Representative Cases

A South Carolina Show Stopper

Nothing will stop a film production faster than having a leading star – or their agent – upset a the  company producing the film.

During the filming of a major motion picture on location in South Carolina’s outer banks,  the South Carolina Tax Commission advised the production manager that the two leads — both multi-million dollar players — would be subject to millions of dollars of South Carolina income tax withholding on the wages that they had earned while performing in the Palmetto State.  Worse, the South Carolina tax authorities were prepared to shut down the filming if the withholding tax was not deposited with the South Carolina tax authorities within days.

After a day or two of fact gathering and phone calls,  we were on a plane to Columbia, the state capital, to meet with the South Carolina Film Commissioner, members of the South Carolina legislature, representatives of the Motion Picture Association of America, the film’s producers, and representatives of the South Carolina Tax Commission.   During the meetings, we explained that South Carolina was unique in assessing tax on film actors only briefly in the state and that film production would be discouraged from doing location shooting in the state.  We also ensured the state tax officials that that there was no risk whatsoever that South Carolina would not collect tax on the earnings of the actors working in the state.

In just a matter of hours, the film’s line producer called to thank us and advise us that the South Carolina authorities had moved off their hard line and that the had been assured they could continue to film and complete the principal photography in South Carolina without any further interference.  A short time later, South Carolina law was changed to exempt actors from withholding and to otherwise encourage film production.

A Choice for People, Not for Politicians

images-golocalworcester-com--politics_democratrepublican-360x294When the leaders of one of the two major political parties decided that they would freeze out one of the major candidates for president from the state primary, we worked diligently with the campaign management, local political activists and other consultants to carry out “grass roots” petitioning to force a state-wide primary race.   We also brought pressure through the media that made the state party leadership look like old-style machine party bosses.  The combined pressure not only earned our candidate a place on the state primary ballot, but embarrassed the state party bosses so much that they dropped a court case opposing his candidacy and allowed an open state primary.  While our candidate ultimately dropped out of the national primary race before the state primary was run, we nevertheless managed to win a sizable contingent of delegates who went on to the national party convention and advanced his platform points until the candidate released them to vote for the party’s ultimate nominee.

An M&A Pitfall, Avoided

One of the most hazardous aspects for any purchaser in any M&A deal is taking on liabilities that aren’t apparent.  The target has to be examined closely to ensure that there are no undisclosed liabilities that could adversely affect the purchaser after the deal closes.

The client, a small company in the communications space, was closing in the acquisition of a target in the same market, but one that had foreign subsidiaries.  We were reviewing the acquisition with the target during meetings when we noted some rather large inter-company debt owed by the target to some of its foreign affiliates.  When we inquired further, we were told, “the auditors have been all over that – its been covered”.  Nevertheless, we persisted.

But what the auditors missed – and we saw – was a huge outstanding tax liability.

Profits loaned by a foreign subsidiary to a US parent company are treated as though the “loan” is a dividend; its taxable under Section 956 of the Internal Revenue Code to the borrowing parent on the theory that the subsidiary could have paid the amount up to the US parent as a dividend subject to US tax (instead of funding a loan).  Poring over tax returns for  prior years,  we found that none of the profits of the target’s subsidiaries that had been loaned to the target had been included in the target’s US taxable income. 

We pointed out the target’s tax liability and estimated the tax that would be due, penalties and interest.  Our discovery of the target’s previously undisclosed tax liability resulted in a substantial adjustment to the target purchase price and seller indemnities. 

Making the Case for Lobbyists to Oppose a Thoughtless, Inconsistent Bill

When a lobbying firm for an industry group asked our assistance in opposing a Bill that would have radically reduced the amount of annual depreciation and amortization expense  the industry was allowed, we were asked to look into the matter. 47

We pointed out that the existing law for cost recovery applied only to those elements of the industry that was produced in the United States, so any alteration would tend to discourage US employment and increase outsourcing.  We also pointed out that the method of cost recovery used in the client’s industry was practically identical to the cost recovery used in an industry that were contributors to — and favored by — supporters of the proposed change. 

We suggested that the lobbyist assert that “gravy for the goose was gravy for the gander”; that is, that the change that was proposed for the our client’s industry should be applied, too, for the much larger and much more profitable industry favored by the Bill  sponsors.   After all, the revenue impact of a change in the law for our industry was minuscule compared with the Bill sponsors’ favored industry.

The lobbyists followed our suggested strategy precisely and the Bill was withdrawn.