Whether you are a buyer or a seller, Foster Swift's Deal Team and tax attorneys can help you navigate the challenges, minimize risk and realize the opportunities in today’s market. Times of crisis create M&A opportunities for those with the vision and resources to take advantage of them.

To assist with some common questions, below are some drop downs on Frequently Asked Questions (FAQs) concerning:

• Deal considerations for small and medium businesses.
• Buying and selling small and medium businesses.

Success requires an understanding of unique risks, excellent planning, and experienced counsel who knows how to get your deal done in these turbulent times. Contact a member of our tax law team if you have further questions about incentives or credits you may be eligible for that are not answered by the sections below.

Deal Considerations for Small and Medium Businesses

FAQs - Environmental Tax Incentives

What are environmental tax incentives?

Answer: Environmental tax incentives are opportunities under the tax code designed by legislators to encourage individuals and businesses to invest in environmental technologies or practices. These incentives can help businesses reduce or defer (postpone) their tax liability, reducing the cost of adopting environmentally friendly practices, like reducing emissions or fossil fuel consumption, or increasing efficiency.

What are some of the environmental tax incentives that are available to small and mid-sized businesses?

Answer: To name a few, environmental tax incentives that are available to small and mid-sized businesses include:

• The Energy Efficiency Improvement Tax Credit: This credit is available to businesses that invest in energy-efficient equipment or technologies.
• The Renewable Energy Tax Credit: This credit is available to businesses that generate electricity from renewable sources, such as solar or wind power.
• The Hybrid and Electric Vehicle Tax Credit: This credit is available to businesses that purchase or lease hybrid or electric vehicles.
• The Brownfields Tax Credit: This credit is available to businesses that clean up and redevelop brownfields, which are abandoned or underutilized industrial or commercial properties.

Who is eligible for environmental tax incentives?

Answer: Eligibility for environmental tax incentives varies depending on the specific incentive. In general, businesses that are small or mid-sized and that invest in environmental technologies or practices are eligible for these incentives. For each incentive, it is important to intimately understand the relevant tax and legal framework concerned, and apply it to the specific facts and circumstances of a business or activity in question. This inquiry can range in complexity based on the provisions at play and the availability of guidance on point. The process for analyzing, documenting, and disputing eligibility may also depend on whether the question is primarily a factual or legal one.

How do I apply for environmental tax incentives?

Answer: The process for applying for environmental tax incentives varies by incentive. Some incentives are documented and availed on a taxpayer’s income tax return, while others involve notice to the IRS or other agency(ies), a formal application process, and substantiation by third-party experts or authorities.

What are the benefits of environmental tax incentives?

Answer: The benefits to environmental tax incentives are numerous. Of course, environmental incentives can help businesses save money in implementing environmentally friendly practices. But in addition to reducing tax liability, environmental tax incentives can help businesses reduce their environmental impact, which can benefit the environment and their local community and beyond. To add, customers and business partners are increasingly aware and insistent of the environmental policies and practices of who they do business with, making ESG a more essential part of a company’s overall business strategy than ever.

Can environmental tax incentives be problematic for small and midsized businesses?

Answer: Tax incentives are generally complex, change frequently, and can be administratively burdensome. Companies without dedicated tax and compliance staff often find it difficult to keep up with changes in the tax law. Compliance can be onerous and time-consuming, especially when requirements are uncertain. Companies frequently rely on our business and tax team and deal team to help them understand and utilize the many opportunities available to them, allowing them to focus on operating their businesses.

What are the future trends of environmental tax incentives?

Answer: Over the past decade, environmental tax incentives have trended exponentially upward. Governments around the world are implementing environmental tax regimes. This trend is likely to continue in the future, as governments seek to encourage businesses to adopt environmentally friendly practices and reduce their environmental impact.

What are the resources available to learn more about environmental tax incentives?

Answer: There are several resources available to learn more about environmental tax incentives. These resources include:

• The IRS website: The IRS website has a section on environmental tax incentives that provides information on a variety of incentives.
• The Environmental Protection Agency website: The EPA website has a section on environmental tax incentives that provides information on a variety of incentives.
• The U.S. Department of Energy website: The DOE website has a section on environmental tax incentives that provides information on a variety of incentives.

Buying and Selling Small and Medium Businesses

FAQs - IRS Collections

What is an Offer in Compromise (OIC), and when is it available with the IRS?

Answer: An Offer in Compromise is an agreement between a taxpayer and the IRS that settles the taxpayer's tax liability for less than the full amount owed. An Offer in Compromise may be available during the collections stage, after liability has been assessed, if the taxpayer is unable to pay the full tax debt or if paying the debt would cause financial hardship.

What kinds of Offers in Compromise are there?

Answer: There are three types of Offers in Compromise:

1. Doubt as to Liability, which is used when the taxpayer disputes the amount owed;
2. Doubt as to Collectability, which is the most common type and applies when the taxpayer can't pay the full debt; and
3. Effective Tax Administration, used when the taxpayer can pay the debt but doing so would create an unfair economic hardship or be against equity and good conscience.
   
   Between Doubt as to Liability and Doubt as to Collectability offers, Doubt as to Liability offers are typically the most difficult for a taxpayer to assert, liability is typically addressed and disputed during the assessment stage. On the other hand, when a taxpayer has exhausted or foregone available assessment procedures and concedes a liability, it may simply be unable to pay, or payment might not be the best way of collecting from the taxpayer. In these cases, offers in compromise are more appropriate.

How does the IRS determine when to accept an Offer in Compromise?

Answer: The IRS evaluates the taxpayer's ability to pay the tax debt – known as “collectability.” Collectability is determined by considering a taxpayer’s income, expenses, assets, and future earning potential. Factors like the taxpayer's current financial situation, potential future income, and asset equity are all relevant.

What does "reasonable collection potential" mean in the context of an Offer in Compromise?

Answer: Reasonable collection potential or “RCP” is the amount that the IRS believes it can reasonably collect from the taxpayer based on factors similar to the collectability factors above. RCP is based on the taxpayer's financial information and is generally used to determine the minimum acceptable offer amount.

Who can submit an Offer in Compromise?

Answer: A taxpayer with an assessed and outstanding tax liability can submit an Offer in Compromise. In some cases, a taxpayer may choose to waive its assessment alternatives and initiate collections proceedings. Note that it is a taxpayer’s (not the government’s) responsibility of initiating the first specific proposal for compromise.

Is there an application fee for an Offer in Compromise?

Answer: Yes, there is an application fee for an Offer in Compromise, unless the taxpayer qualifies for a low-income certification. The fee can vary depending on the taxpayer's financial situation, but it may be waived in certain circumstances.

How long does the Offer in Compromise process take?

Answer: The processing time for an Offer in Compromise can vary depending on several factors, including the complexity of the case, the workload of the IRS, and the responsiveness of the taxpayer. The process may take several months to more than a year.

What happens if the IRS accepts my Offer in Compromise?

Answer: If the IRS accepts your Offer in Compromise, you will need to comply with the terms of your agreement, which typically involves making agreed-upon payments and continually complying with future tax obligations. Once a settlement amount is paid in full, the remaining tax debt is considered satisfied, and any related tax liens will be released.

FAQs - Sale of a Business

What are the implications of a stock sale versus an asset sale when selling a business in Michigan?

Answer: A stock sale involves selling the ownership interest in the business, while an asset sale involves selling the business assets. The preferences of the parties will often, but not always, conflict as to the most favorable alternative, and often include tax implications and managing risks associated with the target’s business.

A seller may prefer to realize capital gains at preferred rates, while having to recognize ordinary income on the sale of assets like inventory. In contrast, a buyer will prefer a “stepped up” basis (equal to the fair market value or purchase price) on assets that can be depreciated or amortized at accelerated rates.

At the same time, a buyer may wish to purchase only certain assets, separate from claims against intellectual property, anticipated litigation, environmental liabilities, and general business or market risks. In a stock sale, a buyer generally assumes the liabilities of the target business. All things equal, a seller will prefer to pass any liabilities on to a buyer when possible.

Can I deduct attorney's fees associated with selling or reorganizing my business in Michigan?

Answer: Legal and other professional fees are not specifically provided in the Internal Revenue Code as deductible. As a result, a taxpayer can only deduct attorneys' fees if they qualify as “ordinary and necessary” business expenses (Section 162) or expenses related to the production of income (Section 212). Expenses that do not qualify as deductible under either §162 or §212 are either nondeductible personal expenses or capitalized expenditures.

Generally, attorneys' fees incurred for legal advice and services directly related to the sale or reorganization of a business qualify as business expenses – provided they are ordinary and necessary. However, some circumstances have been specifically excluded from deductibility, and others are still uncertain. In these situations, it is important to carefully analyze the expense and the relevant granting provision before claiming a deduction.

What tax planning considerations should I keep in mind when selling or reorganizing my business in Michigan?

Answer: Tax planning is crucial during business sales or reorganizations. Planning can involve structuring the transaction to reduce or eliminate present tax liabilities, utilizing available tax incentives or exemptions, weighing competing implications of both the buyer and seller, and carefully considering the timing of the transaction as a whole, and relative to any potential impact of past or future business events. While tax is not the only consideration in business planning, it often provides opportunities to maximize the value of a deal for the parties, and is sometimes the primary driver in deal structure.

What is a forward merger, reverse merger, and triangular merger?

Answer: A forward merger occurs when one company merges into another, with the acquiring company surviving and absorbing the acquired company. In a reverse merger, the acquiring company merges into the target company, with the target carrying on as the “surviving” entity.

A triangular merger involves the creation of a subsidiary entity that ultimately merges with the target company. In a forward triangular, the subsidiary swallows the target, whereas in a reverse triangular, the target swallows the new subsidiary. The relevant tax, corporate, and securities law drivers and implications of these transaction types are complex and numerous and may involve substantial negotiation.

Are there any specific regulatory or compliance requirements when selling or reorganizing a business in Michigan?

Answer: Yes, selling or reorganizing a business in Michigan may involve complying with specific regulatory and compliance requirements. This can include obtaining necessary licenses or permits, complying with securities laws, and adhering to industry-specific regulations.

How are non-compete agreements affected during a business sale or reorganization in Michigan?

Answer: The enforceability and scope of non-compete agreements depend on various factors, including the terms of the agreement, the nature of the transaction, the sophistication of the employee and their relationship to the business, and public policy factors. The Federal Trade Commission has also proposed significant changes to the enforceability of noncompete agreements in general, with several important exceptions. It is generally advisable that an employment or business attorney review any non-compete agreements during due diligence for a sale or reorganization.

What is an installment sale, and are there benefits or consequences associated with structuring a transaction as an installment sale?

Answer: The Code defines an installment sale as a sale of property where the payee (i.e., seller) will receive at least one payment after the tax year in which the sale occurs.

There may be tax and other financial benefits to structuring a business sale as an installment sale. Installment sales may allow the seller to defer recognizing the full gain from the sale by deferring payments over multiple years.

Note that installment sales are subject to lengthy and complicated requirements and reporting rules under the Code. Gain through an installment sale must be reported on the installment method unless a taxpayer elects out. However, a taxpayer cannot use the installment method for any sale resulting in a loss.

How can I ensure a smooth transition and transfer of contracts and licenses during a business sale or reorganization in Michigan?

Ensuring a smooth transfer of contracts and licenses involves careful review of existing agreements, permits, licenses and leases, assets like real and personal property, intellectual property, liabilities like debts and accounts payable, and financial information. This careful review is sometimes referred to as “due diligence.”

How can I protect confidential and proprietary information during a business sale or reorganization in Michigan?

Answer: Protecting confidential and proprietary information is crucial during a business sale or reorganization. Implementing confidentiality agreements, conducting due diligence, and establishing safeguards for intellectual property and trade secrets are essential to consider in contemplating a sale or reorganization.

What types of transactions does Foster Swift handle?

Answer: Our team is a group of around 12 attorneys that can manage all aspects of any deal whether it's tax, employee benefits, real estate, intellectual property, environmental and various other areas that are impacted by deals. All of these different attorneys work together depending on what's needed on any specific deal.

We have the experience to assist with deals of really any size. We typically see anything ranging from smaller deals such as 5 to 10 million dollars of value up to larger deals of 100 to 250 million dollars of value. We work in those regularly and our goal is to bring the appropriately sized team that is scaled to close the deal efficiently. For smaller deals, a few attorneys with specialists are needed whereas in the large deals, we have a deep bench and can bring them all to get the deal closed.

What types of businesses/clients does Foster Swift represent?

Answer: Our clients include ultra-high net worth individuals, entrepreneurs, and businesses organizations. Our for-profit clients range from small and mid-sized businesses, closely held and family-owned businesses of all sizes, start-ups, and established businesses.

Our clients occupy every industry, including manufacturing, agriculture, real estate development and investment, healthcare, technical start-ups, private equity firms, commercial lending, and more.

What are some deals Foster Swift has advised on?

Answer: We are experienced on the legal and practical issues that arise in transactions, and have the necessary real-world experience to close deals efficiently while protecting our clients’ interests. We advise on every aspect of the deal – from due diligence and structuring the deal, to negotiation, documentation, and closing.

Our representative experience speaks for itself, we have:

• Assisted Michigan bank holding company in connection with $92 million acquisition of Michigan-based bank holding company.
• Assisted Michigan bank holding company in connection with $840 million sale of its business to an out-of-state, publicly-held corporation.
• Assisted Michigan family-owned business in connection with a multi-state business acquisition initiative.
• Represented many manufacturers in sales and purchases, including 8-figure sales to publicly-held corporations.
• Represented family members in connection with the acquisition of an approximately $20 million agricultural manufacturing business from the prior generation.
• Represented numerous clients in the structuring of equity and contractual joint ventures – both domestic and international arrangements.
• Represented buyers and sellers of professional practices ranging from $250k to $1.5m, including dental practices, medical groups, accounting firms, dentistry practices, and veterinary practices.
• Represent buyers and sellers of regulated businesses ranging from $500k to $10m, including financial services, health care, insurance groups, cannabis, and ITAR registered defense businesses.