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THE BUFFALO NEWS
Small Business
by James T. Madore
John J. O'Neill isn't a physician. He doesn't spend his days in hospital operating rooms trying to avert death. Yet, he possesses a doctor's passion to eradicate diseases and improve people's lives. In the last several years, he has earned a reputation as a healer of small businesses.
O'Neill is co-founder and president of Equity Search, Inc., a West Seneca firm that specializes in curing the ills that plague many small businesses. Tax problems, poor management and marketing skills, bankruptcy and credit woes are the sicknesses this doctor fights every day.
While physicians try to save their patients from deadly diseases like cancer and heart attacks, O'Neill attempts to avoid equally fatal business ailments, such as bankruptcy and foreclosure.
Most of O'Neill's patients are already in dire straits when they come to him. Many are in trouble with the Internal Revenue Service or the state Tax Commission.
Equity Search attempts to turn around these fledgling companies by improving their business plans, obtaining additional credit, establishing a reasonable payment schedule with tax collectors, and examining the performance of both workers and supervisors.
"The IRS can sometimes appear very intimidating-maybe not intentionally, but it can-and because of that, entrepreneurs who are behind on their taxes can spend as much as 60 percent of their productive time talking with the IRS, thinking about the IRS and losing sleep over the IRS," said O'Neill, a former agency employee. "What they might not understand is that the IRS isn't very different then a bank. It doesn't want to put them out of business; it just wants to make sure it gets its money back."
Equity Search acts as a go-between for clients and the IRS, other government agencies and banks. Representatives, for example, meet with the IRS and hammer out agreements that both sides can live with, thereby allowing entrepreneurs to concentrate on recouping their losses.
Once the tax man has been placated, O'Neill and his colleagues work with business people to avoid future financial troubles. They outline the road to recovery and guide entrepreneurs along the way, he said.
Since its founding five years ago by O'Neill and William A. Conti, Equity Search has grown rapidly. The financial consulting firm has offices in Rochester, Pittsburgh, Washington, D.C., and Chicago. Employees also make monthly visits to clients in Jamestown and Erie. Pa.
O'Neill plans to open additional offices in Cleveland, Baltimore and Richmond, Va., plus initiate satellite services in Binghamton, Syracuse and Watertown. Equity Search employs about 20 people and 1989 revenues are expected to total $1.8 million, he said, noting the firm also controls more than $40 million in sales from various companies it works with.
In the last four years, about 1,200 Western New York businesses have been helped by Equity Search. Clients include Aqua Reef USA Inc., Allied Emergency Enclosures, Travelways Inc., Humes Construction Co., Servicemaster of Western NY, Liberty National Bank, Marine Midland Bank, Manufacturers Hanover, Key Bank and Goldome Bank.
"When the IRS first reared its ugly head, we thought it to be like the original notions of the Titanic-impenetrable and unsinkable. Well, an iceberg took care of the Titanic and Equity Search took care of the IRS." Richard Barron, controller for Berea Oil and Gas Co., wrote in a recent letter.
Steven and Sandy Weber credit the financial consulting firm with saving their Hamburg auto repair shop.
In the summer of 1985, when they first talked with O'Neill, the IRS was breathing town their necks, threatening to foreclose on their shop.
"He (O'Neill) gave us back our dignity and pride," said Steven Weber.
The owner of S&S Service described O'Neill as a genius when it comes to solving tax problems. He can't void tax bills, but he can arrange payment plans that allow entrepreneurs to get out from under huge debts.
"Jack eliminates the red tape. He goes for the jugular and solves the problems," Weber said.
And problems are what the couple was saddled with four years ago.
Several employees, for example, were stealing materials to use on their own cars and one parts supplier was charging them for materials they never received. O'Neill devised an elaborate plan to catch the dishonest employees by using seven different drivers as decoys who came into the repair shop with flat tires. The employees' records failed to show that they had sold the drivers tires from Weber's stock, he recalled.
"They showed me how I lost hundreds or maybe thousands of dollars each month by being too trusting with my employees," Weber said.
S&S Service is booming today. Gross income has doubled since 1985 and is expected to double again this spring. The Webers also are planning to construct an addition to their present facility at 5071 Southwestern Blvd.
"He gave us a fresh start and finally after 10 years we are beginning to see the light," Weber said.
One factor that has contributed to the success of S&S Service is the vast network of contacts O'Neill has established. The 43-year old consultant often asks Equity Search clients to consider doing business with each other. He also capitalizes on their expertise, hiring them as consultants to newer clients.
All of this advice isn't for free. O'Neill said. In fact, an initial fee is required before Equity Search will take on a case. Future payments, however, can be tied to a company's profits.
Business people have to want to help themselves in order for the Equity Search program to be effective.
"Some people think he'll wave a magic wand. But that's not how it works," Weber said.
"They have to want to help themselves."
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THE BUFFALO NEWS
The Rusk Report
by Brian Rusk
Two veteran Internal Revenue Service employees left their jobs five years ago to form their own financial consulting firm. They are Jack O'Neill and William Conti, president and executive vice president respectively of Equity Search, Inc. based in West Seneca. After years of guiding individual businesses and businessmen through the maze of IRS regulations O'Neill and Conti now find themselves in a new role-that of further aiding financially troubled businesses as private consultants.
"We handle companies and individuals who have tax or financial problems" said O'Neill. "We infuse working capital and management controls and systems. One company we got involved with had 6 employees and $180,000 in sales in 1985. In 1987 this company had gross sales of $1.3 million along with 38 employees. We did this marketing and restructuring."
"Another recent company we worked with was Aqua Reef USA, Inc. a major manufacturer of salt water aquariums based in Cicero Ill. This company is now coming to Buffalo. We were able to acquire this company which has sales of $1.2 million and we expect it to go to $4 million in 3 years." What advice does Jack O'Neill offer to troubled
companies? "One must realize that cash alone does not make money" he said. "Equally important is marketing and management. Very few places will let you borrow this. A bank can lend you money. But, we show you how to manage a business and market it."
Another success story, according to O'Neill, is Allied Emergency Enclosures.
"We became involved with this company in March, 1985," said O'Neill. Their sales were at $30,000. In 1987, their sales zoomed to $400.000. By marketing, directing and acquisitions, we did it. Allied is now going to expand to six other cities by the end of the year beyond Buffalo."
"With our IRS experience, we have dealt with so many different troubled businesses," said Conti. "We learned how to correct their management and financial difficulties. We understand under-capitalization. Most entrepreneurs have a lack of management capabilities. We help with that."
Equity Search now owns National Data Mat, Inc. which is working on computerizing the data in the Erie County Clerk's Office.
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Crains Cleveland Business-Finance
Delinquent taxpayers are the targets of an Internal Revenue Service publicity campaign stating that old tax debts may be forgiven for a fraction of the debt. The publicity releases also indicate that penalties assessed on tax liabllities may be abated.
This publicity campaign may be misleading. The IRS abates a penalty only if the tax was not paid because of "reasonable cause."
It is difficult to obtain an abatement of a penalty, and interest is not forgiven. The IRS does have an Offer In Compromise program designed for individuals to resolve their tax debts for a fraction of the total debt, but a specific procedure must be followed. The submission of an offer by a taxpayer unaware of this procedure can result in an unsuccessful proposal.
IRS Policy Statement P-5-100 states that an Offer In Compromise will be accepted when it is unlikely that the tax liability can be collected in full and when the amount offered reflects reasonable collection potential. The big question is-what defines reasonable collection potential?
A well-defined procedure must be followed to determine the amount of collectibility. The taxpayer's equity in all his possessions plus the amount which can be collected in a five-year payment plan define the reasonable collection potential. Equity includes the amount of ownership in such items as real estate, motor vehicles, bank accounts, pension plans (possibly), IRAs, stock, valuable collections
and personal possessions, tools and equipment, accounts receivable and cash value of life insurance policies. Data must be submitted to validate the value of these assets.
On an IRS financial information form, the taxpayer must state the total monthly income available to the household. Then each monthly expense is stated and subtracted from the income.
While the IRS policy calls for the amount a taxpayer can realistically pay, the Cleveland district has defined its interpretation of realistic. It allows a family of four to have $500 for food and $750 maximum for mortgages or rent. Nothing specifically is allowed for clothing. The sum of $300 is allowed for a car payment with a maximum of $425 for two car payments.
The offer generally must be paid in a lump sum. It must be paid with borrowed funds. However, the Cleveland-area program does not permit the taxpayer to provide in the household budget for a monthly amount to repay this loan. The idea of borrowing money for a lump-sum payment and then not being allowed to provide for repayment in the monthly budget may be difficult to understand by the taxpayer.
If the taxpayer has a loss carryforward for future taxes because of a loss in a prior year, the loss carryforward is forfeited.
Once the offer is accepted, the taxpayer must file all future tax returns on time and must pay all taxes on time for the next five-year period.
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Crain's Cleveland Business-Finance
When a company or individual gets hit with a federal tax lien, the taxpayer has a variety of options to resolve a seemingly astronomical liability.
However, the average taxpayer is unaware of these options. In addition, conditions are continually changing, and an option may increase or decrease in its desirability with the passage of time.
The most common options are: cash payment, installment agreement, offer in compromise or bankruptcy. Each option is complicated and must be analyzed for its possible application to the immediate situation. Frequently, a combination of these options provides the best solution.
A simple way to resolve the liability is to borrow money and pay the debt in part or in full. The interest rate of borrowing must be compared to the total of interest and penalties being assessed by the Internal Revenue Service.
If the interest rate of the loan will be less and if the funds obtained will not satisfy the total debt, a subordination agreement can be prepared whereby the IRS will subordinate to the lender. The subordination agreement must be properly prepared or no lender will provide funds unless the IRS is paid in full.
Another method of raising money is to refinance a residential home. Obtaining a new mortgage at a lower interest rate with the same monthly payment will provide cash to pay the IRS.
Property is sometimes sold to obtain cash. If this avenue is pursued, one must be aware that the capital gains tax must be paid on property, and the early cashing of an IRA or a retirement program could result in a penalty plus an income-tax liability.
An installment agreement or payment plan may be negotiated by the taxpayer directly with the IRS. However, very little is allowed to the taxpayer for contingencies, and often in a few months the taxpayer will default because an unforeseen expense occurred.
The IRS-imposed monthly interest amount should be determined because the monthly payment may not equal the monthly interest, and the taxpayer can pay each month only to realize that the debt is increasing. An acceptable payment agreement must satisfy the monthly interest, reduce the original assessment and allow the tax-payer the means to live a normal life or successfully operate a business.
An offer in compromise is an option which has been publicized recently, and the IRS appears to be encouraging offers. However, there is a set of guidelines which must be followed.
The taxpayer must base the offer on the grounds of either a doubt as to liability or a doubt as to collectibility of the entire amount. Then a financial statement must be submitted showing the taxpayer's total assets. The minimum offer should equal the forced sale value of the assets, plus the present-day value of a payment plan.
Finally, the taxpayer must file and pay on time all new taxes for the next five years, or the offer will be rejected retroactively. The original balance plus interest then will be assessed.
The use of bankruptcy to satisfy a tax liability is a method not known to many Individuais.
Personal 1040 taxes can be totally discharged in a Chapter 7. However, the taxes must satisfy a three-part qualifying test.
The use of bankruptcy can be a valuable tool if used correctly. If used incorrectly, it can severely hurt rather than help the taxpayer.
Finally, the incorporation of a sole proprietor can be utilized to assist the self-employed taxpayer in becoming his own employee and in obtaining more favorable terms with the IRS. The self-employed individual should be encouraged to document any loans he or she has made to the company and to possibly repay the loans rather than take a salary during periods of cash-flow problems. This action would reduce the personal tax liability during the time of hardship.
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