We always see headlines about the latest hot IPO with an initial share price and valuation that smash previous records, but for most investors, getting in the door early on a good investment is nearly impossible.  It’s hard not to think, “Why couldn’t I have been an early investor in THAT startup?”

Meanwhile, entrepreneurs face a completely different problem, lack of funding.  In seeking out counsel on how to raise money for their concept, entrepreneurs usually struggle finding a place to go when their account runs dry, the bank says ‘no’ or they have done all they can to raise money from friends and family.  Furthermore, there idea just might not be the right “fit” for angel investors, venture capitalists or various private equity funds.

This is why crowdfunding legislation has potential to drastically change the way smaller scale startups are funded and the way our marketplace economy functions as a whole in certain sectors.

If your not familiar with crowdfunding,  the idea is basic – rather than limit the number of investors to a small group and seek large investments, crowdfunding allows a business or startup to raise a small amounts of money from a lot of people without having to meet an exemption under the the Securities Act of 1933 or go through the complex registration requirements necessary for a traditional public offering.

So what is the CROWDFUND Act?

The Senate voted yesterday 73-26 in favor of the CROWDFUND Act. This bill amends Section 4 of the Securities Act of 1933, with language that would permit SEC oversight of equity-based crowdfunding platforms.  The bill must now go back to the House before being signed into law by President Obama, who has already pledged support for the law.

Under the CROWDFUND Act startups and other businesses can raise up to $1 million per year.  But individual investments are also limited up to $100,000 (if you make $1 million or more) or $2,000 or 5% of one’s income (whichever is higher).

A similar bill the JOBS Act, or Jump-Start Our Business Startups Act already passed in the U.S. House of Representatives and is currently being debated in the Senate. The Senate version of the bill is, however, generating controversy because it would make it easier for larger companies to solicit investments by allowing them to sell shares to the public without as much oversight as is currently required.

How does this differ from something like KickStarter?

Equity ownership.  KickStarter, for anyone who doesn’t know, lets people ask for donations – and mostly for design, music, and arts-related ideas and concepts.  In 2011, KickStarter raised well over $100 million in funding for projects it featured.  So even where individuals don’t expect any return at all, crowdfunding can be a powerful tool.  If this paradigm is slightly changed and instead of donating to a small company or startup, you are buying shares in that company.

Don’t the SEC rules set forth exemptions requiring “accredited investors” for these initial investments because they have the risk tolerance, and information available to make informed choices. How would smaller individual investors be able to come by that same information?

The CROWDFUND Act amends certain sections related to these requirements, however, these issues are not entirely clear yet.  Much of how this will “look and feel” in the marketplace will be dependent on how the SEC chooses to enforce the legislation.  There are strong arguments on both sides of the which involve combating fraud and encouraging consumer protection.  Lets be clear though, just because there are SEC rules regarding certain “types” of investors, that doesn’t mean that these smaller investments were never made in the past.  The difference is that these types of investments are incredibly hard to quantify and track because they are generally a very illiquid investment and there is no trading platform or market to seek out these investments.

To solve this issue there are some proposals which would involve intermediaries act as a sort of clearinghouse for crowdfunded investments.  The idea is: the same way eBay matches buyers and sellers and gives reputation points and tries to cut down on fraud, in its bidding marketplace, a similar intermediary could vet business ideas to some extent before they can seek investment capital.  Still, these are just proposals…

What about possible fraud and the risk of these investments, how are investors be protected from that?

Well, that’s a balancing act that needs to be worked out.  What they don’t want is someone to raise money and then run off to Mexico and say his concept was a flop.  Some degree of protection or regulation will be necessary for investors to recoup losses when entrepreneurs make bonehead decisions or commit fraud.  On the other hand, Harvard Business School professor Bill Sahlman says you don’t want to put in too much protection, either:

“Trying to protect people against fraud can become so onerous that no activity takes place. Trying to limit the risk to which all investors are exposed can drive out all investment.”

In the internet age, its not as easy to identify the next big idea, but where each idea is funded with relatively small investments, whether it succeeds or fails might not matter as much.

How should a small local entrepreneur feel about this bill?

Crowdfunding is not a “new” way of investing.  But the proposals simply bring these concepts to a larger audience of potential investors.  Crowdfunding can bring a community closer to its local businesses who may have otherwise received funding from outside sources.  Right now most of us invest by putting our money in mutual funds that have stocks of companies which are headquartered in another region or which we otherwise have no relation to.  The social marketplace implications of crowdfunding have yet to be accurately measured, however, regardless of the lack of research, an entrepreneur can be happy about this because it gives them another way to fund or vet an early-stage idea or business concept.

How are traditional venture capitalists and investors responding? Do they see the bill as a threat to their early-investor advantage?

It does get into their territory somewhat. But certainly not all venture capital firms do early stage investing that crowdfunding is probably the best fit for.   Also, many angel investors and venture capitalists are looking for the home run.   There might be businesses out there that will be fine little businesses, but they’re not going to be huge either. And so a lot of venture capitalists stay away from those, it’s not worth their time. But that doesn’t mean they’re not good investments capable of creating jobs and providing a sufficient return.  And that’s why crowdfunding, for the right companies and the right investors, could be a great tool.

Tax-exempt organizations are currently facing a tremendous measure of financial pressure and volatility. Throughout this current economic crisis in the United States, exempt organizations must reevaluate not only their corporate structure, but also their operational efficiencies and regulatory compliance. Corporate responsibility is magnified for the tax-exempt organization due to its unique vision and capacity to compete in the social impact marketplace.  Although the IRS routinely grants tax-exempt status to qualifying entities, that which the IRS grants they may also take away.  As a result of an antagonistic shift in Federal policy in 2008, by which the IRS made changes to the Form 990, revocation of tax-exempt status by the IRS is on the rise.  Strategic foresight and swift action is more necessary than ever to equip organizations with the tools vital to fulfilling its purpose and maintaining compliance.  Has your organization assessed its operational efficiencies and corporate compliance?

Issues

Failure to adhere to the guidelines set forth by the IRS and the 990 will inevitably result in the revocation of an organizations tax-exempt status.  Although the IRS has always possessed this power over the exempt community, the additional requirements and heightened scrutiny reveals non-compliance and repercussions.  Common issues that frequently arise include:

• Conflicts of Interests
• Integrity of Financial Statements
• Fundraising Accountability
• Excess Benefit Transactions
• Disqualified Persons
• Board Compensation
• Board Meeting Minutes
• Third Party Management Companies
• Joint Ventures with For-Profits
• Transactions with Insiders
• Executive compensation
• Written policies
• Form 990 Review
• Public Disclosure of Key Documents

These organizational decisions should be made by the board of directors at the creation of the entity or as soon after.  While these issue may appear convoluted and expansive the steps towards operational efficiency, compliance and continued impact are available.

Solutions

Whether your organization is in the creation or fully developed stage of societal impact the core structure should be identical.  At the minimum, every organization should create and implement the following:

• Board of Director Meeting Minutes
• Internal Policies Covering the Organization’s Operational Guidelines and Authority
• Proper Execution of Form 990 to Ensure Compliance With and Maintenance of the Organization’s Exempt Purpose

Contact

For more information and assistance on strengthening and achieving your organization’s vision contact Gabriel McCoy, Esq., an attorney with The Keel Group, Ltd., with attorneys licensed to practice law in New York, New Jersey, Virginia and the District of Columbia.

The dot com bubble burst, housing bubble burst and the lingering financial crisis have inevitably led to a rise of social entrepreneurship as a way to make a positive difference in the marketplace and society rather than engaging in business purely for profit.  Various states have responded to this trend by adopting Benefit Corporation legislation to provide a solution to this perceived problem in the marketplace.

Benefit Corporation laws create a new class of corporations required to create a material positive impact on society and the environment and to meet higher standards of accountability and transparency.  Even though these laws are relatively new, there are approximately 471 Benefit Corporations nationwide earning $2.24 Billion in revenue representing over 60 industries.

Benefit Corporation statutes have been adopted in California, Hawaii, Maryland, New Jersey, Vermont and Virginia.  Similar legislation is also pending in Colorado, New York, North Carolina, Pennsylvania, and Michigan.  Although there are nuances to each state’s law, they all share the following commonalities:

- The governing documents of the Benefit Corporation must create a “general public benefit;”

- The governing documents of the Benefit Corporation may name specific public benefit purposes (e.g. 50% profits to charity, carbon neutral, 100% local sourcing of raw materials, beneficial product to customers in poverty);

- The creation of public benefit is in the best interests of the Benefit Corporation;

- Directors’ duties are to make decisions in the best interests of the public benefit set forth by the state code or the governing documents of the Benefit Corporation;

- Directors and Officers must consider the effects of decisions on ALL “stakeholders” which includes shareholders, employees, suppliers, customers, community, and the environment, but are not required to give priority to any particular stakeholder.

Benefit Corporations have also attracted a flurry of private investment.  Much like mutual funds focusing on companies that meet specific social or ethical guidelines are gaining traction, Benefit Corporations have been the target of investors who desire their investment a greater impact beyond the ordinary financial return.

A nonprofit organization, B Lab, has also developed a certification process for Benefit Corporations.  B Lab’s mission is to “use the power of business to solve social and environmental problems” by providing the B-Corp certification and promoting Benefit Corporation legislation.  The process varies depending on the state of organization, and the certification process does not affect the legal entity structure from a tax perspective, however, the certification process is more about how a company desires to be perceived in the market (by customers, investors, etc.).

Although many states have adopted this legislation, it is unclear how these laws will develop, or how a court would evaluate these new laws.  It is unclear how a court would review standard financial metrics as well as the company’s social impact.  Furthermore, Delaware and the other C-Corp friendly states have not yet adopted this legislation.  Because of Delaware’s well developed corporate law, it still ranks first in annual C-Corp formations.  Thus, until Delaware and other states evaluate Benefit Corporation legislation, companies must navigate the individual state standards and nuances to see what best fits their financial and social objectives.

Navigating this new market requires careful planning.  Recent Benefit Corporation legislation presents a new opportunity for businesses.  To learn more about becoming a certified B-Corp structure a Benefit Corporation to have greater impact in the marketplace and society, please consult with an attorney from The Keel Group.

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The standard definition of income is found in a United States Supreme Court case entitled Commissioner v. Glenshaw Glass Co. (1955).  The Court defined income as 1) accession to wealth; 2) that is clearly realized; and 3) over which the taxpayer has complete dominion and control.  A general misconception is that taxable income is only derived from traditional known sources such as wages and the sale of an appreciated asset.  However, the Internal Revenue Code §61(a)(12) specifically includes income from the discharge of indebtedness in gross income.  This would include the forgiveness of loans and other obligations by lenders and creditors.  Although there are several exceptions to this rule and numerous exclusions from gross income for certain types of forgiven debts, it is important to be aware of tax treatment the IRS will apply to particular types of forgiven debt.

Not all canceled debts trigger taxable income. And, even if there is no exception or exclusion in a particular case, the tax bite may be reduced or eliminated if you can show that the amount reported by the lender is incorrect.

Exceptions. If the cancellation of debt by a private lender, such as a relative or friend, is intended as a gift, there is no income. Likewise, a debt cancelled by a private lender’s Last Will and Testament triggers no income to the borrower.

There is also an exception for certain student loans. For example, doctors, nurses, and teachers who agree to serve in rural or low-income areas in exchange for cancellation of their student loans won’t have income from the cancellation if they meet certain conditions.

Exclusions. Also keep in mind that there is no income from cancellation of a debt that was deductible under various other tax provisions. For example, if a lender cancels home-mortgage interest that could have been claimed as an itemized deduction on Schedule A of Form 1040, there is no tax problem to contend with.

Price adjustment. There is no income if an individual purchases property and the seller later reduces the price. Instead, the purchaser’s basis—the yardstick for measuring gain or loss when the property is sold—is reduced by the amount of the purchase-price adjustment.

In addition to the above exceptions, there are exclusions from the general rule of reporting canceled debt as income for:

1. discharge of debt through bankruptcy,
2. discharge of debt of an insolvent taxpayer,
3. discharge of “qualified farm debt,”
4. discharge of “qualified real property business debt,” and
5. discharge of “qualified principal residence debt.”

These exclusions are complicated, and a detailed discussion of them is beyond the scope of this article. However, it is worth pointing out that the qualified principal residence debt exclusion applies where individuals restructure their acquisition debt on a principal residence, lose their principal residence in a foreclosure, or sell a principal residence in a short sale (where the sales proceeds are insufficient to pay off the mortgage and the lender cancels the balance). Also, the exclusions require certain tax attributes to be reduced and must be reported to the IRS on its Form 982.

Repurchased business debt. Income from certain business debt repurchased in 2009 or 2010 can be stretched out over several years. Although the debt discharge income will eventually be recognized, you benefit by deferring tax to later years.

Form 1099-C. A taxpayer should receive a Form 1099-C, Cancellation of Debt, from a financial institution, credit union, or federal government agency that forgives a debt of $600 or more. The amount of the canceled debt is shown in box 2. Any forgiven interest included in the amount of canceled debt in box 2 will also be shown in box 3. As noted above, if the interest would otherwise be deductible, it does not have to be included in income.

An individual who disagrees with the amount shown on Form 1099-C should contact the lender in writing and ask for a corrected Form 1099-C. Even if the lender refuses, you may still have recourse if you can document the correct amount of canceled debt.

If you had a debt forgiven last year, The Keel Group, Ltd. can determine how it may affect your taxes, make sure you gain maximum advantage from any exception or exclusion that may apply, and guide you through various choices that may be available in your situation. The Keel Group, Ltd. also may be able to help you to resolve any discrepancy over the amount reported by the lender.

Tax credits to certain small employers that provide insurance.

The new law provides small employers with a tax credit (i.e., a dollar-for-dollar reduction in tax) for nonelective contributions to purchase health insurance for their employees. The credit can offset an employer’s regular tax or its alternative minimum tax (AMT) liability.

Small business employers eligible for the credit. To qualify, a business must offer health insurance to its employees as part of their compensation and contribute at least half the total premium cost. The business must have no more than 25 full-time equivalent employees (“FTEs”), and the employees must have annual full-time equivalent wages that average no more than $50,000. However, the full amount of the credit is available only to an employer with 10 or fewer FTEs and whose employees have average annual full-time equivalent wages from the employer of less than $25,000.

Years the credit is available. The credit is initially available for any tax year beginning in 2010, 2011, 2012, or 2013. Qualifying health insurance for claiming the credit for this first phase of the credit is health insurance coverage purchased from an insurance company licensed under state law. For tax years beginning after 2013, the credit is only available to an eligible small employer that purchases health insurance coverage for its employees through a state exchange and is only available for two years. The maximum two-year coverage period does not take into account any tax years beginning in years before 2014. Thus, an eligible small employer could potentially qualify for this credit for six tax years, four years under the first phase and two years under the second phase.

Calculating the amount of the credit. For tax years beginning in 2010, 2011, 2012, or 2013, the credit is generally 35% (50% for tax years beginning after 2013) of the employer’s nonelective contributions toward the employees’ health insurance premiums. The credit phases out as firm-size and average wages increase.

Special rules. The employer is entitled to an ordinary and necessary business expense deduction equal to the amount of the employer contribution minus the dollar amount of the credit. For example, if an eligible small employer pays 100% of the cost of its employees’ health insurance coverage and the amount of the tax credit is 50% of that cost (i.e., in tax years beginning after 2013), the employer can claim a deduction for the other 50% of the premium cost.

Self-employed individuals, including partners and sole proprietors, two percent shareholders of an S corporation, and five percent owners of the employer are not treated as employees for purposes of this credit. There is also a special rule to prevent sole proprietorships from receiving the credit for the owner and their family members. Thus, no credit is available for any contribution to the purchase of health insurance for these individuals and the individual is not taken into account in determining the number of full-time equivalent employees or average full-time equivalent wages.

The new law also imposes penalties on certain businesses for not providing coverage to their employees (so-called “pay or play”). For businesses with at least 50 employees, the possible penalties vary depending on whether or not the employer offers health insurance to its employees. If it does not offer coverage and it has at least one full-time employee who receives a premium tax credit, the business will be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment. So, for example, an employer with 51 employees who doesn’t offer health insurance to his employees will be subject to a penalty of $42,000 ($2,000 multiplied by 21). Employers with at least 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay $3,000 for each employee receiving a premium credit (capped at the amount of the penalty that the employer would have been assessed for a failure to provide coverage, or $2,000 multiplied by the number of its full-time employees in excess of 30). These provisions take effect Jan. 1, 2014.

Penalty for employers that offer coverage but have at least one employee receiving a premium tax credit. An applicable large employer who offers coverage but has at least one full-time employee receiving a premium tax credit or cost-sharing reduction is subject to a penalty. The penalty is an excise tax that is imposed for each employee who receives a premium tax credit or cost-sharing reduction for health insurance purchased through a state exchange. For each full-time employee receiving a premium tax credit or cost-sharing subsidy through a state exchange for any month, the employer is required to pay an amount equal to one-twelfth of $3,000. The penalty for each employer for any month is capped at an amount equal to the number of fulltime employees during the month (regardless of how many employees are receiving a premium tax credit or cost-sharing reduction) in excess of 30, multiplied by one-twelfth of $2,000. For example, if an employer offers health coverage and has 60 full-time employees, 15 of whom receive a tax credit for the year for enrolling in a state exchange-offered plan, the employer will owe a penalty of $3,000 for each employee receiving a tax credit, for a total penalty of $45,000. The maximum penalty for this employer is capped at the amount of the penalty that it would have been assessed for a failure to provide coverage, or $60,000 ($2,000 multiplied by 30 (60 minus 30)). Since the calculated penalty of $45,000 is less than the maximum amount, the employer pays the $45,000 calculated penalty. This penalty is assessed on a monthly basis.

The “Cadillac tax” on high-cost health plans.

The new law also places an excise tax on high-cost employer-sponsored health coverage (often referred to as “Cadillac” health plans). This is a 40% excise tax on insurance companies, based on premiums that exceed certain amounts. The tax is not on employers themselves unless they are self-funded (this typically occurs at larger firms). However, it is expected that employers and workers will ultimately bear this tax in the form of higher premiums passed on by insurers.

Here are the specifics: The new tax, which applies for tax years beginning after Dec. 31, 2017, places a 40% nondeductible excise tax on insurance companies and plan administrators for any health coverage plan to the extent that the annual premium exceeds $10,200 for single coverage and $27,500 for family coverage. An additional threshold amount of $1,650 for single coverage and $3,450 for family coverage will apply for retired individuals age 55 and older and for plans that cover employees engaged in high risk professions. The tax will apply to self-insured plans and plans sold in the group market, but not to plans sold in the individual market (except for coverage eligible for the deduction for self-employed individuals). Stand-alone dental and vision plans will be disregarded in applying the tax. The dollar amount thresholds will be automatically increased if the inflation rate for group medical premiums between 2010 and 2018 is higher than projected. Employers with age and gender demographics that result in higher premiums could value the coverage provided to employees using the rates that would apply using a national risk pool. The excise tax will be levied at the insurer level. Employers will be required to aggregate the coverage subject to the limit and issue information returns for insurers indicating the amount subject to the excise tax. Recent healthcare legislation contains many other significant provisions that can affect your business, understanding how these changes will affect your business might provide significant tax savings. For more information about this legislation please consult with an attorney from The Keel Group, Ltd.

One-year extension of enhanced small business expensing. For tax years beginning in 2010, the maximum amount that a taxpayer may expense under Section 179 of the Internal Revenue Code is $250,000 (rather than $125,000), and the expensing election begins to phase out when a taxpayer places in service more than $800,000 (rather than $500,000) of Section 179 property. These increased dollar limits are the same as those in effect for 2008 and 2009.

Exemption and credit up-to-$1,000 for employers hiring unemployed workers. The HIRE Act provides two tax incentives for non-governmental employers and public higher education institutions to hire certain unemployed workers:

1. The employer is exempted from paying its 6.2% share of the Social Security payroll tax on those employees from March 19, 2010 (the day after the date of enactment), through the end of 2010. Any reduction in the employer’s payroll tax liability arising in the remainder of the first calendar quarter of 2010 (i.e., on or before March 31, 2010) must be claimed as a credit on the employer’s payroll filings for the second calendar quarter of 2010.
2. If the worker remains an employee for a continuous 52-week period, the employer is eligible to claim an additional non-refundable tax credit equal to the lesser of $1,000 or 6.2% of the wages the employer pays to the employee during the 52-week period. To qualify for the credit, the employee’s pay in the second 26-week period must be at least 80% of the pay in the first 26-week period.

Employers who hire unemployed workers after February 3, 2010 and before January 1, 2011 are eligible for the payroll tax exemption and the retention credit, but only wages paid after March 18, 2010 qualify for the payroll tax exemption. An employer is not eligible for the benefit if the new employee replaces another employee who performed the same job, unless the prior employee left the job voluntarily or for cause. The new employee must sign an affidavit stating that he or she has not been employed for more than 40 hours during the 60-day period ending on the date the employment begins. The new employee also cannot be a family member of the employer or a majority owner of the employer. Wages paid to qualifying employees are not eligible for the Work Opportunity Credit under Section 51 of the Internal Revenue Code unless the employer elects not to have the payroll tax and credit benefits of the HIRE Act apply.

Provisions Affecting Foreign Activities of U.S. Businesses:

The HIRE Act imposes a 30% tax, withheld at the source, on certain payments to foreign financial institutions and certain other foreign nonfinancial entities. The types of payments subject to this new tax are: (1) U.S.-source fixed or determinable annual or periodic (“FDAP”) income (e.g., interest, dividends, rents, and royalties); (2) gross proceeds from the sale of property that produces interest and dividend income; and (3) interest on deposits with a foreign branch of a U.S. commercial bank. Foreign financial institutions generally can avoid being subject to this withholding tax by entering into an agreement with the IRS that, among other provisions, generally would require the foreign financial institution to provide information about “U.S. accounts.” Subject to certain exceptions, an account constitutes a U.S. account if it is owned by a U.S. person or by a foreign entity in which a U.S. person owns, directly or indirectly, more than 10% of the interests. Other foreign nonfinancial entities generally can avoid being subject to this withholding tax by providing the withholding agent (generally, the person making the payment) with either (1) certification that no U.S. person owns, directly or indirectly, more than 10% of the interests in the entity or (2) the name, address, and taxpayer identification number of each U.S. person that owns, directly or indirectly, more than 10% of the
interests in the entity. The withholding tax regime does not apply to certain foreign nonfinancial entities, including publicly traded foreign corporations. The new withholding tax regime generally is effective starting in 2013.

New Reporting Obligation for Specified Foreign Financial Assets. The HIRE Act creates a new reporting obligation for individuals with respect to “specified foreign financial assets,” if the aggregate value of the assets exceeds $50,000. For this purpose, specified foreign financial assets are (1) depository or custodial accounts at foreign financial institutions and (2) to the extent not held in an account at a financial institution, (a) stocks or securities issued by foreign persons, (b) any other financial instrument or contract held for investment that is issued by or has a counterparty that is not a U.S. person, and (c) any interest in a foreign entity. A taxpayer satisfies this obligation by including a disclosure statement with the taxpayer’s income tax return. Penalties generally apply for failure to make the required disclosure, unless the failure was due to reasonable cause and not willful neglect. It appears that this new requirement is in addition to, and not in lieu of, the otherwise applicable foreign bank account reporting (“FBAR”) obligation. The new obligation applies starting in 2011. The HIRE Act also provides that the applicable statute of limitations for the assessment of tax will not expire before three years after the necessary disclosure
statement is filed.

Increased Penalty and Limitations Period for Understatement of Income Related to Undisclosed Foreign Financial Assets. The HIRE Act increases the general 20% penalty for certain understatements of income to 40% if the understatement of income is attributable to an undisclosed foreign financial asset, as defined by the HIRE Act. In addition, subject to certain limitations, the HIRE Act extends the general three-year statute of limitations for an income tax assessment to six years with respect to assessments for understatements of income attributable to foreign financial assets. The new penalty applies to tax years beginning after March 18, 2010 and the extended limitations period applies to returns filed after March 18, 2010. IRS Authorized to Require Electronic Filing by Financial Institutions. The HIRE Act allows the IRS to issue regulations requiring financial institutions to electronically file tax returns for taxes withheld by the institution with respect to payments to non-U.S. persons. Such payments would include the new withholding requirement described above related to foreign financial institutions and certain other foreign nonfinancial entities. This authorization is effective for tax returns due, without regard to extensions, after March 18, 2010.

Provisions Affecting U.S. Activities of Foreign Businesses:

Repeal of Benefits to Unregistered Bonds That Satisfy a Foreign Targeted Test. The HIRE Act repeals certain benefits available for foreign-targeted unregistered bonds. Generally, a bond is foreign-targeted if (1) there are arrangements reasonably designed to ensure that the obligation will be sold (or resold in connection with the original issue) only to non-U.S. persons; (2) interest is payable only outside the U.S. and its possessions; and (3) the face of the obligation contains a statement that any U.S. person who holds this obligation will be subject to limitations under the U.S. income tax laws. The disallowed benefits include:

• Qualification for the portfolio interest exception which, subject to certain limitations, generally exempts a non-U.S. person from federal income tax on U.S.-source interest.
• The exception to the general rule disallowing the tax exemption for interest on state or local bonds that otherwise must be registered.
• The exception to the general rule disallowing an interest deduction for the issuer of a bond that otherwise must be registered.

The repeal of these benefits applies to bonds issued after March 18, 2012.

The HIRE Act contains many other significant provisions that can affect your business activities locally or internationally. For more information about how the HIRE Act may affect you or your business, please consult with an attorney from The Keel Group, Ltd.

The following guidelines for proper trademark use apply equally to business documents; correspondence; advertisements; promotional material; displays; packaging; product labels; signs; dictionaries; Web pages, and other media, containing, discussing, or describing, marks.

Give Notice of Your Trademark Rights

Providing public notice of trademark rights is important, for registered and unregistered marks alike. The failure to display proper notice of registration, or notice of unregistered trademark rights, is a common mistake, yet the easiest to correct and avoid. The appropriate form of notice to employ, depends on whether the mark is registered with the United States Patent & Trademark Office (“PTO”).

Notice of Registered Trademark Rights

There are three ways to give notice that a mark is registered with the PTO:

1. Use the symbol, “®”
2. Use the legend, “Registered, U.S. Patent and Trademark Office,” or
3. Use the abbreviation, “Reg. U.S. Pat. & Tm. Off.”

Failure to employ one of these notices, each time a federally registered mark is used, may hinder the prosecution of a trademark infringement action, by allowing the wrongdoer to claim “innocent infringement” as a defense. If proper notice is not employed, and displayed prominently, the infringer may claim ignorance of trademark rights, and damages available to the trademark owner may be reduced. In other countries, permissible notice forms differ from those used in the above-examples. Consult qualified trademark counsel for the form appropriate to your target country, before preparing labels, advertisements, packaging, or displays with trademark information.

Notice of Unregistered Trademark Rights

The registered symbol, “®,” the legend “Registered, U.S. Patent and Trademark Office,” and the abbreviation, “Reg. U.S. Pat. & Tm. Off.,” should be used only on, and in connection with, marks registered with the PTO. The use of these notices on unregistered marks is a crime, punishable by fines and/or imprisonment. However, in the United States, registration, both federal or state, is not required to obtain rights in a trademark. An unregistered mark may still receive common law trademark rights. Those rights, for example, may extend to its area of influence—usually delineated by geography. As such, multiple parties may simultaneously use a mark throughout the country or even state. An unregistered mark is also be protected under the federal “Lanham Act” (15 USC § 1125) which prohibits the commercial misrepresentation of source or origins of goods. Technically, providing notice of rights in unregistered marks is optional, but the prevailing wisdom is that such notice should be employed. Such notice is consistent with the rationale underlying proper trademark use, and enhances a mark’s source-identifying function. Notice of rights in an unregistered mark, consists of one of the following notations, usually appearing above, and to the right of, the mark in which rights are asserted:

• (TM) for an unregistered trademark; and,
• (SM) or (TM) for an unregistered service mark.

Use Your Mark As An Adjective

Marks are adjectives, and should be used only as such. Marks never should be used as nouns or verbs. Nor should marks be pluralized, or used in the possessive form. Nonadjectival uses of marks, over time, can result in genericness, or a finding of unintentional abandonment — even when such use emanates from the public, rather than a trademark owner. For this reason, the owners of marks such as Coke®, Kleenex®, Xerox®, and FedEx®, expend considerable efforts to educate the public concerning the proper use of marks. One way to ensure that a mark is used in proper adjectival context, is to follow each use with the generic noun for the product identified. For example, generic terms for the trademarked products and services mentioned in the preceeding paragraph, are “soft drink,” “facial tissue,” “photocopier,” and “overnight courier service.” Using these terms after the marks, makes them adjectives, rather than nouns. Using the word, “brand,” after a mark, and before the generic product name, further guards against non-adjectival use.

Use Your Mark Distinctively

Marks should be used in ways that distinguish them from surrounding text. The use of trademark notices, generic terms, and “brand,” in connection with marks, helps differentiate marks from generic terms. However, marks also should be CAPITALIZED, underlined, italicized, placed in “quotation marks,” or depicted in boldface type, whenever they appear in printed or electronic media. The goal is not just to avoid genericness and abandonment, but to create a distinct commercial impression in the minds of consumers regarding a mark, and the products, services, and business it represents. Combining a logo with a word mark, can enhance, or create, a distinctive commercial impression, and sometimes can distinguish two similar word marks from one another. In some cases, where a relatively descriptive word mark is selected, registration may be obtained by joining a distinctive logo with the common or partially-descriptive term. Such registrations generally do not cover the descriptive portion of the mark, but protect the logo, and the mark viewed as a whole. The strongest marks are those that are distinctive, and those trademark owners use distinctively.

Affix Your Mark to Goods and Services

Not all product nicknames, business slogans, and broadcast advertising phrases are trademarks and service marks. In order for trademark rights to be created and maintained, a mark must be affixed to a specific product, or used in the provision of a particular service. Marks cannot discharge their source-identifying duties, if they cannot be seen on products, or with services. Trademarks are “affixed” by applying them directly to a product, to containers in which the product is packaged, or to tags or labels attached to the product. Service marks are “affixed” by using them in signs and other advertisements offering the services, and on letterhead and invoices through which the services are provided. As a general rule, a mark is not a mark until it has been affixed!

License With Care

Trademark law frowns upon “naked licensing.” Fortunately for trademark owners, “naked licensing” is not as fun as it sounds. “Naked licensing” occurs when third-parties are allowed to use a trademark without restriction; when the quality of goods or services provided under a mark by third-parties is not controlled, or when rights in a mark are assigned, in whole or part, without the goodwill of the business symbolized by the mark. Naked licensing severs a mark from its source-identifying function, and thus results in the loss of trademark rights through abandonment. Authorized third-party uses of a mark should be licensed, and all licensing agreements should be written carefully, signed, and enforced. The agreement must set standards concerning the licensee’s use of the mark, and the quality of products or services with which the mark will be used.