Alert to LLC Managers and Sponsors—IRS Issues Guidelines for Electronic K-1 Schedules
Posted in on February 29, 2012
Under the newly released Rev. Proc. 2012-17, a person required to furnish a Schedule K-1 may do so in an electronic format instead of hard copy. You can check out the specifics on the IRS website, but this should be a time and cost saver for LLC managers and real estate sponsors (and their accountants) who often are saddled with the unwieldy task of mailing out hundreds of paper K-1 schedules every tax season while antsy investors check in frequently for status updates, justifiably so since investors need the K-1s in order to prepare their own personal tax returns.
The Latest News for the Richmond Franchise Community
Posted in on February 23, 2012
As usual, there’s a lot going on in the world of franchising. Here are a few items that have recently caught my attention:
1. Modest Growth Expected for 2012. Industry experts are predicting slow and modest growth for the industry this year, with about a 2% increase in employment and number of new franchise units. The personal services sector (including health care) is expected to see the strongest growth.
2. Sweet Frog. Much has been written about the recent resurgence of the frozen yogurt (froyo) market and the explosive growth of locally owned Sweet Frog. The first Sweet Frog location opened next to Regal Cinemas in Short Pump in 2009; the brand quickly caught fire and now the company reports having over 50 company-owned and “licensed” locations in several states, with plans to franchise the system already underway. What that means for the dozens of licensees already in operation remains to be seen, let alone how the company will explain its licensing structure to authorities when it proceeds through the franchise registration process in states like Virginia and Maryland.
3. Increasing Importance of HR Compliance. With increased IRS scrutiny of worker classification issues and a growing number of class action lawsuits alleging violations of federal wage laws, now is a great time to review your human resources department and commit the proper resources, training, and supervision to boost this often underappreciated segment of a business.
4. State Tax Authorities vs. Franchisors. A growing number of states are becoming increasingly aggressive in their attempts to collect income tax on royalties collected from franchisees in their state. This effort stems from the 1993 case of Geoffrey Inc., v. South Carolina Tax Commission, in which the South Carolina Supreme Court ruled a licensor’s physical presence in a state is not constitutionally required for the state to impose income taxes on the licensor. Other states that have taken the position that a franchisor has income tax nexus if it collects fees or royalties from a franchisee in the state include Florida, Hawaii, Iowa, Louisiana, Massachusetts, New Jersey, North Carolina, Oregon, Pennsylvania, South Carolina and Wisconsin. More states are expected to join the bandwagon. Franchisors with a multi-state presence should pay close attention to this issue.
5. Social Media and Franchising. The social media revolution will continue to change the ways in which our society communicates and conducts business with one another. As a result, it is critical that franchisors understand the need to create parameters with their franchisees on social media issues in order to best protect their systems. Franchisors would be well served to adopt comprehensive, yet practical, social media policies governing not only social media usage but all online activity, including email, blogs, social networking sites (e.g., Facebook, LinkedIn and Tumblr), video-sharing and photo-sharing sites (e.g., YouTube and Flickr), review sites, marketplace sites (such as eBay and Craigslist), Wikis, and chat rooms. These policies can be incorporated directly into Operating Manuals and should also be incorporated by reference into your Franchise Agreements. Don’t take social media for granted, as some studies suggest that the Internet is actually doing a better job of driving business to independent, locally owned businesses at the expense of franchised businesses in the area.
6. Saladworks Coming to Henrico County. Henrico County will welcome its first Saladworks franchise this spring. Local franchise owners Kevin Long and Travis Miller spent over a year searching for the right location and are eager to introduce the Saladworks concept to the Short Pump community. Visit www.saladworks.com for more information about this 100+ unit system that has franchised locations in a dozen states.
7. A Few Franchised Concepts Yet to Hit the Richmond Market. While I think we are in danger of passing the oversaturation mark in a few areas—cupcakes, froyo, and deli/sub sandwiches jump to mind—here are a couple of concepts I would not be surprised to see come to town:
(a) The Original Soupman. This small franchise system (under 20 units) has a lot of star power promoting it (Shaquille O’Neal among others) and tremendous brand identity thanks to exposure from the “Seinfeld” series. A simple concept coupled with a well-known brand is often a recipe for franchising success.
(b) Blink Tattoo Removal Centers. I predicted several years ago that this concept was well-suited to franchising and was inevitable given the prevalence of tattoos in today’s society. This franchise system promotes the use of specially designed lasers that break up the pigment of an unwanted tattoo with a high-density light beam.
8. Where’s the Financing? Recent surveys have confirmed what many would say is obvious (and not likely to change much in 2012):
- A big obstacle to getting the financing franchisees need is poor sales and profitability data from the prior year.
- Most franchisees—especially startups—have a better chance of success with community banks and alternative lenders (such as Compound Profit Advisors--Alex Cherlin is a local franchise owner in that system) than with the big banks.
Whether you are a franchisor, franchisee, or someone contemplating franchising, for additional info or legal advice concerning a franchising matter, e-mail or call Eric Perkins at .(JavaScript must be enabled to view this email address) or (804) 205-5162.