Ford Motor Credit Company repossessed a Chapter 7 debtor’s vehicle, without any warning, about three months after discharge, when she was current on her post-petition monthly payments. (The record is unclear whether she had ever defaulted on payments pre-petition.) The balance on the loan exceeded the value of the vehicle. The contract contained an “ipso facto” clause, stating that debtor’s filing of a bankruptcy case would be in itself constitute a default of the contract. Her Statement of Intentions had stated that she would “retain the collateral and continue to make regular payments” The creditor sent a proposed reaffirmation agreement and then its attorney sent an email to debtor’s attorney requesting reaffirmation, but debtor’s attorney “declined the offer.” (The terms of the reaffirmation offer were not clear from the record.) After the repossession, Debtor reopened the case and claimed that Ford Motor Credit had violated the discharge injunction. The bankruptcy court for the Southern District of California denied the motion.  The 9th Circuit affirmed the denial.

For free or low cost help with reaffirmation hearing click. 

Getting paid is getting harder. Not because more customers are trying to conserve cash by extending payment terms, but because they are going out of business altogether.

According to BankruptcyData.com, a research firm that tracks such filings, 114 publicly held U.S. companies filed for bankruptcy so far this year, versus 57 during the first six months of 2008, and 33 in the same period of 2007. Sadly, this year’s $368 billion of write offs thus far dwarfs the $105 billion at this point back in 2001, when the last bubble burst.

How to ease the pain of dealing with bankrupt customers? Understand a few things about “reclamation rights” and “critical vendor” orders.

Reclamation is just what it sounds like. It permits a vendor to take back a certain amount of goods that it sold to a broke customer. There are two situations to consider: before a customer files for bankruptcy and after a filing.

If the customer has not filed for bankruptcy, a vendor’s reclamation rights are governed by the Uniform Commercial Code (UCC). This law provides the vendor with the right to reclaim goods a customer bought on credit “while insolvent” if the vendor makes a demand within 10 days after the customer received the goods. This 10-day period means that, absent a bankruptcy, a vendor’s reclamation right will be limited to reclaiming only those goods received by the customer in the 10 days prior to the demand.

To exercise a reclamation right before bankruptcy (assuming the customer is still in possession of the goods), the vendor must make a demand, in writing, and identify the goods being reclaimed during the applicable time period. Sounds easy, but the language can be tricky, which is why you should have your lawyer draft the demand. Send the letter certified so you have proof of receipt.

If the bankruptcy has already happened, the Bankruptcy Code comes into play. Once a bankruptcy is filed, a vendor can assert a reclamation demand for goods received within 45 days of the bankruptcy filing. Note, however: (1) the goods must have been sold in the “ordinary course” of the vendor’s business, and (2) the debtor must have received the goods while insolvent. If you meet those two requirements, the reclamation demand must be in writing within 45 days of the receipt of the goods by the customer. If the 45-day period expires after the bankruptcy case is filed, the vendor must make the reclamation demand within 20 days after the bankruptcy filing. (The demand should read similarly to the pre-bankruptcy reclamation demand.)

If you are a creditor of the company in bankruptcy, you will be notified in short order by the bankruptcy court. It’s best to act quickly to protect your rights, but there is some wiggle room. Even if a vendor fails to make a reclamation demand, a new Bankruptcy Code section gives vendors an administrative priority claim for the value of any goods received by the debtor within 20 days prior to the bankruptcy filing–if the goods were sold in the “ordinary course” of the debtor’s business. (Tortuous, I know.)

Then there is something called a “critical vendor” order. Once a company files for bankruptcy, it usually is not permitted to pay any of the amounts that were owed prior to its bankruptcy filing. But the courts have created an exception for vendors that are “critical” to the ongoing business of the bankrupt customer. (“Critical” implies that you supply an otherwise unavailable good or service essential to the ongoing operations of the debtor.) Your burden is convincing the debtor that you are indeed critical and that, absent payment of your pre-petition claim, you will no longer do business with that company and, without you, the likelihood of the debtor being able to successfully reorganize is diminished.

Even if you are able to convince the debtor, the debtor must then convince the court. Suffice it to say that there is a ton of case law as to what constitutes a critical vendor, and the standard changes from time to time. Again, a good lawyer helps.

Bottom line on all of this? When it comes to reclamation, act quickly and you just may recoup some losses. As for claiming critical vendor status, don’t count on it.

Adopted from a Ryan J. Donmoyer article dated May 5 in (Bloomberg):

President Barack Obama’s plan to end tax breaks for U.S.-based multinational companies drew a skeptical response from fellow Democrats on Capitol Hill, indicating that his proposal may face obstacles in Congress.

Senate Finance Committee Chairman Max Baucus, a Montana Democrat, called for “further study” of Obama’s proposals within minutes of the president’s announcement yesterday. Joseph Crowley, a Democrat on the tax-writing House Ways and Means Committee, said he doesn’t want any tax changes to “harm” Citigroup Inc., his New York district’s largest private-sector employer.

Democrats, including House Ways and Means Committee Chairman Charles Rangel of New York, support the proposal. Some lawmakers, including Iowa Senator Charles Grassley, the ranking Republican on the Senate finance panel, are still weighing the plan.

Obama proposed outlawing three offshore tax-saving strategies commonly used by companies such as Citigroup, General Electric Co., and Procter & Gamble Co. In doing so, he reignited debate about whether U.S. companies can remain competitive in world markets if they have to pay billions of dollars in taxes on foreign profits.

The U.S. has “a broken tax system” that is “full of corporate loopholes that makes it perfectly legal for companies to avoid paying their fair share,” Obama said as he outlined his plan with Treasury Secretary Timothy Geithner at the White House. Obama called most of the breaks “unjustifiable” and likened some company practices to a “tax scam.”

That rhetoric stung some executives. Carl Guardino, chief executive of the Silicon Valley Leadership Group, told Treasury officials on a conference call after the speech that Obama’s “word choices were a bit troubling” because chief executives in his organization are “proud Americans.”

The package of corporate and individual tax changes, which will be part of a detailed budget the administration plans to release May 7, would generate about $210 billion in tax revenue over the next decade, according to Treasury estimates. Obama’s proposals, if adopted, wouldn’t take effect until 2011.

For the biggest chunk, the administration expects to raise $86.5 billion through 2019 by ending a strategy that lets U.S.- based multinational companies effectively hide the role their foreign subsidiaries play in shifting profits into low-tax jurisdictions such as the Cayman Islands.

Expense Deductions.

The proposal, combined with a $60.1 billion plan to limit many expense deductions for American companies that take advantage of laws allowing them to defer tax on foreign profits and a $43 billion crackdown on abusive foreign tax credits would be the biggest tax increase on U.S. corporations since 1986.

Obama’s plan also would shift the burden of proof to individuals when the IRS alleges assets are being hidden in certain offshore bank accounts, the White House said in a statement.

In exchange, Obama proposed to make permanent a research and experimentation credit worth about $75 billion over the same period to manufacturers and other companies that can claim it.

Obama’s plan drew immediate criticism from the U.S. Chamber of Commerce and the Business Roundtable, a group of chief executives at some of the biggest U.S. companies. Roundtable President John Castellani said Obama is pushing “the wrong idea at the wrong time for the wrong reasons.”

Fresh Opinions.

An advisory group headed by former Federal Reserve Chairman Paul Volcker, which is studying tax proposals, isn’t bound by Obama’s plan, said Gene Sperling, an economic adviser to the president. “They are there to give the president fresh opinions,” Sperling told corporate executives on the conference call about the tax plan.

Obama based many of his proposals on earlier ideas by Democratic lawmakers such as Senator Carl Levin of Michigan, Representative Lloyd Doggett of Texas and Rangel.

Baucus, who said he supports the president’s overall goals, said it’s best to consider an overhaul of international tax rules as part of a broader rewrite of the tax code.

“Further study is needed to assess the impact of this plan on U.S. businesses,” Baucus said in a statement.

In a separate statement, Crowley said he favors taking steps to “protect U.S. multinational companies, including Citibank, which is the largest private-sector employer in Queens, so they are not subject to double taxation overseas.” He also said he’d seek to end a “kink” in the law that “punishes” U.S. companies that repatriate foreign profits with higher taxes.

‘Misunderstanding’

Boxer’s spokeswoman Ravitz said the senator’s experience in pushing a corporate “repatriation” tax holiday “indicates that there is a great deal of misunderstanding surrounding these issues.”

Other lawmakers reacted more favorably.

“Our tax code should reward companies that thrive by continuing to invest in America and American workers,” Rangel said. “I applaud President Obama’s commitment to simplifying our tax code and look forward to working with the administration to close these loopholes.”

Grassley said he supports efforts to crack down on tax abuse. “Out of fairness, corporate taxpayers generally shouldn’t pay pennies on the dollar compared to the rest of Americans,” Grassley said. However, he said, if Obama is “using tax shelters as a stalking horse to raise taxes on corporations at the cost of U.S. jobs, he’ll lose me.”

My Opinion.

No real changes will be made unless Congress stands up to the rhetoric about raising corporate taxes always costs U.S. jobs.  Not having adequate tax revenues also costs government jobs. Likewise,  the mantra against big government fails to appreciate the big problems faced by a highly technological U.S. society.  Thus, I argue that the corporate tax status quo does not work.

Certain types of taxes that a corporation or LLC owes may be transferable to the owners, officers, or even the employees of a corporation. Knowing how to fight this can save you and your family from becoming targets of the government.

Our tax analysis will show you:

• Who can be assessed with this penalty
• What kind of taxes can be assessed
• Why the government does it, and how to avoid or delay it
• How to know the assessment is coming
• How to protest the assessment – even after the deadline has passed!

After all, if people are fearful that their estates will pay tax when they die, causing their children to receive less of an inheritance, then more people will come to me for estate planning. Well, that’s somewhat true. I have plenty of clients who need to engage in estate planning whether the federal estate tax exists or not.

So, with that little disclaimer, here are my thoughts on the federal estate tax and my opinion as to its future. As much as we all don’t like it, a government raises money for the services that it provides one way, it levies a tax against its citizens. To some extent, all taxes are arbitrary. For instance, with regard to income tax, we have a graduated system where the more money you make the higher a percentage of your earnings you pay as income tax; however, that percentage caps at a certain amount of earnings and never increases. To most of us, this system of taxation seems somewhat fair; however, other countries place a much higher emphasis on sales and use taxes. What this shows is, governments can raise money through different forms of taxation and no one method is the correct method.

Some have argued that the current income tax code is to complex, which adds to its burden.  These folks want to replace it with a federal sales and use tax.  There is some merit in this but, given the vested interests, such a radical change will be difficult.

My thoughts are that the federal estate tax will be alive and well following 2011.

On-line Conference Payment

UBS AG asked a U.S. court on Thursday not to proceed with a high-profile tax evasion case brought against it by the U.S. Internal Revenue Service, saying the case would violate Switzerland’s strict bank secrecy laws. …

U.S. tax authorities are pursuing a civil lawsuit against UBS seeking to access the data of 52,000 Americans it says are hiding about $14.8 billion in assets in Swiss bank accounts.

UBS presents dueling claim of sovereignty—our laws preclude disclosing your tax cheats so take it up your our mutual State Departments via a tax treaty. In other words if we want to design a banking system that attracts your tax cheats so what.

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*Kleptocracy AKA: Sometimes cleptocracy, occasionally kleptarchy, is a term applied to a government that extends the personal wealth and political power of government officials and the ruling class (collectively, kleptocrats) at the expense of the population, sometimes without even the pretense of honest service. The term derives from the Greek root klepto (theft).  In this case, the population is U .S. taxpayer.