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Tax Benefit Exchange frequently asked_questions

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Tax Benefit Exchange frequently asked_questions

  1. 1. FREQUENTLY ASKED QUESTIONSQ1. What is the Tax Benefit Exchange (TBE)?Q2. Will the TBE increase the US government‟s deficit?Q3. Will the TBE require the use of government money?Q4. Will the TBE increase US gross domestic product (GDP)?Q5. Will the TBE increase US employment?Q6. How will the TBE be administered by the Internal Revenue Service (IRS)?Q7. Will the seller have to report gain or loss on the sale of new depreciation deductions?Q8. Why isn‟t the use of the proceeds strictly tied to job creation?Q9. Why not tie small businesses‟ ability to sell their tax depreciation deductions based on the salaries of employees hired with funds gained from the auction?Q10. What is current progress, next step and end-date for implementing the TBE?Q11. What needs to be amended to already existing law in the Internal Revenue Code to make this happen?Q12. What is the affect on the deficit of an amendment to IRC Section 168? ABOUT TBE JOB-ECONOMY SOLUTION CREATORSTechnology & Marketing Ventures, Inc. (TMVi) is a New York City based, management consultancy that helpsclients prosper from changing competitive landscapes via venture development. Since 1992, TMVi has providedthought and execution leadership to institutions and governments. Their game-changing results are known asElectronic-BoardroomTMVi® Solutions in education, networking, consulting, database, television and newsletter.Amongst the novel ideas, integrated content, communications, distribution and products are collaborations withthe Oxford Internet Institute. Current efforts include global business outcomes of Fifth Estate movements; fillingacademia-reality gaps via Distributed Public Expertise implementations; and internet governance challenges.June Klein provides strategy and development for policy level leaders. Ira Klein‟s expertise is tax law and structure.JUNE KLEIN is CEO, Technology & Marketing Ventures, Inc. and Creator Electronic-BoardroomTMVi® Solutions.June has an MBA in Finance/Marketing from NYU Stern; Graduate Technology Certificate from IBM SystemsResearch Institute; BS in Math/Education; Certificates in Corporate Governance and Computer Management.She is a winner of British Airways 2011 face of opportunity; Ronald Reagan Entrepreneur award; SmallBusinesswoman of the Year; International Consultants Award. Prior to founding her own business, she ran theUS Government Banking business at JPMorganChase; the Global Information Business at Citigroup; Bloombergproject for the IBM-Merrill Lynch joint venture; financial services businesses at IBM and Wang; programming andArpanet use at Federal Reserve Bank of NY. She literally „wrote the book‟ on electronic trading… past, presentand „next chapter‟ in the global money business. Other publications include „Management of Social Values inEducation plus Business‟ and „The Information, Communication & Society‟ Journal.IRA KLEIN General and Tax Counsel, Technology & Marketing Ventures, Inc.Ira has a LLM in Taxation from NYU Law; JD from BU Law; BS in economics. He is an adjunct professor of TaxLaw in the MBA and Certified Financial Planner Programs at Fairfield‟s Graduate Business School. As DowChemical-Union Carbide‟s Senior Tax Counsel, he crafted details of the1980s [similar recession time to today],Tax Benefit Transfer Leases. TMVi has streamlined, automated and reinvented this previous job creating programin order to spur on small business growth. Before joining Carbide, Ira was with a Wall Street Law firm.October 19, 2011 P 1 of 4
  2. 2. Q1. What is the Tax Benefit Exchange (TBE)? A. The TBE is an online exchange which matches sellers and buyers of new depreciation deductions. The sellers are small businesses and start-ups that buy new equipment, machinery, furniture, computers, etc. (collectively referred to as “equipment”) but cannot currently use the new tax depreciation deduction. The buyers are US business taxpayers who use private capital to buy the seller‟s new depreciation deductions. Such buyers reduce their US income tax liability by buying the new depreciation deductions from the small business/start-up sellers. The price for the new depreciation deductions is FMV determined on a bid and asked basis.Q2. Will the TBE increase the US government‟s deficit? A. No. The TBE uses existing depreciation deductions already scored (calculated) by the Congressional Budget Office. In fact, the TBE is expected to reduce the deficit by stimulating small business growth, employment and revenue by the economic multiplier effect which ranges from 1.6 to 2. More details in answer to Q12.Q3. Will the TBE require the use of government money? A. No. Private capital alone is used to buy the new depreciation deductions from small businesses/start- ups. Existing tax laws allowing depreciation for new equipment are used; no new tax incentives are required from the US government. Only a small change in the tax law allowing the sale of new depreciation deductions under current tax law is required.Q4. Will the TBE increase US gross domestic product (GDP)? A. Yes. The TBE allows small businesses/start-ups to monetize (receive cash for) its new depreciation deductions they currently cannot use. This will spur investment. These funds are used to i) reduce debt of equipment purchased, ii) provide working capital, iii) expand or maintain existing business and/or iv) hire new employees. The use of the funds in these activities increases GDP.Q5. Will the TBE increase US employment? A. Yes. Since about 70% of all new private sector employment derives from small businesses and start-ups, the TBE will directly, indirectly and favorably increase US employment. i) There will be an immediate increase in demand for new equipment. This will increase employment at the US equipment manufactures and US equipment sellers. ii) The TBE will enable start-ups to be created more easily because the cash cost of new equipment by selling the new depreciation deductions will be less than otherwise required. This will immediately increase employment at new start-up small businesses. iii) The TBE will enable existing small businesses to grow through the purchase of less costly new equipment. The cost of the new equipment will be reduced through the sale of new depreciation deductions. As small businesses grow, the need for labor and employment increases. Further, employment will increase because new equipment needs to be installed, operated and maintained.Q6. How will the TBE be administered by the Internal Revenue Service (IRS)? A. The TBE will send a 1099 form for every transaction to the IRS, seller and buyer. Further, the IRS will create a one page form to be signed by the seller and buyer. The form contains i) description of the property whose depreciation is being sold, ii) a copy of the purchase order for the equipment iii) addresses of the seller and buyer, and iv) the tax ID numbers for the seller and buyer. Both seller and the buyer must attach a copy of this new one page form to their respective tax returns for the year of the sale of new depreciation deductions.Q7. Will the seller have to report gain or loss on the sale of new depreciation deductions? A. No. Since the seller is not selling the property, it will not report gain or loss on the transaction. However, the seller will make a basis adjustment to zero as if the asset is fully depreciated for tax purposes. Gain, loss, recapture would then follow existing tax rules. There is no change of cost basis for book purposes.October 19, 2011 P 2 of 4
  3. 3. Q8. Why isn‟t the use of the proceeds strictly tied to job creation? A. There are already a small amount of credits linked directly to increases in employment which have not worked. A few years ago, Congress passed a one-time repatriation of foreign earnings at 8% if the money was used to increase jobs and this legislation was a failure for various reasons. On the other hand, the reason the 1982-1983 tax benefit sale legislation was so successful was that it did not limit the use of the funds received on the sale. Jobs come from small businesses and businesses supplying equipment to small businesses. Small businesses should decide where to use the money instead of government micro managing the small business. If business expands, they will employ more people.Q9. Why not tie small businesses‟ ability to sell their tax depreciation deductions based on the salaries of employees hired with funds gained from the auction? A. Limiting the sale of depreciation deductions to reinvestment in jobs is difficult for the IRS to administer. Tracing the funds received on the sale of depreciation deductions to see if jobs are created would require a significant increase in the IRS‟s budget to avoid the prospect of fraud. In addition, the tying of salaries to deductions would result in an auction process that would create uncertainty in the mind of the buyer. Thus, the buyer either would (i) not buy or (ii) require an indemnity from a small business which is not practical or (iii) require a substantial discount from the seller thereby making the sale uneconomical for the seller.Q10. What is the current progress, next step and end date for implementing the TBE? A. Efforts below are in process for Congress to change the tax law to permit the sale of new depreciation deductions. Driving this tax law change is the 2012 election campaign and 5th estate movements which demand real, novel job solutions to jump start the small business economy and increase US employment. We expect passed legislation by Nov 2012. TMVi Tax Benefit Exchange™ is ready to go now. (i) Senate Finance Committee: NY Senator Kirsten Gillibrand and her Senior Economic Advisor, Robert Heckart reviewed the proposal on October 18, 2011 and are proceeding toward introducing it to the Senate Finance Committee. (ii) House Ways & Means Committee: CT Representative Jim Himes reviewed the proposal and wrote on June 27, 2011, “I believe that in these difficult economic times, all ideas must be on the table. Your proposal to allow businesses to sell unused tax credits [deductions] to other businesses to fund capital investments is quite interesting…” On October 20, 2011 Nancy Ploeger, Manhattan Chamber of Congress President gave the Crains feature article and frequently asked questions to NY Congresswoman Carolyn Maloney… “like Senator Gillibrand, she is all about coming up with ways to support small business.” (iii) President Obama: Valerie Jarrett, Senior Advisor to the President said on October 18, 2011 which aired on WABC-TV channel 7 and NY-TV channel 1, “I promise that this proposal will be reviewed.” At the Women‟s Economic Empowerment Summit, June Klein personally handed the proposal to Ms. Jarrett. June thanked her for helping accomplish the goal of TMVi 5th estate social change program: shorten the feedback cycle between expert public policy solutions and government decision-makers. (iv) Press includes publications like Crains New York Business and Social Science Research Network‟s Information & Communication Journal. Small business organizations supporting this proposal include Manhattan Chamber of Commerce, British Airways Global Entrepreneurs, and many others. (v) The global internet movement,, reviewed this job proposal and named June Klein an inspiring, featured country leader. (vi) June Klein presented this global public policy initiative, her social change platform and 5th estate movement solutions at the Oxford Internet Symposium, Oxford Said Leadership Talks and British Airways 2011 global entrepreneur winner event. A variation of TBE has been presented to UK‟s Minister of Finance and has been sent to the Chancellor of the Exchequer.October 19, 2011 P 3 of 4
  4. 4. Q11. What needs to be amended to already existing law in the Internal Revenue Code to make this happen? A. Currently, in order to claim depreciation deductions for property used in business, the taxpayer must be the legal owner or posses all the benefits and burdens of ownership. A simple amendment to IRC Section 168 to allow a small business owner to sell its new depreciation deductions under existing law is all that is needed. The IRS would administer compliance with the filing of a simple form signed by the small business seller and the buyer of the depreciation deductions. Q12. What is the affect on the deficit of an amendment to IRC Section 168? A. Since the proposal does not require new tax deductions, the deficit should not be impacted in any meaningful way. When the Congressional Budget Office, CBO, scored the current “cost” of the depreciation deductions, it assumed a certain composite marginal tax rate. If the buyers of the small business depreciation deductions are assumed to have a higher composite marginal tax rate than the current scored cost composite marginal tax rate, there could be a minute loss of revenue under a static CBO scoring analysis. However, if a CBO dynamic scoring analysis is utilized, revenue, jobs and GDP should increase substantially. The dynamic multiplier effect is 1.6 to 2 times. The history of economic growth following tax cuts, from the Kennedy tax cuts to the Reagan tax cuts to the Bush tax cuts, repeatedly shows that the micro thinking of static score predictions have been way off the mark [overestimating the "cost"] while the macro thinking of dynamic score predictions have been much closer to accurate.October 19, 2011 P 4 of 4