Hall Booth Smith & Slover, P. C.

TAX STRATEGIES IN A CHALLENGING ECONOMY

Paul M. Spizzirri, Esq., J.D., LL.M., M.B.A., M.A.F.M.

191 PEACHTREE STREETSUITE 2900

ATLANTA, GA 30303

MAIN (404) 954-5000FACSIMILE (404) 954-5020

MOBILE (770) 378-7499

www.hbss.net

TAX STRATEGIESIN A CHALLENGING ECONOMY

PERMANENT SAVINGS ENHANCED CASH FLOW

TAX CREDIT OPPORTUNITIES SPECIFIED LIABILITY LOSSES

I.P. MANAGEMENT & PLANNING ENHANCED NOL CARRYBACKS

SEVERANCE ARRANGEMENTS LIQUIDATING BUSINESS LOSSES

PAYROLL TAX PLANNING STRATEGIC LEASING COMPANY

MEALS & ENTERTAINMENT EMBEDDED COST STUDY

UNREIMBURSED EXPENSES DEPRECIATION REVIEW

SOFTWARE TAX STRATEGIES CONTESTED LIABILITIES

The application of one or more of these strategies in combination can enhance cash flow on a net present value basis or in even the form of a permanent tax savings. It is important to note that the application of the strategies outlined above are merely representative of numerous tax strategies our firm may employ on a particular engagement. We often employ dozens of tax savings strategies in concert to enhance cash flow providing your business with a corresponding competitive advantage.

TAX CREDIT OPPORTUNITIES

A Number of Credit Opportunities exist for a variety of Individual and Business Taxpayers including:

• Personal Tax Credits• Foreign Tax Credits• Personal Energy Credits• Fuel Credits• Disaster Relief Credits• Business-Related Credits• Investment Credits• Health Insurance Cost Credits

We evaluate your individual and business circumstance to determine whether you may be eligible for an appropriate credit or whether select changes in your individual or business arrangements may enable you to enjoy the benefit of certain tax credits.

INTELLECTUAL PROPERTY PLANNING

Companies looking for new revenue sources should evaluate the potential uses of existing intellectual property (“IP”). Knowing how to organize IP, where to incorporate the IP, and whether the IP fits into existing corporate business objectives is a valuable exercise. The answers to such questions can have varying tax consequences and proactive planning can save companies significant federal, state and local income tax dollars. For example, certain state tax benefits can be accomplished by reviewing whether the IP is used internally or whether it is licensed to outside third parties. In addition, many companies are not currently using existing IP, and would benefit by contributing things such as patents or associated technologies to universities, hospitals or other charitable organizations for their tax exempt use. The contribution of such property may qualify for a significant tax deduction when certain requirements are met.

The benefits include permanent tax savings, increased cash flow, improved earnings per share and return on equity, and improved property management.

SEVERANCE AND PAYROLL PLANNING• Severance payments are generally

subject to payroll taxes for both the employer and the employee. With proper planning, an employer may significantly reduce the amount of payroll taxes imposed on severance payments with proper planning and structuring.

• After layoffs in a state occur, an employer experience rating may significantly increase, thus driving up payroll costs. Companies may be able to reduce the cost of future payroll experience rating and effective tax rate increases with proper planning and structuring.

• The benefits include increased cash flow and permanent tax savings on the payments.

MEALS AND ENTERTAINMENT REVIEW Some meals and entertainment

expenses are not subject to the 50% limitation. Companies can significantly reduce the amount of disallowed expenses by performing a review and implementing applicable recommendations.

The benefits include permanent tax savings, increased cash flow, improved earnings per share and return on equity, and improved product management.

Executive Professionals often incur employment expenses that are not reimbursed by their employer. These expenditures are often overlooked as tax deductions.

Software Sales & Use Tax Savings Virtually every state imposes a tax on

the sale, lease or license of software. Most companies pay thousands of dollars in state and local taxes related to the acquisition or use of software. Knowing how to structure its software license agreements and the manner in which a company acquires the software can result in substantial tax savings. A review of a company’s existing software agreements, the states in which the software is used, and acquisition procedures should be performed to determine tax saving possibilities through amending existing agreements and structuring future agreements.

The benefits include both permanent and temporary tax savings, increased cash flow, and a large net present value.

SPECIFIED LIABILITY LOSS CARRYBACKS

• Expenditures related to the reclamation of land, decommissioning of a nuclear power plant, the dismantling of a drilling platform, the remediation of environmental contamination, or a payment under any workers compensation act may enjoy a ten-year carryback against income earned in previous years. Recent legal developments materially impact the methodology employed to claim these carrybacks. Employing an inconsistent or incorrect carryback method can substantially reduce the benefit associated with these carrybacks.

• The benefits include increased cash flow, improved earnings per share and improved return on equity.

ENHANCED NOL CARRYBACKS• The American Recovery and Reinvestment Tax Act of 2009 (2009

Recovery Act) provides relief for small business owners by extending the maximum carryback period for 2008 net operating losses (NOLs) from two years to any number of years greater than two and less than six (i.e., three, four, or five years). The number of years selected for the carryback is discretionary within these parameters, but the election must be properly executed in a timely manner and cannot be revoked.

• The Worker, Homeownership, and Business Assistance Act of 2009 modifies the extended carryback period under the 2009 Recovery Act to allow businesses of all sizes to carryback net operating losses to more than two years and less than six years. In addition, the provision applies to net operating losses for 2008 or 2009.

• If you sustained an NOL, these provisions present an opportunity for an immediate refund of prior year taxes paid.

LIQUIDATING BUSINESS LOSSES

• Ordinary loss deductions may be obtained where a business is discontinued or the usefulness of property used in a trade of business is lost. An analysis of discrete business units or specific business assets is undertaken in order to determine if a company may enjoy an ordinary loss deduction rather than a capital loss deduction.

• The benefits include increased cash flow and longer life tax attributes.

• Ordinary loss deductions may also be obtained when certain business equity is abandoned.

LEASING COMPANY

Companies purchase personal property as they grow and need to replace existing assets. The sales tax burden associated with these acquisitions can be a large drain on cash flow. In certain states, a leasing company may be utilized to acquire the property, resulting in sales tax payments being deferred as lease payments are made over the life of the lease (rather than upon acquisition of the property). If the property is disposed of or the lease terminates before the end of the property’s useful life, a permanent benefit is obtained because the total sales tax paid will be less than the amount of sales tax that would have been incurred in a traditional purchase. In addition, the tax deferral results in benefits associated with the time value of money

The benefits include the ability to defer or avoid a portion of the sales tax burden, enhancing cash flow.

Deduction of Embedded Costs• Many construction costs are capitalized for

financial reporting purposes while those same costs are needlessly capitalized for tax purposes. Legal analysis should be performed for capital projects completed during all open tax years. In addition, supporting documentation should be compiled and adjusting depreciation entries need to be made. Value is obtained by currently deducting certain costs rather than recovering them over a period of years through depreciation. Additional benefits may include reducing interest capitalization and the related property tax basis.

• The benefits include tax savings, increased cash flow, and a large net present value.

Depreciation Review and Adjustments

• Many assets are not depreciated for tax purposes as quickly as the tax law allows. A review of real property additions and other capital projects completed since 1987 (the last 23 years) should be performed to identify assets that have not been depreciated for tax purposes in the most beneficial way. In order to correctly state accumulated depreciation and calculate future depreciation, a tax method change and section 481(a) adjustment (a sizable deduction in the current year) should be made. Technical analysis and invoice review should be performed to support the tax method change (Note that this tax adjustment is separate from book depreciation).

• The benefits include tax savings, increased cash flow, and a large net present value.

DEDUCTIONS FOR CONTESTED LIABILITIES

• Companies may deduct certain contested liabilities under section 461(f) when cash or other property is transferred to a trust or an escrow account in satisfaction of the liability. Identifying eligible liabilities that can be accelerated can produce significant tax benefits.

• The benefits include increased cash flow and accelerated tax savings through taking a current deduction for contested liabilities.

Hall Booth Smith & Slover, P. C.

TAX STRATEGIES IN A CHALLENGING ECONOMY

191 PEACHTREE STREETSUITE 2900

ATLANTA, GA 30303

MAIN (404) 954-5000FACSIMILE (404) 954-5020

MOBILE (770) 378-7499

www.hbss.net