Legal Coterie

My New Blog...

2013-06-11T18:23:00.002-07:00

I really appreciate all of the visitors I have had since I started this blog. While I have enjoyed putting the information out and I hope you found it useful, I have started a new blog that is less "technical" from a legal perspective. Please check it out if you get a chance:

buildingpurpose.com

Thanks again.

Mississippi: Refund of Ad Valorem Taxes

2013-02-13T11:29:00.003-08:00

The Mississippi Attorney General has issued an opinion that a county board of supervisors may issue a refund of erroneously paid ad valorem taxes that were paid in protest by an exempt entity. The exempt entity made payments for the 2007, 2008, and 2009 tax year in February of 2010 and requested a refund of the taxes paid in protest on October 17, 2012. A county board of supervisors has the authority to issue a refund of excess or erroneously collected taxes paid within three years of the date the petition for such refund is filed with the tax collector. Miss. Code Ann.§ 27-73-7 authorizes a tax collector, upon request by a taxpayer, and upon order of the board of supervisors, to refund erroneously paid taxes. The statute of limitations for such a refund of ad valorem taxes is controlled by Miss. Code Ann.§ 15-1-49, which requires that a refund of ad valorem taxes may only be issued for payments that were made within three years of the date the petition for a refund was filed.

Tax Credits Available for Clean Energy Manufacturers

2013-02-13T11:29:00.001-08:00

The U.S. Departments of Energy and the Treasury on February 7 announced the availability of $150 million in Advanced Energy Manufacturing tax credits for clean energy and energy efficiency manufacturing projects across the United States. The program supports manufacturing of a range of clean energy products, from renewable energy equipment to energy efficiency products. Established by the American Recovery and Reinvestment Act, the initial round provided $2.3 billion in credits to 183 projects across the country. The $150 million in tax credits are being made available because they were not used by the previous awardees.

The tax credits will be allocated on a competitive basis. Projects will be assessed by the Energy Department based on the following criteria: commercial viability, domestic job creation, technological innovation, speed to project completion, and potential for reducing air pollution and greenhouse gas emissions. The Department will also consider additional factors, including diversity of geographical locations, technology, project size, and regional economic development.

DOE Announces New Funding to Develop Biomass Supply Chain Technologies

2013-02-06T10:05:00.001-08:00

The Energy Department on January 28 announced about $6 million for projects that will develop and demonstrate supply-chain technologies to affordably deliver commercial-scale lignocellulosic biomass feedstocks such as woody plant tissue to biorefineries across the country. This funding will help accelerate the development of integrated, cost-effective supply-chain systems that reduce time and costs to produce biofuels for cars, trucks, and airplanes.

The Department will make available about $6 million this year for one to two multi-year projects. All selected projects will require a cost share contribution by the grant recipient, including 20% for research and development activities and 50% for demonstration activities.

DOE Expands Technical Assistance for Tribal Energy Projects

2013-02-06T10:04:00.001-08:00

The Energy Department on January 30 announced the second round of the Strategic Technical Assistance Response Team (START) Program, which provides federally recognized Tribal governments with technical assistance to accelerate clean energy project deployment. Additionally, the Energy Department plans to seek information from tribes interested in launching or expanding utility services in their own communities, which will help establish a new START Utility Program (START-UP). Additional details on this effort will be available on the Office of Indian Energy website in the coming weeks.

Over the past year, the START program has helped nine Tribal communities advance their clean energy technology and infrastructure projects, from solar and wind to biofuels and energy efficiency. The second round of technical assistance awards will build upon the initial successes of the START program and further help Native American and Alaska Native communities increase local generation capacity, enhance energy-efficiency measures, and create local entrepreneurial and job opportunities. In the contiguous United States, Energy Department and national laboratory experts will provide technical assistance on tribes' clean energy project development. In Alaska, the Energy Department and the Denali Commission will help rural Alaska Native communities conduct energy awareness and training programs and pursue new renewable energy and energy efficiency opportunities. Applications are due by March 15, 2013.

Some Pending Mississippi Economic Development Bills

2013-01-30T08:05:00.001-08:00

The Mississippi Legislature is considering a whole host of bills that could impact Mississippi businesses. Here are a few worth noting:

Strengthening Mississippi Academic Research Through Business Act (“SMART Business Act”) - Encourages private businesses to invest their research dollars in Mississippi universities. The proposal offers a rebate equal to 25% of the research costs to companies who enter into a written agreement with a university for research and development.

Employee Pass-Through Jobs Tax Credit - In lieu of a business utilizing the jobs tax credit, the business may pass all or a portion of the tax credit to one or more employees of the company.

Headquarters Relocation Tax Credit - Provides a tax credit in the amount of actual relocation costs incurred by a business in relocating its corporate headquarters to Mississippi.

Expansion Relocation Tax Credit – Provides a tax credit in the amount of actual relocation costs to existing businesses expanding their workforce in the State of Mississippi. The businesses must qualify for the jobs tax credit provided in the Economic Development Reform Act and must relocate employees to Mississippi from outside the State.

Maximizing Depreciation Deductions for Business Real Estate

2013-01-28T07:38:00.000-08:00

When buying business real estate, for your own occupancy or for rental to others, you should take steps that maximize the income tax depreciation deductions that you can claim for the property. Here are a few suggestions.

Separating improvements from land. Not all of the cost of acquiring real estate is depreciable. Specifically, the cost of improvements to land is depreciable, but the cost of the land itself is not. Clearly, then, it is desirable to identify and document, at the time that you acquire real estate, the part of your overall acquisition cost allocable to improvements. Thus, when you buy a property, you should either retain a qualified real estate appraiser to make an allocation between land and improvements based on a detailed written analysis, or, if you have enough valuation expertise and knowledge of the locality, write your own detailed analysis and allocation. Also, regarding the allocation, you should be aware that the cost of improvements includes not only the cost of buildings, but also the cost of items such as landscaping and roads, and even some costs of grading and clearing.

Turning land into a deductible asset. Even though land isn't depreciable, there are ways to obtain deductions, for your land cost, that provide a similar tax benefit. One technique is to enter into a long-term lease of the land rather than buy it. If you lease the land, the rents you pay under that “ground lease” are deductible. A different technique, but one which also can turn land into a deductible asset, is the acquisition of an interest in land known as an “estate-for-years.” Under an estate-for-years, you would own the land, but not forever, while an individual or entity “unrelated” to you would own the interest in land that begins when your estate-for-years ends. As the owner of the estate-for-years, you would be allowed to “amortize” (deduct ratably) the cost of the estate-for-years over its duration. Thus, for example, if your estate-for-years is for 50 years, you would be allowed to deduct each year 1/50th of the cost of the estate-for-years.

Separating personal property from buildings. Most business buildings must be depreciated over a period of 39 years, with somewhat more favorable treatment for residential rental real estate (27.5 years) and for certain other types of buildings or building improvements. On the other hand, most personal property (furniture, equipment, etc.) is depreciable over considerably shorter periods. Furthermore, most new personal property is eligible for additional first-year depreciation (bonus depreciation) equal to 50% or 100% of its cost (depending on when the property was acquired and placed in service). In contrast, among buildings or building improvements, only certain leasehold improvements qualify for bonus depreciation. As you can see, if a specific item is classified as personal property rather than as a part of a building, the depreciation deductions for that item will be available sooner and, in economic terms, have a greater “present value” to the property owner. Thus, in the same way that it is desirable to properly allocate between improvements and land, it is important to take steps to identify and document, at the time that you acquire real estate, the items that are personal property and the items that are building parts. For some items, the distinction follows “common sense”, an ordinary chair is personal property, a weight-bearing brick wall is part of a building. However, for many items, for example, lighting fixtures, signs, floor coverings, wall coverings, plumbing, electrical systems and heating and cooling systems, the distinctions are governed by tax rules that can be complex, can involve projections as to the future use of the items, and may even necessitate consultation with engineers or other construction experts. Also, after the personal property and building items are separately identified, they must be separately valued, either by an appraisal, a breakdown of construction costs or both.

Third Circuit Denies Rehearing in ‘Historic Boardwalk Hall' Tax Credit Case

2012-10-23T08:10:00.001-07:00

The U.S. Court of Appeals for the Third Circuit Oct. 22 denied a petition for a rehearing en banc in the closely watched Historic Boardwalk Hall case in which the court held that an investor in a syndicated partnership that shared in federal historic rehabilitation tax credits was not a bona fide partner (Historic Boardwalk Hall LLC v. Commissioner, 3d Cir., No. 11-1832, filed 10/22/12).

HBH filed a petition for rehearing Oct. 10, arguing that the Third Circuit's decision was contrary to the U.S. Supreme Court's holding in Commissioner v. Culbertson, 337 U.S. 733 (1949), because it constituted “a holding that a partner who has no right to a return of its capital contribution either directly or indirectly from a partnership nonetheless has no risk with respect to its capital, and therefore is not a partner for federal income tax purposes.”

In 2011, the U.S. Tax Court had held that a partnership formed to allow Pitney Bowes to invest in the historic rehabilitation of the East Hall of the Atlantic City, N.J., convention center was entitled to claim historic rehabilitation tax credits because the partnership was not a sham lacking economic substance.

The Third Circuit reversed Aug. 27, 2012, holding that Pitney Bowes was a partner in form, not in substance, and could not claim the tax credits regardless of whether the transaction otherwise had economic substance.

New Public-Private Partnership to Support U.S. Manufacturing Innovation

2012-08-22T13:12:00.001-07:00

The Obama Administration announced on August 16 the launch of a new public-private institute for manufacturing innovation. The new partnership, the National Additive Manufacturing Innovation Institute, was selected through a competitive process to receive an initial award of $30 million in federal funding, matched by $40 million from the winning consortium. The consortium includes manufacturing firms, universities, community colleges, and non-profit organizations from the Ohio-Pennsylvania-West Virginia "Tech Belt."

On March 9, 2012, President Obama announced his plan to invest $1 billion to catalyze a national network of up to 15 manufacturing innovation institutes around the country that would serve as regional hubs for manufacturing. The President called on Congress to act on this proposal and create the National Network of Manufacturing Innovation. Five federal agencies—the Departments of Defense, Energy, and Commerce, the National Science Foundation, and NASA—jointly committed to invest $45 million in a pilot institute on additive manufacturing. Additive manufacturing is a process of making three-dimensional solid objects from a digital model.

New York, NYC Biotechnology Credit Extended

2012-08-22T13:11:00.003-07:00

L. 2012, S7462 (c. 429), effective 08/17/2012, extends the authorization for New York City to provide a biotechnology credit against the general corporation tax, unincorporated business tax, and banking corporation tax until January 1, 2016. Previously this credit was only authorized until January 1, 2013.

California Postpones Action on Technology Transfer Agreement Tax Rules

2012-08-22T13:11:00.001-07:00

California's State Board of Equalization postpones issuance of regulations governing taxation of software technology transfer agreements from November to at least January 2013 due to universal opposition from the business community to the board's draft proposals so far. SBOE is working toward regulations on taxation of TTAs in the wake of a January 2011 state appellate court ruling in Nortel Networks Inc. v. SBOE. In that case, the court said SBOE exceeded its authority when it excluded all prewritten software from TTAs, which are exempt from sales tax. At an SBOE meeting, Tax Policy Division Chief Susan Buehler tells the five board members that a second interested-parties meeting is being moved from September to January to give board staff and interested parties more time to submit comments and work toward agreement. Formal regulations will be proposed after the next interested-parties meeting.

Mississippi, Tax Sale Record Fees

2012-08-22T13:10:00.003-07:00

The Mississippi Attorney General issued an opinion stating that the $50 fee charged by the clerk of the Chancery Court for determination of the record owner of property sold at a property tax sale under Miss. Code Ann. § 27-43-3 may be charged at the time of redemption, whether that occurs before or after the start of the 180-day notice period preceding the expiration of the redemption period under Miss. Code Ann. § 27-43-1. Accrual of the fee is dependent upon redemption of the property, not on the notice period, and the statute does not prohibit the clerk of the Chancery Court from performing work to ascertain the record owner of the property before the 180-day notice period. (Attorney General Opinion, 2012-00135, 07/20/2012.)

USDA Funds Boost Renewable Energy Production

2012-08-22T13:10:00.001-07:00

The U.S. Department of Agriculture (USDA) on August 14 announced that 106 projects in 29 states, Guam, and Puerto Rico have been selected to receive funding for the production of renewable energy and energy efficiency improvements. Funding comes through the USDA's Rural Energy for America Program (REAP).

One example of a selected project is in Washington County, Iowa, where a recipient is receiving a guaranteed loan to construct a 50 kilowatt (kW) wind turbine at his agricultural business. The turbine is expected to generate approximately 103,200 kilowatt-hours (kWh) of electricity annually, enough to meet the annual requirements of nine homes. WTE-Dallmann LLC in Calumet, Wisconsin, is another recipient of a REAP grant to help fund the installation of an anaerobic digester that will generate more than 4.8 million kWh of electricity, power for about 420 homes annually. The electricity will be sold to the local utility.

Economic Gardening

2012-08-13T10:40:00.002-07:00

With economic uncertainty looming, progressive American regions have chosen to adopt new economic development approaches. One innovative approach to the ever elusive hunt for jobs is simply to create your own. Instead of directing precious financial resources towards carefully crafted plans that focus on recruiting new business from “outside-in,” economic gardening embraces a philosophy designed to generate new jobs from the existing base of businesses already located within the community. Diversifying a community’s economic development portfolio to embrace an economic gardening model hinges upon providing targeted incentives such as a job creation tax credit, educational enhancements, and networking opportunities to innovative home-grown businesses operating in the region. While the success of traditional economic development recruiting can bring about a great deal of publicity and create a large number of jobs, not all communities will be able to succeed at the game of landing the big projects. Some communities will have difficulty producing the right amount of incentives to lure high-profile jobs; however, by using the long term “inside-out” economic gardening approach, the payoff in terms of job creation and economic growth for certain communities could be huge.

A prime example of the philosophical framework behind Economic Gardening is found in Littleton, Colorado. Not unlike many small towns in Mississippi, the community of Littleton consisted of roughly 40,000 and was attempting to recover from the layoff of several thousand employees by the town’s major employment anchor. In response, Littleton’s community leaders looked inward by focusing on its entrepreneurial economic development infrastructure instead of loading its lure with quick fix incentives in search of the big project.

The framework for economic gardening is both innovative and simple. At its core, the philosophy suggests that a sustainable economic development policy must strike a balance between applying “outside-in” and “inside-out” growth strategies, subject to the unique attributes and resources of a given community. Littleton’s policy was based on a simple belief: small local entrepreneurial firms would be the engine for the creation of sustainable wealth and new jobs, and the role of the city was to provide a nurturing environment within which these small firms could flourish. As a testament to economic gardening’s vitality, other communities throughout the United States have also experienced success as a result of diversifying their economic development portfolio.

In Oakland, California, the city’s economic development office launched an economic gardening program that encouraged entrepreneurialism in connection with the abundance of venture capital firms throughout the region. In Santa Fe, New Mexico, the Santa Fe Economic Development, Inc. crafted a plan using economic gardening principles to use conventional industry cluster development techniques to create jobs from existing local businesses. In Madison, Wisconsin, the State of Wisconsin used economic gardening principles to establish the Wisconsin Entrepreneurs’ Network and Wisconsin PeerSpectives Network to enhance connectivity and exchange amongst business owners and community leaders.

One of the main goals of Economic Gardening is to create an environment where entrepreneurs can flourish. Of particular importance to this concept are intellectual stimulation, openness to new ideas, and the support of infrastructure like venture capital and local universities. Embedded within this economic model is also the notion of Mississippi’s creative class – a development which contends that creative companies and creative entrepreneurs are responsible for a great deal of Mississippi’s new jobs and wealth. Thus, nurturing Mississippi’s creative environment is conducive to entrepreneurial activity and prosperity. As noted by the Mississippi Arts Commission’s and Mississippi Development Authority’s joint study to explore the realization of the economic potential of creativity in Mississippi, communities in Mississippi stand poised to reap the rich benefits of their cultural and creative splendor. Moreover, economic development practitioners see Mississippi’s creative class as a vehicle for job creation and economic opportunity for communities throughout the state.

For cash strapped communities suffering from revenue shortfalls, economic development from a localized approach may be the key. In January 2011, the State of Mississippi, through the Mississippi Development Authority’s Pilot Entrepreneur Training Program, launched an effort to target small businesses and entrepreneurs in order to introduce them to business planning resources, the legal aspects of business and management, human resources and management principles, marketing research and analysis, financial statement resources, trade and exporting, government contracting and information on purchasing or expanding a business. Thus, the key to the puzzle is for communities to seek to generate added value from their rich cultural and historic heritage. Each community should seek to find its own economic development identity or form regional clusters to pool their resources with neighboring communities. In diversifying a community’s economic development portfolio, community leaders must be confident in the proposition that there is a light at the end of the tunnel because entrepreneurs ultimately drive the United States economy.

Defense, Interior Departments Pursue Renewable Energy on Federal Lands

2012-08-13T10:32:00.001-07:00

The Interior Department announced on August 6 that Secretary of Defense Leon Panetta and Secretary of the Interior Ken Salazar have signed a Memorandum of Understanding (MOU) that encourages appropriate development of renewable energy projects on public lands that are set aside for defense-related purposes, and on other onshore and offshore areas near military installations. The MOU establishes the Renewable Energy Partnership Plan, which aims to harness the solar, wind, geothermal, and biomass energy resources located on or near military installations across the country.

Department of Defense (DoD) installations encompass roughly 28 million acres in the United States, including 16 million acres previously managed by the Interior's Bureau of Land Management (BLM) that were withdrawn for military use. About 13 million acres of these withdrawn lands are located in the West and are rich in wind, solar, and geothermal resources. In addition, offshore wind is an abundant renewable energy resource available to many DoD installations on the Atlantic and Pacific coasts, along the Gulf of Mexico, and in Hawaii.

Access to renewable energy will allow a military base to maintain critical functions for weeks or months if the commercial grid goes down. To keep the military operating in the event of a grid failure, each of the military services has committed to deploy one gigawatt of renewable energy on or near its installations by 2025. In pursuit of these goals, the MOU establishes a framework for an offshore wind partnership and forum; provides a blueprint for Interior and the DoD to identify onshore renewable energy projects at DoD installations; creates a working group on geothermal energy; and commits the DoD and the BLM to developing a pilot process for authorizing solar energy projects on several military installations in Arizona and California.

DOE Award $3 Million for Energy Storage Technologies

2012-08-13T10:30:00.003-07:00

The Energy Department announced on August 2 that 19 new projects will receive a total of $43 million from the department's Advanced Research Projects Agency-Energy (ARPA-E) to develop breakthrough energy storage technologies. The projects will focus on innovations in battery management and storage to advance electric vehicle (EV) technologies, help improve the efficiency and reliability of the electrical grid, and provide important energy security benefits to U.S. armed forces. The projects are supported by two new ARPA-E programs: Advanced Management and Protection of Energy Storage Devices (AMPED) and Small Business Innovation Research.

Twelve research projects are receiving $30 million in funding under the AMPED program, which aims to develop advanced sensing and control technologies that could dramatically improve grid-scale and vehicle batteries. Unlike other Energy Department efforts to push the frontiers of battery chemistry, AMPED is focused on maximizing the potential of existing battery chemistries. These innovations will help reduce costs and improve the performance of next-generation storage technologies, which could be applied in both plug-in and hybrid EVs. For example, Battelle Memorial Institute in Columbus, Ohio, will develop an optical sensor to monitor the internal environment of a lithium-ion battery in real-time.

ARPA-E is also awarding $13 million to seven enterprising small businesses that are pursuing cutting-edge energy storage developments for stationary power and electric vehicles. These businesses will develop novel battery chemistries and battery designs as part of the larger department-wide Small Business Innovative Research/Small Business Technology Transfer program. For example, Energy Storage Systems, Inc., in Portland, Oregon, will construct a flow battery for grid-scale storage using an advanced cell design and electrolyte materials composed of low cost iron.

USDA Supports Growers of Feedstocks for Advanced Biofuels

2012-08-13T10:27:00.001-07:00

The U.S. Department of Agriculture (USDA) announced on July 27 a total of $19.4 million in payments to 125 advanced biofuel producers to support the production of advanced biofuels from a wide variety of non-food sources, including waste products. The funding will be provided through USDA's Bioenergy Program for Advanced Biofuels, which makes payments to eligible producers based on the amount of biofuels a recipient produces from renewable biomass, other than corn kernel starch. Eligible feedstocks include crop residue; animal, food, and yard waste; vegetable oil; and animal fat.

For example, Somerset Hardwood Flooring in Somerset, Kentucky, will receive a $7,040 payment for producing wood pellets from residual sawdust from its hardwood flooring manufacturing process. The company produces about 40 tons of wood pellets annually. Likewise, FPE Renewables, LLC, based in Lyden, Washington, will receive a payment of $9,612 for using dairy waste to produce biogas, which is then converted to electricity. And Virginia Biodiesel Refinery in West Point, Virginia, will receive a payment of $7,900 for making biodiesel from soybean and recycled cooking oil.

Small Business Innovation Research Program (SBIR)

2012-07-26T13:34:00.001-07:00

SBIR is a highly competitive program that encourages small business to explore their technological potential and provides the incentive to profit from its commercialization. By including qualified small businesses in the nation's R&D arena, high-tech innovation is stimulated and the United States gains entrepreneurial spirit as it meets its specific research and development needs.

Competitive Opportunity for Small Business:

SBIR targets the entrepreneurial sector because that is where most innovation and innovators thrive. However, the risk and expense of conducting serious R&D efforts are often beyond the means of many small businesses. By reserving a specific percentage of federal R&D funds for small business, SBIR protects the small business and enables it to compete on the same level as larger businesses. SBIR funds the critical startup and development stages and it encourages the commercialization of the technology, product, or service, which, in turn, stimulates the U.S. economy.

Since its enactment in 1982, as part of the Small Business Innovation Development Act, SBIR has helped thousands of small businesses to compete for federal research and development awards. Their contributions have enhanced the nation's defense, protected our environment, advanced health care, and improved our ability to manage information and manipulate data.

SBIR Qualifications:

Small businesses must meet certain eligibility criteria to participate in the SBIR program.

American-owned and independently operated

For-profit

Principal researcher employed by business

Company size limited to 500 employees

The SBIR System:

Each year, eleven federal departments and agencies are required by SBIR to reserve a portion of their R&D funds for award to small business.

Department of Agriculture

Department of Commerce

Department of Defense

Department of Education

Department of Energy

Department of Health and Human Services

Department of Homeland Security

Department of Transportation

Environmental Protection Agency

National Aeronautics and Space Administration

National Science Foundation

These agencies designate R&D topics and accept proposals.

Three-Phase Program:

Following submission of proposals, agencies make SBIR awards based on small business qualification, degree of innovation, technical merit, and future market potential. Small businesses that receive awards then begin a three-phase program.

Phase I is the startup phase. Awards of up to $100,000 for approximately 6 months support exploration of the technical merit or feasibility of an idea or technology.

Phase II awards of up to $750,000, for as many as 2 years, expand Phase I results. During this time, the R&D work is performed and the developer evaluates commercialization potential. Only Phase I award winners are considered for Phase II.

Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No SBIR funds support this phase. The small business must find funding in the private sector or other non-SBIR federal agency funding.

Small Business Technology Transfer Program (STTR)

2012-07-26T13:28:00.000-07:00

STTR is an important small business program that expands funding opportunities in the federal innovation research and development arena. Central to the program is expansion of the public/private sector partnership to include the joint venture opportunities for small business and the nation's premier nonprofit research institutions. STTR's most important role is to foster the innovation necessary to meet the nation's scientific and technological challenges in the 21st century.

Competitive Opportunity for Small Business:

STTR is a highly competitive program that reserves a specific percentage of federal R&D funding for award to small business and nonprofit research institution partners. Small business has long been where innovation and innovators thrive. But the risk and expense of conducting serious R&D efforts can be beyond the means of many small businesses.

Conversely, nonprofit research laboratories are instrumental in developing high-tech innovations. But frequently, innovation is confined to the theoretical, not the practical. STTR combines the strengths of both entities by introducing entrepreneurial skills to high-tech research efforts. The technologies and products are transferred from the laboratory to the marketplace. The small business profits from the commercialization, which, in turn, stimulates the U.S. economy.

STTR Qualifications:

Small businesses must meet certain eligibility criteria to participate in the STTR Program:

American-owned and independently operated

For-profit

Principal researcher need not be employed by small business

Company size limited to 500 employees

The nonprofit research institution must also meet certain eligibility criteria:

Located in the US

Nonprofit college or university

Domestic nonprofit research organization

Federally funded R&D center (FFRDC)

The STTR System:

Each year, five federal departments and agencies are required by STTR to reserve a portion of their R&D funds for award to small business/nonprofit research institution partnerships.

Department of Defense

Department of Energy

Department of Health and Human Services

National Aeronautics and Space Administration

National Science Foundation

These agencies designate R&D topics and accept proposals.

Three-Phase Program:

Following submission of proposals, agencies make STTR awards based on small business/nonprofit research institution qualification, degree of innovation, and future market potential. Small businesses that receive awards then begin a three-phase program.

Phase I is the startup phase. Awards of up to $100,000 for approximately one year fund the exploration of the scientific, technical, and commercial feasibility of an idea or technology.

Phase II awards of up to $750,000, for as long as two years, expand Phase I results. During this period, the R&D work is performed and the developer begins to consider commercial potential. Only Phase I award winners are considered for Phase II.

Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. No STTR funds support this phase. The small business must find funding in the private sector or other non-STTR federal agency funding.

ADFA Approves Funding for Angel Capital Network

2012-07-26T13:18:00.000-07:00

Here is the article:
ADFA Article

Tax Treatment of Startup Expenses

2012-07-24T07:46:00.002-07:00

Are you starting a new business?

If so, your “start-up” expenses generally can’t be currently deducted. You can, however, elect to deduct a limited amount of start-up costs for the tax year in which the active trade or business begins (up to $5,000 ($10,000 for a tax year beginning in 2010), reduced by the amount by which the start-up costs exceed $50,000 ($60,000 for a tax year beginning in 2010)), with the remainder amortizable ratably over a 180-month period beginning with the month in which the active trade or business begins. This election is only available for start-up expenses that relate to an active trade or business, and not to investments.

One way to avoid or minimize start-up expenses that are nondeductible or which must be amortized over a 180-month period is to buy an activity that has already been developed by another taxpayer to the point of being an active trade or business. Once an active business is acquired, amounts spent to expand it generally won’t be subject to the special rule barring the deduction of start-up expenses.

“Start-up” expenses subject to the special election include those incurred in: investigating the acquisition or creation of an active trade or business; creating an active trade or business; or carrying on an activity engaged in for profit before the activity becomes an active trade or business, in anticipation of the activity becoming an active trade or business.

The rule generally barring the current deduction of start-up expenses ceases to apply once the business becomes active, nor does the prohibition apply at any time to certain interest, taxes and research expenditures. Also, the rule generally barring the current deduction of start-up expenses doesn’t apply to the cost of expanding an already existing active trade or business.

Has your business reached the “active” stage?

The rule barring current deduction of start-up expenses only applies to expenses incurred before the activity becomes an active trade or business. Also, 180-month amortization begins with the month in which this happens and the election to amortize must be made with the return for the tax year in which the business reaches the active stage.

Generally speaking, if the activities of a taxpayer have advanced to the extent necessary to establish the nature of its business operations, the taxpayer will be considered to have begun an active business. For example, the acquisition of operating assets which are necessary to the type of an active business contemplated may constitute the beginning of an active business. On the other hand, the receipt of income, in and of itself, doesn’t necessarily mean that the active business stage has been reached. And even if all necessary business assets are on hand, IRS and some courts may require something more under certain circumstances before an activity is deemed to be an active business, for example, the commencement of marketing activities or the actual operation of business assets.

The time at which an activity becomes an active business is an important determination because a miscalculation on this point can cause the loss of important tax benefits. For instance, the election to deduct/amortize start-up expenditures must be made not later than the due date of the taxpayer’s return (including extensions) for the tax year in which the active business begins. If a taxpayer has any doubt as to when the active business began, an election should be made in the year the expenditures are paid or incurred, or at least in the first year there is any reason to believe IRS might take the position that business began. Otherwise, the right to make the election would be lost if IRS successfully claimed that the business actually began in an earlier year.

Do you expect to pay interest, taxes or research expenses in starting a new business?

Otherwise deductible interest, taxes and research expenses aren’t subject to the rule that generally bars the current deduction of start-up expenses.

Do you plan to expand an already existing active business?

Ordinary and necessary business expenses incurred in expanding an already existing active trade or business (whether purchased or created by the taxpayer) aren’t subject to the special limits on start-up expenses and are generally deductible.

Whether a taxpayer is expanding an old business or starting a new one can be a tricky determination in certain cases, especially where there is a change in the kind of business done as well as in the size of the old business.

If in doubt, consider treating the outlays in question as start-up expenses while making the amortization election. In the event that it’s later determined that you were in fact expanding an old business (and not creating a new one), it’s possible that you will still be able to deduct the expenses by filing an amended return. On the other hand, if the election isn’t made and the outlays are later determined to be start-up expenses, you will be stuck with expenditures that have to be capitalized and can’t be amortized.

If the intention is to expand an old business through a new and different entity (for example, through a newly organized partnership or corporate subsidiary), the expenses generally can’t be currently deducted.

Do you plan to expand an old business through a new entity?

If so, the special exception for expenses incurred to expand an old business may not apply. This is because the trade or business activities of one tax entity can’t be attributed to another for this purpose. For instance, if a partnership incurs expense to create additional branches or units for its already existing business to be carried on by separate tax entities, for example by newly organized corporations to be owned by the partnership, the expenses won’t qualify under the exception. One solution to this problem would be to have the partnership or other original entity first transfer part of its old business to the new corporation, then have the new corporation expand it. Or buy an old corporation that’s already in the same line of business and then have the old corporation expand that business. In either case, the corporation would be able to deduct the expansion outlays.

In the case of a corporate parent-subsidiary situation, a special rule may allow the deduction of expansion expenses incurred before the sub comes into existence if (1) the parent and the sub are in the same business, (2) the customers of the sub have the right to obtain goods or services from the parent if the sub can’t provide them, and (3) gross receipts from the expansion are reported as income on the affiliated group’s consolidated return. This might apply, for example, to a chain of health clubs.

Does the contemplated business require a license or franchise or other outlay that ordinarily must be capitalized?

The deduction/amortization election only applies to outlays that would be currently deductible if it weren’t for the start-up expense limitation. As a result, items that ordinarily have to be capitalized, such as the cost of acquiring a license or a franchise, don’t qualify for the election. However, the cost of a license or franchise may be amortizable.

Do you expect to incur syndication or organizational expenses?

Starting a new business may involve partnership or corporation organization expenditures. You can elect to deduct a limited amount of these expenditures (up to $5,000, reduced by the amount by which the organizational expenses exceed $50,000), with the remainder amortizable over a 180-month period beginning with the month in which the active trade or business begins. If the election isn’t made, no deduction would generally be allowed until the organization goes out of existence. Also, the deduction/amortization election doesn’t apply to partnership syndication expenses, which must always be capitalized.

Have you tried to start a new business, then given up on the project?

The deduction/amortization election doesn’t apply to unsuccessful search, investigatory, or pre-opening expenditures for a new business or a for-profit investment transaction. In the case of a corporation, these fruitless start-up costs can be deducted as a loss when the project is abandoned. But the unsuccessful start-up expenses of noncorporate taxpayers not engaged in a trade or business when the start-up costs are paid or incurred are, with one exception discussed below, treated as nondeductible, personal expenses.

Where a noncorporate taxpayer has gone beyond a general search for a new business to focus on a specific enterprise, the unsuccessful start-up expenses are deductible as a loss.

Noncorporate taxpayers contemplating substantial expenditures in investigating a new business should consider organizing a small business corporation to undertake the search and, if successful, to conduct the new business. If the search or investigation proves fruitless, the stockholders are entitled to an ordinary loss deduction on their small business corporation stock.

Do you plan to use depreciable assets in starting a new business?

Ordinarily, depreciation deductions are not available until the asset is placed in service in the taxpayer’s trade or business. However, elective deduction/amortization is available for amounts that would be deductible if paid or incurred in an existing business. Thus, the cost, for example, of a computer or word processor used to train new employees or to set up an accounting system, to the extent depreciable during the start-up period, should qualify for the deduction/amortization election.

Rights & Preferences, What to Expect from a VC

2012-07-17T07:31:00.001-07:00

Your company has grown to the point that you are no longer in need of “friends and family money” or angel financing. You are now seeking venture capital funding that will help move your company further down the growth spectrum; but, you are not sure what to expect in terms of the rights and preferences that a venture capitalist may require for its investment in your company. This article will briefly highlight some of the more common rights and preferences that a venture capitalist will expect for an investment in your company and that you will see outlined when you are presented a term sheet by the venture capitalist.

Antidilution Rights

Antidilution rights protect the venture capitalist against the issuance of securities by your company at a later date for a price less than what was paid by the venture capitalist. If the venture capitalist purchased preferred stock in your company and is afforded antidilution protection, the term sheet will generally specify a formula for adjusting the conversion ratio to take into consideration any fluctuation in the share price upon the issuance of new securities.

Conversion Rights

If the venture capitalist is purchasing preferred stock, generally there will be conversion rights attached to those shares. Conversion rights can either be mandatory or optional. If the preferred stock is subject to mandatory conversion rights, the term sheet will specify what those events are and will provide a formula for the conversion of the preferred shares into common shares.

Drag Along, Tag Along, First Refusal, Co-Sale and Preemptive Rights

Generally, a venture capitalist will require the shares of stock it purchases to have any one or all of the following rights: the right of the venture capitalist to compel minority shareholders to participate in a stock sale (drag along); the right of a minority shareholder venture capitalist to sell its shares with the majority shareholders (tag along); the right of the venture capitalist to be first offered securities to be sold by other shareholders or your company (first refusal); the right of the venture capitalist to sell its securities along with any securities sold by other shareholders or your company (co-sale); and the right of the venture capitalist to acquire any newly issues securities issued by your company to the extent required to maintain the relative percentage ownership on an as-converted basis (preemptive).

Registration Rights

Registration rights entitle the venture capitalist to force your company to register shares of common stock issuable upon conversion of preferred stock with the Securities and Exchange Commission.

Voting Rights

Most commonly, the venture capitalist receives the number of votes equal to the number of shares of common stock into which its securities may convert upon a conversion trigger event. The term sheet will generally describe whether the preferred stock purchased by the venture capitalist has “class” or “protective” voting rights or whether the venture capitalist has special rights to take control of your company upon the occurrence of certain events of default. The venture capitalist will often have the right to elect (or otherwise appoint for election by the company’s shareholders) one or more members of the board of directors of your company.

Information Rights

If the venture capitalist is a minority shareholder, the venture capitalist will typically desire the right, which should be specified in the term sheet, to receive monthly and/or quarterly financial statements, an annual audited financial statement, and an annual budget, as well as the ability to have interim access to the books and records of your company.

Dividend Preference

Many times a venture capitalist will be entitled to special dividends or other preferential returns on the securities it purchases. The term sheet will also set forth whether such dividends will accumulate to the extent not paid and whether the holders of common stock or any other junior securities may receive dividends or other distributions if accumulated dividends owing to the venture capitalist are not paid.

Liquidation Preference

For the risks associated with investing in an early stage company, venture capitalists may require a premium on the investment. Liquidation preference refers to the right of a venture capitalist to receive a return prior and in preference to other shareholders on liquidation or sale of your company.

These are just a few of the common rights and preferences that you can expect to see contained in the initial term sheet you receive from a venture capitalist. The term sheet is designed to highlight the most important business terms of the equity sale and will almost always provide that the definitive agreements will contain such other customary terms and conditions as may be appropriate. It is important for you to understand what every each provision of the term sheet means to your company and its capital structure. Seek out counsel and advice early in the process so that you can be better prepared during the negotiation of the terms and conditions of the venture capitalists investment into your company.

Tax Law Changes in PPACA

2012-07-16T15:11:00.004-07:00

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Energy Department Announces $102 Million for Small Business Research

2012-07-08T10:00:00.005-07:00

The Energy Department announced on June 27 that it will award new funding to 104 small businesses nationwide. The grants, totaling more than $102 million, will support businesses in 26 states, helping companies to develop promising technologies with a strong potential for commercialization and job creation.

Funded through the Energy Department's Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the selections are for Phase II work. In Phase II, companies will build on the conceptual work undertaken in Phase I and pursue the next steps in bringing the technologies to market. The Phase II awards are up to $1 million for work over two years. The awards support developing technologies in areas ranging from large wind turbine towers to more energy-efficient data centers. For example, the Xunlight 26 Solar company of Toledo, Ohio, will work on transparent, flexible cadmium telluride modules for photovoltaics.

California, New Jobs Credit Update

2012-07-08T10:00:00.002-07:00

The Franchise Tax Board (FTB) has announced that as of June 30, 2012, $121,123,174 ($117,441,362 as of June 3, 2012) in total New Jobs Credit was generated on personal income tax and business entity tax returns filed/processed. California has allocated $400 million for this tax credit. Taxpayers may only claim the credit on an original timely filed return received by the FTB on or before a cut-off date specified by the FTB. The cut-off date is the last day of the calendar quarter within which the FTB estimates it will have received timely filed original returns claiming the credit that cumulatively total $400 million. A new jobs credit of up to $3,000 per additional full-time employee hired is allowed to qualified small businesses with 20 or less employees.