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In the U.S., the age of lawlessness…

In the U.S., the age of lawlessness…

Preface

Some of you may think that this post has to do with politics, but I would disagree with you.  Some of you will think that I am “throwing the first stone“, as in Jesus’ statement in John 8:7 when the Pharisees were going to stone a woman caught in adultery and he said, “…Let any one of you who is without sin be the first to throw a stone at her.” (New International Version of the Bible), but they would be wrong as well.  I freely admit that I am as guilty as any and all in the United States of what I will talk about next…

My Supposition

For some time, something has been rumbling around in my mind.  Something unsettling.  Something I have had a hard time distilling down into a concise statement that I could then ponder what’s next.  Something that is effecting everyone in this country, the United States of America (“USA“).  Something that will effect my children, and their children, and their children’s children.  Something that I believe WE, the citizens of the USA need to be mindful of, address in our discussions, and start to address in our actions. So what is this “supposition” that I set forth?

  1. The Founding Fathers of the USA founded this country on the “rule of law“.
  2. As a people, We flourished as We allowed this principle to take root in our every day life, our political life, our religious life, and our personal lives.
  3. When We shared our values – and that word is key, “shared“, not “forced down their throats” not “conquered them and forced them to acknowledge” and not “used our superiority to show that we are right and they are wrong” – the rest of the world listened.
  4. When We showed our values by helping the rest of the world, sharing of our bounty (sorry for using the old fashioned word, but that captures my thought), the rest of the world saw what the “rule of law” could do for them.

Am I getting old?  Am I yearning for a better time, a time of my youth?  Nope, I think that we have been missing the boat for some time now (and I mean decades beyond my lifetime), and now the “chickens are coming home to roost“.  So I would like to explore, first my supposition and its individual pieces.  Then, in future blog posts, I would like to set forth some points for us all to start a discussion around and hopefully right the ship…

Rule of Law

So what do I mean by the “rule of law“?  On the surface, it sounds simple but man has been struggling with these issues since Socrates in ancient Greece, or if you are technically inclined, by Plato‘s and Xeonphon’s writings referencing Socratic ideas and discussion (see Plato’s Republic as one of the best known of these).  If we break this down into three distinct contexts, it becomes somewhat easier:

  • Rules according to law“;
  • Rules under law“; and
  • Rules according to a higher law“.

Rules according to law” states that the government will act only under clearly written rules, regulations, and legal principals.  But most importantly, “Well established and clearly defined laws allow individuals, businesses, and other entities to govern their behavior according (United States V. E.C. Investments, Inc., 77 F. 3d 327 [9th Cir. 1996]).  Before the government may impose civil or criminal liability, a law must be written with sufficient precision and clarity that a person of ordinary intelligence will know that certain conduct is forbidden.”

Rules under law” states that no one is above the law.  In England, this started with a group of 13th century Barons protecting themselves from a tyrannical monarch with the Magna Carta (the English Monarch is subject to the law).  Following this tradition, the U.S. Declaration of Independence had a group of Colonial rebels throwing off the yoke of injustice by a king who suspended the very laws that the Magna Carta started and the English Parliament enacted.  The Constitution of the United States of America established the American codified laws, with the Bill of Rights enumerating them further.

There is no better example of how the U.S. government should work than the impeachment of Richard M. Nixon – it reigned in the executive branch of the U.S. government and held out that even the President of the United States is still subject to the law (UNITED STATES V. NIXON, 418 U.S. 683, 94 S. Ct. 3090, 41 L. Ed. 2d 1039 (1974)).

And finally that “rules according to a higher law” pertains to the what is alluded to in the Declaration of Independence when it says,

We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.–That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed,…

That the written laws require governments to treat all persons equally under the law.  Now we all know that the U.S. Civil War pertained to this, but maybe not the way we were taught in elementary school – property rights were at risk.  I’m not saying that slavery was right or wrong (BTW, I personally think that it was wrong), I’m saying that Abraham Lincoln stole property from U.S. citizens without recompense.  This of course sets up a huge issue for government – if a law is morally wrong, should they still be required to uphold it?

Why even the United Nations, an organization that I don’t particularly feel embodies anything close to what I would hold the United States of America accountable to states as part of its website:

Promoting the rule of law at the national and international levels is at the heart of the United Nations’ mission.  Establishing respect for the rule of law is fundamental to achieving a durable peace in the aftermath of conflict, to the effective protection of human rights, and to sustained economic progress and development.  The principle that everyone – from the individual right up to the State itself – is accountable to laws that are publicly promulgated, equally enforced and independently adjudicated, is a fundamental concept which drives much of the United Nations work.

I think that much of the world understands, at least with their head, what the “rule of law” should me, but the problem right now is that every one applies it to everyone else and not themselves – either individually, state wise or nationally.

Coming soon…

Later this week, more on my supposition #2, #3, and #4.


 

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Posted by on April 27, 2014 in BLOG, Business, Entrepenuers

 

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Supreme Court rules on Healthcare Reform

[This was a newsletter that I received permission to reprint from Mr. Lee McFarlain of the McFarlain Group]


What does Healthcare Reform mean to me?

Last month the Supreme Court ruled on several challenges to the Patient Protection and Affordable Care Act (a.k.a. “Healthcare Reform”, “Obamacare” or PPACA).  While the details could fill volumes, in a nutshell it means implementation of the law will continue unless there is a repeal by Congress.  Given that many provisions will not phase in until 2014, repeal is still a possibility, but you still should start planning now for the implications of this law.

For Individuals

Health care reform?

Health care reform? (Photo credit: creatures of the earth)

On the positive side, the law provides a number of advantages to individuals.  These include better coverage for preventative care, coverage for dependents up to age 26 (student or not, married or single), elimination of annual and lifetime coverage limits, and gradual elimination of restrictions on pre-existing conditions.  The law also expands coverage for low income individuals and families, and provides tax credits to many households to make purchasing coverage more affordable.

For many the biggest bone of contention in the law is the “individual mandate”.  This provision was the most hotly contested, and ultimately the Supreme Court found it constitutional.  This means starting in 2014 most people will be required to participate in some form of health insurance program.  Those choosing not to participate will be subject to a fine (or tax as the Supreme Court ruled) based on their income.  Fines start at $95 or 1% of income (whichever is greater) in 2014, and increase to $695 or 2.5% of income by 2016.

Other issues to consider for your personal taxes are:

  • MSA and HSA Penalties: Tax penalties for using MSA or HSA money for non-medical expenses increased to 20% this year.

Starting in 2013:

  • Increased AGI Threshold for Medical Expenses: If you itemize, medical expenses will now have to exceed 10% of adjusted gross income (AGI) before you can start writing them off.  This is up from 7.5%.
  • Increased Hospital Insurance Tax: If you earn over $200,000 ($250,000 if married filing jointly) you will pay an extra 0.9%.  This tax also now applies to investment income under some circumstances.

For your Business:

If you average fewer than 50 full time employees then the PPACA may not have a dramatic affect on your business.  However, starting in 2014 companies with 50 or more full time employees will have to provide “minimum essential coverage” to employees and their dependents or face fines.  Although the exact mechanics of calculating these fines are as complex as you might expect them to be, for most businesses the fine will probably be less than the cost of providing coverage.  This means that many businesses that don’t currently provide coverage will probably opt to pay the fine instead.

The law also means that the cost of coverage will continue to rise since insurance companies are now required to provide broader coverage.  These rising costs could drive some businesses to drop existing plans and opt to pay penalties instead.

There are a number of additional provisions for small, medium and large businesses, including simplifying section 125 (cafeteria) plans for companies under 100 employees, new reporting requirements, other new taxes and penalties, and even some tax credits for smaller companies.  So many in fact, that if I tried to go into them I would break my promise to keep my update brief!

Conclusion

English: President Barack Obama, Vice Presiden...

President Barack Obama, Vice President Joe Biden, and senior staff, react in the Roosevelt Room of the White House, as the House passes the health care reform bill. (Photo credit: Wikipedia)

Many have been holding their breath wondering what the Supreme Court might do with the PPACA.  Now that we know that answer it is time to start preparing for the eventual implementation of this law.  While it is still conceivable that congress might overturn all or part of this, don’t count on it.  You should start working with your tax, legal, and benefits advisers to prepare for the changes this law brings.

If you need help deciphering the implications for your personal or business situation give me a shout!  I hope you found this helpful, and please feel free to pass it along to your friends and colleagues!

H. Lee McFarlain, Jr.
CPA, MBA
lee@mcfarlaingroup.com / www.mcfarlaingroup.com

McFarlain Group is not a licensed CPA practice.  All CPA services are provided by H. Lee McFarlain, Jr., CPA.


© 2012 by H. Lee McFarlain, Jr. and the McFarlain Group, all rights reserved.

 
 

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From the great white North (not so white)

Traveling…

Today was a traveling day – first, getting up at 4:45 AM CST was just eye opening (not), but then going through the airport security line was a jolt back into reality.  My trip brought me from Houston, TX to Toronto (Ontario), Canada and then onto Montreal (Quebec), Canada with my final destination Quebec City (Quebec), Canada.  I have to tell you, Canada is clean, the people are friendly, and the beer is great.  But onto my commentary…

English: Québec Province within Canada. Españo...

Québec Province within Canada. Source: Wikipedia.

The TSA security in the United States is ludicrous, but no more invasive than the Canadian version.  It is a perfect example of how bureaucracy leads to inefficiencies in the system – what sounds like a good idea to begin with, namely keeping the airlines safe from terrorists, blossoms into full blown idiocy.  Stripping to step through the scanner may make some feel safe, but when the TSA itself finds gaping wholes that allow their own agents to smuggle in guns and other dangerous materials, it’s time to start cutting.  I mean, get real, a shoe bomber got through, although the underwear bomber did get caught (kudos to those agents).

Mr. Obama has sought the power to eliminate government agencies from Congress, like the Commerce and Education Departments (see this article entitled “Obama seeks power to merge agencies” and the Roll Call article entitled “Consolidation Authority Would Empower Obama, Successors“). I am in no way supporting giving more power to The President, making note that I mean any President – I think President George W. Bush went way too far with the Patriot Act, trampling on our sacred [as far as I am concerned] Bill of Rights.  Here are my suggestions:

  • Mr. Obama should submit specific department consolidation(s) or elimination(s) to Congress and have it vote on that specific request. Republican legislators should play ball on at least eliminating one department.
  • Department of Homeland Security should review TSA practices to determine effectiveness and eliminate those deemed worthless (to determine this, a third party should be used).

Corruven

If you are curious as to why I am in Quebec City, Quebec, Canada, I am here for a shareholders’ meeting for Corruven, Inc. – one of my clients that I am helping bring to the public markets in conjunction with Brad Bingham and others.  We were initially asked to do some work out consulting associated with a “Grey Sheet” public vehicle, but we recommended that Corruven do a Direct Public Offering, or “DPO”, instead.  We have helped put together the team that is taking them public in the United States, including:

  • Brad Bingham, SEC Counsel
  • MK CPA’s, PCOAB auditors
  • Phil Scott, CFA (for valuation services and make ready)
  • Jay Pigantello

Here is a little more about the company itself (from their website):

Corruven Inc. is a U.S. based development-stage company that intends to develop and market a lightweight wood panel, Corruven™, fabricated mainly from unrolled “veneer” providing numerous advantages for various applications in different construction sectors. The panels: (i) contain approximately 75% air making them extremely lightweight compared to any other conventional panel; (ii) utilize only 25% of the raw material required to produce traditional panels (e.g.: MDF, HDF, OSB, plywood, etc.); and (iii) use formaldehyde-free glues which increase our distinction in the “green product” market.

In addition, the company will be less dependent on the manufacturing sector’s fluctuations as our future business model focuses on selling the production equipment (franchising) into different sectors while generating revenue both on the sale of equipment and raw materials and ongoing royalties from the output of such franchised equipment.

A very innovative company that you will hear more about in the coming months as they complete their PCOAB audit and file a registration statement.

http://corruven.com/main/?lang=en

 

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Public shells and the SEC

Yesterday, the SEC halted trading in 379 dormant companies, ostensibly because the public information was not up to date but really to stop the trade in “public shells”.  Here are a number of articles and references for this action.

 

My Take…

It never really made sense to me that when a public company went bankrupt and was liquidated, that the “public vehicle” portion of the company never went away, meaning that the public shares could still be traded.  One example of that is Henley Healthcare, Inc. – one of our board members at Systems Evolution Inc., which was publicly traded from 2003 through 2007 when it was taken over by Monarch Bay, founded Henley.

Even though we have done a number of “reverse mergers” or more properly described as Corporate Restructuring‘s or Recapitalization, I agree with the SEC in that I believe there are too many “public shells” out in the environment.

My Recommendation

First, make it easier to file to “go public”, which the JOBS Acts was supposed to do, but we have yet to see how the SEC and the individual states will implement the rules proposed by the Act.

Secondly, make the process of “de-listing” more transparent.  Currently, not even PCOAB Auditors, SEC counsel, FINRA, nor transfer agents really know the whole process and it is inconsistently implemented.  Of course, individual retail investors have no clue because the professionals in charge don’t know either.

Lastly, engage a professional with experience in maneuvering through this mine field.  Of course, this sounds incredibly self serving, but what can we say, “Call us…”


© 2012 by Rhodes Holdings LLC, all rights reserved except those referenced within the text.

 
 

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