Sunday, March 22, 2009
A generous helping of local power brokers keeping quality high-paying jobs out
2 cups of corrupt politicians
3 tablespoons of nepotism
1 tomato from Pittston
1/2 teaspoon of local young talent retention in the region
Mix well in an abondoned coal mine and just add water
Thursday, November 27, 2008
Monday, November 3, 2008
We talked about billing magazine subscriptions to the corp and deducting them, but you mentioned I would have to have a place more like an office that has visitors, waiting area, etc... If I "rent" this space from them would this allow me to deduct magazine subscriptions?
Remember, there's a fine line between being aggressive and committing tax fraud. Deductions must be necessary and reasonable. If your line of work consists of face-to-face meetings at the clients' locations and there is no legitimate reason to have a waiting room, then magazine subscriptions are not deductable. Doctors' offices, for example, are different. There is a legitimate need for office space as well as a waiting room; however, the magazine subscriptions are still a grey area of the law. It would be difficult to prove to the IRS that a subscription to - for example - Playboy is a necessary and legitimate expense for a business. To make the deduction more acceptable and more to your advantage in the vent of an audit, try to subscribe to magazines related to your line of work. For example, if a doctor's office - a business with a legitimate reason to have a waiting room - subscribes to magazines to help patients pass the time while sitting in the waiting room, magazines such as Men's Health, Fitness, and the like could be argued to provide a benefit to the doctors as well as the patients - why wouldn't a doctor subscribe to such magazines (they promote healthy living, something doctors are concerned about)? My professional opinion is to keep away from magazine subscriptions UNLESS they are specifically trade subscriptions wherein you obtain key advice, trends, etc. regarding your line of work.
I recently started an S-corporation and have questions on meals expenses. A couple of scenarios:
I wouldn't pay for the meal myself and hold the receipt for tax time. Either having the company reimburse you at the end of the month or having the corporation picking up the check immediately works better. This avoids losing the receipt and guarantees your deduction. Since you own the corporation and the company's bottom line transfers on your return, you're better off taking the deduction through the company as opposed to claiming it as an unreimbursed employee expense at the end of the year on your personal return. Here's why. Unreimbursed employee expenses are not guaranteed. First, you have to qualify to itemize your personal deductions on your individual return (as opposed to taking the standard deduction). Every year, as you pay less mortgage interest and the standard deduction increases, it will become harder for you to take the option to itemize deductions. Secondly, unreimbursed employee expenses are subject to a special area of the tax law where they (along with other misc. deductions such as tax preparation fees and investment expenses) must exceed 2% of your adjusted gross income and only the amount above the 2% threshhold is elligible for deductability. For example, if you make $100,000 per year, your unreimbursed employee expenses and all other misc. elligible deductions must exceed $2,000 to be considered elligible. This is a gamble. By allowing the deduction through the corporation, you're lowering your corporation's bottom line. Since the bottom line is taxable on your personal return, your lowering your taxable income automatically and guaranteeing the deduciton. For example, your company's bottom line without unreimbursed meals is $60,000 and your allowable deduction for meals is $1,000. Using the $100,000 example above, you won't be able to deduct the $1,000 meals expense on your personal return as an itemized deduction because you need at least $2,000 in elligible expenses (and only anythin above that $2,000 threshhold is allowable). If you put the deduction through the corporation, your taxable bottom line that gets transfered on your personal return is $59,000. You guarantee the deduction, lower your income, and pay less tax. It's a win-win scenario.
Be careful here. According to the IRS, you can't call personal meals business dinners. There has to be a legitimate purpose for the business meal. For example, if you were to both be on the road working together, you can take the deduction. If you held a meeting over dinner and recorded your meeting minutes - it's a grey area. If you decide to go out for dinner and your wife asks, "how's business?" - it's not a legitimate deduction.
DVDs are not deductable for the sheer fact that you can view them at any time. I often purchase songs from itunes on my laptop to listen to the music while working and drown out background noise. However, since I am able to sync these songs to my ipod and listen to the songs while fishing, hunting, hiking, working out, doing yardwork, etc. It's not deductable. The same goes for clothing expense - if you can use the purchase elsewhere, it's not deductable. However, if you're searching for a deduction you can go to one of those embroidery places and get a few shirts made up with your company name on it. Here, you're advertising your business and/or buying uniforms. You obviously wouldn't wear these shirts anywhere else but when working or trying to drum up business.
Monday, September 8, 2008
Wednesday, August 20, 2008
I am not certain where you received the information, but there is no second stimulus rebate payment. Qualifying taxpayers only receive one rebate check. What you may have heard is that taxpayers must file their 2007 income tax returns by October 15, 2008 in order to qualify for the economic stimulus rebate.
First, I would gather up all your tax documentation from the previous four years and file the returns ASAP. If you cannot locate your documents (i.e., 1099s, W-2s, etc.), you can call the IRS on the number provided on the letter. If you misplaced the letter, you can call toll free at 1-800-829-1040 to speak to an agent (NOTE: don't call on Mondays or Fridays - these are the busiest days for the IRS and you will most likely become frustrated trying to get a hold of a live person). If you explain to the agent that you lost your documentation and need to complete your returns for 2004, 2005, 2006 & 2007 they can send you a transmittal that provides all the appropriate numbers needed to have your returns completed. Once you have the information needed to complete the returns, I advise that you seek a qualified tax professional to assist you in preparing these returns in a reasonable amount of time.
I stress qualified because there are many people and companies out there that prepare returns, but are not really qualified to prepare them. Most taxpayers are not aware that the Internal Revenue Service does not restrict non-licensed professionals from preparing income tax returns. In other words, according to federal regulations a paid tax preparer does not have to be a certified public accountant or enrolled agent to prepare taxes. In April, 2006 the Government Accountability Office published the results of a study it conducted that indicates that large tax preparation service companies contribute to error rate. It was noted in the report that most of the preparers at these companies are unenrolled, inexperienced, and have little or no background in tax preparaton. Such companies as H& R Block and Jackson Hewitt do not require that their employees or franchise owners to have any prior experience in tax preparation or a college degree in accounting. To make a long story short, before you find a tax professional, make sure that they have the background necessary to prepare your returns - a six-week crash course offered by H&R Blockhead is not sufficient. It takes years of experience and education just to begin the ins and outs of the tax law.
The second thing I would do is not accept the answer "I forgot to file" for four consecutive years. There are two reasons why someone doesn't file a return: sheer laziness or because they are afraid they owe and can't pay the bill. If you and your husband owe money, you will be subject to interest and penalties which will make the tax bill much higher. The IRS will not accept the excuse that you were not involved in your household's finances and tax matters. This makes you equally as liable for the debt as he is. To make matters worse, the IRS allows you 3 years from filing deadline date to complete your returns and claim your refund - so if you were due a refund for 2004, you lost your right to claim any part of it.
What's done is done and you can't change the fact that your taxes haven't been filed. To prevent this from happening again, I would begin engaging in conversations to openly discuss all financial matters and tax matters with your husband. Perhaps you should take over some of the responsibilities or plan a weekly time slot to do things together. I found in almost half of the cases where taxes haven't been filed, there are usually a few credit card bills or loan payments that have slipped through the cracks too.
Tuesday, August 19, 2008
In applying Swiderski’s taxonomy of financial theory to the above purchase strategy, it is noted that only two of the theories listed can be applied based on the information available from Form 8-K: Accounting Model of Valuation and Modgliani & Miller's Irrelevant Propositions (Swiderski, 2006). The Accounting Model of Valuation "contends that Wall Street sets share prices by capitalizing a company’s earnings-per-share (EPS) at an appropriate price/earnings multiple (P/E). " (Stewart, 2001 cited in Swiderski, 2006, p. 1). Modgliani & Miller's Irrelevant Propositions “argue[s] that a coporation's financial decisions and/or policies have no material impact on the value of its shares. The only decisions that do are those that are relevant, such as investment and operating decisions that directly affect the entity's cash flows” (Swiderski, 2006, p. 1). By focusing on key analysis, such as leverage ratios, Time Warner is projecting the impact of the acquisition on its consolidated financial statements. More specifically, the CFO is concerned with how the balance sheet will look like and how many shares the buyers will have upon close. In addition, through an increased market share and profitability through the classification of the buyout on the balance sheet as a purchased asset (Form 8-K, 2005), earnings are projected to be higher over time, which yields a higher EPS and P/E ratio. The CFO’s comments on From 8-K serve two purposes: first, to explain the implications of the buyout in financial terms and, secondly, to reassure investors that the company is not making a mistake purchasing Adelphia. Hence, there will be some salesmanship presented in his comments. When eliminating the sales puffery, one can see by reading the Form 8-K that the CFO is stating only relevant information related to the implications of the buyout and the concerns of the investment community. To be more convincing, a comparison in financial data indicating the projection for Time Warner with and without the buyout could be presented, thereby incorporating the Economic Model of Valuation, which determines the corporation’s real market value “by calculating the future cash flow from operations outside of any new capital invested for growth (future cash flows) back to a present value that reflects the rate of return needed to pay back investors for bearing risk (cost of capital)” (Stewart, 2001, paraphrased in Swiderski, 2006). There are other areas of additional research that could be presented or conducted (if not done so previously) which would provide useful to this case study. Key calculations, such as the internal rate of return (IRR) on the investment, would provide a better indication of how profitable the acquisition really is. A regression analysis of stock prices in response to any news/press releases relating to the acquisition may also provide some insight as to whether the investor perception is positive or negative. Finally, historical analysis of financial implications of acquisitions of similar companies within the industry may also provide some insight as to what the ramifications of this buyout may be. Post-transaction Analysis As of the time that this essay was written, the acquisition has not yet closed. The FCC is scheduled to vote on whether to approve the transaction on July 13, 2006. “[T]he FCC has been considering putting conditions on the sale that would require Comcast and Time Warner to provide competitors with access to their local sports programming. The conditions could be similar to those placed on News Corp.'s (NWS) acquisition of DirecTV Group Inc. (DTV). As part of that approval, the FCC stipulated that News Corp. couldn't use DirecTV to withhold programming from competitors, charge higher prices or refuse to carry competing programs. Regulators also stipulated that News Corp. submit to a neutral third-party arbitrator in case of program disputes with cable and satellite operators” (FCC to vote on Comcast, Time Warner’s Adelphia buy July 13, 2006, par. 2). One ramification for Adelphia is that “[i]f the deal fails to wrap up by Sept. 1, Adelphia could be required to pay Time Warner $382.85 million or lower its price by the same amount. The company would also have to pay Comcast $87.5 million” (FCC to vote on Comcast, Time Warner’s Adelphia buy July 13, 2006, par. 4). Upon successful completion of the acquisition, additional research should be conducted to determine the financial implications of the buyout. First, Swiderski’s taxonomy of financial theory should be reapplied to determine if the previously identified theories will still be applicable after the transaction, whether they were properly incorporated, and whether theories were omitted. Second, an analysis should be conducted to determine how the use (or misuse) of financial strategy and risk analysis affected the transaction. Finally, an objective analysis should be conducted to determine whether any of the arguments and theories presented herein appear to be supported upon the outcome of the acquisition. Implications and Conclusions In this essay, the buyout of Adelphia Communications Corporation was evaluated to determine why it has become an attractive purchase. More specifically, the purpose of this essay was to evaluate the acquisition of Adelphia Communications Corporation by Time Warner and Comcast. Upon presenting background information on the company, an evaluation of the processes enacted to complete the strategy was conducted. No data on the measures used to value the acquisition could be found, except for the information contained on the company’s Form 8-K. However, one should be hesitant to make the determination that no analyses outside those previously mentioned in this report were conducted. Such an assumption would be merely speculative and should be made pursuant to the successful closing of the deal. The assumption was made, based on data contained in the Form 8-K, that Time Warner has taken the necessary risk management precautions, yet further research should be conducted after the transaction is complete to test that hypothesis. Additional research upon close should also be conducted to determine what specific valuation techniques were employed that lead to Time Warner’s decision to acquire Adelphia, in conjunction with proposals for research discussed in the post-transaction analysis section of this report. Ample time after close should be given prior to conducting such research to produce more accurate and reliable data.
References Adelphia (2006). Wikipedia. Retrieved June 20, 2006, from the World Wide Web: http://en.wikipedia.org/wiki/Adelphia. Adelphia Communications Corporation (2006). Retrieved June 20, 2006 from the Datamonitor MarketLine Business Information Center. Corporate scandal (2006) [list of recent corporate scandals], Wikipedia. Retrieved July 5, 2006 from the World Wide Web: http://en.wikipedia.org/wiki/Corporate_abuse. FCC to vote on Comcast, Times Warner’s Adelphia buy July 13 (2006, July 7) [Market Watch online]. Retrieved July 7, 2006, from the World Wide Web: http://www.marketwatch.com/News/Story/Story.aspx?dist=newsfinder&siteid=google&guid=%7BE04DE037-1D35-48C8-B4AD-A6CD6668EA6E%7D&keyword= Form 8-K [Time Warner, Inc., filed April 21, 2005] (2005). Retrieved July 4, 2006 from the World Wide Web: http://www.shareholder.com/Common/Edgar/1105705/ 1105705-05-33/05-00.pdf. Hay, D. A. & Liu, G. S. (1998, May). When do firms go in for growth by acquisitions? Oxford Bulletin of Economics & Statistics. 60(2). Retrieved from the EBSCOhost database on July 5, 2006. Higgins, J. M. (2006) Hey, Time Warner: Walk Away From Adelphia. Broadcasting & Cable 136(20). Retrieved from the EBSCOhost database on July 5, 2006. Swiderski, P. R. (2006). Taxonomy of Financial Theory.
Monday, August 18, 2008
Optimal operations methodology requires a studied recognition of the constantly evolving, inextricably intertwined nature of organizational behavior (
The purpose of this essay is to provide an operational report for EchoStar that now looks to optimizing operations in the reality of the changed and changing domestic employee constituency. First, this essay discusses some of the operational organizational behavior issues facing EchoStar. The circumstances that the company now faces in light of the frequent changes in economy are then considered, and it will be noted whether there is, in fact, anyone in the company who is monitoring economic events and how they could have an impact on the operational plans for the future. A list of suggestions will be prepared for the company to prepare for combating the impact on operations of any sudden downturn in the economy, as well as a means to ameliorate any serious effects of any such downturn. Operational/organization behavior issues that are serious at the selected workplace will also be addressed. Finally, a plan to advise key personnel how to implement these recommendations in light of the fact that, in a depressed economy, finance professionals are reluctant to spend money.
About EchoStar Communications Corporation
EchoStar Communications Corporation (ECC) was founded in 1980 with Charles Ergen, Candy Ergen, and James De Franco (Dish Network, 2006; Dish Network, 2008; Marketline, 2007). In 1996, ECC began providing direct broadcast service under the DISH Network name. The same year, ECC became a publicly traded company (Marketline, 2007). In 2002, “EchoStar started offering DISH Network bundled DSL internet Service, Digital Satellite Television” (Marketline, 2007, par. 7), began offering high definition satellite television service two years later, and offered on-demand service in 2005 (Marketline, 2007).
As the company has grown, a hierarchical organization has formed to include executive, technical, research and development, corporate, international, sales, marketing, investment, accounting, human resources, and business development divisions; each consisting of their own hierarchy and structure. With the horizontal growth of an internal hierarchy, EchoStar has grown vertically as well, dividing into a hybrid organization consisting of nine separate functional organizations which are legal subsidiaries of the overall group (SEC, 2005). Figure 1 shows the organizational structure of ECC.
Organizational behavior issues facing ECC
EchoStar’s growth in an uncharted technological industry has created a need for diverse, unique employees who can assist in the process of growth at all levels of the organization.
As a result, ECC actively seeks out individuals who can appreciate the constantly changing and unique environment encouraging those who can offer their own perspective and innovative approach to solutions. In return, employees can expect to successfully shape their career according to their goals in relation to the organization (Hogan, 2006).
ECC has established educational programs in an effort to instruct employees in an industry without established guidelines and rules (Hogan, M. 2006). The organization is in a constantly changing mode of operations in order to keep pace with technology and competition (Datamonitor, 2007); hence all team members must remain flexible with the ability to move with the organization (Feurer, Chaharbaghi, Weber, et al, 2000; Jones, 2004).
The challenge of ECC is to continue the company’s growth while maintaining and expanding their employee and management teams. The organization needs to ensure the organizational system adjusts and realigns itself in order to keep pace with the environment (Feurer, Chaharbaghi, Weber, et al, 2000; Jones, 2004). Also, the firm’s executives to periodically assess the existing organizational structure to determine if the design is still applicable and can keep operations at an optimal level (Scott, 2003).
The problem that comes out when reading the various SEC and other business reports on the state of company affairs appears to lie in formulating a plan that is flexible yet definitive in meeting ECC’s goals of growth in an ever changing, competitive market (Davis, 2006; Farrell, 2006; Hogan, 2006; Powell, 1987; SEC, 2005). EchoStar has seemingly grown without a plan; however, the pressure of competition and technology may force management to create and follow a path.
Economic issues facing ECC
Adaptive ability of an organization, which is due in part to its organizational design, to meet the requirements of the environment is critical (Scott, 2003, p. 96), particularly when facing specific economic conditions, such as higher gas prices, economic slowdown, the lowering value of the US dollar and heavy debt.
Rising gas prices in the
The primary market for ECC primarily is the
Even though ECC is not a truly global company, the organization has contracts with foreign firms (Marketline, 2008). The lowering value of the US dollar can cause the prices of future contracts to increase (Grosse, 2000).
According to the EchoStar annual report, potential threats to the company include heavy debt (Dishnetwork.com). Higher debt, compared to other organizations in the industry, may negatively impact the organization’s liquidity position (Datamonitor, 2007).
Since the organization operates in an environment that is in a constant state of flux, having someone in the company who is monitoring economic events and how they could have an impact on the operational plans for the future would be presumed. However, no documentation could be located to indicate that such a position exists within ECC.
In an effort to optimize operations while facing economic changes, the following changes are recommended for ECC with respect to
Executive management should increase the frequency of the organization’s situational analysis.
Focus on enterprise-wide planning, particularly in areas of human resource planning.
Offer (more) employees the option to telecommute.
Expand services into other forays of the world, and use a geocentric approach (Permutter, 1969).
Create a position within the company to monitor economic events.
Continue to foster an environment where leadership is promoted at all levels within an organization.
As discussed in previous sections, a concern for ECC is the perception that the company fails to conduct proper planning techniques. By conducting a periodic situational analysis, the organization can gauge environmental factors that may impact the direction of the company as well as plan for potential changes (Robbins & Coulter, 2007). The need for a plan, particularly in the area of human resources, is to determine whether the future economic outlook requires changes in manpower (Peter & Donnelly, 2005). Further, offering the ability for employees to telecommute may mitigate the risk that turnover will occur due to higher gas prices.
Expanding into other areas of the world will allow ECC to increase its customer base and its profitability (Gupta & Govindarajan, 2004), and using a geocentric approach will provide ECC the opportunity to recruit quality personnel beyond its borders (Permutter, 1969).
Lastly, having someone in place to monitor economic events and advise senior management how to proceed can help ECC in adjusting to the ever-changing environment.
ECC is entrepreneurial and is characterized by high innovation and extreme risk taking. When it comes to people, ECC appears to emphasize diversity and capability and appears to be more closely guided by a creative, entrepreneurial leadership, which is also its ownership (Hogan, 2006). Ergen and DeFranco appear to directly influence their teams of engineering and sales to achieve through a desire to compete (Farrell, 2006). Ergen and DeFranco appear have successfully instilled a competitive, thrifty, and entrepreneurial spirit within ECC.
Along with written corporate governance and code of ethics, to a large extent the behavior of ECC is set by the ethical and hard working leadership (Hogan, 2006). ECC proves to be a community participator, and proves to be a model for individuals who like to see a rags-to-riches story. None of the literature reviewed surrounding ECC suggests that any significant OB issues exist that would adversely impact the organization’s performance, with the exception that executive management does not want to use its resources unless it adds value to the company’s customers (Hogan, 2006).
Keeping in mind that the organization does not want to invest in additional resources unless they add value to the company and the customers, implementation of recommendations can be accomplished without adding a huge burden to ECC. Existing employees may be used to create additional teams or broaden the scope of teams already in place.
For example, the current members of executive management can either develop a planning team or add the aspect of enterprise-wide planning to its existing responsibilities. The benefit to frequent planning is that the organization can gauge environmental factors that may impact the direction of the company as well as plan for potential changes (Robbins & Coulter, 2007). By foreseeing issues before they occur, the organization, with its entrepreneurial mindset, can find innovative ways to cut or absorb costs without passing on costs, which could have been avoided, to the consumer. This is also why it is important to have someone in place to monitor economic events.
Offering telecommuting as an option to employees not only reduces turnover but also can reduce costs for the organization, as fewer resources are needed. It is recommended that a small percentage of customer support and technical support employees be allowed to telecommute as a measure to test the option. Success of implementation can yield the possibility to allow a higher percentage of employees to work from home.
Prior to expanding into the global economy, market research must be conducted to determine which countries would be most profitable while balancing risk. Management needs to acquire knowledge about the market conditions, as well as business and political infrastructures, of the countries ECC chooses to explore expanding into.
ECC operates in an environment that is in a constant state of flux. Its organizational design and culture foster and environment where leadership and innovation can adapt to changes quickly. In the midst of an economic downturn in the
Datamonitor (May 23, 2007). SWOT analysis [EchoStar]. Retreived July 23, 2008 from the Marketline database.
Davis, J. (2006). Telecom’s back, and so are jobs wages, opportunity grow in metro area as pay TV thrives. Rocky Mountain News, July 24, p. 1B. Downloaded from galenet.galegroup.com, on August 26, 2006.
Dish Network (2006). About US. EchoStar Satellite L.L.C. Retrieved August 12, 2006 from http://www.dishnetwork.com/content/aboutus/index.shtml.
Dish Network (2008). Dish Network corporation timeline. Retrieved July 23, 2008 from http://www.dishnetwork.com/content/about_us/company_profile/our_history/ index.shtml.
Farrell, M. (2006). Adelphia execs cash in. Multichannel News, August 7, v27, i31, p. 6.
Grosse, R. E. (2000). Thunderbird on Global Business Strategy.
Gupta, A. K., & Govindarajan, V. (2004). Global Strategy and Organization.
Hogan, M. (2006). Top EchoStar execs dish about the then and now. Multichannel News, April 24, v27, i17, p. 34. Downloaded from galenet.galegroup.com, on August 26, 2006.
Jones, G. R. (2004). Organizational theory, design, and change (4th ed.).
Marketline (2007). EchoStar Communications Corporation [company history]. Retrieved July 23, 2008 from the Marketline database.
Marketline (2008). EchoStar Communications Corporation Overview. Retrieved July 23, 2008 from the Marketline database.
Permutter, H. V. (1969). Some management problems in spaceship earth: the magafirm and the global industrial estate.
Peter, J. P. & Donnelly, J. H. (2005). Preface to Marketing Management (9th ed.). McGraw Hill:
Powell, W. W. (1987, Fall). Hybrid organizational arrangements: New form or transitional development?
Robbins, S.P. & Coulter (2007). Management, (9th ed.). Pearson:
Scott, W. R. (2003). Organizations: Rational, natural, and open systems (5th ed.).
SEC (2005). EchoStar DBS Corporations and Subsidiaries: List of subsidiaries [(SEC) Form S-4, Registration Statement Under The Securities Act Of 1933, Exhibit 21,. Securities and Exchange Commission]. Retrieved August 14, 2006 from the World Wide Web: http://www.sec.gov/Archives/edgar/data/920431/000095013402007646/
Zuckerman, S. (June 29, 2008). Costs are changing commutes: high gas prices cause workers to consider distances to jobs as well as salary when deciding on positions. San Francisco Chronicle online. Retrieved July 25, 2008 from: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/06/29/BUTU11FMOS.DTL.
Most scholarly articles on leadership and the applicability of models focus on large organizations, many of which are multi-national companies. A number of books and articles can be found to tell stories of CEOs of large multi-million dollar companies who have transformed an organization be either taking it to the next level or dramatically saving it from the clutches of near extinction. Textbooks make mention of the great accomplishments of leaders such as Sam Walton (founder of Wal-Mart), Tom Watson (known in the 1980’s for developing the IBM image of success), and Jack Welch (who’s innovative leadership broke the confines of beaurocracy and transformed GE) (Tichy & Cohen, 2003), but fail to discuss the importance of leadership in small business. A void in literature exists in this area.
The purpose of this essay is to develop a working leadership model that adopts and integrates existing theories to optimize operations in the present-day small business operational environment. First, the need for such a model is discussed. Second, the model itself is presented, and the existing leadership models that serve as the basis for it are identified. Finally, advantages and limitations of the model are presented.
Small business owners concerned with optimizing operations
Few scholarly articles exist concerning small business management, and none could be found tackling the issue of optimizing operations. An informal survey was conducted among ten small business owners in the Wilkes-Barre/Scranton area of
50% of the business owners surveyed indicated that they have difficulty getting employees to do more work when demand increased or when turnover occurs.
40% stated that they had difficulty finding ways to become more efficient.
20% indicated that employees were reluctant to learn new tasks.
Further conversations with these business owners indicated that employees did not have any specific job titles, but were hired and arranged to handle specific tasks. No formal hierarchy, policies or procedures were in place either. Nine of the businesses are structured with an autocratic style of leadership, “involv[ing] the use of commands and expected compliance” (Weiskittel, 1995, par. 2). All employees report to the business owner(s) and have little or no autonomy. The other business was structured under the team concept.
Small business optimization model
The autocratic model “is becoming obsolete in today’s world” (Weiskittel, 1995, par. 2). In small organizations, it is assumed that the owner really is the leader and that he/she requires others to follow. To a certain extent, the organization must grow according to the direction the owner wants to head in, and the subordinates are required to perform whatever functions are asked of them. Eventually, the owner must begin to trust his/her employees and empower them if the company is to move forward and implement changes. Hence, the business owners must move from the autocratic model to one that requires more post-modern application of transformational leadership.
The first step in the small business optimization model is to have the owner change first by transitioning from a manager role to that of a leader. While no solid definition of leadership exists (Weiskittel, 1999), a variety of characteristics set leaders apart from management. Managers plan, organize, staff, control, and solve problems, whereas leaders set directions, align people, motivate and inspire (Kotter, 2003). The transition may also require the business owner from transitioning his/her mindset from Theory X to Theory Y. Theory X
“assumes that most people dislike work and will try to avoid it if they can. Workers are seen as being inclined to restrict work output, having little ambition, and avoiding responsibility if at all possible. They are believed to be relatively self-centered, indifferent to organizational needs, and resistant to change. Common rewards cannot overcome this natural dislike for work, so management is almost forced (under Theory X assumptions and subsequent logic) to coerce, control, and threaten employees to obtain satisfactory performance" (Newstromm & Davis, 2002, p. 31).
Theory Y is in contradiction to Theory X and
"assumes that people are not inherently lazy. Any appearance they have of being that way is the result of their experiences with less-enlightened organizations, and if management will provide the proper environment to release their potential, work will become as natural to them as recreational play or rest and relaxation... [M]anagement believes that employees are capable of exercising selfdirection and self-control in the service of objectives to which they are committed. [Therefore] [m]anagement’s role is to provide an environment in which the potential of people can be released at work" (Newstromm & Davis, 2002, p. 32).
The purpose of the transition is to begin building trust between the owner(s) and the employees for the purposes of restructuring the organization as a team. This transition will require that the owner(s) shift gradually to a collegial role, which
“depends on management’s building a feeling of partnership with employees. The result is that employees feel needed and useful. They feel that managers are contributing also, so it is easy to accept and respect their roles in the organization. Managers are seen as joint contributors rather than as bosses" (Newstromm & Davis, 2002, p. 38).
The move to adopting the collegial paradigm from the autocratic style of leadership requires that the ownership move first adopt and transition through the custodial and supportive models. The custodial model involves the use of benefits and employee welfare programs to provide for employees' security needs (based on Maslow's theory of needs). The focus is on providing economic satisfaction in exchange for dependence on the employer (Newstromm & Davis, 2002). The supportive model is based on Linkert's principle of supportive relationships, the organization uses the concept of leadership to increase participation and unlock employees' individual potential, so that job performance and profits increase. Motivation is also a product of the supportive model (Newstromm & Davis, 2002).
Once ownership moves to the collegial paradigm, the company reorganizes as a team. Team members realize that working together as a team rather than relying on one particular individual makes the entity stronger. Members have a better sense of belonging and commitment to the organization. Ideas can be brought to the table and implemented. Cross training can also occur. The team leadership model still leaves room for the owners to maintain some control over the organization, as a team leader is required.
Once the team is established the small business owner(s) communicate a vision to remainder of the team while learning to balance control and autonomy. A business owner cannot grow an organization by him/herself. Rather, the need to trust in one’s staff and empower the right people becomes an important issue. What may not always be apparent is the importance of maintaining an open relationship with employees. This results in lower training costs, less turnover, and an employee base that will often support the right management decisions of the organization (Toney & Oster, 1998).
Benefits and limitations of the model
By transitioning from an autocratic form of organization to a team design, the small business can use the team leadership concept to solve problems with efficiency and get employees motivated. However, the model is limited to small businesses, as transforming the design of a larger entity in this manner is impractical. The model is also limited by the actions of the small business owner. The company cannot change if management refuses to commit to it.
The purpose of this essay was to develop a working leadership model that adopts and integrates existing leadership theories to optimize operations in the present-day small business operational environment. First, the need for such a model was presented. After conducting an in formal survey of small business owners, it was noted that the need to optimize operations was present. However, the outdated autocratic design was not practical for allowing the organization to change. Before the organization can optimize operations, ownership must commit to changing its design.
The small business optimization model requires that the organization transition from an autocratic to a team design. The gradual transition in leadership styles is necessary to avoid culture shock within the organization. Once management and employees embrace the collegial model, the organization can be redesigned to take exploit the advantages of team leadership. The model can be used for existing small businesses, but is not intended for larger organizations.
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As a result of entering the global economy and reaping the financial rewards, more
The purpose of this paper is to examine the risks associated with using certain tax minimizing strategies in an effort to avoid double tax jeopardy. This paper first defines and discusses the issue of double tax jeopardy as it currently applies to
What is double tax jeopardy?
Double tax jeopardy is an issue that stems from the concept of double taxation, wherein income is taxed twice (Turnier, 2007; Wilkinson & Fancher, 2004). Double taxation can occur when:
The same tax authority taxes multiple entities’ income and/or assets (Wilkinson & Fancher, 2004; Encyclopedia of Small Business, 2002).
Multiple tax authorities tax the same entity’s income and/or assets (Reuven, 2005).
Income and/or assets can be taxed by the same tax authority, as evidenced with treatment of corporate dividends (Wilkinson & Fancher, 2004). Corporate dividends are paid out from retained earnings, an account which represents the cumulative impact of net incomes and losses since the entity’s inception (Horngren, Harrison & Bamber, 2005). Internal Revenue Service (IRS) regulations reflect the same principle, and common stock dividends cannot be paid unless a sufficient balance in the retained earnings account to cover payment exists (Horngren, Harrison & Bamber, 2005), indicating that dividends can only be declared on income that was previously or is currently being taxed. Also according to IRS regulations, corporate dividends are recognized as taxable income by the entity receiving the payment (Internal Revenue Service, 2008 [Instructions for Form 1120 U.S. corporate income tax return]; Internal Revenue Service, 2008 [1040 instructions 2007]; Internal Revenue Service, 2008 [2007 Publication 17]); however, the corporation neither receives a deduction for common stock dividends declared nor issued (Wilkinson & Fancher, 2004). Since the money that dividends are paid out from taxed income (Wilkinson & Fancher, 2004) is subject to tax again by entities receiving the dividend money, double taxation occurs.
An individual entity can be subject to double taxation by having income and/or assets taxed by multiple tax authorities.
Double taxation can occur in similar manners for
Methods of minimizing international tax liabilities
Bilateral tax treaties
According to Beck (2002):
“Most [tax treaties] are based on one of three models--the United States Model Income Tax Convention of September 20, 1996 (the U.S. Model), the United Nations Model Double Taxation Convention Between Developed and Developing Countries (the U.N. Model) or the Organization for Economic Cooperation and Development (OECD) Model Tax Convention on Income”(par. 1).
Under common international practices, the host country taxes the entity, while the home country provides the tax relief. In order to qualify for tax relief, the entity must meet residence and/or citizenship requirements (Beck, 2002). “No international consensus dictates the appropriate relief method; countries commonly use three--the deduction method, the exemption method and the credit method. Countries can use one method or a combination to provide relief from international double taxation” (Beck, 2002, par. 2).
“The deduction method (such as the
“Under the exemption method, a taxpayer's home country will tax its residents/citizens only on their domestic-source income. The country of residence exempts the taxpayer's foreign-source income from domestic taxation, leaving it to be taxed by the source country” (Beck, 2002, par. 4). The credit method provides relief by offering the entity a credit against the home country’s tax liability in an amount equal to the tax liability assessed or paid on foreign income. The credit taken cannot exceed the home country’s tax liability.
Shifting operations, assets, or earnings abroad
Existing U.S. laws dictate that domestic corporations are considered residents of the U.S. and that, if the organization has branches overseas, then the income earned in the other country(ies) is subject to the U.S. corporate tax as well as foreign income tax (Graetz & Oosterhuis, 2001). To avoid double taxation, the corporation can open a foreign subsidiary (i.e., a separate entity) which is not subject to taxes in the
International arbitrage is known as “the exploitation of differences between or within national tax codes” (Haworth & Buchanan, 2005). In other words,
“international tax arbitrage arises when a taxpayer or taxpayers rely on differences between the tax rules of two countries to structure a transaction, entity or arrangement in a manner that produces overall tax benefits that are greater than what would arise if the transaction, entity or arrangement had been subject only to the tax rules of a single country (Reich, 2007, par. 1)”
Arbitrage can be obtained improperly via “incorrect or improper application of the tax laws of any country, transactions in which the taxpayers take inconsistent factual positions in their respective countries and other cases that are more appropriately viewed as abusive tax shelters” (Reich, 2007, par. 2). Below are a few examples of how a U.S. MNC can legitimately take advantage of international arbitrage:
“[S]eparate the foreign tax credit from the tax base to which it relates, so that the taxpayer can benefit from the credit without having to include the related income” (Reich, 2007, par. 10).
“[Taking advantage of] transactions that permit the effective duplication of tax benefits in two countries, usually because the United States treats the U.S. participant as the owner of the entity that pays the foreign income (or withholding) tax and allows it a foreign tax credit while a foreign country treats the nonU.S. participant as owning all or a substantial portion of the entity for purposes of its tax law” (Reich, 2007, par. 17). This is known as double dipping (Haworth & Buchanan, 2005).
Exploiting reverse foreign tax credit transactions, wherein “the non-U.S. participant claims the U.S. tax as a foreign tax credit in its home country, while the U.S. participant receives its share of the investment entity's profits without additional U.S. tax, as a result of the 100-percent dividends received deduction or filing a consolidated return with the investment entity” (Reich, 2007, par. 29).
Justification of tax minimizing strategies
There is a fine line between using the tax law to one’s advantage and illegally abusing the tax laws. Tax avoidance is defined as “[t]he use of legal methods to modify an individual's financial situation in order to lower the amount of income tax owed” (Forbes, 2008). Tax evasion, however, is “[a]n illegal practice where a person, organization or corporation intentionally avoids paying his/her/its true tax liability” (Forbes, 2008). Provided that the entities that operate in the global economy did not violate any laws, the use of tax minimization strategies is not illegal, including taking advantage of bilateral tax treaties; shifting operations, assets, or earnings abroad; and/or international arbitrage. For example, timing dividend distributions from a controlled foreign subsidiary to take advantage of the
Organizations and individuals must be careful to stay abreast of changes in tax laws to avoid being in a situation where the entity is not complying with tax laws (Bauman & Mantzke, 2004), as even inadvertent violations are deemed to be methods of tax evasion (Corley, Reed, Shedd, et al, 2002). For example, the
Even if an entity is following all applicable laws, the individual or corporation may not necessarily be acting in an ethical manner – at least according to
The biggest risks in minimizing international tax liability are not ethics related; rather they are related to the failure to keep up with tax laws in the countries that the entity does business in. Failure to comply with tax regulations – whether home country or host country – can result in fines, penalties and/or imprisonment. The bottom line: consult a tax professional familiar with international tax laws.
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