Failure to pay withholding not willful per se

Article Abstract:

The 10th circuit court has held in a 1997 case that a taxpayer who failed to pay over the outstanding withholding taxes of his corporation cannot be considered as having willfully failed to pay in accordance with Sec 6672 because he was able to demonstrate reasonable cause. This ruling was held despite the fact that the taxpayer, who was president and a director of the financially strapped company, neither conducted an investigation or rectified inefficient management practices after finding out that tax payments had been delayed. The court explained that willfulness under Sec 6672 does not mandate proof of bad motive or intent to commit fraud against the government. It only required a demonstration of a voluntary and intentional decision to employ creditors other than the government.

Cases, Tax evasion, Withholding tax

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Predicting private company failure

Article Abstract:

Private company failure is a significant problem that is not fully addressed by existing research. This study develops a discriminant model from data on 107 private companies. The model predicts success and failure, based on six ratios obtained from the two immediately prior years' publicly available accounting reports. Based on a hold-out sample of 40 companies a prediction with 85% accuracy was achieved. This prediction was made one year ahead. The model indicates that the retained earnings-total assets, total liabilities-total assets, and shareholders funds-total liabilities ratios are the three major predictors of bankruptcy. Overall the model's coefficients are, as expected, substantially different to those of public company models. (Reprinted by permission of the publisher.)

Analysis, Private companies

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Postbankruptcy performance and management turnover

Article Abstract:

This article examines the performance of 197 public companies that emerged from Chapter 11. Over 40 percent of the sample firms continue to experience operating losses in the three years following bankruptcy; 32 percent reenter bankruptcy or privately restructure their debt. The continued involvement of prebankruptcy management in the restructuring process is strongly associated with poor post-bankruptcy performance. The substantial number of firms emerging from Chapter 11 that are not viable or need further restructuring provides little evidence that the process effectively rehabilitates distressed firms and is consistent with the view that there are economically important biases toward continuation of unprofitable firms. (Reprinted by permission of the publisher.)

Bankruptcy reorganizations, Bankruptcy reorganization

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