
Cash Crunch?
How the
IRS Might be Able to Help
The following article was contributed by Tom Lacock and
Jim Laudick of BKD LLP. Tom may be reached at tlacock@bkd.com
or 317-383-4144. Jim may be reached
at jlaudick@bkd.com or 317-383-4117.
| The 2009 business landscape has been
tumultuous at best. The recession and economic slowdown have caused many businesses to
realize lower earnings than originally projectedor even worse generate a net
operating loss (NOL). In these situations, you need to improve cash flow now. Fortunately,
the Internal Revenue Service provides a few opportunities to assist. |
|

|
Your business may have made estimated
tax payments based on a more robust financial outlook. Depending upon the original due
date of your return, or if you must extend the filing date of your return, it could be
months before you get the refund that resulted from these payments.
Your business may qualify to file Form 4466, Corporation Application for Quick Refund
of Overpayment of Estimated Taxes. To qualify, the corporations overpayment
amount must be both more than $500 and at least 10 percent of the actual tax liability.
The form must be filed within a rather small window. It cannot be filed until after the
close of the tax year for which the estimated payments were made, but it must be filed on
or before the original due date of Form 1120. If your business files its tax
return by the original due date, then Form 4466 must be filed before
the Form 1120. A copy of Form 4466 should be included with Form 1120 when it is filed.
The IRS has 45 days after Form 4466 is filed to act upon the filing. This could,
therefore, provide some quick cash flow relief.
Corporations can carry back a loss generated in the current year and offset the tax paid
in prior years, using Form 1139, Corporation Application for Tentative Refund.
This form must be filed within 12 months of the end of the tax year in which the loss
arose. In addition, the current-year tax return, which reports the loss, must be filed
prior to filing the Form 1139. This claim is generally processed quickly, and the tax
refund should be received shortly after filing (generally 90 days).
If your previous tax year, which just ended, resulted in a tax liability, and you can
already tell the current tax year will generate an NOL, you can file Form 1138, Extension
of Time for Payment of Taxes by a Corporation Expecting a Net Operating Loss Carryback.
This form must be filed before the due date for paying the
previous years tax liability. In normal circumstances, a corporation with an NOL may
be able to carry it back to prior tax years and get a refund of the taxes already paid for
the current year. Filing Form 1138 effectively shortens the time between paying the
previous years tax liability and subsequently getting it refunded via the NOL
carryback. However, the IRS could still charge penalties if you end up underpaying the
previous years taxes.
If you believe your corporation can benefit from any of these options, contact your
professional tax advisor. He or she can recommend a solution that best fits your needs.
Economic
Development Programs
to Incentivize Manufacturing,
Wholesale & Distribution Companies
The following article was contributed
by Lisa Leventhal, director in Katz, Sapper & Millers State and Local Tax
Department. Lisa may be reached at lleventhal@ksmcpa.com
or 317-580-2026.
 |
|
Many state and local
jurisdictions have responded to recent economic hardships by aggressively pursuing
businesses focused on growth and/or retention of current operations. Indiana, as well as
other states and several local jurisdictions, has included advanced manufacturing and
logistics companies in its list of targeted industries. Before trying to obtain economic incentive programs, companies can benefit by
understanding a few key points: |
|
|
|
|
Incentive programs can affect a companys bottom line. |
|
|
|
1) |
Incentives often
include income tax credits and property tax abatements that may cover a period of 10 years
or more. In addition, some tax programs are refundable, meaning a company receives the
benefit regardless of whether they are paying taxes. It is important to understand how the
credits will be applied and how they can be used before pursuing them. |
|
|
|
2) |
Grant programs are
often reimbursable, meaning the company receives cash back on expenses incurred for
targeted uses, such as training. This can be important to a business from a cash flow and
timing perspective. |
|
|
|
3) |
Incentive programs
can lower a companys capital investment costs, aid in the hiring process, and
provide many other benefits. However, it is important to understand how any incentive
program works and pays out benefits in order to forecast actual impact on the bottom line.
|
|
|
|
The
following criteria generally determine if and how a company qualifies for incentives. |
|
|
|
1) |
States and local
jurisdictions normally focus on two factors jobs and capital investment. The focus
on jobs will often include a review of current jobs to be retained, new jobs to be
created, the types of job positions, the wage levels, and the types of training required
for each position. The focus on capital investment will often include an evaluation of the
types of capital investment to be made, as well as the amount of investment and projected
property taxes to be paid. |
|
|
|
2) |
Project timing is
one of the most important factors to determine eligibility. Generally speaking, companies
must apply and receive approvals for incentive programs before incurring capital
investment costs or hiring new employees. States and local jurisdictions are motivated to
incentivize future jobs and investment. Therefore, they usually do not support retroactive
qualifications. |
|
|
|
3) |
Each program may
have its own rules for eligibility, and some programs require nonrefundable fees just to
apply. Before applying for any economic development program, it is important to understand
the specific rules and requirements to ensure that the company will meet the eligibility
standards. |
|
|
|
State
and local jurisdictions need to show that they will receive a benefit by offering
incentives. |
|
|
|
1) |
State and local
jurisdictions look for a return on their investment in the companys growth. They
often use calculations to establish their expected return. This expected return helps to
determine the amount of incentives offered. Factors influencing this determination may
include increased payroll dollars, forecasted income tax growth, and increased property
taxes, as well as indirect job creation and local revenue impact (e.g. increased retail
sales). |
|
|
|
2) |
State and local
jurisdictions look for a long-term commitment from the company that includes maintaining a
minimum number of jobs and annual payroll at the project location. If a company leaves the
site prematurely or does not maintain its targeted presence, penalties may result. |
|
|
|
3) |
To make sure
companies fulfill their commitment to the state or local jurisdiction, incentive programs
often involve annual (or more frequent) compliance reporting. Companies should understand
all compliance reporting requirements ahead of time and create a plan to submit compliance
reports on a timely basis. Some incentive programs could be jeopardized if compliance
reports are not submitted correctly or on time. |
Economic incentive programs can create a major impact on
a manufacturing or logistics companys bottom line. To take full advantage, companies
must understand the programs and create a plan to obtain them.
If
Indiana Voters Pass the
Circuit Breaker Resolution, What
is Next for Indiana Municipalities?
The following article was contributed
by Gretchen Gutman of Taft Stettinius & Hollister LLP. Contact Gretchen at GGutman@taftlaw.com or 317-713-3500.

|
|
The Indiana General Assembly passed another
round of tax relief legislation in the 2008 session. As a part of this massive
legislation, the General Assembly created the Distressed Unit Board, gave authority to
local units to adopt additional local option income taxes to replaced property tax
revenue, and passed |
| a Joint Resolution calling
for insertion of property tax circuit breakers into the State Constitution. |
In the
Fall of 2008, the Distressed Unit Board received petitions from the Beech Grove Public
Library and the City of Gary and its included taxing districts. In addition, approximately
15 communities adopted local option income taxes in order to freeze property taxes.
Superficially, it would appear that the 2008 legislation gave sufficient flexibility to
local communities to take charge of their own destinies through fiscal management and the
ability to redo the revenue stream to meet the needs of the community. But is that true?
What choices will municipalities have when constituents voice a desire for services that
cost more than the available revenue? When this question is proposed to policymakers, the
frequent response is to suggest the following: (1) Cut expenditures. (2) Adopt local
option income taxes. (3) Petition the Distressed Unit Board.
Unfortunately, if you assume that the 2010 General Assembly will adopt the Joint
Resolution passed in 2008 for a second time and the voters will ratify the insertion of
the property tax circuit breakers into the State Constitution, relief from the Distressed
Unit Board will suddenly end. The proposed constitutional amendment provides no authority
for a board to override the constitutional caps. Nor does the proposed constitutional
amendment authorize the Indiana General Assembly to enact legislation to provide other
exceptions to the caps. Thus, political subdivisions will have one less avenue by which to
request relief.
A potential alternative that might function like a Distressed Unit Board is to seek a
judicial mandate ordering the delivery of services. This certainly would not be looked
upon favorable by state legislators. The approach has so little precedent that it is
unclear how it would work. However, it is pretty clear that courts do not have inherent
power to levy taxes. Federal judges have ordered jails to be constructed, however; those
cases have been brought challenging federal law and not state law. State judges have the
authority of a writ of mandamus; however, they are not vested with the power to collect
taxes previously levied.
Obviously, the techniques of cutting expenditures and raising income taxes are old tricks
with a long history. In 1973, legislators passed legislation to raise the sales tax from
two percent to four percent and authorized a local option income tax (county adjusted
gross income tax) to implement "Doc" Bowen's property tax relief program. Sound
familiar?
In the press and around the water cooler a fourth idea gets discussed from time to time.
Why not just declare bankruptcy?
Bankruptcy What Does It Mean for a Municipality?
Established during the Great Depression, the purpose of Chapter 9 of the Federal
Bankruptcy Code was to provide a financially-distressed municipality with protection from
creditors while it developed and negotiated a plan for adjusting its debts. Under Title 9,
reorganization of the debts of a municipality is typically accomplished either by
extending debt maturities, reducing the amount of principal or interest, or refinancing
the debt by obtaining a new loan.
Although similar to other chapters of the Bankruptcy Code in some respects, Chapter 9 is
significantly different in that there is no provision in the law for liquidation of the
assets of the municipality and distribution of the proceeds to creditors. Such a
liquidation or dissolution would undoubtedly violate the Tenth Amendment and the Supreme
Court's decisions in cases upholding municipal bankruptcy legislation.
Who is Eligible?
Only a "municipality" may file for relief under Chapter 9 (11 U.S.C. § 109(c)).
The definition is broad enough to include cities, counties, townships, school districts,
and public improvement districts. It also includes revenue-producing bodies that provide
services which are paid for by users rather than by general taxes, such as bridge
authorities, highway authorities, and gas authorities.
Section 109(c) of the Bankruptcy Code sets forth four additional eligibility requirements
for Chapter 9:
1) The municipality must be specifically authorized to be a debtor by state law or by a
governmental officer or organization empowered by state law to authorize the municipality
to be a debtor.
2) The municipality must be insolvent, as defined in 11 U.S.C. § 101(32)(C).
3) The municipality must desire to effect a plan to adjust its debts.
4) The municipality must either:
A) Obtain the agreement of creditors holding at least a majority in amount of the claims
of each class that the debtor intends to impair under a plan in a case under Chapter 9.
B) Negotiate in good faith with creditors and fail to obtain the agreement of creditors
holding at least a majority in amount of the claims of each class that the debtor intends
to impair under a plan.
C) Be unable to negotiate with creditors because such negotiation is impracticable.
D) Reasonably believe that a creditor may attempt to obtain a preference commencement of
the case.
Indiana has not passed legislation authorizing a municipality to be a debtor. Therefore a
political subdivision in Indiana is not eligible to take advantage of the provisions of
Chapter 9. Thus, Indiana is different than 18 other states. See Table 1.
Table 1. Survey of States that have
Authorized
Municipal Bankruptcies |
State Statues Authorizing Municipal
Bankruptcy |
|
State Statutes that have
Preconditions |
| State |
|
|
State |
|
Condition |
| Alabama |
AC 11-81-3 |
|
Connecticut |
|
Governor's consent |
| Arkansas |
ASA 47-74-103 |
|
Kentucky |
|
Exception for Counties |
| Arizona |
ARS 35-605, 35-604 |
|
Louisiana |
|
State Bond Comm. Approval
Municipal Finance Comm. |
| California |
CGC 53760 |
|
New Jersey |
|
Approval |
| Florida |
FS 218.01 |
|
N.Carolina |
|
Local Gov't Comm. Approval |
| Idaho |
IdStat 67-3903 |
|
Ohio |
|
Tax Commission Approval |
| Missouri |
MoStat 427.100 |
|
|
|
|
| Nebraska |
Neb Rev.St 13-402 |
|
|
|
|
| Oklahoma |
62 Okl St 286 |
|
|
|
|
| S. Carolina |
SC St 6-1-10 |
|
|
|
|
| Texas |
Tex Local Gov. 40.001 |
|
|
|
|
| Washington |
Wash.St 39.64.040 |
|
|
|
|
Is There Another Way?
Because Indiana has not passed legislation authorizing a municipality to file
bankruptcy, the next logical question would be: Is there another way to get relief from
liabilities when there is insufficient revenue?
State Receivership
Indiana has passed legislation that permits the appointment of a receiver. Roughly
speaking, a receivership is a state law alternative to bankruptcy. Under IC 32-30-5, a
receiver may be appointed by a state court to oversee an action by a vendor to vacate a
fraudulent purchase of property or by a creditor to subject any property or fund to the
creditor's claim, in all actions when it is shown that the property, fund or rent, and
profits in controversy are in danger of being lost, removed, or materially injured, in
actions in which a mortgagee seeks to foreclose a mortgage, and in four other categories
of actions.
An argument could be made that because the statute does not specifically prohibit the
appointment of a receiver for a municipality, a municipality could fall under this
statutory scheme. However, the question is what remedy would be available?
While there are judicial utterances in other states to the contrary, it has been generally
held that in the absence of special statutory authority the judiciary has no power to
appoint a receiver or other agent to take over the duties of a municipality or improvement
district in respect of the collection and distribution of taxes or special assessment. Two
principal reasons have been advanced by the courts for holding that in the absence of
state statute a court has no power to appoint a receiver to collect local assessments.
First, the power of taxation belongs to the legislature not the courts. Second, the
existence of a statutory system for raising funds to meet the cost of improvements
precludes a court from appointing a receiver to collect the assessments. In other words,
the appointment by a court of a receiver to collect taxes is in fact a usurpation of
legislative power.
The primary purpose of a receivership is to liquidate and not rehabilitate an entity. As a
result, it is an inadequate financial management tool for municipalities.
Conclusion
The way in which political subdivisions in Indiana generate tax revenues will change
dramatically in the next few years. The options available to municipalities are not
necessarily appealing. If the State Constitution is modified to add circuit breaker
limits, opportunities to seek relief from entities like the Distress Unit Board will no
longer be available. And as this article discusses, Indiana's law does not permit a
political subdivision to voluntarily file a Chapter 9 Bankruptcy.
Policymakers have concluded that future
increases in revenue should come from income taxes rather than property taxes. However, if
after trimming costs and reducing service levels, there isn't enough income tax revenue to
meet the growing demand for services, policy makers will need to consider new approaches.
Now, is the time to begin discussions and to think about new policies to help
municipalities cope with the new realities. Policies developed through calm deliberations
have a better chance of a good outcome than policies blossoming out of a crisis.
Real Estate
Property
Tax Appeals in Indiana
The following article was contributed
by Andrea Hermer and Michael Lang, attorneys with Dann Pecar Newman & Kleiman, P.C.
You may contact Andrea at ahermer@dannpecar.com
or 317-632-3232, extension 116. You may contact Michael at mlang@dannpecar.com or 317-632-3232, extension 188.
| There is a common misconception held by many
Hoosier taxpayers about the impact Indianas property tax reform legislation (HB
1001) will have on real estate tax appeals. That misconception is that real estate tax
appeals will be less needed and less likely due to many of the reforms adopted by the
Indiana Legislature. However, in order to receive the relief and benefits intended by |
|
 |
| Indianas property tax
reforms, it is more important than ever for Indiana businesses and other taxpayers to be
vigilant in achieving the true and correct assessed value for their real property. In
fact, obtaining complete relief under many of the property tax reforms is dependent upon
it. |
Circuit Breaker Caps do not Eliminate or Diminish
the Need for Property Tax Appeals. The Circuit Breaker caps adopted as part
of the reforms limit the net property tax liability for property owners so that property
owners do not pay more than a specified percent of the gross assessed value of their
property. The Circuit Breaker caps were phased in over a two-year period and vary
depending upon the category or class of property being taxed. The Circuit Breaker caps set
for commercial/business real property (other than long term care homes and multi-family
housing) are 3.5 percent of the property's gross assessment taxes payable in calendar year
2009 and 3.0 percent of the property's gross assessment for taxes payable in calendar 2010
and thereafter.
Because Circuit Breaker caps are based upon the gross assessed value of property, it is
critical that your propertys assessed value is accurate and reflect the fair market
value of your property for the applicable assessment period. For example, if the gross
assessed value of your manufacturing facility is $1,000,000.00, your net tax liability for
2010 cannot exceed $35,000.00. However, if the true fair market value of your
manufacturing facility is $700,000.00 (i.e. facility is over assessed by $300,000.00),
then the Circuit Breaker cap limiting your net tax liability for property taxes should be
significantly lower, and set at $24,500.00. The county auditor is required to provide a
tax credit for the amount that exceeds the Circuit Breaker. As illustrated in the example
above, if your property is overassessed and you fail to appeal the overassessment of your
property, then your net liability for property taxes will remain at the higher Circuit
Breaker cap, essentially providing you little to no relief and certainly not the full
scope of relief intended by Indianas property tax reforms.
Another consequence of Indianas Circuit Breaker caps is that local governments can
no longer merely adjust the tax rate in order to equalize their tax revenues with their
operating budgets. Now, local governments are required to demonstrate an actual increase
in the assessed value of the property located within their jurisdictions in order to
equalize their tax revenues or keep pace with their operating budgets. If the assessed
value of property does not keep pace with local government operating budgets, then local
governments will have to address revenue shortfalls by cutting local operating expenses or
other alternative means. As you see and hear frequently in the news today, the impact
Indianas property tax reforms have had on local government operating revenues have
been substantial, with local governments receiving substantially less revenue from
property taxes, a trend that is anticipated to continue. This means assessors may be more
aggressive in calculating property assessments which, in turn, means property owners must
pay attention to and be willing to devote more resources in challenging those assessments.
Trending does not Eliminate or Diminish the Need for Property Tax Appeals. Another
measure passed as a significant part of Indianas property tax reforms is what is
commonly referred to as trending. Under Indianas property tax reforms,
assessments are to be reassessed every four years instead of ten years with annual
trending updates occurring between statutory reassessment periods. Trending means that
assessors will use statistical analysis to adjust every propertys assessment each
year, rather than assessed values remaining the same between statutory reassessment
periods. This means that most property owners will see changes in the assessed value of
their property on an annual basis. This requires that taxpayers review their tax bills and
trended assessments on an annual basis to ensure that the assessed values
reflect only the fair market value of their property. It is also important to note that
any assessments that were inaccurately determined will be further skewed by the trending
process. These mistakes can cause the tax bill for taxpayers to be much higher than they
should be. For example, if your property is already overassessed, trending will compound
the problem year after year until corrected because the property's assessment will likely
increase each year in near lockstep with similar properties around it. Accordingly, it
remains as important as ever for taxpayers to make sure that their properties
assessments are accurate.
Indiana Businesses Need to be Vigilant in Reviewing Their Tax Bills and
Assessments on an Annual Basis to Ensure That They are Paying Only Their Fair Share of
Property Taxes. Taxpayers should review their tax bills and any reassessments of
their property as soon as issued. At a minimum, you should be looking for any objective
errors disclosed by the tax bill or reassessment such as incorrect computation of net tax
liability, omission of any applicable credits, and incorrect classification of property.
The county auditor should automatically apply and adjust the Circuit Breaker caps to your
tax bill. However, in a mass appraisal tax system, such as Indiana's, nothing should be
taken for granted. As part of Indiana property tax reforms, the Indiana Department of
Local Government finance has published a Special Message to Property Owner
form (Form 53569). This form must accompany issued tax bills and provides the taxpayer
with an itemization of relevant tax information including, but not limited to, showing all
applicable tax credits, tax rates, and assessed value of property along with comparison of
prior years assessed values. You should also check the gross assessed value of your
property to confirm that it is reflective of the market value for the applicable
assessment period. With respect to any property assessment which has increased more than
five percent (5%), the county auditor or township assessor now have the burden of proof.
Prior to this change, the burden of proof was on the taxpayer with respect to any appeal
or property assessment. Because Indianas property tax reforms incorporate annual
trending, it is important to check the assessed value (as trended up or down)
for your property on an annual basis. If there are any mistakes in your tax bills or if
you believe the assessed value of your property is too high, you may initiate an appeal
with the local assessor within 45 days of the date of the tax bill or, in years of
reassessment, within 45 days of the date of notice of reassessment (Form 11).
IMA
Meeting Calendar
OSHA 10-Hour Certification Course
Nov. 4-5, 2009
IMA Conf. Center,
Indianapolis
EPA's Final Mandatory Reporting of
Greenhouse Gases Rule, Legislative Initiatives & Legal Challenges
Nov. 12, 2009
Online Webinar
OSHA 10-Hour Certification Course
Dec. 2-3, 2009
IMA Conf. Center, Indianapolis
IMA Legislative Briefing &
Reception
Jan. 26, 2010
Westin Hotel, Indianapolis
To register for any IMA conference, click
the link and register online; or contact IMA at 317-632-2474 or 800-462-7762. Additional
information is available by contacting Angie Glass at the above numbers or at aglass@imaweb.com.
TaxTalk is published by the
Indiana Manufacturers Association
One American Square, Suite 2400,
Box 82012, Indianapolis, IN 46282
Phone: 317-632-2474
Toll Free: 800-462-7762
Fax: 317-231-2320
IMA Web Site: www.imaweb.com
Editorial Layout: Charlene Hickey, chickey@imaweb.com |