Fairway Files for Bankruptcy

ATTENTION FAIRWRAY SHOPPERS: THIS STORE IS FILING FOR BANKRUPTCY

No, you won’t be hearing this announcement while walking down the aisles of your local Fairway. However, if you were in Federal Bankruptcy Court, you could be hearing Fairway being called as the next case on the calendar. Fairway, an iconic NY supermarket filed bankruptcy again on January 23, 2019. This was not the first time that the store has been though the Chapter 11 process. The company previously filed in 2016. Attention Fairway shoppers, this time it may lead to liquidation or a sale of the business and a shutdown of its
operation.

Chapter 11 Bankruptcy is when a company attempts to reorganizes through restructuring their affairs: such as negotiation with their creditors for better terms on their debt, or in this case with Fairway, by closing off their locations and rejecting leases with their landlords. There are many options available to the Chapter 11 Debtor that outside of Bankruptcy are simply not an option.

It is possible that Fairway may sell the name or individuals stores to another investor or grocery store chain which may keep the Fairway name or chose to change the name of the store’s locations. It is also entirely possible that the stores will close for good.

FAIRWAY’S PRIOR BANKRUPTCIES

Fairway Market began as a small corner store on the Upper West Side of Manhattan in the early 1930’s and then rapidly expanded within NYC with approximately 15 locations throughout Harlem, Chelsea, Kips Bay, and far into the suburbs. Fairway’s downturn started in 2007 when the Glickberg family sold an 80% stake to private equity firm Sterling Investment for $140 million. Fairway quickly fell victim to Sterling’s aggressive expansion plan aimed at enticing suburban shoppers. This also burdened the company with a crushing $300 million in debt. Fairway first filed Bankruptcy in 2016. Some of the reasons contributed to their overexpansion and overhang of too much debt to service.

THE GM BANKRUPTCY AS A LEADING EXAMPLE OF OPERATING UNDER
CHAPTER 11

Back in 2008 when the “Great Recession” hit the General Motor Company filed for bankruptcy. GM had many unprofitable factories in North America. Several of these were closed, which they were legally entitled to close and break leases which they would be unable to do outside of bankruptcy. Certain unprofitable car lines were discontinued, which would have been a more difficult step outside of bankruptcy.

Since the 2008 Bankruptcy filing, General Motors is back and profitable. The company and thousands of jobs were saved through its restructuring process. The system worked as intended. Fairway is a long-standing supermarket franchise in the New York City and suburban market. The Chapter 11 Process will allow your local Fairway to become another grocery store; depending on who ultimately purchases these locations. For now, they will continue to operate as grocery stores. While the proceeding is going on, it is also possible that some stores may close.

FAIRWAY’S DEBT PROBLEM

If Fairway’s financial situation sounds familiar, sadly, it is. In many cases, businesses overextend and take on too much debt which their cash flow cannot support . These circumstances force them to face default or file for Chapter 11 bankruptcy. This also happens to individuals who use credit cards or bank loans to overextend themselves. They are left with monthly payment, which given their currently cash flow and expenses to live in NYC, they are unable to maintain. This burden causes great personal stress, anxiety and general unpleasantness.

My practice has for over 20 years advised, helped restructure businesses and individuals in filing for Bankruptcy whether it be chapter 7 or 13 for individuals or Chapter 11 for businesses. If you are a business or individual that are experiencing such problems, please feel free to contact our office at (212)387-7880, or by emailing at Daniel@dmsilverlaw.com.

Source:

Noah Manskar and Lisa Fickenscher, L. Fairway Bags Sale: Legendary Grocer Unsure Name
Will Live On, New York Post, January 24, 2020. @ pg 31.


IRS’ SUPPORTING ROLE IN FORD V. FERRARI

Race Car Designer Carrol Shelby Background

Car racing fans will enjoy the new movie, Ford v. Ferrari starring Matt Damon as legendary car designer Carroll Shelby. The movie retells the story of the Ford Motor Company in the 1960s as it struggled to increase sales during a downturn. A young junior Ford executive Lee Iacocoa, who went out to become a legendary Chrysler executive, comes up with the idea of selling faster, sexier cars to coming of age baby boomer drivers . This in turn leads to a business and racecar rivalry with Ferrari. Legendary designer Shelby, who was the winner Driver of the European race is brought into Ford to lead the project to develop a car to beat Ferrari at the 24-hours of Le Mans.

Shelby, played by Matt Damon, having decided to take Ford’s offer, needs to form his car design and testing team.

ENGLISH RACE CAR DRIVER KEN MILES GETS PULLED OVER BY THE IRS

While Damon has landed a great deal with Ford, professional car driver and designer Ken Miles (Christian Bale) is struggling. Miles had been running a small business in Southern California fixing and modifying cars. He’s in his mid-forties, married with a young son to support. Although Miles is a worldclass driver and top-notch auto technician, his automotive shop is struggling financially. Then in a scary moment, two men in suits come from the IRS to the family home. He’s behind, apparently on his business –payroll taxes— Miles and his wife Mollie try to sort out their budget. A decision is made to close the shop and for Miles to get a job working for a private employer.

These plans ultimately are intersected by his friendship with Shelby, who reaches out to Miles to join the team and pay him ($200 per day, which was a lot of money back in the 1960’s) to develop the Ford GT-40. The rest is history, as they say. Ford defeats Ferrari at Le Mans and established a series of victories in that race that have yet to be matched by modern American racing teams. Ken Miles went on to be one of racing greatest drivers of his era.
(See https//www.roadandtrack.com/motorsports/a29790086/ken-miles-biography-ford-le-mans )

THE IRS TODAY

The scene in the movie of the IRS agents coming to the taxpayer’s home is still a scene that continues to unfold across America. Usually when this happens, things have gone bad. The business is behind on the payroll taxes. Not a quarter or two that will be fixed by filing and paying the tax due and the accompanying penalties. This is a situation where payroll is owed in tens of thousands of dollars and the monthly deposits are not being made. The taxpayer, hopes against hope that things will change. This leads to inaction and finally the business is forced to confront this problem by the IRS Agent. Things can go from bad to worse, when a frightened small business owner agrees to a plan with the IRS agent, without considering the businesses’ ability to carry out the required payments. This then leads to further problems.

Ken Miles happened to have a very good and successful friend in Carroll Shelby that helped him go on to great success. Not everyone is so lucky. For many, the small business that they have started or inherited from their parents is often the only business they have known. Oftentimes, businesses need to make changes to their practices to compete in the ever-changing technological and computer dominated world. They are often confronted with difficult tax and financial decisions. These are situations where the advice and guidance of a seasoned tax professional can make a world of difference in the outcome. Tax professionals guides the taxpayer offering options and information that would not be offered by the IRS Agent.

My practice has for over 20 years advised, helped small businesses in their tax problems in industries ranging from: restaurants, clothing manufacturers, cleaning , construction, electrical, wall covering, public relations, and many more.

If you have had a visit from the IRS as in Ford v. Ferrari, or are fearing one, please give my office a call to discuss your options.

Daniel M. Silvershein
Attorney at Law
262 West 38th Street, Suite 107
New York, NY 10018
212-387-7880
Daniel@dmsilverlaw.com


If Only Amazon Prime Delivered Tax Returns

The IRS wants taxpayers to be responsible, diligent, and punctual. Similarly, Amazon has grown as a company by building up its reputation with reliable delivery times. Many taxpayers could learn from Amazon when it comes to fulfilling tax responsibilities in a timely manner.  If you owe money to the IRS, only you are responsible for making sure they receive timely payment.

Be Careful When Sending  Returns/Extensions with Payment to the IRS:

If you think it’s hot in Texas, wait until the IRS comes along. In a recent case, a Texas man learned this the hard way. He slipped a check for $46,073 owed to the IRS “under the mat at the front door” of his former wife’s residence, with the understanding that she would file an extension along with the check, The pair had continued to file their tax returns jointly since their separation in 2007. The IRS neither received the check nor the extension because the wife never sent it out. As a result, the IRS issued a notice of deficiency and tacked on penalties for the couple’s failure to file and pay.  James Plato, TC Memo 2018-7 (Tax Ct.); In re “Penalties – Estranged Husband Didn’t Exercise Reasonable Care in Filing Joint Return” Thompson Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-03/Page 3.

The taxpayer decided to go to Tax Court to challenge the penalties that the IRS had issued against him. The Texas man argued that his failure to meet the deadlines was NOT willful, citing his history of tax compliance and efforts to pay the amount owed. The Tax Court disagreed and ruled against the taxpayer because he failed to “do everything possible to see that (the) return was filed.”

In re “Penalties – Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-03/Page 3; Plato, 2018-7 (Tax Ct.).

Act Early to Avoid Additional Tax Liability:

The IRS Tax Code imposes a hefty minimum 0.5% penalty per month for taxpayers that fail to pay their tax liability in a timely manner, I.R.C. 6651(a)(1)/(2). This penalty could increase to 25% if the liability is not paid within 4 months of the deadline. Taxpayers are best advised to not rely on others to fulfill their tax obligations, especially estranged spouses.

If you have neglected your tax liability by failing to pay amounts owed or failing to file your return, address these problems before the IRS decides to enforce the amounts owed. My law firm has specialized in helping clients successfully challenge tax liability owed to the IRS for over twenty years. For many taxpayers, penalties and interest accrued can successfully be challenged against the government. If you have unfiled returns or owe money to the IRS, schedule a free thirty-minute consultation at my office to resolve your tax problems. Call us at (212) 387-7880 or email us at daniel@dmsilverlaw.com.


Real Estate Flipper gets Flipped by the IRS

The Tax Code has long incentivized taxpayers to start or invest in a trade or business by giving various tax incentives in the form of special deductions, credits, and exemptions. However, such special treatment of business income and loss is subject to restrictions that business owners and investors must be wary of to avoid scrutiny from the IRS.

The Hobby-loss Rules:

Many Americans enjoy hobbies that are also a source of income for them. These can include a wide array of activities such as creating art, baking cupcakes, or training horses. The distinction between hobby income and business income is an important one because the IRS only allows losses for a limited amount of years. Consistent losses over several years may result in your business to be treated as a hobby by the IRS. Since hobbies are usually done for enjoyment more so than for profit, the IRS employs a test that focuses on profitability. If you have turned a profit in the last three out of five years, you will be considered to have business income. If you have been unprofitable for three or more years out of the last five, you will be considered to have hobby income IRC § 183(e)(2).

Flipped Real Estate Flipper:

In a recent 2018 Tax Court case, Homayoun Samadi, TC Summ. Op. 2018-27 (Tax Ct.), the IRS relied on the hobby-loss rules when it refused to allow a taxpayer’s business losses because he had collected no income for several years. The case involved a taxpayer that was a licensed real estate agent in California who was in the “business” of flipping houses together with his friends and family. The group intended to buy homes, renovate them, and sell for a profit. Over the course of several years the taxpayer would drive the members of his group about 192 miles a week between different cities in California to “scout” potential investment properties. They had never actually invested in a property. The taxpayer deducted on his federal tax returns the costs he incurred for travel and other expenses, and the IRS challenged these deductions in Tax Court. The taxpayer lost the case because it was found that he did not own a trade or business, and the Court demanded the reversal of the business deductions which totaled over $35,000.

In re “House Flipping activity wasn’t a trade or business,” Thompson Reuters Tax & Accounting, Practitioner’s Tax Action Bulletins No. 2018-11/Page 2; Homayoun Samadi, TC Summ. Op. 2018-27 (Tax Ct.).

How to Protect your business:

This case is a cautionary tale for taxpayers that wish to take advantage of the IRS’ generous treatment of U.S. business activity. The Hamayoun case makes clear that business owners are not always afforded the luxury of deducting losses for extended periods of time. If your business has not been profitable for several years, or if you are unsure about the tax consequences of your business operations, it is critical that you re-evaluate your business model with a tax professional to ensure that the IRS will not invite you to Court. In addition to offering such tax planning services, my law firm has also successfully defended business owners that have already attracted unwanted attention from the IRS.

If you have any questions or wish to learn about how to protect your business, call The Law Offices of Daniel M. Silvershein at 1(212) 387-7880, or email me at daniel@dmsilverlaw.com. We offer a free-of-charge thirty-minute consultation to help clients better understand how they can shield their business from the IRS.


Happy Hour is Over for TGI Friday’s Business Manager

Lerma Aquino, the business manager of TGI Friday’s on Guam, was indicted for allegedly under-reporting employee’s tips and service charges and cheating the IRS of money owed to them.   It’s alleged that Aquino avoided paying hundreds of thousands of dollars in employment taxes.

Some of the examples in the indictment include:  In the fourth quarter of 2010, Aquino reported that her employees received approximately $30,800 in tips when they actually received over $167,000 in tips and service charges.  For the first quarter of 2011, the amount of reported tips received was $33,600 instead of the actual amount of $216,600.  And again in the second quarter of 2011, the correct amount of tips was $157,000 but reported as only $34,300.  In total, the underreporting caused a loss to the United States over $225,000.

Aquino allegedly directed her employees to report a flat $1-$2 an hour as tip income instead of the actual amount early.  She also either modified or refused to accept truthful tip reports.


Got Fired for Misconduct and Performance Issues? No Problem! The IRS Will Rehire You!

In February, 2016, Internal Revenue Commissioner John Koskinen spoke to the Senate Finance Committee and assured lawmakers that the problem of rehiring employees behind on their taxes, had past conduct or performance problems would be addressed.

But despite these promises, auditors found that the IRS rehired 200 former employees that were terminated for issues ranging from falsifying employment forms, unauthorized use of taxpayer accounts, misuse of email or property, workplace disruption, and violations of the Internal Revenue Code. Four of the rehired employees cheated on their own taxes and another four were found to have improperly accessing taxpayer records. In addition, one employee had several misdemeanors for theft and a felony for possession of a forgery device.

The Treasury Inspector General for Tax Administration has recommended to the IRS Human Capital Officer to increase the amount of hiring officials and give them increased access to job candidates’ past performance records and require that the basis for rehiring them be clearly documented.


Fraudulent Tax Return Scheme Involves Hiring Postal Carriers

Anthony Gosha, aka Boo Boo, of Phoenix City, Alabama, was arrested by federal agents in July 2017 on charges of filing fraudulent tax returns, conspiring to commit mail fraud, wire fraud and aggravated identity theft.

The indictment alleges that Gosha stole over 7,000 ID’s and used those to file phony tax returns with refunds totaling over $19 million.

Some of the ID’s were stolen from an Alabama state agency, and Gosha also used Electronic Filing Identification Numbers in the name of a fake tax prep business in which they used to file the returns.

On those returns, they instructed the IRS to either issue prepaid debit cards or U.S. Treasury checks.  Gosha recruited several postal carriers to provide addresses on their mail routes to which the refund checks could be sent.  The checks were then cashed at various check cashing businesses in Alabama and Georgia.

If convicted on all charges, Gosha faces up to a maximum of 30 years in prison plus a minimum of 2 years for each count of identity theft, supervised release, restitution, forfeiture and monetary penalties.


The IRS Smells Something Fishy with Alaskan Couple

Commercial fisherman from Alaska, Archie and Roseann Demmert were charged in federal court with four counts of willful failure to pay individual income tax. Information obtained by the court shows a long history of not paying their taxes, going back over 13 years, in which they owed the IRS over $400,000, not including penalties and interest.

The arraignment has not been scheduled yet, but the couple faces a maximum sentence of one year in prison on each count, as well as supervised release, restitution and


Rapper DMX’s Income Tax Payments are MIA

DMX, the recording star and actor, whose real name is Earl Simmons, surrendered to federal authorities after being charged with 14 counts of tax-related criminal charges totaling $1.7 million in tax liabilities.

It’s alleged that Simmons avoided using his personal bank accounts, and instead used the accounts of other individuals, including his business manager and lived mostly on cash. According to the indictment, Simmons earnings from 2002 through 2005 went unpaid. Authorities say he listed his income in 2011 and 2012 as “unknown”, when he actually made $353,000 in 2011 and
$542,000 in 2012. On his 2013 tax return, he reported earning $10,000 of income when in reality he earned $250,000 that year. In total for the years 2010 to 2015 Simmons earned over $2.3 million.

Simmons appeared on the TV show “Celebrity Couples Therapy” and was paid $125,000, but refused the first installment check as taxes were withheld. He went to the producer of the show and demanded a new check for the full amount, which he got.

If convicted on all counts, Simmons could face a maximum of 44 years in prison, plus monetary penalties and restitution to the IRS.

 


Owner of Pegasus Home Corporation Gets His Wings Clipped by the IRS

David J. Simard, of Maryland, pled guilty in the U.S. District Court of one count of obstructing the lawful functions of the Internal Revenue Service and four counts of failing to file personal and corporate income tax returns.

Simard, a real estate flipper, received a notice from the IRS that he needed to supply documents in connection with an audit of his personal tax returns. In less than one month after receiving this notice, Simard formed the Pegasus Home Corporation and started buying and selling houses in the name of the corporation instead of his own. Simard claimed that the ownership and control of Pegasus was his relative and had this relative apply for an employer identification number for Pegasus. Simard also had this relative open a bank account in the name of the Pegasus Corporation. Despite earning income, Simard did not file personal or corporate tax returns for 2009 and 2010.

Simard will be sentenced on October 12 th and faces a maximum of three years in prison for obstructing the IRS and one year in prison for each count of failure to file tax return, as well as restitution and monetary penalties.