Succession Planning after ATRA 2012 – Government Shutdown

Fred M. Whitaker, P.C.'s Mergers, Acquisitions and Divestitures Legal Blogs

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Fred M. Whitaker, P.C.

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Serving Newport Beach, CA

  • Serving Newport Beach, CA

  • Free initial consultation, Credit cards accepted, Fixed hourly rates

Managing Partner at firm Cummins & White, LLP

Serving Newport Beach, CA

Free initial consultation, Credit cards accepted, Fixed hourly rates

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Last month we were in the middle of a 16 day government shut down and
a looming default on debt payments. The Treasury Department had said
that the government would run out of cash to pay its bills on October
17, 2013 if the Debt Limit was not increased.  The plan to fund the
government and raise the debt limit was passed in the waning hours of
October 16, 2013.

The government now has spending authorization through January 15,
2014, and a debit limit suspension until February 15, 2013. 
Congressional leaders and White House staff indicate that the goal is to
get a new deal by December 13, so there will not be management by
crisis.   Nice platitudes, but we’ve seen repeatedly since the Debt
Limit/Downgrade crisis in the summer of 2011 to the Sequester of last
spring that action only happens in crisis. Don’t expect action until
January/February.

The American Tax Payer Relief Act of 2012 was born out of such a
crisis.  So, what will the effect be on your business and income from
this latest crisis? What will happen in the first part of 2014 and how
should we plan?

The pundits all believe the next deal will have a trade in current
spending for reductions in long term spending. The Republicans want to
“chain CPI” on Social Security and Medicare payments in order to reduce
the long term spending from entitlements.  Democrats want to release the
Sequester, and are willing to have tax increases to do so, but the
Republicans will not vote for it.  So, a spending trade is most likely. 
The Democrats are not willing to “chain CPI” unless they get relief
from the “Sequester” that has limited the growth in current programs. 
Democrats have credited the rise in unemployment in recent months to
Federal work force reductions under the Sequester and the shutdown. 
They desperately want to increase current spending. The Federal Reserve,
which is largely concerned with balancing inflation against employment,
was willing to discuss tapering “Quantitative Easing” during the
summer, has completely backed off the subject based on the lack of
employment growth.

For your business it means continued Quantitative Easing will keep
interest rates low, but increased near term government spending will
mean that government borrowing will remain high.  The Federal Reserve
will largely fund the spending through Quantitative Easing, as will
banks, which hold an extraordinary sum of US Treasuries. This means less
liquidity in the system to lend to business for true growth.  You will
continue to need very good profits and cash flows, as well as a robust
balance sheet to have a good banking relationship.  Remember a banker is
someone that will lend you an Umbrella when the sun is shining and ask
for it back when it is raining.  So, operational excellence will
continue to take precedence over growth. Therefore, you should also
seriously consider taking the next two-three months to renew your credit
facilities before the next “solution to the crisis” makes it more
difficult. 

In my next blog post, we’ll take a last look at the tools under ATRA
2012 and the last minute things you can do to reduce your 2013 taxes.

___________________________________________________________________________________________

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To ensure compliance with
requirements imposed by the IRS, we inform you that any U.S. tax advice
contained in this communication (including any attachments) is not
intended or written to be used, and cannot be used for the purpose of
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addressed herein.

Last month we were in the middle of a 16 day government shut down and
a looming default on debt payments. The Treasury Department had said
that the government would run out of cash to pay its bills on October
17, 2013 if the Debt Limit was not increased.  The plan to fund the
government and raise the debt limit was passed in the waning hours of
October 16, 2013.
The government now has spending authorization through January 15,
2014, and a debit limit suspension until February 1

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