• SmartCEO gathered Philadelphia-area advisors to share their top tax tips for 2016.

  • The advisors shared their thoughts on tax reform, succession planning and more.

Philadelphia’s experts share advice on your 2016 tax strategy


TD Bank

Compiled by Tina Irgang

Photography by David Michael Howarth

This roundtable discussion was published in the January/February 2016 issue of SmartCEO. The following transcript reflects highlights of the discussion. It is not a complete transcript.

Tax season is fast approaching, and with it a seemingly impenetrable tangle of issues that CEOs need to be aware of. What new tax regulations do you need to know about this year? And what are some best practices you should always keep in mind? SmartCEO and TD Bank gathered a group of trusted advisors to answer those questions, as well as share best practices for succession planning and M&A.

Roundtable panelists:

  • Mitchell Gerstein, CPA, PFS, MST, principal, healthcare, CliftonLarsonAllen
  • Michael C. Troped, CPA, audit partner, Isdaner & Company
  • Sponsor: Michael S. MacFarland, regional vice president, Philadelphia market, TD Bank
  • Sponsor: Stephen Keiser, vice president, relationship manager, TD Bank
  • Andrew J. Malone, CPA, MST, partner, McGladrey LLP
  • John F. Kostenbauder, CPA, partner, WeiserMazars
  • Richard A. Fragale, CPA, MT, partner, tax services group, Heffler, Radetich & Saitta LLP
  • Moderator: Chris Burkhard, president and founder, Outside-In Companies
  • Richard D. Pritz, MT, CPA, member, GMS Surgent
  • Michael Ostafy, senior tax manager, Marcum LLP

Click here to listen to the entire Roundtable discussion, or read an edited transcript of the conversation below. 

Planning ahead

What hot tax topics should CEOs consider preparing for in 2016?

Malone: Everybody seems to like to focus on the federal [taxes], but one of the important issues we find with many of our clients as they start to cross borders are state taxes. States are very active these days in trying to get their revenues up, so they’re very cognizant of companies that are moving over into their boundaries, and wanting them to make sure that they’re filing income taxes, [and] sales and use taxes. … And a lot of our clients that are in the middle market, they’re only used to being in one state, so it becomes a shock to them. Not only from the taxes, but then the compliance side of things.

Burkhard: How are you defining middle market?

Malone: Anywhere from $10 million to $100 million revenue.

Kostenbauder: One other issue is that although the CEOs want to know how [they] can save tax dollars, this is a situation where we’re, in fact, trying to save them problems, [and thereby] saving tax dollars in the future. One of the other things about state taxation: You’re talking about nexus; you’re talking about connection with other states. Not only do you want to make sure you know where you’re taxable in a particular jurisdiction, it’ll save you down the road if they catch you and find that you’re taxable not only for income taxes but for sales taxes and other types of taxes. But CEOs, especially those in publicly traded companies, have to be very mindful of their financial statements. They have to be mindful of when there is an uncertain position that they need to be recognizing. … It affects their earnings per share. I also found that when… there’s M&A, due diligence going on, if there’s a possibility you’re taxable in another jurisdiction and you’re not filing there, a potential buyer is going to use that as an issue in the bargaining.

Ostafy: One of the key issues facing companies today is the state and local tax compliance. Many states are running budget deficits, and because of that, they’re changing their tax laws and also becoming very aggressive with their collection process. Tons of notices have been issued from many of the states, and in some respects, it’s kind of a fishing expedition to help raise revenue. We advise clients to make sure that they look at the nexus requirements before they venture into any state, and if they have any questions, to reach out to us.

New accounting standards

Are there any things related to new accounting standards or revenue recognition that might be worthy of comment?

Troped: Starting at the end of next year, the revenue recognition rules under U.S. accounting standards — GAAP — are going to be more closely parallel to the international standards, specifically with respect to contract, accounting for revenue, accounting for contracts with customers. So the disclosures, the financial statement disclosures, the identification of … long-term or revenue-producing contracts with customers are going to take on a whole new sort of requirement for business owners to be able to understand exactly what their revenue streams are and how to properly disclose those revenue streams in their financial statements.

Burkhard: What could the impact be?

Troped: Depending on the implementation, there could be a restatement of prior years. If the methods that are chosen to implement the standards include a prior revenue amount which has been recognized, which may under the new standards not be appropriate for prior recognition, there could be restatement issues.

Burkhard: There have been suggestions that there might be some movement related to interest rates but perhaps there’s some commentary around interest rates related to tax.

Kostenbauder: I read a recent survey that perhaps 70 percent of business owners are very concerned about a potentially stagnant economy or one that’s not really growing, and they’re very focused on interest rates. As a result, if they don’t have confidence in the economy growing, maybe they won’t purchase as much in the way of equipment, maybe they don’t hire as much. They would like some more certainty. We would all like more certainty. We would like to know where federal taxes are going, but coming into an election year, we don’t know where we’re going with that.

Fragale: We have a lot of clients in the Philadelphia region who are … thinking about moving their residency status from other states into Pennsylvania so they can take advantage of the full exception that’s related to the income stream from this area. So we get involved with helping them through the process of moving from state to state, some of the things that they have to comply with in order to achieve that nexus with the new home state.

Burkhard: Should CEOs be looking at this issue today?

Fragale: From a personal standpoint, it’s very important. I [was] in a recent board meeting with several CEOs and CFOs, and a lot of high-networked people, and that decision model is really driving the process of the business as well. Where do you locate your business, what states are favorable from an individual standpoint, especially when you’re talking about thousands, if not millions of dollars in individual taxation.

Election year

With the election year coming up, are there any thoughts or words of wisdom for CEOs today?

Pritz: You know, with what’s going on in Washington today, I don’t think that there’s much in the way of will to make wholesale changes in regard to the tax code as it stands now. Over the last couple of years, we’ve gone through … a lot of changes to the tax rates. So my feeling is that there’s not going to be [many] changes in regards to the tax structure as it stands.

Fragale: I think last year, we were kind of focused on the tax extenders, that was the big deal.

Burkhard: What’s a tax extender, if you could just define that for our audience?

Fragale: They are different elements of the code that every year are getting phased out, and they don’t really know till the end [of the year]. One of the hot areas was the debt forgiveness income that comes up in the banking area, where you have properties being repossessed. So was that going to be extended for individuals? That was a hot topic. There were other areas, like Section 179, depreciation, bonus depreciation, all those topics are kind of relevant this time of year.

Kostenbauder: Paul Ryan, he’s from the House Ways and Means Committee, and he’s done a lot of work with tax bills. With his recent distraction, with potentially becoming speaker of the House, we’re seeing he had spearheaded some potential tax reform, which seems to have fallen by the wayside, especially in the international arena. Any CEO doing cross-border transactions, we were hoping to have some kind of understanding, maybe a little bit of easing up of what are otherwise very high tax rates. The U.S. is becoming a high-tax-rate jurisdiction, but CEOs who have cross-border transactions really need to be aware of the reporting requirements, transfer pricing issues, and even, if they are doing business in other countries, maximizing foreign tax credits. So the legislation which was hopefully going to bring some easing to international tax issues seems to have fallen by the wayside.

Gerstein: I actually want to expand a bit on the tax extenders. It’s been going on for a number of years and it’s very difficult for businesses to be able to do some planning, particularly on account of the budgeting aspect of things. Someone mentioned Section 179, and there’s also bonus depreciation. Right now, it’s a very limited amount that you can deduct. There’s no bonus depreciation, which is the ability to write off 15 percent of your capital expenditures, and section 179 is limited to $25,000, which is very small. And so what’s happened year after year is, it can become retroactive on Jan. 1. So [it would] be retroactive Jan. 1, 2015, and then it would be expired Dec. 31, 2015, and it would pass [in Congress] in December of 2015, so it’s really hard to plan for all businesses. There are probably 80 or more tax extenders year after year, so what Congress has been trying to do is identify a few of them and make them permanent, or at least make them set for two years, so that every year, you don’t have to revisit it. One other area that is important [is] the Work Opportunity Tax Credit, which can provide employers who hire certain former veterans and prison-release or just low-income employees up to a $6,000 tax credit.

Burkhard: Is that per employee?

Gerstein: Per employee, yes. And there are lots of rules, and all the states are responsible for administering [them]. Recently, for 2014, it expired, and [Congress] came out and extended it till like April of this past year, right in time for tax season. So there was this mad rush, because you hire [the employees] and you have 28 days to submit the form to get them into the program and see if they’re going to be certified. And yet again, it’s another example, it’s really hard to take advantage of all these tax credits and strategies when [they’re] expired and retroactive year after year.

Burkhard: The extenders, moving from one year to two years, is that a done thing or is that being proposed, and what’s the timing for that decision?

Gerstein: I don’t believe there are any extenders that expired the prior year that are now extended for a two-year period of time.

MacFarland: Talking about being proactive, and listening to our clients, we try to react to this particular need by putting in place a credit line or an equipment line of credit, so that if there is a need to acquire a piece of equipment the last week of the year, they submit an invoice, TD Equipment Finance pays that to the vendor, and despite the fact that it’s a little high-pressure timing, we’re able to meet the needs of the tax planning.

Affordable Care Act

The Affordable Care Act is here to stay. Regardless of your political persuasion, 8 million folks have healthcare that did not have healthcare prior to its implementation, and there are some significant changes coming in January 2016. What should CEOs prepare for and think about?

Ostafy: Currently, there’s some fear in the marketplace as to the reporting requirements under the ACA, particularly the filing of forms 1094 and 1095. [Editor’s note: These IRS forms are used to report healthcare coverage and employment status.] There’s a considerable amount of administrative burden that the companies have to incur, even if a third-party administrator is filing those forms. Many employers are currently in the information-gathering process as we speak to help gather the data to report it timely in 2016. Some of the third-party administrators that companies are using are providing them with kind of an Excel spreadsheet to help them gather the data, and to get timely reporting.

Troped: The reporting is obviously the sort of key issue, and the onus is on the employers to report this. The information gathering is a huge endeavor. This used to be basically an annual exercise of the enrollment season, which is now becoming a monthly cross-departmental tracking of data points from employees. … It could be IT is involved, it could be legal is involved, finance, human resources certainly is involved. … The challenge is to get that information accumulated to the point to get the 1094, 1095 filings done on time.

Burkhard: What has changed that has made this need for reporting?

Malone: The importance is that 1094s and 1095s are for the individuals to make sure that they have health coverage. … Because otherwise they have to pay a penalty tax.

Burkhard: To clarify, the penalty is on the individual side?

Fragale: The large penalty for the individual taxpayer kicks in after the ‘16 election, so Congress sort of deferred that.

Burkhard: Will individuals be paying this in their taxes?

Fragale: It’ll come out of their refund.

Malone: There were people even last year, even though they didn’t have to have a 1095, they had to commit that they had health insurance coverage, and if they didn’t, they were paying into the penalty.

Troped: Besides the penalty to the individual for not having the coverage, the penalty for misfilings can be $100 per occurrence, up to [$1.5 million]. So those are the egregious penalties that are having significant impact as well.

Burkhard: What’s the government agency that’s collecting that?

Pritz: That would be the Internal Revenue Service. They’re the ones that are monitoring this.

Burkhard: And they’re going to do that on a monthly basis?

Ostafy: The actual penalty is pro-rated, so if you don’t have health insurance until halfway through the year, you’ll be penalized for the pro-rated portion.

Malone: The reporting part will be on a personal tax return, so you can imagine, we will do personal tax returns maybe for some of our business owners, and we’re going to be scrambling to make sure that we have the forms. We’re making sure that they have the health insurance coverage, otherwise we’re the people that have to report it back to the IRS on their personal tax returns, because we prepare them. So I could definitely see more work for us as accountants, to make sure that we’re gathering all the information from our personal tax clients, to make sure that they [had] the 1095.

Pritz: I think that goes beyond even what’s happening with the reporting requirements with ACA, but it’s within a whole host of areas where the Internal Revenue Service is placing a lot of burden on the taxpayers in order to be in essence the police. The Internal Revenue Service’s budget is not what it once was, their ability to audit is not what it once was, and what they’ve done is, they’ve shifted the burden over to the CPAs and to the tax preparers.

Burkhard: So with the ACA, generally speaking, businesses had a choice — they could either play or they could pay the penalty. Is there any commentary on how your clients are generally addressing the ACA? Is there anyone willing to go the penalty route?

Fragale: In our client base, no. But they are cognizant of the reimbursement portion, which can be as low as 60 percent. In the past, I think most of our clients were reimbursing probably up to 85 percent, but with the rising premium rates, they’re taking advantage of that.

Burkhard: So plans are basically being adjusted where the amount the company is contributing is coming down a bit.

Fragale: Yes, and I see it moving towards using an HAS [Health Savings Account] with a deductible.

Gerstein: Beginning in 2016, [having] 50 full-time employees based on the prior year, can then trigger whether an employer is following the rules of the Affordable Care Act. … And not only is it based on whether there’s coverage, but it’s also based on how much the employee has to kick in. So employees, if they have to pay more than 9.56 percent of family income or some safe harbor amount, that can trigger an employer penalty.

Burkhard: And that individual would then go to the open system?

Gerstein: That’s right, but it would still subject the employer to a penalty.

Burkhard: And what is that penalty?

Gerstein: The penalty is $3,126, divided by 12 for each full-time employee who’s receiving the premium tax credit because they’re going to the market to get coverage. So you need lots of flow charts basically to be able to track all this.

Pritz: The one word that I haven’t heard yet is the coordination between the human resources, the payroll and the benefits consultant, [which] is absolutely a necessity in order to make this happen. There has to be constant communication in order to get the information out there.

Burkhard: Is there any general advice on how to address something like this when it’s really being written every day, every week?

Kostenbauder: It’s kind of a shame that we’re sitting here in October, when employers can do something about it, because by the time they hear this or read this in January, water has already gone over the dam. But what they need to do is really coordinate, talk to HR; they need to understand what’s going on with their employee population. I think a number of employers are finding that not as many employees are signing up for their plans as expected, but that doesn’t take away from the compliance part.


The current M&A landscape — is it stagnant, is it red hot, is it warming up?

Troped: We’re seeing a lot of activity. … Most of our activity that we’re part of is on the buy side. Our clients are acquiring businesses as a growth strategy. There’s capital in the market, and that is driving unfortunately the bad news, [which] is that it’s driving prices up. The level of activity, the earn-out type of arrangement, is significantly less than we’ve seen in the past. Sellers are aware of the fact that it’s a seller’s market, and we’re finding that there are deals to be had, but buyers are competing heavily for opportunities.

Burkhard: And what is the market that your business primarily focuses on?

Troped: We could be in real estate; we could be in manufacturing.

Malone: Part of our practice is, we deal a lot with venture capital and private equity groups, and they’re very active in the market right now, looking to acquire companies. Especially with the interest rates being low, they can offer their clients, their investors some nice rates of return compared to interest rates.

Burkhard: Is there a different approach between private equity and venture capital related to the marketplace today?

Malone: I think it’s just more who your investors are inside of the fund itself. They’re very similar; we tend to see a lot of these people out in the marketplace, and they may be almost interchangeable.

Pritz: Mike, you made a great point in regards to the pricing that is occurring in the market, and how it is getting pushed up. While you fortunately are on the buyer side, I’m on the seller side a lot of the time, and what we see is that obviously as the seller, we’re trying to enhance the price. … We try to preach to our clients that they need to start taking a much longer look or longer vision at their exit strategy. Getting into a sell mode in two years and thinking you’re going to be out is nonsense at this point. It’s five [years] at the minimum, and it’s probably much more.

Burkhard: The five years, are you talking about preparation?

Pritz: Yes. … Get your house in order. And that means implementing best practices according to your industry. … It’s financial, it’s human resources, it’s operations, it’s marketing, it’s all of the components that go into your overall business, and having the best that there is before you take it to the market.

Keiser: I work with the CEOs, the entrepreneurs that are thinking about, what should [they] do with their business. And I find it interesting that … you need to have a long-term approach to this. … And I think a lot of CEOs are looking for … how it affects [their] personal wealth and also how it affects the community and the employees. It really comes down to their concern, is there enough valuation there, is there enough wealth that can be generated, is it the right decision?

Burkhard: Is there enough supply to meet demand, generally speaking, right now?

Kostenbauder: Everyone’s been saying baby boomers are getting older. Baby boomers are looking to get out. Now the prices are relatively high. Interest rates, cost of capital, relatively low. So it’s an environment where it’s making M&A a lot easier to happen. Yes, there are buyers, and yes, there are sellers, especially the sellers. We are seeing it in service-based industries, law firms, accounting firms, architectural firms, we’re seeing it also though with real estate. … This is the time to jump.

MacFarland: I was in discussion this week with someone who said 75 is the new 65. People are healthier these days, they love their business, and are staying in it a little bit longer. Are you seeing some of those things with your clients as well, that that transition isn’t necessarily happening between 60 and 65, but later in the owners’ age?

Gerstein: Our practice is geared to the private owners, and so we’re seeing a lot of tension in that area where, exactly your point, which is they’re staying longer, so the next generation is not getting the opportunity to take over that business. So we’ve been doing a lot of consulting in that area to try to be that independent person to really kind of weigh both their needs and see if we can help them with that transition.

Pritz: Michael from TD Bank brought up the issue [that] 75 is the new 65, and I think that has a lot to do with the fact that, you know, people are healthier these days, but also working an additional five years and working at a transition out in five years can do great for the personal financial statement. So that’s what we’re seeing is that while people are leaving, they’re not necessarily stepping out in its entirety. They’re hanging in there for five years, whether it be under some sort of consulting arrangement or the like.

Burkhard: Is there a sense that there’s a peak coming? Is this M&A market sustainable over 2016?

Ostafy: 2015 was quite active with M&A. I think 2016 and beyond is going to stay hot, and I don’t see anything on the horizon, even if interest rates go up, that’s going to change it. With the baby boomers getting older, they’re looking to exit their companies and essentially cash out. We’ve represented both the buyers and the sellers. Depending upon which person we represent, we make sure their house is in order and help them determine the best effective structure to accentuate the sale. And going forward, we don’t see that stopping.

Deal structure

I would like to hear some commentary about deal structures, perhaps other methodologies with the different investors. Are there any trends or changes one might expect if you’re a CEO considering buying or selling?

Gerstein: If you’re the seller, you want to sell the stock in your company, because … then you’re only going to be paying long-term capital gains at 20 percent. If you’re the buyer, you’d want to buy the assets so that you can depreciate those assets and be able to get those ordinary business functions at 40 percent. That has never changed as long as [there is] disparity between the capital gain rate and the ordinary income rate. There are some times — I’ve done this this past year — where you know someone really wanted to buy that business and they were willing to buy the stock. And when you buy the stock, there is no tax write-off; that is your investment.

Ostafy: It’s always a bit of a negotiation between the buyer and the seller. Obviously, the seller wants to sell stock to get the long-term capital gain treatment. The buyer wants to buy assets because there’s no messy dealings with any liabilities that are sitting out there. If you can make an election to treat it as an asset acquisition, both parties will negotiate, and you find a happy medium so that it makes both parties happy. The seller gets the benefit of the long-term capital gains, and the buyer gets to, any of the assets they buy, they can either depreciate fixed assets or amortize any of the intangibles that they buy.

Pritz: If I could take it out of the corporate world for a second and put it into the partnership or LLC world, there’s a lot of more flexibility in regards to the issue of having the seller get the long-term capital gains rate, but also being able to have an amortization of the purchase price via 754 elections and 743, 734(b) adjustments. I think it is important to bring up, especially in my client base, I see a ton of that. And this is true when it comes to real-estate transactions as well.

Kostenbauder: We’re seeing with real estate… new and different ways. Even when there’s real estate within a partnership, within an LLC, one partner wants out, the other partner wants to stay in. We’re seeing more creative structures to allow that to happen.

Pritz: A natural extension to this is perhaps some of the estate-planning issues that business owners are facing as they’re considering mergers and acquisitions.

Gerstein: We’ve talked about acquisitions. Can we talk about mergers? My practice is in the healthcare space, so I work with a lot of physician groups, and so in the physician world these days, it’s how can we stay independent? How can we get our reimbursement rate to be able to be maintained year after year, or do we just need to fold up our tent and become an employee of a hospital? So that is an ongoing conversation for many of the physician practices these days. I’ve had the experience of this past year working with a number of, typically, radiology groups trying to get 15 docs to merge with another 15 docs or 30 docs. You need a degree as a business psychologist, or sometimes a psychiatrist, and one of them actually took four and a half years to bring them together. So I just thought it would be important also when we’re talking mergers and acquisitions to have a discussion of mergers.

Burkhard: Anything else on the merger side? It’s interesting to hear real stories, real industry-related.

Troped: Whether it’s a merger or an acquisition, the financial reporting concept stays the same. To get the house in order, I know it’s been mentioned, and to represent the quality of earnings. … Primarily in an acquisition, but also in a merger, it’s the quality of the earnings underlying the financials that is going to drive the deal. So in a situation where you’ve got a smaller group practice, professionals, oftentimes my clients’ professional practices tend to treat the company as their own sort of private entrepreneurial bank account. They’re not thinking forward about what the financials look like to a potential buyer or to a potential merger partner, and so getting that financial picture in order to represent the company as a profitable company is vital.

Estate planning

What challenges do you guys experience frequently with business owners as they’re going through the exit?

Pritz: I’ll stick with estate tax. The strategy or planning that goes into it, and the valuation of closely held businesses has to be the number-one issue. What the value or what the perceived value of your business is, is a fundamental cog in your overall estate plan. And determining what that valuation is can be tricky. Now, one of the things that we always recommend is having and regularly updating your buy-sell agreements. Because what that does in essence, it puts a formula in place to determine the value, and it’s very hard to argue that when that value is in place.

Burkhard: And that’s for partners?

Pritz: All partners, all ownerships.

Kostenbauder: I think the biggest challenge is getting them to do it. Getting them to really, seriously consider it. Intuitively, logically, they know they need to move on at some point. … So getting them to face reality so to speak can be a big challenge, because … if something happens and you can’t even provide for your estate to pay taxes on a disposition of business or whatever, it’s a major problem. So getting them to face reality sometimes can be an issue.

Pritz: They don’t update the buy-sell agreements, and also life insurance is another issue that just seems to fall by the wayside.

Ostafy: From a closely held business standpoint, you really can’t plan too far in advance. If you are a parent and you have children, or relatives that you’re hoping to take over the business, … sometimes they’re not ready. Sometimes they’re not capable, so you have to look at all your options to see if you want to transfer your business to a relative or an outsider. So you should formulate a plan and make sure that you have all of your ducks in a row. Also, if you’re going to be transferring the business to a family member, there’s gifting issues that you should consider to make sure that you take full advantage of that. With valuation, when you’re transferring stock over years at a time, you can take the minority discount to really transfer a lot of the value of the company and get a lot of benefit.

Gerstein: No matter how much wealth someone may have, as they get older, they always feel like they don’t have enough. I’ve had situations where [clients wondered whether they would] have enough money to go on a vacation, and they had $5 million of net worth. So that’s a very difficult discussion, and what makes it even more complex is that we’re talking about valuation. …  We’re trying to come up with the lowest value that the Internal Revenue Service is going to accept, which is not the value that the buyer and seller are going to be sitting in a room negotiating. Taking the minority discounts to bring it down. What’s made it a little bit easier is that … it used to be gifting and the estate tax were running parallel. The gifting was limited; it had a lifetime exemption of $1 million, and … now it’s all thrown in the same bucket. …. What makes it complex is that there are all kinds of techniques and intentionally defective grantor trusts, so try to sit down with someone who’s high net worth and try to explain intentionally defective grantor trusts. But that’s a way to be able to get that asset, whether it’s a business or whatever it may be, out of their estate.

MacFarland: If I could just stress the importance of the succession planning topic from a banker’s perspective. We risk-rate every borrower in our portfolio, and that risk rating is impacted by things, not just the P&L and the balance sheet of the company, but the experience of management. Do they have a succession plan? What is this company going to look like in the next five to 10 years? And the importance of that topic impacts the risk rating on that borrowing. Banks use those ratings in order to determine how much capital we need to reserve. And today, for the same risk, because of changes in regulation, banks need to reserve 70 percent more capital than they did five years ago. So it impacts our profitability. These kinds of topics you can’t defer. You’ve got to talk with your accountants, your attorneys, your financial planner, build a plan so you can explain that to your banker and we can factor that into the rating of the credit, because it potentially could impact the pricing on your borrowing as well.

Malone: Really what’s important is to sit down with your client as the trusted advisor, bring in the team members, identify those team members, the roads that they can go down. Might be an outside buyer, might be family member. One thing that hasn’t been noted yet, there’s employee stock ownership plans, ESOPs. That’s another option that’s out there. If the company’s healthy enough and you do have a good group of management and employees, they may be the perfect person to go in and provide liquidity to your estate.

Pritz: With the intentionally defective grantor trust, there are other trust vehicles out there that have the same overall result, which is to attempt to freeze the estate. Let’s not forget things like grants. … No one’s brought up the private foundation. We have some very significant high net worth people that are very liquid and also are business owners, and use of a private foundation…

Burkhard: Define that for us, Richard.

Pritz: I’m talking about people that have in excess of $200 million in assets. Their biggest issues are one, who’s going to take over the business. Will it be a family member? Two, how much to leave the children without screwing them up mentally. And three, forming a foundation because they don’t want to pay estate tax. Putting someone in charge of that — a trusted advisor, accountant, attorney, a legatee if you will … you can preserve your business, you can preserve all your net worth by making a significant contribution either during your lifetime from a contribution standpoint, saving on current taxes, and in the future, saving on estate taxes. So forming that board while you’re alive is really quite important.

Obstacles to planning

Why can’t CEOs and small business owners get these teams in place and get this plan in place?

Pritz: They think they’re going to live forever and they’re going to work in their business forever.

Troped: I think that every business owner tends to focus very specifically on doing the job that the business does very well. Sometimes it’s the running of the business that goes by the wayside, especially when it’s not the running of the business this week. It’s that strategic long-term thinking.

Burkhard: A fear of distraction?

Troped: Well, these are driven people. Entrepreneurial people tend to be very driven and very focused on what they’re doing. It’s a good thing.

Kostenbauder: They’re spending so much time focusing on tomorrow, next week, next month. They need to focus long-term.

Keiser: I find that a lot of it is business owners have a big ego. That’s a good thing because that makes them very successful, but some of the problem is that they don’t have a business succession plan, so they don’t have, even if they’re having to start that conversation, they can’t get to the end … because they’re just so concentrating on running the business every day.

Burkhard: It’s hard to put a framework and a plan in place if you don’t give the time and energy to sketch out what you want, in other words.

Keiser: Some of it’s just delegation, not having the key people in place to sort of take over those roles.

Gerstein: In the family business, sometimes they have to come to the realization that that next generation really is not going to be able to take the company in the next direction and that they really do have to be moving outside and bringing in the C-suite. And that’s a very difficult discussion. So we try to get in front of that and have these conversations early on.


This is your opportunity to share what you haven’t had a chance to offer or to summarize some of your key points for what you think a CEO might want to take away from today’s session.

Kostenbauder: Communicate. Communicate with, [as] we like to call ourselves, the trusted advisor. … We’ve talked about insurance, IT, HR. There are a lot of issues going on here that go beyond tax. Communicate. Help us understand your needs. We want to bring to you what you think your needs are in the process.

Pritz: Proactive. Please, don’t do it after the fact, because after the fact it’s too late.

Burkhard: OK, so you’re saying, after we do something, don’t call you then, call before. Get some counsel.

Gerstein: So I would add that CEOs, to be successful, need to surround themselves with professional advisors who all communicate together. So the banker, the lawyer, the accountant, the financial advisor, if they’re all talking to each other, it allows the CEO to focus on growing that business. And sometimes that doesn’t happen. … Dealing with all the tax laws that continue to change, and are retroactive in some cases, it’s really important to be proactive in that planning year-round because once the year is over, there may be some strategies, but it’s very limited.

Burkhard: So you want us to talk to our accountant on a more regular basis.

Ostafy: If we are doing both the audit and the tax, we go out as a team in the planning meeting to make sure that we’re out there in front of any decisions that are going to be made down the road. That way, you can take advantage of tax opportunities that may be out there.

Fragale: I’ve gotten some really good advice from a very successful CEO, and he said basically that you need to be practical and you need to know that you’re not the smartest man in the room and that you need to listen to others. That’s how he’s been successful.

Malone: I think a great summary is the first line of your topic, planning ahead, which we’ve all touched on, and I think that’s a key point both in running the business and then in selling the business, transitioning.

MacFarland: I’d just like to say we are honored to sponsor this kind of a dialogue and this discussion — communication, being practical, all of these topics are critical. … So I thank you for all your conversation and contribution today, and look forward to 2016. CEO

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