News & Events: 2009 Business and Tax Law Issues
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2009 Business and Tax Law Issues
We don't have to tell you that 2008 was a tough year to be in business in Las Vegas, and, although most people don’t expect 2009 to be any better, we are optimistic that with some foresight, our clients can situate their businesses to compete, if not prosper, in the current economic climate. We take this opportunity to acquaint you with the depth of experience our firm possesses in some critical areas of the law that may have an impact on your business.
Our firm maintains a sophisticated debt restructuring practice that has flourished over the past few years, and our experienced partners are able to compliment that practice by providing bankruptcy and tax analysis. In addition, we have been tasked with coming up with creative solutions to help our clients attract and retain key people though the use of equity compensation and deferred compensation arrangements. As you can see by the following examples, our capabilities allow us to help our clients during a down economy.
With our assistance, many of our clients who own real property subject to debt have been able to negotiate discounted purchases of their debt. One key to a successful debt workout negotiation is to understand the potential down-side risk to the client in the event a lender pursues a foreclosure action, including bankruptcy alternatives. In addition, potential income tax pitfalls can be minimized in a properly structured transaction. For example, if a client is able to purchase its $5,000,000 debt from the lender for $3,000,000, the client will owe ordinary income tax to the IRS on the $2,000,000 portion of the debt that was discharged (this is known as cancellation of debt income). There are a number of exclusions that may be applicable to clients that can minimize this outcome. In addition, our tax attorneys are monitoring proposed legislation that is designed to minimize the adverse effects of such cancellation of debt income, and if and when such legislation becomes binding will be able to utilize this as an additional tool to yield desired results. Our tax, bankruptcy and/or debt restructuring attorneys are prepared to meet with you to discuss whether you may be able to benefit from a loan workout transaction.
In addition to debt discharge issues, members of our business and tax departments are skilled and experienced with assisting clients in structuring transaction that may generate tax losses through structured sales of depreciated property in order to generate loss carrybacks. Pending legislation in Congress is expected to expand opportunities in this area, and our tax and business lawyers are prepared to fully advise clients on how they may benefit from such legislation.
In addition, clients who have entered into employment arrangements involving the payment of deferred compensation or the grant of equity interests in the past few years (or who are contemplating doing so in 2009) need to be aware of a "trap for the unwary" that applies to all plans and other arrangements, with few exceptions, that provide for non-qualified deferred compensation (NQDC). For example, performance awards given to independent contractors and "net profits interests" granted under LLC operating agreements are subject to this "trap," the effects of which are punitive taxation in that a participant will be subject to income tax as soon as the deferred compensation is vested (as opposed to when it is actually paid) AND the participant will be liable for an additional 20% tax on the amount of the compensation. This taxable event could occur prior to any payment or grant of equity interests under such plan and, as a result, clients can find themselves with tax bills relating to past years. Our business and tax attorneys are prepared to meet with you to discuss your deferred compensation arrangements and the potential for minimizing this "trap for the unwary".
If we can help you in one of the areas identified above, or any other matter within the firm's areas of practice, give Mike Kearney or Ron Thompson a call and we would be happy to put you in touch with one of the attorneys in our office whom specializes in the area of law in which you require services.