I received a call from a Chicago business owner (let’s call him “Chicago”) a few months ago. His little home health company was just a couple years old and doing less than $1 million in annual revenue and not yet earning a profit. He wanted some assistance with a transaction.

Cool.

Chicago explained that a buyer by the name of U.S. Medical Home (USMH) of Washington, D.C. was interested in acquiring his company for $2 million. The buyer’s representative was a guy named Mike Keselica. His email address showed him as president of Health Management Group, Inc. with offices in Washington, D. C. and Providence, Rhode Island.

The letter of intent (LOI) terms were confusing to the seller. Sure enough, the deal called for $2 million in cash to be paid to the seller. All good so far. But then the terms went on to say the seller would immediately return the entire amount to the buyer in exchange for a promise to pay said funds back to the seller over a five-year term. No cash at closing! Not a cent until 365 days from closing!

According to the buyer, this structure was necessary to comply with some new tax laws that would be very advantageous for the seller.

Smelling a fish, I asked, “Have you paid them any money?”

Seventy-five hundred dollars for due diligence,” replied Chicago.

“What?” I asked.

“They came and did due diligence and said I needed to pay them for my part of it,” said Chicago.

“Who came?”

“Mike Keselica and Grace Kulik. But don’t worry – the terms of their LOI say if they don’t follow through and purchase they’ll return the seventy-five hundred.”

“Okay. Chicago, what I’m hearing you say sounds concerning to me, to say the least. I’m not sure about these guys.”
Still, there was a purported $2 million at stake so he asked me to withhold my judgment, talk to the buyer, and attempt to negotiate better terms. Surprisingly, the “buyer” agreed to a conference call with me. The “COO” was Grace Kulik. I called a bit early and a gentleman answered the line, “Health Management Group.” It was Mike Keselica. Hmmm.

The rest is just amusing. To conclude, they would not agree to any other terms (any that required any payment of cash at closing). Chicago, of course, could not agree to that so he asked for his money back. Naturally, the buyer said they were under no obligation to refund as they offered to purchase for $2 million. The seller is the one that backed out.

If it’s too good to be true…

If there’s a sizeable up-front fee required …

If the buyer or broker uses the need for confidentiality to restrict whom you can talk to…

If the terms are confusing or convoluted …

These are all reasons to be skeptical of the deal you’re being offered. And if you’re unsure about a business transaction, ask a successful and experienced business or legal professional for help. The best way to avoid scams is to exercise your own due diligence.

Caveat Venditor! Let the seller beware!

• How current SBA programs can help you refinance your debt and substantially improve your cash flow
• Explanation of revocable, irrevocable and living trusts
• Review of the results of the trillion dollar federal bailouts of 2008
• Summary of the important investment concepts of time value of money, return on investment and required rate of return.
• Overview of today’s business sale climate.
• How to defer tax via the Installment Sale Method
• Cautions and suggestions before signing a facilities or office lease

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Many of the mega-rich wouldn’t mind paying more tax. They are being taxed at historically low rates and many of them don’t think they’re paying their fair share. Taxes should be raised on those that earn more than $1 million per year (237,000 people), and raised more still on people making more than $10 million per year (8,300 people).

The oft-cited notions that higher marginal tax rates will discourage the wealthy from investing and hurt the economy are silly. Just look at the 1980s and 90s. Tax rates were much higher and the economy was strong and unemployment was low (and we had a much lower budget deficit).

Congress has coddled the rich for too long.  It’s time shared sacrifice included the mega-rich.

These are not my comments, rather those of Warren Buffett himself in this New York Times article dated August 14, 2011.

Why protect the identity of a bad actor? Even if the harmed is unsure whether it was intentional, why not honestly share the experience and divulge the name?

We’ve all read about the “no snitch” culture that’s so strong in some African American communities. It hinders the efforts of law enforcement personnel and protects perpetrators of crime. I really think it exists to some extent in American business.

Can someone help me understand?

The rule of law and the fair system of justice for all are absolutely essential to quality of life for citizens and efficient operation of our free-market system. Equally as important for our protection and quality of life is casual, everyday sharing of information and experience. Gossip and “the grapevine” play a real functional role in helping us all make informed choices and avoiding harm. When a person refuses to share the identity of a bad actor, he or she denies others the opportunity to avoid a similar fate.

Is it that misery really does love company, so the harmed don’t really want to help others avoid harm? Fear of reprisal?

I say we tell the world our experiences – the good, the bad and the ugly – and share identities. Why not expose the bad actors? Maybe our “no snitch” culture is why so many scammers seem to be in operation today?

As a guest of Todd Taylor, a top financial advisor at Merrill Lynch, today I attended a presentation by Andy Friedman – a nonpartisan tax and politics expert known for predicting outcomes of Washington tax and fiscal deliberations. Friedman expects the following over the coming months and years:

No default on government debt: The secretary of the U.S. Treasury has gone on record to say he will do whatever it takes to avoid default, and Friedman believes that Congress and the president understand that such would be fiscal Armageddon. Expect Congress to agree to a small increase in the debt ceiling to tide us over for the short term, and then the Republicans – not wanting to vote to increase the debt ceiling any further – will agree to give the president the power to increase the ceiling as needed for the next few years. This will allow the debt ceiling to be raised as needed and let Republicans point the figure at Democrats for higher deficits.

Cuts to entitlements: Medicare, Medicaid and Social Security expenditures account for roughly half of all government spending. The projected $1.7 trillion deficit for 2012 will not be meaningfully whittled down without a cut to entitlements. Friedman expects the retirement age to be raised to 69 or 70 (it’s currently 67) and installation of a phaseout of benefits for higher-income earners.

Higher income taxes: Low-income earners will begin to pay some tax, but the revenue raised from this group will not be material compared to the size of the deficits. As such, taxes on higher-income earners will be increased.

Higher interest rates: As federal borrowing crosses $15 trillion and foreign purchasers of U.S. treasuries grow more concerned about U.S. fiscal woes, said purchasers – such as China – will reduce their purchases of U.S. treasuries. And because the U.S. has no choice but to fund its deficits, it will raise interest rates in an effort to make our debt more attractive. Further, potentially adding more fuel to higher interest rates is the possibility of additional federal stimulus efforts aimed at injecting fuel into a moribund economy.

Slower economic growth: Rising interest rates (see above) will put a drag on an already weak economy.

Modest near-term gains for U.S. equities: Stocks have risen in anticipation of an improving economy and, for the most part, there is little reason to expect strong economic growth in the coming years.

About Andy Friedman: Was senior partner with the law firm Covington & Burling in Washington, D.C., where he practiced for almost 30 years, serving as head of the tax and corporate groups, and as tax counsel to Major League Baseball, the National Football League, the National Basketball Association, and the National Hockey League. He received his bachelor’s as valedictorian from Trinity College in Hartford, Connecticut, and his law degree from Harvard Law School. Andy appears on CNBC’s Squawk Box, which calls him “Wall Street’s Tax Expert.” Andy also has appeared on the Fox Business Channel, has been profiled in the Washington Post and Research magazine, and is quoted extensively in publications ranging from the Wall Street Journal to USA Today.

1. The top 1 percent of earners already pay more than a third of all individual income tax collected, and the top 10 percent of earners pay nearly two-thirds!
2. 50 percent of taxpayers don’t pay any tax!
3. Taking from the rich to provide for the poor is robbery!
4. Those who work hard and succeed and earn a lot of money should not have to give up social benefits they paid to receive and were promised. It’s not fair!

I understand. Nobody wants to pay more taxes. We all want to keep more. But the facts remain: Deficits have risen as tax rates on the wealthy have declined. See the first and third charts that appear below.

In fact, the overall tax rate on individuals has declined. See the second chart that appears below. Taxes as a percent of GDP have declined as profits as a percent of GDP have risen!

I hear you about the lower 50 percent of earners not paying any net taxes, but think about it. They don’t earn much. On average, about $25,000 per year (the 50th-percentile income is about $50,000). Let’s say we have a $500 billion annual budget shortfall and you can get half of the lower earners (35 million people making, say, between $25,000 and $50,000 per year) to pay $500 per year. You’ve raised a total of $17 billion. Not even a dent.

Call our long-standing graduated “percent of income” tax system robbery if you wish, but it was in place the entire time this country grew to greatness (the 20th century). Overall, tax rates have declined over the past 30 years, and the top marginal tax rate has been cut by more than half. We’ve been running continuous deficits — through Democratic and Republican presidents and administrations. As unpopular as it may be to say, we’ve shown no ability to lower spending at the federal level and it is obvious that we are unable to cover the cost of our government services — roads, bridges, pollution control, courts, political system, defense, intelligence, unemployment insurance, Medicare, Medicaid, Social Security, national parks, etc. — with what are — from a historical perspective — lower tax rates on the higher earners. And if those who have disposable income won’t allow us to return to the rates not seen since “The Greatest Generation” ran the country, it seems to me that we’ll just pass to our children and grandchildren a bankrupt, once-great nation.

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• A GPS or ABS representative cold calls or stops by a small- or mid-sized private business.
• The GPS/ABS rep convinces the business owner to accept a brief meeting.
• The GPS/ABS rep gets the business owner to agree to let an expert “analyze the business” for just a few hundred dollars. Invariably, the “business analysis” concludes that the business is faltering.
• The GPS/ABS rep tells the business owner that the business is in deep trouble. In fact, it will fail soon. However, they claim that–with the help of the GPS/ABS representative–it can soon be making big profits.
• The GPS/ABS rep gets the desperate business owner to agree to let GPS/ABS “get to work,” in part by promising that the enhanced profits will easily pay for the cost of the consulting.
• The “consultant” racks up as many hours and as big a bill as quickly as possible before being thrown out of the business without having produced any positive results.
• IPA/GPS/ITA/ABS (or whomever it may be at the time) uses hardball tactics to collect on amounts “owed.” The amount is typically tens of thousands dollars and can run up to hundreds of thousands of dollars.

Unfortunately, it historically has been the already desperate business owner who falls for the scam, like the woman who I talked to nearly one year ago. The business that she and her husband owned was having serious financial difficulty. The IRS had placed liens on the business.

The Burgess representative assured her that one of their experts could get the liens removed in short order and “solve the problem.” The business did not have the funds to compensate the “experts” for the good and valuable work they promised but, with Burgess’ team’s help, they’d have the funds in the near future.

So, the experts talked the owners into post-dating checks under the agreement they would not attempt to cash them unless and until the owners approved of doing so and there were sufficient funds in their account. A few weeks later, Burgess’ crew deposited all the checks, payroll checks bounced, the IRS liens were not removed, and the consulting firm was threatening to sue the business and owners for fraud (writing bad checks) unless payment was immediately made in full (about $39,000).

Tyler Burgess is son of the John Burgess, the disbarred lawyer who is the subject of an Inc. Magazine exposé. He founded International Profit Associates (IPA) in 1991 and, later, International Tax Advisors (ITA), and Integrated Business Analysis (IBA). Each carries an “F” rating from the Better Business Bureau and has been the subject of many lawsuits, such as one brought in 2008 by the Illinois Attorney General. It cites:

Until recently, Tyler Burgess was an owner and top executive at IPA. GPS and ABS are staffed with many former IPA/ITA employees. Burgess also operates consulting businesses under the name Global Resources, LLC and, incidentally, has begun publishing a publication under the name The Business Owner Magazine. DL Perkins, LLC , which produces how-to information under the The Business Owner and The Business Owner Journal labels, owns the federal trademark to “The Business Owner” name for purposes of consulting and business advice. As such, Burgess and his companies are infringing upon DL Perkins, LLC’s exclusive right to use the name. They, as well as their legal counsel, have not responded to repeated requests that they cease their infringement.

In short, our economy is growing despite getting NO help from the residential construction sector. Residential construction has long been an essential engine for economic activity in the United States. Residential construction provides jobs and uses massive amounts of materials and finished goods. The good new is that residential construction will soon get going again. And when it does, the U.S. economic fire will burn even more brightly.

Why won’t Republicans/the rich agree to let us lower federal entitlement obligations (Social Security and Medicare) by allowing a means testing of the benefits? In other words, why won’t wealthy persons who can afford to pay for their own medical care and retirement forgo the benefits?

The free market economy is rough and tumble. A few thrive and many don’t. It makes sense to have a bit of a safety net to provide sustenance for those who cannot compete and therefore cannot save for their own care later in life. Why won’t the rich forgo their benefits since they are fortunate enough to thrive and pay their own way?

How much more could we accomplish during a year if we did not have to mess with tax code compliance? Moreover, what would our economy be like if all the tax specialists were actually producing something that contributed positively to the free-market system and the economy? Even if they swept the streets, we’d at least enjoy the benefit of cleaner streets. Of course, one might surmise that most would choose more redeeming means for earning a living. Means more in line with their considerable intellectual capacities.

Our tax code is ridiculous. It can and should be simplified. Imagine if all taxes were collected at the retail counter. No year-end paperwork at all. Just pay an extra 20 percent on top of all goods purchased.

Or maybe it’s no retail tax at all; everyone just calculates their monthly revenue and sends 1 percent to the city, 2 percent to the state and 7 percent to the federal government.

While we’re searching for ways to make our country and workers more competitive in the global marketplace, maybe we should look here.