What Smart Business Owners Will Do in 2012: Prepare for the Worst as the Prolonged Downturn Leads to Fraud, Antitrust Challenges and Litigation
Political Uncertainty Over Tax Policy and the Risk of External Economic Shocks Add to Tensions During the Recovery, According to Partners at New York Accounting Firm Marks Paneth & Shron LLP
(firmenpresse) - NEW YORK, NY -- (Marketwire) -- 02/06/12 -- Economic headwinds and political uncertainty over tax policy will make 2012 a challenging year for U.S. businesses and nonprofit organizations of all sizes.
Questions confronting business and organizational leaders at the start of the year include how to manage through continued slow growth, how to respond to an external shock such as a Euro crisis that might derail the fragile recovery and how to plan for uncertainty as partisan disputes over federal tax policy threaten to block tax reform.
Business leaders also need to be aware of hidden risks -- the stresses that can emerge during a prolonged downturn, leading to an upsurge in fraud and litigation along with competitive challenges over mergers and intellectual property. according to the partners at
In other developments related to the downturn, protectionism will increase, blocking international expansion as overseas jurisdictions seek revenue and growth, and online businesses will need to confront demands for state and local taxation as states -- including New York State and Connecticut -- try to meet their own revenue challenges, the MP&S partners say.
"Smart leaders will need to be aware of the potential for stress, disputes and fraud that can derail an organization, and make specific plans to head them off," says , Managing Partner at MP&S.
"When planning for the year, businesses will also need to take into account specific challenges posed by slow economic growth. For example, there is likely to be an upsurge in taxation from state jurisdictions, such as New York, which are trying to raise revenue. Overseas jurisdictions will also complicate the picture as they attempt to erect competitive fences to doing business with them," , Managing Partner says.
Economic stress leads to disagreement -- but most businesses aren't prepared for it. Too often, operating agreements are out of date or are missing key provisions. They don't include mechanisms for resolving disagreements, and the result is often litigation that can threaten the future of the business itself. Refreshing the operating agreement is always a good idea, but particularly now when stress and risks are high.
The combination of economic desperation and ever more complex (and therefore more vulnerable) IT systems have created fertile ground for fraud. "'Hacking' is a thing of the past -- cybercriminals now infiltrate IT systems and divert funds in ways that are extremely difficult to detect and trace," says , partner in charge of the Litigation and Financial Advisory Services Group at MP&S. "Businesses of all sizes will want to tighten internal controls and be on the lookout for fraud and cybercrime before they happen.
A lower corporate tax rate, if enacted, could help spark growth. But there are hidden traps. "Operating losses -- such as those incurred by the major banks -- are a tax asset," says , a principal at MP&S. "They can be deferred and applied to future income. But if corporate tax rates go down, then those assets are worthless, and the result could be write-downs."
"More and more companies are realizing that their patents and other intellectual property are significant assets -- perhaps the most valuable assets the company owns. At the same time, patents are becoming harder to get and harder to defend -- as the U.S. patent office becomes more restrictive, and as more companies are willing to litigate patents," Dr. Henning explains. "Companies should be prepared to 'move the fences outward' to protect more of their intellectual property and make sure their patent rights are as strongly defended as possible."
Tighter court rules and an increased number of business-friendly judges mean that it's become more difficult to bring and sustain securities class action litigation. On the other hand, mergers are under greater scrutiny for antitrust, both in the U.S. and overseas, as competitors become aggressive about challenging restraint of trade. "Long-term economic challenges will make these actions more common, and any management contemplating a sizeable merger needs to factor in the possibility of protracted litigation. Dr. Henning says.
States are moving to tax online businesses that sell in their territory. The so-called "Amazon Tax" demands that online businesses collect state sales tax if they have affiliates or individuals that are paid a commission based on sales made by the seller in that state. The presence of such individuals or affiliates creates "click-through nexus," a legally defined level of taxable business activity accessible through the Internet; this in turn triggers a sales tax collection responsibility in many states that are acting to claim tax revenue. Legislators are concerned they are losing revenue to online sellers. "Online businesses may want to rethink their arrangements, withdrawing such affiliates or cancelling any commission agreements in states where the Amazon Tax applies," says , principal in the Tax Practice at MP&S.
Banks are reluctant to lend to businesses and individuals, but they are much more willing to finance real estate owners, whose projects involve the relative security of hard assets. "That means that ," says , a partner at MP&S who specializes in commercial real estate. "Getting ready means making sure your property is in the best possible shape, with rent rolls as healthy as possible."
Finally, . "Funding is available from state agencies and Con Ed that can cover as much as 50 percent of 'green' projects. But . It makes sense to apply now, even if your audit isn't due for several years," Mr. Schlisselfeld says.
Nonprofit organizations will be badly squeezed in 2012 -- demand for their services will increase, especially in the social services sector, where the ranks of unemployed and homeless will grow," says , partner in charge of the Nonprofit and Government Services Group at MP&S. "At the same time, state and local funding will be reduced, and the donor base will continue to focus on outcomes and efficiencies of the charities during this sluggish economy." The nonprofits that survive will be those that put their operations on a businesslike footing -- reducing their costs, including both capital and staff costs, and maximizing their return on investment, Mr. McNee says. According to Mr. McNee, mergers are worth considering -- a number of nonprofits with similar missions are merging in order to reduce costs and competition for scarce funds.
Marks Paneth & Shron LLP is an accounting firm with nearly 475 people, of whom approximately 60 are partners and principals. The firm provides businesses with a full range of auditing, accounting, tax, consulting, bankruptcy and restructuring services as well as litigation and corporate financial advisory services to domestic and international clients. The firm also specializes in providing tax advisory and consulting for high-net-worth individuals and their families, as well as a wide range of services for international, real estate, media, entertainment, nonprofit, professional and financial services, and energy clients. The firm has a strong track record supporting emerging growth companies, entrepreneurs, business owners and investors as they navigate the business life cycle.
The firm's subsidiary, Tailored Technologies, LLC, provides information technology consulting services. In addition, its membership in Morison International, a leading international association for independent business advisers, financial consulting and accounting firms, facilitates service delivery to clients throughout the United States and around the world. Marks Paneth & Shron LLP, whose origins date back to 1907, is the 30th largest firm in the nation and the 13th largest in the New York area. In addition, readers of the New York Law Journal rank MP&S as one of the area's top forensic accounting firms.
Its headquarters are in Manhattan. Additional offices are in Westchester, Long Island and the Cayman Islands. For more information, please visit .
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