Broker-Dealers Offered Opportunity to Provide Comments to FINRA Rules for Capital Formation

The Financial Industry Regulatory Authority, known as FINRA, is undergoing a review of internal operations and programs as part of a review process dubbed FINRA 360. FINRA, as an independent self-regulatory organization with the overall goal of protecting investors and creating efficiency in the markets, governs many in the financial services industry in conjunction with the securities and exchange commission. FINRA has been issuing notices and seeking comments from those in the industry, as part of FINRA 360, with the goal of identifying opportunities to further the FINRA mission.

Recently, FINRA started the review process for rules that pertain to broker-dealers and their involvement with the capital formation process, and has issued corresponding notices. One of the recent notices from FINRA includes regulatory notice 17-14, seeking comments regarding broker-dealers when involved with unregistered securities and operating funding portals. The broad spectrum of rules that fall within the purview of notice 17-14 include funding portals, crowdfunding, capital acquisition brokers, unlisted real estate investment trusts, and other administrative and operational rules for raising capital.

For those wishing to submit comments on the rules, FINRA has set a deadline of May 30, 2017. For more information, FINRA notice 17-14 can be found at the following link: http://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-17-14.pdf

© 2017 Vandenack Weaver LLC
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IRS Implements New Safeguards for Income Verification Express Service

The Internal Revenue Service (“IRS”) is implementing new requirements for taxpayers who use the Income Verification Express Service (“IVES”), a service companies use when signing off on the incomes of loan applicants. The new safeguards are part of a larger effort to protect taxpayers and fortify authentication standards.

The new requirements were sent to IVES participants shortly after the IRS announced the initiative. Among others, the requirements involve collecting data to verify participant clients and the individuals that clients authorize to submit and receive IRS transcripts on the clients’ behalf. The IRS will not deliver borrower income transcripts unless IVES participants certify their compliance with the new requirements. Additional safeguards include requiring individuals to have strong passwords and unique login credentials.

The new protections reflect initiatives being taken elsewhere in the tax system. Recently, the IRS shut down the electronic filing (“e-file”) PIN tool, a tool to assist with electronic tax filing, after criminals attacked the system and stole PIN numbers. The IRS is taking these steps in an attempt to protect taxpayer information and combat potential fraud.

The new requirements are in effect as of July 1, 2016.

© 2016 Vandenack Williams LLC
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How Are Securities Used as Collateral?

Securities (stocks, bonds, ownership interest in an LLC or partnership) can be given to a bank and you can borrow off them just like you could a car or a house. It’s usually a little more complicated than that if it is a publicly traded security. So if you are buying IBM or Apple or one of those companies on the stock exchange, then that’s usually pretty easy. You have a clear right to sell it and it is usually very easy to determine the value of that stock and a bank will usually loan you a percentage of what that value is. If it is a small business, if it’s a business that you own with a group of partners, it is a little more complicated because there’s usually contractual rights with your partners about whether you can sell it and whether you can even get a loan on it.

So, can you get a loan on securities? Absolutley, but you really have to look at what’s the security, what is it worth and what happens if the bank does really have to take it back.

© 2014 Parsonage Vandenack Williams LLC

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New Proposed Regulations Issued on Debt Basis Planning

Debt basis planning is a tool often used by shareholders of S corporations to allow them to use S corporation losses at the shareholder level. The amount of losses that a shareholder can use is limited to her adjusted basis in the S corporation’s stock. When a shareholder loans a corporation money, that loan may in some cases increase her basis in the stock. Loaning an S corporation money, therefore, can in some circumstances increase the amount of losses that a shareholder can use. However, debt basis planning has been a frequent subject of audit and litigation by the IRS, and such planning can be very uncertain.

The IRS has recently issued proposed regulations which may clarify the requirements for debt basis planning. Under the new proposed regulation, indebtedness of an S corporation to a shareholder will increase that shareholder’s basis if it is “bona fide indebtedness.” Some of the factors that might indicate bona fide indebtedness include a legally enforceable written note, appropriate provisions relating to interest, reporting of loans on financial statements, and timely payments on the loan. S corporation shareholders should be aware that debt basis tax planning should be undertaken carefully. However, the proposed regulations indicate that the opportunity to make use of this planning technique to increase the amount of usable losses may be less uncertain than in prior years.

© 2012 Parsonage Vandenack Williams LLC

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