often is considered the buyer’s responsibility, distressed sellers must perform their own due diligence. Buyers considering your company will expect to unearth some problems, but reduce the chance of future surprises. For example, that you should tell the buyer if you expect a further deterioration of your customer base or a lower growth rate going forward. Also, a seller’s representative will have compiled the following request for information from prospective buyers:

• Buyers historical and current financial performance numbers
• An accurate tally of assets
• Conservative future growth and performance forecasts
• Detailed analyses of all regulatory issues or outstanding litigation claims
• Provide up-to-date and detailed records of suppliers and customers
• If applicable, which third-party agreements would most benefit from such an alliance


Is short, different companies have different needs and there is no one solution to address how to prepare an enterprise for sale.

Now batten down the hatches, possible tidal waves ahead.

For help or more info, please contact:

Sean Shepherd sshepherd@valcoronline.com or 602.954.0010

YEAR END TAX SCAMS GETTING A BIG PUSH - AND PUSH BACK - FROM UNCLE SAM

At the end of every year clients of all types (especially MD's) and advisors rush to find last minute ways to minimize the tax liability for the year. We see many plans of questionable value and legality pushed through in the last couple of weeks when due diligence is slowed by Holiday schedules and your trusted advisors' massive workloads. Here are some potential landmines to look out for. If you are being pressured into funding a plan over the holidays, make sure you know exactly what you are stepping into and have experienced counsel.

Where did this list come from? THE I.R.S.

In contrast to their many legitimate roles, foreign entities are increasingly being promoted as a means to divert income and conceal assets for taxpayers who have no real operations in a foreign country.

In addition to preferential tax regimes and protection against creditors (which is how and why I use them to protecet people every day - with full tax reporting), most tax havens also offer strict laws against disclosure of banking and business records. Generally, these nations do not have income tax treaties with the United States, and tax evasion is not considered a criminal act subject to Mutual Legal Assistance Treaties. Promoters of many abusive offshore schemes rely on the difficulty of access to records of tax haven banks, attorneys, and trustees. Furthermore, in the absence of government scrutiny, some offshore banks, attorneys, trustees, and other service providers have been known to falsify or fabricate records.

Despite being hidden or disguised, the income and assets of U.S. persons are still subject to U.S. tax. Taxpayers should be aware that abusive offshore arrangements will not produce the tax benefits advertised by their promoters and that the IRS is actively examining these types of arrangements. Furthermore, taxpayers and/or the promoters of these offshore arrangements may be subject to civil and/or criminal penalties.

Following are summaries of some identified schemes that make the IRS mad:

(Offshore) Limited Liability Companies (LLCs) - In response to efforts by the Organization for Economic Cooperation and Development (OECD) to eliminate harmful tax competition, some nations labeled as tax havens have accused OECD members of carrying on the very practices the members seek to stop. One example put forth is the ease with which nonresident aliens may do business through limited liability companies (LLCs) domiciled in the United States, in comparative anonymity. An October 2000 report by the General Accounting Office gives insight into the use of corporations as conduits for illicit funds. Abuse of anonymous corporations in the U.S. by foreigners mirrors the abuse of tax haven entities by U.S. persons.

Offshore Deferred Compensation Arrangements - Many highly compensated professional persons and business owners in the U.S. have been solicited to participate in "offshore deferred compensation plans". The U.S. taxpayer is encouraged to sever an existing employment relationship and substitute an arrangement in which the nominal employer is a foreign "employee leasing" company. The supposed result of this abusive arrangement is that the taxation of a large portion of the professional's or business owner's salary is deferred while he/she gains immediate access to the funds through loans or offshore-based credit cards. An improper deduction for employee leasing expenses is also created on the corporate tax return.

Fictitious or Overstated Invoicing - Some U.S. taxpayers have entered into schemes in which the taxpayer's U.S. business is billed by a purportedly unrelated offshore entity for goods or services (e.g., "consulting services") that are either nonexistent or overvalued.

Factoring of Accounts Receivable - A U.S. taxpayer's business may discount or "factor" its receivables to a purportedly unrelated foreign business entity. The discount or factoring fee significantly reduces U.S. tax liability, and is moved to an offshore entity where it can either be invested free of U.S. tax or repatriated for the taxpayer's use and enjoyment.

Abusive Insurance Arrangements - Some promoters have devised arrangements that are characterized as insurance arrangements, giving rise to a deduction for the U.S. taxpayer for "premiums" paid to a purportedly unrelated offshore insurance company. Often these arrangements are merely self-insurance, lacking in real transfer of risk.

Shifting of Income Using Offshore Private Annuities - Some promoters suggest that U.S. taxpayers may avoid or substantially defer tax on income streams or capital gains by exchanging property for an unsecured private annuity. In another abusive scheme an offshore private annuity is used in conjunction with an offshore variable life insurance policy as a devise to "decontrol" a foreign corporation or other entity used in an abusive sequence of transactions. As a result the promoter claims that the foreign corporation or entity is owned by the insurance policy and is not a, controlled foreign corporation, passive foreign investment company, or any entity controlled by a U.S. person whose income could be taxed in the United States to its owner.

Offshore Internet Business - For businesses conducted primarily through the internet, promoters offer "kits" which give the appearance that the business is foreign owned and operated. Transactions may be routed through offshore servers, and business receipts may be collected through offshore bank accounts or credit card merchant accounts. These schemes particularly target businesses that offer delivery of computer software and other digital products such as music, pictures, or video. They may also provide a means of operating offshore gaming activities.

Offshore Wagering - Over the last few years, gambling websites have proliferated on the Internet. Many of these virtual casinos are organized and operated from offshore locations, where the operators feel free from State and Federal interference. The operators of these activities may suggest that players in the U.S. are not subject to tax on their winnings, and may handle collections and disbursements in ways designed to facilitate avoidance of U.S. taxes.

Repatriation of Offshore Funds Using Credit Cards (such as MasterCard and VISA) issued by tax haven domiciled banks are a preferred method used by U.S. taxpayers to anonymously and covertly repatriate offshore funds that may or may not have been previously taxed. American Express cards are used in the same way but differ in that these cards are issued directly by American Express rather than by member banks.

Original link to I.R.S. - http://www.irs.gov/businesses/small/article/0,,id=106559,00.html

Estate Tax to Temporarily Expire Until Next Year - Now the Really Bad News

Given the depressed value of many real estate and investment portfolios, there has never been a more tax efficient and advantageous time to implement the right kind of estate planning, start transferring assets at their current value and improve and tune up the life insurance components of your planning, here's why:

The 45 percent tax on estates of over $3.5 million for individuals, or $7 million per couple, is scheduled to expire on Dec. 31, 2009, only to return in 2011 at a 55 percent rate for all estates of over $1 million. During 2010, estates would be taxed at the capital gains rate of 15 to 28 percent when heirs sell off more than $1.3 million in inherited assets.

Call us for help in making sure that 55% of your life's work is not lost to a system that is VOLUNTARY - that's right, I said ESTATE TAX IS VOLUNTARY. Why? Because the law allows you to structure, transfer and insure you way to ZERO estate tax liability if you are willing to put a small amount of time, money and effort into it.


See the whole story here: http://www.webcpa.com/news/Estate-Tax-Temporarily-Expire-Until-Next-Year-52743-1.html?ET=webcpa:e623:134343a:&st=email


Yours, Ike

Do You Really Need A Buy/Sell Agreement?

The post below is excerpted from the news letter of a colleague, financial advisor Steve Beatty who works with successful business owners all over the U.S. from his offices in the Las Vegas area. This edition of Steve's newsletter really deserved to be shared because it efficiently summarizes we exposures of not having a buy sell in place that can easily wipe out a business or family.

Yours, Ike

Part I

In our last issue of this Newsletter, we discussed the problems that can arise if a business continuity (buy/sell) agreement designed for one event (usually the death of a shareholder) is called upon to manage the more likely event of a shareholder’s departure during his or her lifetime. Lifetime departures may occur due to the retirement, termination, divorce or bankruptcy of an owner.

While it is true that poor design or failure to update the agreement—especially in tough economic times—can create significant problems, does that mean you and your co-owners shouldn’t have one in place? In a word, NO! The business continuity agreement may be one of the most important documents that you, as a co-owner of a closely held business, will ever sign.

For an idea of why, consider the case of Acme, a fictional company.
George Acme’s son-in-law, Tom Gardner, had worked for George for over 20 years. Tom had gradually assumed operational management and was the acting CEO. In recognition of Tom’s contribution, George had sold Tom—mostly at a low value—25 percent of the company.

Everyone expected that Tom would one day own Acme, Inc. But before that day arrived, George died and Tom's sister-in-law became the executor of George’s estate. She decided to sell George’s share of the company—at its full fair market value and for cash—either to Tom or to the highest bidder. At the time, she did not understand that no third party would acquire a majority position in a company co-owned and run by a disgruntled CEO.

Had Tom and George created a business continuity agreement that reflected their wishes about value, control and successor ownership, the business would have transferred at a fair price to the benefit of all concerned. Because they had not done so, Acme was unlikely to continue at all.

As mentioned earlier, a business continuity agreement can control the transfer of ownership in a business when a variety of events occur including: an owner’s death, permanent and total disability, termination of employment, retirement, bankruptcy, divorce, and a business dispute among the owners.

The buy/sell agreement can further require that the business or the remaining owners to purchase the departing owner's stock; or it may give an option to the business or the remaining owners to buy that ownership interest.

Lastly, it may give the departing owner the option to require the company to buy his or her ownership interest.

The agreement should establish the value of the stock, set the terms and conditions of the buyout, and give additional protection to all owners. In short, the business continuity agreement tells owners to whom they can sell, at what price and terms, and under what restrictions they can sell stock.

Advantages of a Buy/Sell Agreement.

The disadvantages of a buy/sell agreement are few if the document is well drafted and is kept updated for changes in ownership, value and other circumstances. (See Issue175.) With that in mind, the major advantages of a buy/sell agreement are:

1. Ownership in the business can be transferred only in accordance with the agreement. This benefits both the owner wishing to transfer stock and the other owner(s) wanting to acquire stock. In the first instance, the buy/sell agreement can provide a selling shareholder, or his/her estate, with a purchaser for fair value and upon terms and conditions that are mutually acceptable. For remaining owners (such as Tom), the agreement provides that any transfers of ownership must be made, or at least offered, to them. This eliminates the threat that an outside party or a co-owner's spouse or children will become owners of the business, thereby diminishing management, control and value.

2. Valuation is set not only for purposes of a sale, but also for estate tax valuation purposes. Privately owned businesses are notoriously difficult to value. Your idea of your business's value at your death may be much lower than the IRS's. If you haven't created a binding process for valuing the business, the IRS is free to impose its own determination of value. Take the initiative by designing a valuation appraisal process in your buy/sell agreement.

3. The terms and conditions of any transfer of stock, including interest rate, length of buyout period, and security can be fixed. In addition, where possible, the transfer can be funded. The agreement provides a clear estimate to a departing shareholder of how much money he or she will receive and how often. Likewise, the remaining shareholders know in advance the extent and duration of their buyout obligations. This allows both parties to plan their respective futures.

Had Tom and George created a buy/sell agreement with terms like these, a valuable business could have been transferred successfully. That transaction would have benefited Tom, George’s estate (family), Acme’s employees, customers, vendors and community.

Subsequent issues of The Exit Planning Review™ discuss all aspects of Exit Planning. The provider of this Newsletter (Steven Beatty) offers you unbiased information about what you may need to know — How To Run Your Business So You Can Leave It In Style™.

To get more info on these topics and Steve's great newsletters please contact him directly 702.804-6474 sbeatty@invest4business.com