It was just last year that the Senate Finance Committee conducted a few hearings about the controversial tax treatment of “carried interest.”  The website, Investopedia.com, provides us with the following definition for the term, carried interest:

“A share of any profits that the general partners of private equity and hedge funds receive as compensation, despite not contributing any initial funds.  This method of compensation seeks to motivate the general partner (fund manager) to work toward improving the fund’s performance.”

Given the recent election results and ongoing debate about executive compensation in the midst of the current financial crisis, it should not be a surprise that the tax treatment of income associated with carried interests could be changed as early as 2009.

Under current federal tax law, the character of the income to the carried interest is the same as the income earned by the fund.  Therefore, if most of the profits of the fund consist of Read the rest of this entry »

Popularity: 10% [?]

Recently, Fortune Small Business magazine conducted a survey of owners of privately-held, small & mid-sized businesses in the USA. Two questions were asked:

• How critical to your business’ survival is succession planning?
• Have you done anything about formalizing a succession plan?

The results were extremely interesting. More than 95% of the respondents said a succession plan was critical to the long-term survival of their business, but a staggering 85% had not done anything to formalize their succession plans.

This survey reinforces information we learned first-hand several years ago when Read the rest of this entry »

Popularity: 60% [?]

Many taxpayers have heard about or even utilized the 60-day Individual Retirement Account rollover rule at one time or another.  Did you know there is a 60-day rollover rule in connection with the sale of qualified small business stock (”QSB stock”)?  Essentially, within a 60-day period and if other requirements are met (e.g., the stock was held for at least 6 months), the taxpayer can purchase other QSB stock in order to defer all or part of the gain associated with a QSB stock sale.   

In 1997, as part of the Taxpayer Relief Act of 1997, a new section 1045 was added to the Internal Revenue Code that provides for the rollover of gain from the sale of QSB stock.  In the following year, the IRS Restructuring and Reform Act of 1998 provided some amendments to section 1045 including the expansion of the gain rollover treatment to additional taxpayers, other than corporations.

Read the rest of this entry »

Popularity: 100% [?]

Maybe you have read that the market has peaked and deals are tougher to get done. You feel like you have missed your perfect chance. On the other hand, you are not getting any younger, you still have most of your wealth tied up in your business, and you can not get the thought of possible capital gains tax increases out of your head. What should you do?

Think recapitalization. While not for everyone, a recapitalization or “recap” as often referred to, can provide an attractive option for sellers. A recap enables a seller to sell a portion of a business now, while keeping an ongoing equity stake, maintaining an active management role, sharing in the growth of the company, and retaining the opportunity to participate in better markets which may be ahead. Read the rest of this entry »

Popularity: 63% [?]