Tax-Exempt Organizations Must File Form 990 by May 17, 2010

Under the Pension Protection Act of 2006, most tax-exempt organizations, with the exception of churches and church-related organizations, must file Form 990 with the IRS effective the beginning of year 2007. Any tax-exempt organization that fails to file the relevant version of the form for three consecutive years automatically loses its federal tax-exempt status.

All Form 990-series returns are due on the 15th day of the fifth month after an organization’s fiscal year ends. Many organizations use the calendar year as their fiscal year, which makes May 15 the deadline for those tax-exempt organizations. This year, however, since May 15 falls on a Saturday, the deadline is actually on May 17, 2010. Absent a request for extension, there is no grace period from filing by the original due date.

Small tax-exempt organizations with annual receipts of $25,000 or less can file an electronic notice Form 990-N. Other tax-exempt organizations with annual receipts above $25,000 must file a Form 990 or 990-EZ, depending on their annual receipts. Private foundations must file Form 990-PF.

Commercial Lease Negotiation: Priority Issues for Landlords

It is impossible to know what issues will actually arise during the term of a lease. Hence, it is important for a landlord to hire an attorney to carefully analyze the landlord’s specific situation, spot potential problems and address them in the lease agreement. The process of addressing these issues in the lease, however, can become very contentious since landlords and tenants often disagree about the terms that the other party wishes to include in the lease. This may lead, in turn, to multiplication of disagreements and eventually even ruin the deal altogether.

Therefore, it is very important for the landlord to prioritize the issues in order to know when to concede an issue and when to hold the ground and insist on an agreeable resolution. In this essay, I will identity and discuss six most crucial commercial lease issues for the landlord; these issues are worth fighting for and must be given priority in a commercial lease negotiation.

A. Tenant Payments During the Term of the Lease Agreement

This is the most fundamental part of the lease agreement – the lease agreement (“Agreement”) must require tenant to make the rent payments for the duration of the lease agreement. In order to do so, the landlord should consider adopting four strategies. First, the Agreement should clearly set forth the tenant’s obligation to pay under the lease. Second, the landlord should strive to minimize the number of conditions to the obligation of the tenant to pay rent and operating expenses. Third, minimize the number of events that give the tenant the right to terminate the lease. Finally, eliminate the right of the tenant to set-off payments if the landlord defaults. Similar attitude should be adopted to the rent abatement situations.

B. Control Over the Leased Property

Leasing the property does not automatically mean that the landlord should give up all control over it. Usually, a landlord’s attorney will insist on requiring landlord’s consent to anything that could interfere with the smooth operation or safe condition of the leased property. Another strategy is for the landlord to retain reasonable control over who will occupy the leased property.

C. Unhindered Ability of the Landlord to Finance or Sell the Leased Property

Closely related to the previous topic of control, the landlord should make sure that his ability to finance and/or sell the leased property is left unhindered by the provisions of the Agreement. It is also suggested that the Agreement includes provisions typically expected by lenders, such as subordination and attornment requirements as well as provisions mirroring typical borrower-to-lender covenants.

D. Clear Obligations and Reasonably Enforceable Remedies

This is another priority area for the landlord. The Agreement should set forth clearly both parties’ obligations and responsibilities, conform notice requirements to the landlord’s standard practices, and provide for reasonable remedies such as: adequate security (security deposit, guarantees, letters of credit, etc.), record-keeping of the tenant’s gross sales, realistic late fees and interest, and the landlord’s self-help rights.

E. Insurance and Indemnification Provisions

The Agreement should strive to make sure that there is an insurance against every risk, whether the insurance is provided by the landlord or the tenant. It is suggested, however, to avoid needlessly requiring both landlord and tenant to carry multiple levels of insurance coverage.

F Avoidance of Unexpected Costs

The Agreement should plan for unexpected costs by providing for expenses that vary based on occupancy. The landlord should work toward including in the Agreement provisions reimbursing him for out-of-pocket expenses in connection with attorney’s fees incurred in dealing with tenant requests for lease assignment and sublease. Other professionals’ fees (such as design professionals who review or supervise construction projects) may also be incorporated in the reimbursement provisions.

Conclusion

The purpose of this essay is to familiarize the readers with the very dense and complex landlord issues in a commercial lease negotiation setting. Obviously, in order to achieve better understanding by my non-lawyer audience, I necessarily over-simplified the issues and greatly narrowed the description of the lease provisions. I hope, however, is that I provided sufficient legal background for you to be able to better explain your goals and wishes to the attorney who will be drafting your commercial lease agreement.

Top 3 Reasons to Hire Attorney to Represent You in a Contested Hearing Conducted by the Office of Administrative Hearings

In this article, I will discuss three most important reasons for retaining a lawyer to represent you in a Contested Hearing conducted by the Office of Administrative Hearings (OAH).

1. Contested Hearing conducted by the OAH is an Administrative Version of a Trial

Contested Hearing is an administrative trial. In most ways, it is highly similar to a regular civil trial, only with somewhat relaxed procedural and evidentiary rules. There is an administrative law judge and an attorney representing the other side. The rules of procedure and evidence, while more informal and less strict than in a usual trial, must be followed. Moreover, where the OAH does not provide for or omits certain procedures, the administrative judge will refer back directly to the civil court rules for the guidance.

Thus, you need to know the OAH rules. It is very easy to damage your case by making unnecessary procedural mistakes. Even where the mistakes are reversible, the image of your case may suffer.

2. Government Agencies are Represented by Attorneys

Government agencies realize the complexity and importance of the Contested Hearings. Hence, they are always represented by attorneys, often highly experienced and specialized in the relevant areas of law. Government lawyers are also well-versed in the procedural rules of the OAH.

Therefore, it is simply very difficult, if not impossible, for a business owner, who is not trained in law and inexperienced in the OAH procedures, to match the government’s combination of experience, knowledge, and skillful advocacy – even when the judge is lenient when it comes to procedural mistakes committed by the pro se litigators (i.e. business owners who choose to represent themselves).

3. Legal Fees are Often Lower than the Cost of Failure

An adverse ruling by the judge in a Contested Hearing may often put you out of business (for example, in a business license denial case). Even if your business is able to absorb the costs of the final outcome, the expenses associated with the provisions of the ruling may often be significantly higher than in a situation where an attorney’s timely intervention may have mitigated or averted altogether the worse terms of the judge’s decision.

Of course, hiring an attorney does not mean that you will automatically win your case. It does mean, however, that you will have a professional ardent advocate skilled in the art of law and procedure working solely to reach the most favorable outcome in your case. Even in a losing situation, your attorney may be able to find the least-damaging solution to your problem. Often, a lawyer may be able to settle the case even without the need to go to the hearing, avoiding the expenses associated with it.

Conclusion

While a Contest Hearing is not as full-blown civil trial, you should make sure that you are adequately represented during the hearing proceedings. There are procedures to follow, rules to know, and a formidable opponent to defend against. The stakes are usually sufficiently high to justify reasonable expenses on the legal representation.

Sherayzen Law Office can help you every step of the way in the pre-hearing process and it will provide vigorous and creative defense of your interests during the hearing. Call NOW at (612) 790-7024 to schedule the consultation!

Hiring Incentives to Restore Employment Act: Two New Tax Benefits for Employers

On March 18, 2010, the Hiring Incentives to Restore Employment Act (“HIRE”) was enacted into law. The Act offers timely benefits to the employers who hire unemployed workers.

HIRE Benefits

Under the HIRE, qualified employers who hire unemployed workers may qualify for two main tax benefits.

First, under the HIRE, Employers who hire unemployed workers between February 3, 2010 and January 1, 2011 may qualify for a 6.2% payroll tax incentive, in effect exempting them from their share of Social Security taxes on wages paid to these workers after the date of enactment. This reduced tax withholding will have no effect on the employee’s future Social Security benefits, and employers will still have to withhold the employee’s share of Social Security taxes, as well as income taxes. Moreover, both employers and employees will still have to pay their share of Medicare taxes.

Second, employers may claim an additional general business tax credit of up to $1,000 per each worker retained.

Notice, new workers filling existing positions may also qualify but only if the workers they are replacing left voluntarily or for cause. Family members and other relatives do not qualify.

Types of Employers Qualified to Claim HIRE Benefits

Businesses, agricultural employers, tax-exempt organizations and public colleges/universities all qualify to claim the payroll tax benefit for eligible newly-hired employees. Household employers cannot claim this new tax benefit.

When to Claim HIRE Benefits

Employers may claim the payroll tax benefit on the federal employment tax return they file, usually quarterly, with the IRS. Eligible employers will be able to claim the new tax incentive on their revised employment tax form for the second quarter of 2010.

The additional business tax credit should be claimed on the employers’ 2011 income tax returns.

Additional Requirements

Under the HIRE, in order to benefit from the new law, employers must get a statement from each eligible new hire certifying that he or she was unemployed during the 60 days before beginning work or, alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period.

Organizing Business in Minnesota: Top Five Reasons to Incorporate

Generally, all business entities in Minnesota can be organized into two large groups: incorporated business entities and unincorporated business entities. The first group mainly consists of corporations, limited liability companies (“LLC”), limited liability limited partnerships (“LLLP”), limited liability partnerships (“LLP”) and business trusts. If the incorporated entity operates in certain professions, the business title of such entity often includes an extra “P” for “professional” (for example: PLLC). Incorporated entities are organized by registering with the State of Minnesota; in addition, there is usually a maintenance requirement which consists of annual filings with the State. Furthermore, additional documentation, such as buy-sell agreements, bylaws, operating agreement, and partnership agreement, may be required to organize the relations between business owners and managers. Since incorporated entities are treated as separate entities, there are also numerous legal and tax implications associated with a particular choice of incorporation.

The unincorporated business entities mainly include sole proprietorships and general partnerships. Unlike the incorporated entities, unincorporated businesses usually do not require any type of registration with the state and often (in the case of sole proprietorships, always) avoid any complications associated with being treated as separate legal entities.

Given the accounting and legal complications and expenses of money and/or time associated with additional paperwork, what are the main reasons for business owners to incorporate, i.e. why go through all these troubles? Answering this question is precisely the objective of this essay. In this article, I will detail the top five powerful incentives which account for why most successful businesses seek incorporation.

1. Limited Liability Protection for Owners

Probably the most common incentive for business incorporation is protection of the owner’s assets. As a consequence of incorporation of a business, business owners are not personally liable for business debts and only have risk up to the amount of their investment and additional contributions they may have contractually obligated themselves to contribute to the entity. Thus, under the limited liability protection doctrine, liabilities of the business are separated from the owner’s personal assets.

Remember, however, that the limited protection is not absolute. A business owner may still be liable under the common law concept known as “piercing the corporate veil” (a common-law doctrine which removes the limited liability protection in certain circumstances). Furthermore, there are additional statutory provisions which may encroach on the limited liability protection (such as personal liability for the employees’ portion of FICA and withholding payroll taxes).

Finally, it must be remembered that an incorporated business will not provide limited liability protection from professional liability. For example, lawyers and doctors cannot protect themselves against professional liability by incorporating their business. The incorporation, however, can usually shield professionals from debts and obligations of the business itself.

2. Flexible Ownership Structure

The second reason for business incorporation is flexibility in structuring business ownership, especially transferability of ownership. In order to understand this superiority of the incorporated entity over unincorporated one, one must remembered that, unlike a sole proprietorship, an incorporated entity is considered to be separate from its owners. Therefore, the ownership interest in an incorporated entity is generally considered as personal property and can be transferred independent of the business. The same analysis applies to general partnerships, but such partnerships usually do not have the features, such as different classes of stocks or stock compensation options, enjoyed by the incorporated entities.

The transfer of the ownership interest in an incorporated entity may be restricted by the owners themselves by using bylaws, shareholder control agreements, buy-sell agreements, operating agreements, member control agreements, partnership agreements, et cetera.

3. Business Tax Planning

Incorporation of a business may be one of the best ways to reduce or defer taxes. The primary reason for this is the fact that the State of Minnesota and the federal government tax each business entity differently. Moreover, there are great differences with respect to the types of taxes and tax rates imposed on an entity and its owners. Structuring compensation differently (for example, issuing equity to employees in exchange for services rendered) may produce a completely different end-of-year tax bill. Some business entities may even choose their own tax year different from the usual calendar year used by a solo proprietorship. With careful tax planning, a business owner may greatly reduce his tax burden, thereby increasing his profits and competitiveness of his business.

In addition to the pure business tax planning, incorporation of a business can be a great tool for estate planning.

4. Superior Options for Attracting Investors

It is much easier for an incorporated entity to attract investors and secure business financing. This is usually the case because an incorporated entity can be capitalized either with debt or an ownership interest in the entity (equity), and the business owners can simply sell equity to raise capital and attract investors. Thus, investors become co-owners of the business without having to going through the process of constant re-titling of the assets (as would usually happen in a sole proprietorship). Obviously, the limited liability protection and the flexible ownership structure are two other very important factor in attracting investors.

5. Continuity of Life of a Business Entity

In a general partnership or a sole proprietorship, a death of an owner or a partner’s withdrawal from business will lead to the dissolution and the winding up of the business. Unlike unincorporated entities, however, the incorporated businesses can continue their existence indefinitely, unless the organizational documents specifically limit the term of the entity. This continuity of life creates goodwill value for the business and its owners, and it is very important to the stability of the business.

Conclusion

Incorporation of a business can be very important to business success. Except for professional liability, the owner’s personal assets are separated from the debts and obligations of the business. Incorporation can help a business to attract investors through its flexible ownership structure and assured continuity. Finally, incorporation of a business can create tremendous opportunities for business tax planning, reducing the tax burden and promoting the competitiveness of the business.

Obviously, these five factors are not the only reasons for business incorporation. They are, however, the most common and the most powerful ones. You should remember though, that, once the decision to incorporate your business is made, the next step is to decide which particular entity best fits your situation. The choice of entity should be made a business and tax attorney, who will choose the right entity for you through analysis of the combination of business and tax factors. Sherayzen Law Office can help you make this choice, draft and file the necessary documents, and create the right legal structure for your business entity so that you can concentrate on working toward your business success.