Vol. 2 Issue. 12 - December 2010 www.cannonfinancial.com
Planning Ideas - Dividend Blowout
Owners of successful privately held businesses are eventually faced with a fundamental dilemma—as the business becomes increasingly successful, decisions must be made concerning how to handle accumulating profits. At the outset, there is usually no choice other than to reinvest
for growth. However, as time goes on, retained profits are often used to retire debt and then left to accumulate in the business.
After a while, business owners can fall prey to their own success, become complacent, and fail to recognize the risks associated with leaving profits in the business. Advisors need to help their business owner clients recognize that the risks associated with accumulating excess profits in the company can outweigh the benefits. Read more.
Regulation and Compliance -
Proposed Regulation of Security-Based Swaps
The regulatory fallout from the financial crisis of 2007-2008 continues to mount. In November of this year, the Securities and Exchange Commission (SEC) issued proposed rules regarding security-based swaps. The proposed new rules are reflective of the SEC’s enhanced rule-making and enforcement role under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act). As indicated in an earlier edition of Cannon Insights:
“The new law gives the Securities and Exchange Commission (SEC) and the Commodity Futures
Trading Commission (CFTC) increased power to regulate derivatives and swaps.”
Dodd-Frank adds safeguards to the system by ensuring that dealers and major swap participants
have adequate financial resources to meet their responsibilities. Regulators are armed with the
authority to impose capital and margin requirements on swap dealers and major swap
participants. Read more.
Taxes - Watch Out: Annual Exclusion for Limited Partnership
IRC Section 2503(b) provides an exclusion from gift tax for the first $13,000 of present interest gifts a donor makes to any person or persons during a calendar year. Treas. Reg. Sec. 25.2503-3(b) defines present interest as the unrestricted right to the immediate use, possession or enjoyment of property or the income from property. In contrast, under Treas. Reg. Sec. 25.2503-3(a) the annual exclusion is denied for gifts of future interests, including reversions, remainders and other interests designed to commence in use, possession or enjoyment at some future date or time. Read more.