IRA Protection From Creditors

By Denise Lewis

In the past, Individual Retirement Accounts (IRAs) were not provided bankruptcy protection and thus those who filed for bankruptcy found that their IRAs could be subject to seizure by creditors and found themselves vulnerable to years of litigation. Now that is no longer the case. A recent Supreme Court decision has provided protection for IRAs in addition to the protection that was afforded under bankruptcy law for 401(k) plans, other pension plans in general, and for Social Security and certain other accounts. Subsequent to the Supreme Court's decision, there has been new legislative law that shields most IRAs from creditors. Such is included in The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, which was enacted on April 20, 2005.

IRAs enable individuals to save for retirement and provide a source of income later on in life. Money deposited into a traditional IRA is generally deductible and is not taxed until it is withdrawn, but, with some exceptions, funds taken before the age of 59 ½ will be subject to a 10 percent penalty for federal purposes. However, distributions do not have to be taken until reaching the age of 70 ½. If funds are not taken after that age, then penalties will be assessed. On the other hand, money deposited into a Roth IRA is not deductible. Therefore, when the funds are withdrawn they are not subject to federal income taxes or penalties if certain criteria have been met.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 provides that IRAs, including Roth IRAs, are to be exempt from creditors for up to $1 million, or more "if the interests of justice so require". In addition, exempt amounts include rollovers into IRAs that came from qualified retirement plans or annuity contracts. The earnings attributable to the rollover amounts also are exempt.

With some exceptions, amendments to the bankruptcy code become effective 180 days after the date of enactment and only those cases commenced on or after the effective date will be provided protection. Certainly, for further information on one's rights and obligations under bankruptcy law, you should contact an attorney who specializes in this area of practice.

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Market Watch

By Robert Jorgensen, CIMA, of Legacy Advisors, LLC

Domestic Equity Forecast for the Balance of 2005 As most of you who have been reading these forecasts from our firm know, we have been accurate all year long about being negative on the markets. In this current environment, it is very difficult to determine the overall direction of the markets. With exogenous events like the recent bombing in London, interest rate moves pushing rates higher by the Fed, and crude oil prices hovering at all time record highs, an investor might think that getting out of the stock market would be the best move for the balance of the year.

On the bullish side we have reasonably good employment numbers, low long term interest rates (almost an "inverted yield curve"), decent retail sales, continued strong housing market, and an improved U.S. dollar. So where do we go from here?

As we have said for the past two years we believe that the U.S. stock market is in what we would call a 10-12 year "Secular Bear Market," which began in January of 2000. What this means is that any market rallies will generally be very short term and will be followed by longer periods of stock market declines. We currently feel that the current move up in the stock market will subside before the summer ends and we will see a fairly significant move to the downside for the balance of the year. We are telling our investors that we believe the U.S. dollar which is up 10% on the year, may be poised for a downturn the second half of the year. If that happens as we anticipate, the best investment may be cash and gold or gold stocks for the balance of 2005.

Current Market: The Federal Reserve has just finished another interest rate move to the upside setting the short term fed funds rate at 3.25%. One year ago they were at 1.30%. The interest rate uncertainty and the move in the price of crude oil which is up 30% this year have had a very negative effect on the market the first half of 2005. The Dow Jones Industrial Average is down 4.7% YTD and the NASDAQ is down 5.4%. The question is where we are going from here.

If you have questions for Robert or would like a complete copy of his newsletter and investment kit, he can be reached at (775) 324-7606 or rjorgensen@legacynv.com

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Debt vs. Equity - The Tax Court Weighs In

By Brett Vegeto

A recent tax court decision serves as a reminder that the utmost care must be taken when drafting and documenting transfers between a family owned corporation and its shareholders. In the case of Indmar Products Co., Inc. v. the Commissioner of Internal Revenue, the related parties failed to properly document transfers classified as debt while claiming interest deductions related to their repayments.

The shareholders of the corporation intended to characterize transfers as loans instead of as equity in order to avoid an increased estate tax burden, thus maximizing what would be received by the heirs. The transfers were undocumented and unsecured but the corporation agreed to pay interest at a rate of 10 percent, which was well above the prime rates at the time. No schedule was constructed mapping payments, and the repayments were made randomly according to the financial needs of the shareholders.

When dealing with related party transfers the courts pay particular attention to transfers characterized as loans. In most cases the benchmark used is whether or not the subject transaction resembles an arm's-length transaction. If there is a strong resemblance, then most likely the transaction will be considered debt. In categorizing a transfer as debt or equity, the courts also inquire if an unconditional obligation to repay the amount is established.

The Court ruled that the transfers in the Indmar Products case were not arm's-length transactions and that they were in fact equity transfers using the 11-factor test established in the 1986 Roth Steel Tube Co. v. Commissioner decision. Among the areas not met were the corporation's failure to establish a sinking fund, no fixed maturity date or obligation to repay the debt within a reasonable time, nothing securing the debt, and repayment being contingent upon the profits of the corporation.

Thus, the Court concluded that the transfers made were equity. The corporation "failed to present any credible evidence that it acted in good faith or that there was reasonable cause for claiming the interest expense deductions". Accordingly, the corporation was not entitled to the interest expense deductions and in addition, substantial penalties were assessed.

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Client Profile: The Academy for Career Education

By Ed Adkins

Talking to Forrest (Frosty) Gorden, Principal of Reno's Academy for Career Education, about what goes on there, it's hard not to share his enthusiasm. Gorden's excitement comes from knowing that the academy, or ACE High, is making a difference in our community.

ACE High, a Reno charter school which began in 2002, is a comprehensive high school for 10th through 12th grade, focusing on academics through the application of construction industry skills.

Gorden was approached in 2002 by the Association of General Contractors and asked to draft plans for a unique high school, in response to a need in the construction industry. "The association had a need for skilled workers," says Gorden, "we thought this school would not only help the industry, but a lot of students as well." Gorden, along with Leigh Berdrow, Ed Horan and Mark Sullivan worked to make the school a reality.

In terms of academics, ACE High is a typical high school. "We meet the same standards as any school in the district and an ACE diploma is the same as well," says Gorden, "Where we are different though, is that our classes are hands on."

"It's one thing to learn how to calculate the surface area of a roof. It's another to be standing on it." Gorden says that some students who respond to applied learning may feel more comfortable at ACE than in a traditional learning environment.

Each year, the students of ACE High build a single family home in the Reno area. Work begins in the fall with a bare lot and culminates in the spring with handing the keys to the new home owner. All of the work is done by students, and great care and attention to detail are given to the entire project. Since they began, ACE students have built three homes.

Gorden says that he's been very happy with the support that the industry has given ACE high school, with over 45 job offers extended to the 25 graduates this spring. BV&Co. is proud to work with ACE and to see all that it's doing for our community.

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Your Credit Report Is Now Available Free of Charge

A recent amendment to the federal Fair Credit Reporting Act requires each of the nationwide consumer reporting companies to provide you with a free copy of your credit report once every 12 months upon your request. Your credit report contains information on where you live, how you pay your bills, and whether you’ve been sued, arrested, or have filed for bankruptcy. Accessing and reviewing your credit report at least once a year can be an important part of managing your finances.

When you review your credit report you can spot errors and get them corrected before you are denied credit. Not only lenders, but employers, insurance companies and landlords routinely use credit reports to try and predict character and dependability. An error on your credit report could disqualify you or cause you to pay higher rates without your ever knowing it.

Checking your credit report can also help you guard against identity theft. For example, entries for suspicious credit card activity, inquiries from unknown lenders or insurance companies, debts you don’t recognize, collection activity, former addresses or employers you never had, or just about anything out of the ordinary that you don’t fully recognize could be a tip that fraud is occurring. You can learn more about identity theft at the Federal Trade Commission website at www.ftc.gov. The information available covers prevention, detection, and what to do if you become the victim of an identity thief.

To order your free credit report (and have it available to view on the web immediately) go to www.annualcreditreport.com. Your report is also available by calling toll-free 877-322-8228, or by mailing a request form to: Annual Credit Report Request Service, P.O. Box 105283, Atlanta, GA 30348-5283. Phone and mail requests are processed and mailed out within 15 days of receipt. Below is a diagram showing when the Act will go into effect for each region of the US.

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Five Tips For Managing Your Credit Score

1. Stay Informed: Your credit score is recorded by three major credit reporting agencies: Equifax, Experian and Trans Union. Learn what your current credit score is for each agency and correct any erroneous information that might appear on your credit report. Continue to check your credit report regularly.

2. Make all of your payments on time: If you fall behind on paying a bill because of illness, unemployment, or family issues, write a short explanation to the credit reporting agencies. They will add it to your credit report. Also, call your creditor to explain the circumstances and, if possible, work out a payment schedule you can meet. If forced to miss a payment, be sure to pay the following month. Accounts more than 60 days past due will be indicated on your credit report.

3. Don't Open Unnecessary Credit: To minimize the number of inquiries on your credit report, don't apply for multiple credit cards over a short period of time, or for a card you're not likely to get. Apply for new credit accounts only as needed. Also, canceling credit cards negatively impacts your credit score.

4. Manage Your Balances: Try to keep your total account balances as low as possible. High outstanding debt may negatively affect your score, as you have a greater chance of missing payments.

5. Consider Getting Help: If your credit is severely damaged, or you have a very short credit history, there are still ways to improve your credit over time. Consider opening new accounts responsibly and paying them off on time. If you need help managing your credit, contact a reliable nonprofit agency, such as the Consumer Credit Counseling Service (CCCS) at www.cccsinc.org. For more information on the web, visit the Federal Trade Commission at www.ftc.gov.

Credit Scoring http://www.ftc.gov/bcp/conline/pubs/credit/scoring.htm

How To Dispute Items On Your Credit Report http://www.ftc.gov/bcp/conline/pubs/credit/crdtdis.htm

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Employee Profile: Elaine Polli

You'd have a hard time finding someone nicer than Elaine Polli. If you followed her around the office all day, you'd probably be amazed by her kind words and genuine interest in her co-workers. But try and get her to talk about herself and she'd rather go back to her desk. If you are lucky enough to get her to talk about her life, you're in for a treat. Elaine's story is one of adventure and opportunity.

What stands out in her story is how her family ended up in Reno. Elaine grew up in New York State, married her husband Bob and moved with him to Massachusetts where he was attending Babson College. After college, when Bob wanted to pursue a career as a casino card dealer, they decided to move.

The excitement started when they arrived in Reno with what Elaine describes as "just the clothes on our backs." They had no jobs, no house, no car and hadn't yet found a school for their children to attend. This would send most people into a panic. Instead, Elaine and her family found Reno to be filled with prospect. Within one week, they found a house to rent, enrolled their children in school, bought a car and Bob got a job at the historic Mapes Hotel/Casino.

Another highlight came in 1985, when Elaine met the owners of Burger King Reno, Don White and George Sorrentino, while working as a bank operations officer. White and Sorrentino offered Elaine a job as a bookkeeper and office manager, thus starting her on what would become a 20 year career. While at Burger King of Reno, Elaine saw them grow from 6 stores to 22.

Then in 2004, Elaine joined Barnard, Vogler & Co., working with our Burger King Franchisee Services. "It was interesting," says Elaine, "seeing the other side of the work I was doing." Soon her responsibilities expanded to include performing accounting and payroll services for other clients as well.,/p>

Elaine says she and her husband love the Reno area, especially what she calls "the 24-hour convenience." In their spare time they enjoy spending time with their children and grandchildren. Their daughter Tina lives outside of San Francisco with her husband and two sons, and their son Rob lives in Reno with his two sons.

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