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Rhode Island Child Support from Soup To Nuts by a Rhode Island Attorney

This article, written by a Rhode Island family law lawyer explains in detail the following Rhode Island Child support Issues: Establishing, modifying, terminating, enforcing, contempt, college, daycare, overtime as well as an explanation of the RI support guidelines!!

Establishing Rhode Island Child Support:

How is Rhode Island (RI) Child Support determined in divorce cases, paternity cases, and child visitation cases?

In most cases, it is set by the “Rhode Island Family Court Child Support Formula and Guidelines”. In the vast majority of cases in Rhode Island, the minimum Rhode Island child support guideline amount is used..

However, a parent has the right to seek more then the minimum guidelines because the guidelines are supposed to be the minimum amount a parent will receive as child support. In Theory, The Guidelines are intended to be the floor rather then the ceiling for child support. In actuality, the minimum guidelines are used in the vast majority of Rhode Island cases.

The court is entitled to look at the assets of a party in determining child support. The Family Court can also look at extraordinary expenses of either party and can look at the needs and expenses of the parties. The Court can look at any circumstances the judge believes appropriate. If a person is underemployed or refusing to work when capable of working then the court can determine the earning capacity of the party. Some Judges consistently go over the minimum guidelines.

The Rhode Island guidelines uses an income shares model in which the adjusted gross income of both parents are used to determine the correct amount of child support. Essentially, the guidelines look at the combined adjusted Gross income of both parties. Adjusted gross income means the gross income of a party with certain required deductions from gross income for medical insurance & dental insurance. Another required deduction is for additional minor dependants (children). There are also certain discretionary deductions that some judges may allow such as life insurance costs.

After determining the combined adjusted gross income of the parties, the Rhode Island Guidelines should be utilized to determine what the state of Rhode Island believes that two parents with that amount of adjusted gross income would pay for support if the parents were still residing together. After that number is determined daycare expenses are added onto that amount.

The non custodial parent pursuant to the minimum guidelines should be obligated to pay a percentage of that amount set forth above that is the same same percentage of that persons adjusted gross income to the total adjusted gross income of both parties.

For example: If Mom makes $1000 a month and dad makes $4000 a month and each has $200 dollars of medical insurance payments then the adjusted gross income of mom is $800 and the adjusted gross income of dad is 3800. The combined adjusted gross income of both is $4600. Dad makes $82.6 percent of the combined adjusted gross income of the parties and is required to pay 82.6 percent of the minimum guideline amount guideline amount plus the daycare expenses.

The next step is to get a copy of the most recent version of the Rhode Island Child Support Guidelines . This can be obtained at the Rhode Island Family Court. It is perplexing that, I cannot easily find the most recent guidelines on google . You need to look at the “Rhode Island Monthly Basic support Obligations” (effective November 1, 2007) (These Guidelines recently replaced the 2002 Guidelines) Please note that one of the most significant changes to the new 2007 guidelines is the “self support reserve for payors with very limited income.

Assuming that the parties have two children the guidelines indicate that the correct support amount is $956. assuming there is no daycare* in this hypothetical then the father would be obligated to pay 82.6 percent or $956 per month which would be $789.65 per month or $183 per week. (Please note that these figures use the 2004 guidelines not the new 2007 child support guidelines)

*(if there is daycare then add the work related child care costs minus the federal tax credit. Please note that the state of Rhode Island uses a rule of thumb of approximately 75 percent to 80 percent of the actual daycare expense)

The Guidelines in theory and in most cases in actuality are the minimum amount a person is required to pay. The judge has discretion to go over the minimum Rhode Island Guidelines if there is justification under the circumstances.

Some judges in Rhode island consistently go over the guidelines. The types of circumstances that may justify a judge issuing a child support order above the Rhode Island guidelines are:

a) Substantial assets


b) standard of living and expenses that far exceed reported gross income


c) extraordinary necessary expenses and needs related for the child

If the parties agree to child support below the Rhode Island child Support Guidelines, in some limited circumstances, it may be allowed. These circumstances could include, visitation exceeding the norm, extraordinary payments of the child expenses or even sometimes just based on the parties agreement.

Private School

:

In Rhode Island (RI) Divorce and Child support cases, Can I get the father or mother of my child to be ordered to pay for private school education?

No, unless there is a contractual obligation, a stipulated consent order or there is an ongoing divorce.

Most judges take the position that there are suitable public schools for children to attend. However, If there is something in writing such as a property settlement agreement obligating one parent to pay for the private school education of the child, then the parent may be obligated to pay for the private school education.

Also, the parent could be ordered to pay for private school education in a divorce on a temporary basis, especially when it is in the middle of a school year and it would be disruptive for the child to transfer to a public school. Parents can certainly negotiate payment of private school education and the judge of The Family Court will usually approve the settlement in a court Order. That stipulated consent order could be enforced in a Family Court contempt proceeding.

College education:

Can I get the father or mother of my child to be ordered to pay for college?

No, Unless there is a written contractual agreement obligating payment of college expenses. Rhode Island child support terminates when a child turns 18 and graduates high school but not longer then the child attaining the age of 19. (Unless the child is severely disabled and then it goes unil the child turns 21)

The Court loses jurisdiction over the child when the child attains the age as set forth above. The Court cannot order payment of college but a Court may enforce a written property settlement agreement between the parties obligating payment of college.

Overtime:

What if my child’s parent works overtime? Will overtime be included in child support?

There is no standard law or rule in Rhode Island regarding whether or not the non-possessory parent’s overtime will be used to calculate child support. One Judge in Rhode Island consistently rules that overtime compensation cannot be used to calculate child support.

Other Judges in Rhode Island have different opinions regarding overtime. The Family Court is a court of equity and fairness. Judges in Rhode Island will typically look at whether or not a person consistently works overtime over a substantial period of time. Judges may also look at whether or not overtime is consistently offered to a spouse. If overtime is infrequent or not typically offered Judges may be hesitant to calculate overtime as a factor of child support. In that case, many attorneys argue that a person’s income should be calculated using their W2 or gross income for the entire calendar year. By calculating gross income over an entire calendar year even infrequent overtime becomes an element of child support.

Judges may also look at other factors such as the needs and expenses of both parties and any extraordinary expenses for the child. At least one Judge has suggested that the possessory parent get a percentage of the overtime that is worked by the non-possessory parent. Other Judges in Rhode Island (RI) believe that overtime should always be a factor in child support. Often the issue of overtime is negotiated by the lawyers prior to any formal ruling by the Judge.

Daycare and Child Support

Who is going to pay for my child’s daycare?

The Rhode Island minimum guidelines take into account both the importance and expense of daycare. The guidelines and worksheet are used to determine the proper amount of child support to be paid by the non-possessory parent. The bottom line is that a party will be ordered to pay approximately the same percentage of the daycare that the party makes in relation to that party’s percentage of the combined gross income of both parties.

For example: If the husband makes $100,000.00 and the wife makes $50,000.00 the combined gross income for the parties is $150,000.00. Therefore, the husband makes 66 percent of the income and will be ordered to pay 66 percent of the daycare in addition to child support. (There may be an adjustment to take into account the federal tax credit.) This amount is added onto the minimum Guidelines amount.

Modifying Rhode Island Support:

How is Child support modified in Rhode Island divorce and family law cases?

 Rhode Island Child Support is not automatically modified when there is a change in circumstances. The parent must file a motion to modify. When a motion for modification is filed a court date will be set by the clerk of the Rhode Island Family Court. In order to modify child support there must be a substantial change in circumstances. Under RI Law, a new child support amount does not run retroactive to when the circumstances actually changed! The new order should run retroactive to the date of the filing of the motion.

Therefore, you should not wait too long after circumstances change until you file for a modification of Rhode Island Child Support. There must be at least a ten percent change for a modification to occur unless the party agrees otherwise. You should contact a Rhode Island Divorce or Family law lawyer / attorney to see whether you are eligible for a modification.

What may constitute a substantial change in Circumstances pursuant to Rhode Island family law?

1. unemployment


2. disability


3. new dependant child


4. decrease in income of either party


5. increase in income of either party


6. increase in cost of daycare


7. increase in cost of medical insurance


8. a change in the financial circumstances of the either parent such as inheritance, acquiring assets


9. either party obtaining social security benefits (SSI or SSDI) or afdc benefits


10. new RI Child Support Guidelines promulgated.


11. loss of overtime income


12 a substantial bonus of either party


13 any other change in circumstances that is recognized by the Court.

Child support contempt in Rhode Island (RI)

If a person violates a Rhode Island Family Court order by not paying child support, the parent with physical custody may file a motion to hold that person in contempt for failure to pay. A person accused of not paying has a right to a hearing. The obligor parent has the right to proper notice under the Rhode Island Family Court Rules.

If the person owed child support (the parent with physical placement / custody) is on AFDC Benefits (welfare) than payment may be owed to the state of Rhode Island. In that event, the motion may be initiated by the State of Rhode Island, Child Support Enforcement rather than the father or mother with physical custody of the minor child.

A contempt proceeding could be part of a Rhode Island divorce, child custody, Complaint for separate Maintenance, dcyf petition, child visitation, paternity or other type of Family Court legal action. If there is a potential for incarceration and a person cannot afford a Rhode Island Family Law lawyer / attorney then the Family Court must insure that the person has an attorney representing him or her. The Judge usually has a list of Court Appointed attorneys who are paid for by the state. Otherwise, the Court will appoint one of the lawyers from Rhode Island Legal Services to represent the person.

There is often an opportunity to settle the matter prior to any hearing in which a judge may find a person in willful contempt. A settlement typically may include any one of the following or a combination of the following or something different: the obligor agreeing to remain current, paying a lump sum, a payment plan, staying current in addition to an arrearage order, etc.

In some situations, the parent with physical custody or Child Support enforcement is unwilling to settle the matter and insists on a hearing.

Technical contempt

If a person is found in technical contempt after a hearing, it means that the person has not complied with the child support order. However, the Court believes that the person had a legitimate reason or excuse for failure to pay, such as loss of job (being fired, laid off), decrease in income, disability, injured at work, unable to work, medical problems, or a myriad of other excuses or explanations. The judge also may not accept any of the above stated excuses as justification for failure to pay.

A person found to be in technical contempt will not be sentenced to the Adult Correctional Institution (aci) (jail)! However, the person may be ordered to find employment, raise a lump sum, stay current and / or make payments on the arrearage, pay attorneys fees, make certain lump sum payments, obtain a second job etc.

Most Judges have little patience for people who do not support their children. If the person has an excuse for nonpayment it better be a good one or they may find themselves in Jail. The amount of arrears and the person’s history for compliance or noncompliance is often crucial in a judge’s determination! If a person has a long history of nonpayment then that person has a much higher likelihood to be held in willful contempt.

The more a person owes the more likelihood that the person will be held in willful contempt.

At a hearing the judge will look at all relevant supporting documentation that has been offered into evidence. The judge will almost always ask what the person can pay at that moment or whether they are able to immediately borrow money from friends or family. The Usual Dialogue is – “how much can you come up with to stay out of Jail and how quickly can you pay?” The RI Family Court judge may also be interested in whether a person has assets that he or she can sell.

If a person’s circumstances change then they need to file a motion to modify or suspend their child support rather then not make the payments! Child support does not automatically modify upon circumstances changing. If a modification is granted then the modification will be retroactive to the date of filing of the motion to modify not the date the circumstances actually changed. This does not mean that a person can unilaterally change their child support when they file a motion. It means that the child support will run retroactive after the Family Court issues an order modifying the child support. Therefore, if a person loses their job, becomes disabled, their hours are reduced or their pay decreases they must immediately file a motion to modify.

Child support can only be changed or modified if a motion is filed and an order enters. In many instances the judge’s response to a person’s plea to not hold them in contempt because they lost their job or their income decreased will be something like: “you should have filed a motion to modify or suspend child support when your circumstances changed rather than not pay.”

Willful contempt

A finding of willful contempt means that the judge believes that a person is thumbing their nose at the Court or has no reasonable justification for nonpayment. It could result from the judge not believing that the stated excuse for nonpayment is a justifiable excuse. A finding of willful contempt could also mean the following: 1) the person has the ability to pay and has not made payment 2) the person has not made proper efforts to find suitable employment 3) the person is able to work yet either isn’t working, is underemployed or not making proper efforts to find employment.

The judge may believe that the contempt is willful because the person is lying, exaggerating his excuse or that the person is not acting in good faith.

If a person is found in willful contempt for not paying Rhode Island child support, the person could be sentenced to the aci from day to day. Contempt sanctions are technically not criminal proceedings! However, since the sanctions could lead to jail time, they are quasi criminal proceedings. Contempt proceedings are not technically criminal because they are intended to compel compliance with child support orders rather then punish for nonpayment!

If a person is sentenced to the aci from day to day, then the judge of the Rhode Island Family court will usually state that upon payment of certain amount the person will be released from jail. In child support contempt proceedings there is always a ticket out of jail by making a certain payment. A person could be held in willful contempt and not be sentenced to the aci.

Terminating Rhode Island Child Support:

How do I terminate my obligation and stop wage garnishment in Rhode Island?

In Rhode Island (RI) child support does not automatically terminate when a child reaches 18 years old! Termination of a child support order is not automatic in Rhode Island! An order / obligation will only terminate if a motion to terminate is granted by a Judge of The Rhode Island Family Court. Unlike a motion to modify child support, a DR6 financial statement is not necessary unless there is an additional child in which an obligation will continue. If there is an additional child under 18 then a motion to terminate is really in essence a motion for modification of support.

Pursuant to RI law, child support is eligible to be terminated upon a child attaining the age of 18 and graduating high school but not longer then the child turning 19 years old. If the child is 18 years old and still in high school than child support may continue until the child graduates high school but not longer then the child attaining the age of 19. If a child is determined to be seriously disabled then child support may continue until the child attains the age of 21. If the Judge finds good cause the child support might continue for three months after graduation from high school.

A person should file a motion to terminate approximately 30-40 days prior to the child’s graduation from high school. If the child did not finish high school then a person should file their motion 30-40 days prior to the child’s 18th birthday. It will take a approximately 30-40 days until the clerk can schedule a hearing for the termination motion.

After the motion to terminate, the attorney must submit proper documentation and orders to the court, the obligors employer (to stop wage garnishment) and to the reciprocal clerk (to amend the computer records) If the computer records are not updated then the computer will continue to show an arrearage which may cause problems including automatic intercept of your tax refund, inability to obtain a passport among other problems.

What County in the Rhode Island Court system will the child support case be heard?

Al the counties in Rhode Island (Providence, Kent, Newport and Washington County) follow the same general rules and procedures. Providence County includes East Providence, Providence, Cranston, Cumberland, Barrington, Bristol, North Smithfield, woonsocket and other towns and cities. Kent County includes Warwick & North kingston, East Greenwich as well as other towns. Newport County includes Newport, Middletown & Portsmouth. Washington County includes South Kingstown, Wakefield, narragansett etc.

Legal Notice per Rules of Professional Responsibility:

The Rhode Island Supreme Court licenses all lawyers and attorneys in the general practice of law, but does not license or certify any lawyer/ attorney as an expert or specialist in any field of practice.



By: david slepkow

What is a Cost Segregation Study? Cost Segregation is a lucrative tax strategy that enables commercial property owners to claim more deductions and lower their overall tax liability— which yields immediate cash flow gains.  The objective is to accelerate depreciation for tax purposes. Property Allocation Consultants, LLC., is a national company based in Huntington, New York that provides comprehensive engineered ‘cost segregation’ surveys.  “A quality study is a factually intensive determination that is based on complex tax law and engineering analysis.”  (IRS)  PAC is a complimentary resource for Commercial property owners, CPAs, Tax Certiorari attorneys, Commercial real estate brokers, Title firms, Appraisers, 1031 Exchange services and other professional companies involved in Commercial Real Estate.

Objective of a Cost Segregation Study

A cost segregation highlights component cost for personal and real property providing ability to retire assets as renovation or replacement is needed.  PAC adheres to the “IRS 13 Principle Elements of Quality.”  We stand behind our reports which have never been audited.  However, our audit support policy will protect you in the unlikely event of an IRS examination at no additional cost.

Case Study

A REIT purchased a Texas office building and engaged PAC to produce a cost segregation study.  PAC engineers and architects performed a comprehensive inventory of the land, building, and ancillary improvements according to IRS guidelines.  When  evaluating their purchase decision, the client had estimated its first year depreciation allowance at $384,000 based on straight-line depreciation schedules.  The PAC analysis identified significant opportunities to reclassify assets as personal property and land

The RESULTS:   Total 1st year depreciation deduction amount

                             $800,000

                            Total 1st year tax benefit (1st year depreciation x tax rate of 39%)

                             $312,000

 



By: Hk@pac

Getting help with an IRS problem is certainly possible when you turn to an expert negotiator. Problems with the IRS are frightening, because most people have heard the horror stories of asset seizures and wage garnishments. But a horror story doesn’t have to become your story when you turn to an intermediary who understands how the IRS works.

Turning the Tables on the Government

There was a day when the IRS was in trouble with the government. People had gotten sick and tired of the agency’s collection practices. The IRS had become a despot organization issuing orders without regard for people’s rights as American citizens.

By 1997, when you needed help with an IRS problem it really didn’t matter, because no one cared about your tax issues. You either paid up when the IRS demanded the money or your account began to go through a series of collection activities including liens and levies and seizures. Congress finally responded to constituent complaints and began a congressional investigation.

What emerged was a horrifying story of government agents taking people’s homes and business, IRS agent abuses, and even a complete indifference to its own rules. The IRS had become an all-powerful agency that no one dared cross.

The congressional hearings turned the tables on the government and began a period that has led to plenty of opportunities for taxpayers to gain a voice when needing help with an IRS problem. Most people admitted during the hearings that it was great watching the head of the IRS agency finally having to explain their high handed policies and procedures.

Within the Law

It’s interesting that Congress had to remind the IRS they have to live within the law. How can a USA agency become so powerful they feel as if they don’t have to obey the laws of the country? Fortunately, Congress instituted a number of changes in the Internal Revenue Restructuring and Reform Act of 1998.

These changes shouldn’t have been necessary, because they basically instructed the IRS to follow the law of the land. But since they were necessary, it’s great news for those who needed help with an IRS problem. If you are in trouble with the IRS there are much recourse you can take to get the problem solved no matter how severe it might be.

A tax negotiator is a specialist who clearly understands the power of the IRS and the power of the citizen to protect their property when operating in good faith. But one thing has not changed since 1998 and that’s the fact you should not try to deal with the IRS alone. The IRS is still powerful, still high handed and still ready to seize your property.

If you need help with an IRS problem, the best step you can take is hiring a tax negotiator who has years of experience.



By: William McConnaughy

Do you owe money to the IRS? Are you afraid that you are on the verge of things getting worse? If so, or you are in a similar position, you need to obtain tax debt help as soon as possible. There are many ways to get help, but only some (or maybe one) will work for somebody in your position. Obtaining the right tax debt help is all about knowing what you are doing, how to move forward, and which help is best for you.

A good place to start is learning the different ways to pay off your debt. If you do not know how to do this you have no way of getting started. Your options include: paying your debt in full with one lump sum payment, installment agreement, offer in compromise, partial payment installment agreement, uncollectible status, and bankruptcy. As you can see, you have many things to think about.

How are you going to choose the best method? This is when you need to seek out tax debt help from a professional. Unless you know everything already, which you probably don’t, hiring a professional is probably in your best interest. You can hire a traditional tax professional, a certified public accountant, a tax attorney, or an enrolled agent. Once again, you have an important decision to make. Fortunately, once you hire a professional they can then work with you to decide which way of getting rid of your debt would be best.

Now do you see the many ways to obtain tax debt help? It starts with knowing how to pay back your debt, and moves into hiring a professional who can help. Some people don’t give a second thought to finding professional help, but this is really something you should think about. It is much better to have somebody with experience negotiating with the IRS than you trying to do it on your own.

Obtaining tax debt help is not impossible. Once you compare strategies and hire a professional you will be well on your way to devising a plan, putting it into action, and eventually escaping all your debt.



By: Matt Robinson

An IRS debt attorney is a dedicated professional who has extensive knowledge and experience in the area of negotiating tax settlements. Businesses have special issues related to taxes that individuals don’t face. For example, businesses are the front line wealth collectors which conveys a heavy responsibility within a bureaucratic system.

Padlocked Doors

One of the saddest sights you can see in this country is a business that’s been virtually ransacked by the IRS and the door padlocked. When a business collects employee taxes and then fails to remit those taxes to the IRS, the collection process kicks into gear swiftly. One reason for this is the fact that the income portion of the withholding actually came from wage earner checks and not from business profits.

One of the most common tax problems businesses face is failure to pay taxes due to the IRS on a quarterly basis. In addition, businesses are required to file a number of reporting forms. Every deposit not made and every form not filed can result in penalties and interest being charged.

Failure to remit taxes is a serious problem, and it’s also like an avalanche. Once a business falls behind, it’s hard to catch up. There are different types of taxation such as income, social security, unemployment and business taxes which need to be paid regularly. The forms are complicated to make matters worse. Businesses make mistakes on the forms which create another tax problem.

An IRS debt attorney is a valuable resource for dealing with problems related to businesses. A typical small business has over 200 IRS compliance requirements which can trip up a business at any time. When mistakes are made or taxes are not remitted in a timely manner, retribution by the IRS can be swift and expensive.

Finding the Padlock Key

One of the main bargaining points a business has during negotiations with the IRS is the fact that by staying open there’s hope of paying back the owed dues plus accruing additional future taxes. An IRS debt attorney can present a plan for payback that enables the business to continue operating. In this way employees don’t lose their job and the IRS gets their money.

Such negotiations can be quite sensitive though. The business has already lost credibility in the eyes of the IRS for failure to remit taxes held in trust. The best hope for restoring that trust is through the intervention of an intermediary such as an IRS debt attorney.

An IRS debt attorney can work out a settlement or payback plan or get penalties abated by showing there was reasonable cause for failure to pay. The attorney is familiar with all the options for tax negotiation and can get the best compromise offer possible. If you have a business with taxation problems, it’s important to get assistance immediately so resolution can be found as early as possible.



By: William McConnaughy

Millions of people dream about owning their own business. Having the independence that being your own boss brings, the security that no one can fire you, enjoying a good income – and for the most successful – the accumulation of wealth and prosperity. Unfortunately, the cards are stacked against a new small business making it big – or making it at all. An endless stream of problems makes competition from large, sophisticated chains too intense. Many new start-ups end as failures.

Buying a franchise represents a different approach to starting a business.  For an upfront franchise fee plus ongoing royalty payments, the parent company teaches its business model and methods to the franchised-operator who shoulders all operating and financial responsibilities of the outlet. Some statistics are impressive: it is said over 40% of all U.S. retail sales are through franchised establishments. While franchise giants like McDonalds, KFC, H&R Block and Radio Shack are familiar, household names, franchises are available in a wide range of industries. The list of 3,000-plus companies selling franchises span over 100 different industry categories.

American Dream … Or Nightmare?

But just as franchising represents a chance to get rich, it’s also a chance to get stung. An alarming number of franchised operators make less than the minimum wage, working seven days, sixty to eighty hours a week, pursuing an expensive and elusive American Dream that turns into a nightmare. Since the ongoing franchise royalty payment comes right off the top, as a percentage of gross sales or a fixed minimum amount, the franchise company gets an assured revenue stream, even if its franchised units are operating unprofitably and are sold over and over again to new, unsuspecting buyers. The internet is filled with comments of the many people who lost $250,000 and more on concepts like eBay Drop off stores (iSold It), 30 Minute Fitness concepts (Curves), The UPS Store, etc. Yet many of these companies continue to sell and resell franchises over and over again. How do they accomplish that? Because there are enough people who think they can “believe” their way to success, even with a concept or business that’s not working in the marketplace. As discussed below, in many cases franchise investment decisions are incredibly based on emotionalism, not on business logic or even common sense.

Ownership And Being Your Own Boss?

Pride of ownership and being your own boss are highly touted phrases in franchise recruitment ads. But these are more fantasy than reality. Although you get all the financial exposure, headaches and stress of business ownership, what do you really own? A franchise owner is merely licensing a trademark (or service mark) from a company that dictates every detail of business operations. So the real boss isn’t you, but the company that sells you their franchise rights . . . and sea of franchise obligations.

Equity Build up?

But at least you’re building up equity, the ownership value of the business as a going concern beyond your investment of money, to compensate for all those years of hard work and long hours – right? Wrong – at least in the world of franchising. The franchise company reserves rights to acquire your entire business at below wholesale prices if their contract is not followed precisely. The acquisition rights provide for predetermined asset-based valuations, like book or liquidation value. These valuation methods provide bare minimum compensation (the used value of some file cabinets, office furniture, equipment, etc.) and are not generally used to determine the selling price of any business.

Absolutely no compensation is paid for established goodwill, the value of a business that is generating $X in profit or cash flow every month after years of effort, investment and expense – thus eliminating the most valuable ownership asset. Of course, you may be able to sell your franchise to a third party for a sales price that includes an earnings-based valuation. But that’s possible only if:

(a) you can find a buyer who is willing to live within the complexities of a franchise relationship, and

(b) you happen to own a franchise that’s showing healthy profits.

What follows is a bottom-line franchise checklist and tips compiled by franchise attorney and franchise expert, Mr. Franchise, based on reviewing over 500 franchise offering circulars and twenty-eight plus years of experience in the franchise industry – including ownership of a very successful franchise. These factors to consider in making a franchise investment will help you eliminate 95% of the companies you are considering. Then, you can concentrate your efforts on the 5% “cream” of the crop” companies that may deserve consideration. This franchise checklist assumes you’re suitable for and willing to live within the confines of a franchise relationship. It also assumes the franchise company:

(1) has itself successfully operated the concept being franchised for at least five years at multiple locations;

(2) is not plagued by franchise litigation and franchise lawsuits from disgruntled franchise owners;

(3) does not have unusually high franchise attrition rates (owners who have “left the system”); and

(4) has a balanced, fair franchise contract.



SOLD It – An American Dream That Turned Into A Nightmare

An example of a franchise company in trouble that failed to meet basic threshold standards is iSOLD It, an eBay drop-off store franchise. The company started its one and only company-owned store in November of 2003. Just weeks later, on December 10, 2003 they filed an application to sell franchises. The California Department of Corporations didn’t say “What are you thinking? You’ve only been in business a couple weeks, how can you even consider selling franchises?” Nor did they require this be disclosed as a risk factor on the cover page of the Franchise Offering Circular, as it should have. Disclosure responsibilities ultimately rest with the company (and its attorneys), and this will become one of many issues in future franchise litigation.

Instead, the Department simply collected its $675 filing fee and issued an order declaring the franchise registration effective the next day – on December 11, 2003. Then the magic of franchise marketing  took over. By 2006 the company had nearly 200 franchised drop off stores in operation and was touted by Entrepreneur Magazine as #1 in their list of “Top New Franchises for 2007” and #17 on their “Hotter Than Hot” franchise list. Entrepreneur Magazine, which requires franchise companies to submit their FOC’s (Franchise Offering Circulars) for supposed review each year before they’re listed, didn’t consider the high attrition rate (franchise owners leaving the system) or the fact that the audited financials in their FOC showed the company hadn’t operated profitably since 2004 as serious negatives and awarded iSold It the #1 listing for Top New Franchises of 2007. How did all of this happen? It’s yet another bizarre reality in the world of franchising.

The franchise company’s audited financial statements for the year ended 12-31-05 showed an operating loss of $1.1 million. Nine months later, in September of 2006, the net operating loss mushroomed to over $4 million.

In its November 3, 2006 Franchise Offering Circular, the table in Item 20 disclosed a total of 10 franchise owners leaving the system, yet a hand count of Exhibit D-3’s “Former Franchisees” revealed a significantly different number – 44. A similar “discrepancy” exists about franchise transfers. Item 20 says 12 transfers whereas Exhibit D-3 discloses 27.

In a long overdue letter distributed to franchise owners on April 5, 2007, CEO Ken Sully painted a dire picture of an American Dream that had turned into a nightmare. Mr. Sully’s letter admitted the company has not been profitable since 2004 (according to the audited financials, the company showed its one and only operating profit of $356,286 in 2004 before the precipitous downward spiral of 2005 and 2006). Over 60 franchised stores have closed and many more are struggling for survival. Mr. Sully observed “Tragically, many individuals who believed passionately in the potential for the category have lost sizable investments, including homes and retirement savings.”

Lost homes and retirement savings? How could such a travesty happen? I counseled a number of persons considering an iSold It franchise and warned all of them against the investment. Fortunately, they followed my advice. The concept was never proven in the marketplace before franchise efforts began, violating the most basic Franchise 101 precept. I also felt the management team lacked strong franchise credentials and the five-day training program was woefully inadequate. Finally, the franchise company was operating increasingly in the red and had a high attrition rate (owners leaving the system). It didn’t take a lot of brain power to see this was an accident waiting to happen. I predicted the bubble would burst and, sadly, it did.

Common sense could and should have prevented so many people from losing so much. Unfortunately franchise sales persons appeal to emotions (passions and potential, to use Mr. Sully’s terms) and strive to keep common sense and business logic out of the buying equation. If a franchise company is able to obtain a ranking on a media list, the sale is even easier. Reprints of high rankings on lists, like Entrepreneur Magazine, are included in the package given to franchise buyers, who are lulled into a false sense of security and begin to stumble over each other in a rush to sign up before someone else takes their desired territory (another favorite closing technique used to sell franchises).

iSold It! amended its FOC at the end of May, 2007 to add some long overdue risk factor language to the cover page of its Franchise Offering Circular. Hmmmm… maybe they read my comments above and did a little research. The new FOC cover page risk factor language says their “franchise system is still new and unproven.” That’s very interesting. How can they say a franchise system, that’s approaching its fourth anniversary, is “still new?” Maybe they’re looking at things from a ‘how old is our universe’ perspective? The word “unproven” is another play on words. The system is most certainly proven in the sense that many people, to quote Mr. Sully, “have lost sizable investments, including homes and retirement savings.” So why not use this quote directly in their Franchise Offering Circular? Answer: can’t sell any franchises that way.

In an August 31, 2007 Business Week article, CEO Sully claimed it wasn’t necessary to disclose these risk factors in the FOC. His reasoning: “We told everybody that this is sort of like the wild, wild West” he says. “It’s a brand-new concept and nobody knew for sure where it was going.” Disclosure was added to the UFOC recently, he says, “because of the number of stores that weren’t understanding the complexity of the business.” Hello? You don’t tell your franchise investors after the fact what you were required to disclose in the FOC before they bought so they could make an informed investment decision. That’s the purpose of franchise disclosure laws. And claiming written disclosure of risk factors in the FOC is not necessary if a prospective buyer hears a salesman’s verbal wild, wild West story ignores franchise disclosure responsibilities and is really an admission the company failed in this regard. With its amended FOC, the company incredibly continues marching forward with franchise marketing efforts.

Now, let’s consider the franchise checklist and factors to consider before any leap into franchising.

INDUSTRY TREND

Is the franchise in a cutting-edge industry that is doing well currently and is projected to do well in the future despite any economic slowdown? Education and home-improvement services are stable categories. Food is over-saturated generally and, except in exceptional circumstances, is not worth the high investment, long hours, headaches and marginal income.

TOTAL INITIAL FRANCHISE INVESTMENT

In general, don’t expect a franchise that requires a five-figure initial franchise investment to produce a six-figure income. As with most things in life, you get what you pay for. On the other hand, don’t assume a six-figure investment will lead to a six-figure income level. Be realistic and conservative. Is the total initial franchise investment range (including working capital) $125,00 or less; and the maximum investment less than $200,000? You can find solid companies in this investment range if you’re willing to look around.

Don’t forget to consider long-term financial commitments, particularly the real property lease (see discussion below under “LEASING AND LOCATION”). Also, the working capital estimate (called “additional funds” in Item 7 of the company’s franchise offering circular) does NOT cover operations up to the break-even point. It only covers a short initial phase (usually only three-months) of operating costs As the break-even point (where revenues cover all operating costs) may not happen for one, two or more years, knowing only what it’s going to take to get you through the first 90 days is not helpful – in fact it may set you up for financial suicide. In many cases, reaching the break-even point can require more reserve funds than the total initial capital investment. Don’t ever forget the name of Item 7 in the Franchise Offering Circular: “Initial Investment.” If you don’t have enough reserve capital to reach the critical break-even point, your entire investment will go down the drain and franchise failure occurs.

One franchise owner in a relatively low investment and low operating cost window cleaning franchise said his biggest surprise was how long it actually took his franchise to be profitable. Going in, he thought it would take 12 to 15 months. It ended up taking twice that time. Fortunately, he had enough reserve capital to make it there, but declined to say what his actual franchise profits or income level were once he reached “franchise profitability.” If you’re operating just above the break even point and making less than minimum wage, is that anyone’s definition of success?

REAL BUSINESS

Is this a legitimate retail business, as opposed to a “work out of your home” operation? The vast majority of work out of your home concepts produce marginal income at best.

FRANCHISE MANAGEMENT EXPERTISE

Does the management team of the franchisor (the company selling you the franchise) have executives with demonstrated past achievement and experience in operating a franchise company (not just persons who have sold franchises)? If not, this is a big RED FLAG. Many companies enter franchising and fail to realize they are in a brand new business – one requiring entirely different management skills and abilities to navigate franchise relationships. A seasoned franchise management infrastructure must be in place. If the franchise management team lacks strong franchise credentials, or does not receive ongoing advice from qualified individuals, you might as well take a trip to Las Vegas with the money you’re intending to invest. Your chances of making vs. loosing money are roughly equal.

NORMAL WORKING HOURS AND DAYS; SUFFICIENT FRANCHISE INCOME LEVEL

Will the nature of the business allow you to work a normal five-day, forty-hour workweek? Life is too short for the seven-day, sixty to eighty hours a week, workaholic lifestyle that destroys health, family and pocketbook. Financially, we’ve calculated the true hourly rate for franchise owners who work these workaholic hours and discovered many are making far less than the minimum wage. One couple who operated a $200,000 fancy pizza franchise in an upscale mall were shocked to discover they were making fifty cents an hour each. Hardly an income level to recoup or justify the franchise investment. Many more fast-food franchise operators make even less, or operate at a loss until their funds, retirement savings, homes, etc. are exhausted. Buying a franchise in a non-food industry doesn’t necessarily improve the franchise profit picture. In a 2006 article “Mail Boxes Etc. Owners Fighting UPS Conversion,” a Mail Boxes, Etc. franchise owner who operated his franchise since 1993 reported profits for a typical MBE store like his were $16,000 per year after paying royalty and advertising fees to the franchise company. That calculates out to about $8.33 per hour for a forty-hour work week, approximately the wage of an entry fast-food worker.

Another major shortcoming of disclosures in the Franchise Offering Circular is not telling you how much money the franchises in the network are making. Instead of answering what is the most important question in a franchise investment decision, the franchise disclosure laws make this “optional” for the franchise company to answer or not. If they do answer this critical question, it will be found in Item 19. But don’t hold your breath – more than 90% of franchise companies “decide” not to answer this question. It’s another bizarre reality in the world of franchising. Although they collect complete monthly (and in many cases, weekly) financial profit and loss statements from their franchise owners, and know exactly how much their franchises are making (or losing), more than 90% decide not to share this information before you buy one of their franchises. A number of franchise salespersons have told persons asking this question: “the franchise laws don’t allow us to answer that question.” Nothing could be further from the truth.

And just because you’re a business executive making a 6-figure income now, don’t assume this income level will be duplicated in a franchise investment just because the company “approves” your application. One such executive, despite a plethora of negative feedback from current and past franchise owners who’d lost everything, marched forward with her franchise investment in a 30-minute fitness concept. Despite her 6-figure income, she didn’t invest a dime in professional franchise evaluation advice and stated she was taking a leap of faith, hoping to build her wings on the way down. Build her wings on the way down? Sound’s (and is) crazy, but this happens all the time. Due to the ploys of the franchise salesperson, too many franchise investment decisions are based on emotionalism. Prior business skills, business sense (and even common sense) are short-circuited. Needless to say, if this business executive made a similar investment decision for her corporate employer paying the 6-figure salary, she would be promptly fired.

MINIMUM NUMBER OF EMPLOYEES

Can you operate the franchise business with 6 or fewer employees? Managing dozens (or in the case of some fast-food operations – hundreds) of minimum-wage teenagers who are constantly quitting or simply not showing up for work is a royal pain in the ….. Well, you know what we mean.

LEASING AND LOCATION

For most retail franchises, the triple net lease of the location is the biggest financial commitment, larger than the total franchise investment. Yet, the typical real estate lease and its ramifications are not required disclosure in any Franchise Offering Circular (FOC). For example, an estimate that you’ll need 2,000 sq. feet of space with expected rental of $5 to $10 a foot per month is normally disclosed in the Franchise Offering Circular’s initial investment table as Leased Real Estate $10,000 to $20,000. A footnote to the investment table may say “assumes 2,000 sq. ft. at $5 to $10 a foot.”

But, that’s only the beginning of a much longer story. The lease is normally a 5 to 10 year triple-net lease. So, the financial commitment made when the lease is signed is at least $600,000 (at $5/foot for 5 years) to $2,400,000 (at $10/foot for 10 years). And this doesn’t include substantial, additional obligations to pay all of the landlord’s yearly property taxes, insurance, common area operating expenses, etc. With hundreds of thousands (or even millions) of dollars in financial obligations at stake, personal guarantees and other risks, more than just a warm, fuzzy feeling that everything will work out is necessary.

Key questions to ask here:

(a) is the franchise you’re considering one that can be operated in a low rent commercial business zone? Avoid franchises requiring the costly expenses and triple-net leases of a visible retail storefront and the extravagant rent associated with areas of high foot traffic, like shopping malls. You’ll sleep much better at night.

(b) What’s your total financial commitment under the lease?

(c) Do you have sufficient liquid assets (or a willing, sufficiently liquid third party guarantor) to meet the landlord’s lease qualification standards?

If you don’t, you might as well forget about investing in the franchise. Or even worse, getting involved in a questionable franchise and business model, then realizing you’ve made a big mistake – and discovering you’re on the hook personally for a $500,000+ lease obligation.

A related real estate variant is securing a lease with a sufficient term (with renewal options) to recoup your investment and make a profit. In July, 2005, an attorney in her mid-forties purchased an existing ice cream store franchise for $375,000 believing it to be a “once-in-a-lifetime opportunity.” Trading her briefcase for an ice cream scoop, she attended the company’s 11-day Ice Cream University and assumed operations of the ice cream store. Turned out it was an opportunity – but only to inherit a store with numerous problems. These problems included (but were not limited to) a lease that would expire the following summer and a landlord who’d previously announced the lease would not be renewed. Rather than pay the $100,000-plus in relocation costs, the attorney returned to the practice of law, but is still paying off $350,000 remaining on the loan taken out to buy the once-in-a-lifetime franchise opportunity. Although there’s a franchise lawsuit pending, it’s yet another case of “franchise fever” – this time attacking a professional no less. Who would ever commit to paying $375,000 for an existing retail franchise without checking out the l-e-a-s-e? Sound’s like another bad attorney joke, but I can guarantee she’s not laughing. Business fundamentals were ignored or forgotten in the rush to acquire the opportunity of a lifetime. And I’m willing to bet not a dollar was spent on competent, pre-investment franchise advice.

IMAGE AND LIFESTYLE

How does flipping burgers, scooping ice cream and cleaning restrooms fit the image of what you want to do for a living? Investing in a franchise will be the most important financial and psychological decision you ever make. Many prospective franchise owners fail to realize they’ll be wearing virtually every hat at some point, from salesperson to bad-debt collector, from firing employees to bathroom janitor. The franchise owner is usually the first one to arrive in the morning – and the last one to turn out the lights late at night. And you’ll need to forget about corporate perks like paid vacations, paid holidays and sick pay. In their place, substitute financial pressures, unexpected events and money draining out of your savings and retirement accounts. Does the typical working day and responsibilities of the franchise you are considering fit your personal image and desired lifestyle? You can experience some of this BEFORE you invest by working for a couple weeks in an outlet owned by one of the existing franchise owners.

TRUE FRANCHISE VALUE

Buying a franchise from a “blue chip” franchise company that has spent decades and hundreds of millions on advertising to develop their brand can make a lot of sense. These companies have “true franchise value” that compensates for the long-term disadvantages of ongoing royalty and advertising fund payments. Often these additional payments literally mean the difference between earning a profit and operating at a loss. In unknown franchise chains with little or no brand recognition, you the franchise buyer are building their brand from scratch, and are saddled with severe, long-term competitive disadvantages.

In these unknown franchise chains, you have to ask yourself a simple, common sense question. What value is the company giving you that you couldn’t learn on your own by working at one of their locations as an employee for a couple months? Franchise truth be told, what most unknown franchise companies are selling is just a business opportunity – teaching you how to get into a new business venture. But unlike a business opportunity seller that charges a one-time fee to help get you into business, they call it a “franchise” and charge ongoing royalty and advertising fees like they’re a McDonalds or other blue chip franchise company.

The reality is they’re not a McDonalds type franchise – not even close to one. In the majority of these lesser-known franchise chains, you’d be much better off starting an independent business on your own. You can learn most or all of their so-called “secrets” in the franchise interviewing process and by talking to (and possibly working a short time for) existing franchise owners.

FRANCHISE PROFITABILITY & “SUCCESS”

Dr. Timothy Bates’ study released in 1993 by the Entrepreneurial Growth and Investment Institute in Washington, DC (and another study published in 1996) was the first to compare start-up costs, franchise profitability and franchise failure rates for franchised vs. nonfranchised firms. In his analysis of some 7,270 firms over the test period, Dr. Bates found that startup capital for a franchised business averaged $85,293 compared with average startup capital for nonfranchised firms of $30,156. In 1987 nonfranchised firms reported average pre-tax net income of $19,744 as compared to a loss of (-$1,548) for franchised firms. Dr. Bates concluded “Despite their larger revenues, much better capitalization, and their supposed advantages of affiliation with a franchisor parent firm, the franchisees lag behind cohort young firms in profitability and rates of survival.”

The franchise companies ignore both studies by Dr. Bates, pretending they never happened. Instead, other techniques are employed. For example, some franchise companies use misleading success statistics to sell their franchises. Their promotional materials say franchises generally enjoy a 90% success rate, compared to less than 20% for independent firms. These figures are based on unverified information supplied thirty years ago by a select, non-representative group of franchise companies. A full third of the companies receiving “questionnaires “ elected not to participate. There was no verification of any of the information supplied by the franchise companies, not even random, spot checking. Nor was any effort made to identify franchise companies who, along with the franchise owners in their chain, had gone out of business.

Even more recent “studies” saying nine out of ten franchise owners (90%) consider their franchise to be somewhat or very successful also suffer from serious methodological flaws. These were simply telephone surveys of franchise owners who were still in business and asked to say (with absolutely no definition of the term “successful”) whether they felt their business was “very unsuccessful,” “somewhat unsuccessful,” somewhat successful” or “very successful.” Franchise owners who had gone out of business or bankrupt were not included in the survey.

Even if terms are defined and a representative sample obtained, franchise owners can be a quirky group. Hence the need, as in Dr. Bates’ studies, for review of financial data. I remember evaluating an existing franchise for a client. I asked the current owner of the franchise if his business was successful. He said it was very successful. But his financial statements revealed a different picture. He’d never taken a dollar out of the business for himself, never made a profit in two years of operation, and was on the verge of bankruptcy. Another owner of a bakery franchise, interviewed by Business Week, says being successful in franchising means “adjusting your definition of success.” He says he makes a profit, but declined to say what it is, or if he’s ever recouped his $250,000-plus initial franchise investment. Incredibly, he insists he’s in business “for lifestyle reasons, not profit reasons.” Huh? Probably a quote from the company’s franchise recruitment materials. In the world of franchising “success” and “profitability” are very subjective terms.



FRANCHISE BROKERS WHO FIND YOUR PERFECT MATCH?

Does the franchise you are considering have its own in-house marketing department, or does it utilize outside franchise brokers? The use of franchise brokers is a definite red flag. First, it indicates the franchise company is not very serious about who it lets into the franchise network, or even worse, they’re desperate to sell franchises. Second, franchise brokers receive a substantial commission up to 50% or more of the franchise fee you’re paying the franchise company. Franchise Broker Realities: (1) Their service is definitely not “free” despite these and other similar misrepresentations. It’s really common sense – how could anyone offer a “free” service and survive in business? Unfortunately, the common sense part of the brain tends to short circuit when the franchise brainwashing process begins. The simple truth is if you buy one of the franchises they’re hawking, your money goes to the franchise company, then into the broker’s pocket. If anyone ever calculated how much time they spend to collect their $15,000 or $20,000 commission, it’s probably a lot more than a brain surgeon earns. (2) Franchise brokers definitely do NOT have your best interests in mind. They will do or say whatever they have to in order to close a deal and earn their commission.

Many franchise brokers claim they will help you find a franchise company that is the perfect match for you. In the beginning it sounds good. There’s some personality testing and review of your personal finances. At the end of the day, it turns out they only represent (and steer you towards) a handful of small franchise companies you’ve never heard of before. A detailed analysis often reveals these highly touted franchises produce mediocre or even below minimum wage financial performance. Yet franchise brokers don’t mention this, and individuals continue to rely on their recommendations, believing the broker represents them. Nothing could be further from the truth.

Also, many franchise brokers call themselves franchise consultants. A franchise consultant is usually an independent adviser who offers advice to others (usually franchise companies or firms that want to franchise their business) for a fee. This makes their advice more impartial in theory as long as they are not compensated by third parties. Because they are not legally required to disclose actual or potential conflicts of interest, it’s important ask questions. For example, if you’re using a franchise consultant who is recommending the “best franchises,” are they paid anything by the companies on their list? This could be a commission, kick-back or consulting fee. As mentioned, many franchise brokers call themselves “franchise consultants” to hide their true identity. So, make sure if you’re dealing with a franchise consultant, he or she is not really just a franchise broker in disguise.

FRANCHISE DISCLOSURE LAWS

The franchise disclosure laws, while requiring franchise companies to give you certain, limited information, don’t come close to protecting your interests. For example, as discussed above, Item 7 of the Franchise Offering Circular only requires an estimate of additional funds for 90 days as part of the investment information. But economic reality is you need to know the additional funds you’ll need to reach the break-even point, which can be years away, or your entire “initial” investment will go down the drain. You’d think this type of information would be required by franchise disclosure laws, but it’s not.

FRANCHISE REGISTRATION LAWS

Don’t ever assume that because a company has registered its Franchise Offering Circular in your state, someone at the state has approved or reviewed the document in your favor. Franchise registration is obtained by simply forwarding documents and paying a filing fee – period. In most cases, franchise offering circulars are given an extremely limited review to ensure state-specific disclaimers are present.

I remember filing a registration application for a new franchise company in a state with a reputation for being one of the “toughest” franchise registration law states in the country. After the three-week review period set forth in the statute had gone by, and not hearing anything, I called the examiner assigned to the application. After looking through his files, he finally found my client’s offering circular and application. He apologized for entirely misplacing the file and promised to immediately review the application and call me back. Ten minutes later, he called to say he’d finished and was making the registration effective that day. Ten minutes of review and the franchise company was given the state’s green light. This is not an isolated case – it happens all the time.

WHAT STANDARDS MUST A FRANCHISE COMPANY MEET TO SELL FRANCHISES; ARE THERE ANY REQUIREMENTS TO FRANCHISE A BUSINESS?

Incredibly, the answer is – none. There are no minimum standards or requirements to franchise a business except preparing a Franchise Offering Circular. It’s yet another bizarre reality in the world of franchising.

You and I could have no background in any business, form a new corporation or LLC, capitalize it with only $1, put together a Franchise Disclosure Document and file it with any franchise registration state. While the offering may be subject to an impound or escrow requirement because of the low capitalization ($1), we’d still get “registered” and be able to sell as many franchisees as we want.

In these 14 franchise registration states, we may not be able to receive any money until each franchise actually opened, but simply posting a bond would alleviate this difficulty in the franchise registration states. And in the vast majority of states there are no franchise registration laws, so we’d be able to sell franchises and collect fees with impunity once we compiled our Franchise Offering Circular. The federal FTC Franchise Rule doesn’t protect against this risk either – it only requires disclosure (i.e. provide a Franchise Disclosure Document) and has no registration component or minimum standards for franchise companies.

Basic investor protections and requirements found in both federal and state securities laws for over 50 years were never carried over to franchise investments. While most non-blue chip franchise companies could never even qualify to sell you a single share of stock in their company, they are entirely free to collect unlimited franchise fees, ongoing royalties, equipment and other purchases, as well as cause you to incur financial obligations totaling hundreds of thousands of dollars, or even millions in some cases. This isn’t information you’re likely to find in the glowing articles about franchising and franchise companies prevalent in the media.

CLOSING REMARKS

Remember, you are the only guardian when it comes to your franchise investment. It’s definitely an environment where the phrase “Buyer Beware” applies. So, before you sign on the line and make what will undoubtedly be the most serious financial and emotional commitment of your life, get all the facts and figures.

One couple I counseled after-the-fact, invested $2 million in a new franchise company. The contract they signed gave them no right to terminate, no matter what the franchise company did or didn’t do. Of course, the contract gave the franchise company unlimited termination ability, a right it had exercised. The franchise company’s management team had no one with experience in running a franchise company. Incredibly, the couple had not spent a dime on legal or business advice before investing $2 million. The once friendly franchise company had transformed into a formidable foe and was poised to take over their franchise. Sadly, this happens too frequently in franchise investments. Decisions are made on fuzzy feelings and emotionalism. In an effort to save a couple thousand dollars, franchise investors risk homes, retirement savings, everything they have. Then they scratch their heads in amazement later on after inevitable and often horrific problems develop, wondering how they could have been so nearsighted.

Another indispensable level of inquiry is whether you’re getting true franchise value and whether you’d be better off doing the business on your own. In the overwhelming majority of franchises touted by unknown companies, franchise value isn’t there and doing the same thing independently makes better economic sense and actually decreases the risk of failure.

Finally, and this applies to franchise investments as well as investing in any business venture, develop a plan to succeed but also plan a franchise exit strategy that minimizes financial risk in case things don’t work out. Both plans need to be thought through before the investment is made. Don’t wait until problems develop to start thinking about a franchise exit strategy – by then it’s usually too little, too late.

For more information, visit the Franchise Foundations Website.

© 1990-2008, Kevin B. Murphy, B.S., M.B.A., J.D. – all rights reserved



By: Kevin B. Murphy, Franchise Attorney, MBA – Mr. Franchise

Qualify for an IRS Installment Agreement and Save Money by Negotiating the Lowest Possible Monthly Payments

IRS Announces Unprecedented Opportunity for Recession-Burdened Americans to Settle Outstanding Tax Debts

Struggling taxpayers may be eligible for tax breaks as the IRS eases enforcement and collection efforts to help Americans in financial distress. Because of the extraordinary challenges of today’s economy, the IRS is pledging to be more forgiving of Americans who have fallen behind on their taxes due to unusual financial hardship.

And one way you can settle your back taxes is by negotiating an Installment Agreement with the government that that allows you to pay liabilities over time.

If you cannot afford to make monthly payments and don’t qualify for another type of tax relief, such as an offer in compromise, there are other options including negotiating that your account be placed in a \”currently not collectible\” status so that you will not be required to make payments and the IRS will not pursue collection action.

What is an IRS Installment Agreement?

An Installment Agreement is a payment arrangement whereby the government allows a taxpayer to pay liabilities over time. Once a payment plan is established, the IRS will not take enforced collection action, including the levy of bank accounts or wages, as long as the taxpayer remains current with all filing and payment obligations. However, interest and penalties would continue to accrue until the outstanding balance is satisfied. Additionally, a tax lien may be filed as part of the terms of the installment payment agreement, depending on the amount of the total liability.

How to Negotiate an IRS Installment Agreement and Set Up a Payment Plan for Your Tax Debt

The IRS encourages taxpayers to pay what they owe as quickly as possible. For those individuals or businesses not able to resolve a tax debt immediately, an installment agreement can be a reasonable payment option. Installment agreements allow for the full payment of the tax debt in smaller, more manageable amounts.

In most cases, the IRS will accept some type of payment arrangement for past due taxes. In order to qualify for a payment plan with the IRS you must meet the following rules and provide the IRS with this information:

*  You must have filed all tax returns (It\’s OK to owe money but you must file).

* You will need to disclose all assets owned including all cash and bank accounts.

* You must not have adequate cash available in a checking, savings, money market, or brokerage account to pay the IRS.

* You must not have the capacity to borrow the amount owed to the IRS from other sources (i.e., a second mortgage on your home).

* You must not have adequate equity in a retirement account from which you can borrow or liquidate; for example, IRA\’s or 401K\’s.

The total dollar amount you owe usually dictates with whom the negotiations will be handled.

* Typically, IRS Revenue Officers are not involved in cases where the amounts owed are less than $25,000.

* The IRS will ask you to complete a personal financial statement and if a business is involved, you will also need a business financial statement.

* The IRS has determined allowable monthly expenses for individuals, which will be matched against your actual monthly expenses.

* The difference between your monthly income and your allowable monthly expenses will be the amount that the IRS will require you to pay on a monthly basis.

These monthly payments will continue until your outstanding tax liabilities are paid in full.

What the IRS May Not Tell You About Payment Plans

It is important to note that the IRS continues to add penalties and interest while you are making monthly payments. This may cause you to be paying what you consider a large monthly payment to the IRS and your outstanding balance may in fact be increasing due to additional penalties and interest.

The IRS may not explain this to you! So be careful!

Additionally, for taxpayers that enter into an installment agreement, the IRS may require a signed waiver to extend the time IRS can collect. While it is always in the best interest of the IRS to get a signed waiver, it may not be in the taxpayer\’s best interest. If you are asked to sign a waiver, protect your rights, seek the advice of a tax resolution expert first.

The IRS in most cases, to protect their interest, will file a Notice of Federal Tax Lien, with the County Recorder’s office in the county you reside.  This will inevitably be reflected on your credit report decimating your credit (FICO) score.  In addition a recorded Federal Tax Lien means the IRS has a monetary interest (claim) against all real and personal property owned (at time of filing) and any and all real or personal property acquired in the future while the lien is in effect. Generally, the lien is effective throughout the 10 year Collection Statute of Limitations.

The Benefits of Hiring Professional Tax Representation to Negotiate your IRS Payment Plan

Whether the IRS demands full payment up-front or a payment plan that is substantially higher than what you can afford to pay, a professional tax resolution specialist can help you negotiate an arrangement for the lowest possible monthly payment and also provide you with various options for making those payments.

Additionally, if you owe more than $10,000 to the IRS, you will be required to provide full financial disclosure and you will need to hire specialized tax representation to negotiate on your behalf with the IRS.

IRS Pledges Greater Flexibility to Help Distressed Taxpayers

Although the IRS is pledging to be kinder and gentler to taxpayers in these challenging times, you will still need to meet your installment payment requirements. However, the IRS has announced that they will try to be more flexible with taxpayers who miss an installment payment.

“We need to ensure that we balance our responsibility to enforce the law with the economic realities facing many American citizens today,” IRS Commissioner Douglas Shulman said. “We want to go the extra mile to help taxpayers, especially those who’ve done the right thing in the past and are facing unusual hardships.”

If a taxpayer with an existing installment agreement is worried about missing a payment because of a job loss or other financial hardship, Shulman has assured the public that a missed payment will no longer lead to an automatic end to that agreement.

Additionally, the IRS has announced that it is more likely to forgive a missed payment and they’ve instructed staff to not automatically default someone who is having trouble.

Frequently Asked Questions about IRS Payment Plans

What do you have to do to be eligible for an installment agreement?

To be eligible for an installment agreement, all returns that are due must first be filed.

What are the payment terms?

Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. By law, the IRS has the authority to collect outstanding federal taxes for ten years from the date of assessment.

What are the conditions of an installment agreement?

As a condition of an installment agreement, any refund due in a future year will be applied against the amount owed. Therefore, taxpayers may not get all of their refund if they owe certain past-due amounts, such as federal tax, state tax, a student loan, or child support. The IRS will automatically apply the refund to the taxes owed. If the refund does not take care of the tax debt, then the installment agreement continues until all of the terms are met.

Does interest stop with an installment agreement?

Interest does not stop accruing until the entire obligation is paid. An installment agreement is more costly than paying all the taxes owed now. Penalties and interest continue to be charged on the unpaid portion of the debt throughout the duration of an installment agreement.

Are there fees to set up an installment agreement?

The IRS charges a user fee of $43 to set up the installment agreement. And it is possible for an installment agreement to be reinstated if the agreement defaults.

Also, installment agreements may be restructured to include additional amounts owed in one agreement. Reinstating or restructuring an existing installment agreement will cost an additional $24 user fee.

What are enforced collection actions?

Generally, IRS enforced collection actions (levy against personal or real property) are not made while an installment agreement request is being considered, or:

While an agreement is in effect,

* For 30 days after a request for an agreement has been rejected, and

* For any period while a timely appeal of the rejection or termination is being evaluated by the IRS.

Can my installment agreement be defaulted?

Yes. Failure to make timely payments can default the agreement. A defaulted installment agreement could subject a taxpayer’s account to enforced collection action and potentially have a negative effect on a taxpayer’s credit standing.

What is an annual statement of balance due?

In accordance with the law, installment agreement taxpayers receive an annual statement from the IRS. The statement provides the amount owed at the beginning of the statement period, the payments (credits) posted to account(s), any fees or assessments, and the ending balance. Currently, the annual statement is sent each year in July.

For more information on negotiating an IRS Installment Agreement or to get professional tax advice on reducing your IRS debt, visit www.taxresolution.com for a free tax relief consultation or call 866-477-7762.

Michael Rozbruch is one of the nation\’s leading tax experts. A Certified Tax Resolution Specialist (CTRS), licensed CPA in the state of Maryland and the founder of Tax Resolution Services (http://www.taxresolution.com/), he helps individuals and small businesses solve their IRS problems and is dedicated to educating the public on tax planning and other strategies for managing their personal and business finances.



By: Michael Rozbruch

Whether you’re a business owner or a regular old Joe needing the assistance of a tax attorney, you need to be ready to invest some time into finding the one that’s right for you. Tax attorneys not only have special training, but good tax attorneys also have extensive experience interacting and negotiating with IRS auditors. The job of an IRS auditor is to get as much money as legally possible from you so that the government can have it. They are relentless and often intimidating, so if you find yourself the subject of an audit, you should immediately find an advocate in the form of a tax attorney. Here are five steps to getting the best tax attorney to work for you.

1. Find a tax attorney with experience. Find out what kind of formal education she has and what kinds of certifications she has. How long has she been a tax attorney? Another important factor to research is whether or not she has worked for the IRS in the past. Former IRS agents are invaluable as tax attorneys, and if you have the opportunity to hire one to represent you, you should take advantage of it. Tax attorneys who have worked for other financial authorities are also valuable, so if you can’t find a former IRS agent to work for you, find someone who has worked for another large financial authority.

2. Find a tax attorney with quality education. The minimum degree that your tax attorney should have is the LLM in taxation (Master’s of Law in Taxation). This is evidence that the attorney completed at least one year of study in tax law. Ideally, you should find a tax attorney who not only has an LLM, but who is also committed to continuing education in the field of tax law. This is critical since tax laws change regularly. One way to find out whether a tax attorney is well-versed in tax law is to conduct an internet search for articles about tax law that this person might have published. This is an indicator that the tax attorney is potentially an authority in the area of tax law.

3. Find a tax attorney that specializes in the issue you’re facing. When you interview a potential tax attorney, tell him your unique situation and ask him if he has ever handled a similar situation. While the attorney is prohibited from sharing identifying details about other clients, engage him in a conversation that provides ample evidence for you to determine whether or not he has enough experience with your type of situation to help you effectively.

4. Find a tax attorney who is a skilled communicator. Part of a tax attorney’s job is to negotiate with the IRS agent on your behalf. This means that the attorney needs to return phone calls promptly and conduct himself in a professional manner. He should be clear and articulate, and should be able to discuss your particular case in terms that you can understand. If your potential attorney has difficulty expressing himself or doesn’t communicate with you in a prompt and professional manner, move on to the next candidate.

5. Find several attorneys from which to choose. When you’re on the hunt for a qualified tax attorney, don’t put all of your eggs in one basket. Get several different recommendations from friends and family members, or from other business owners who have been audited in the past. Part of managing an audit is timeliness, so if your first choice of attorney doesn’t pan out, you don’t have time to start a new search from scratch. You should already have a list of three or four and be ready to pursue interviews if your first few aren’t going to be able to do a good job for you.

Choose your tax attorney wisely and you’ll be pleased with the results!



By: Seomul Evans

When you feel you need professional help or advice to resolve your IRS tax debt problems, it’s likely your problems have escalated to the point where you can’t deal with them yourself. In case of such a situation, the exact amount owed is not the issue, but your incapability to resolve the situation takes priority, since you in fact have two problems – your outstanding federal dues and your “inability” to solve the problem on your own i.e. how you plan to redeem your government dues. This is when you start thinking seriously about seeking professional help to effectively deal with the situation.

The major issue with the IRS is once your personal details are flagged for their “recovery” process, it’s guaranteed you’re going to face a lot many problems before the flag actually gets “removed” from their recovery list. And as long as your name stays on that list, you’re assumed to be “guilty as charged”, even if you’ve paid your taxes and don’t have any IRS tax debt pending. The IRS personnel might have “forgotten” to “remove” your name from their list. There are no solutions to this particular problem, except for “reminding” them your taxes are paid and you’re in the “clear”. In the event you actually owe your tax dues, it’s needless to say how serious your problems are likely to be. In case you feel the IRS are going to be sympathetic or show “compassion” for you and your problems – forget it. It’s not going to happen. It may well appear too many debtors that the IRS is “heartless” and will definitely demand their “pound of flesh”. In fact, the IRS is just a professional government body doing its “job” of collecting tax dues from American citizens. And they have to be strict regarding their recovery, since the citizens are definitely not going to “pay” on their “own” unless “forced” to redeem.    

The obvious question you’re likely to ask is “Ok, I know about this, what I do next? How do I get out of this mess?” The answer actually depends upon you. Fortunately, as far as Americans are concerned, things can be easier as far as paying your IRS debt is concerned. There are two main questions you need to ask yourself – “Can I do this on my own?” and “Should I be taking some professional help to deal with the problem?” If you feel you’ve the expertise and the experience to find a way out for yourself, it would be the best choice. However, it’s important to know that IRS can be extremely ruthless and very difficult “customers” to negotiate with. On the other hand, availing professional IRS tax debt help can be very beneficial, since you not only find a way to pay your dues and become debt free, but you also save a lot of valuable time, which can be utilized for beneficial purposes and for “income” generation.  

There are many “online” tax relief and settlement agencies available. Ideally, these agencies or companies employ a team of experts or taxation professionals whose basic objective is to “help” debtors find a solution to redeem their IRS tax debts and dues. They are used to dealing with complex problems and finding a suitable way out for your issues. They also advise, and if you have specific questions, they’re likely to provide to-the-point answers, so you can understand the problem from a “technical” point of view. They can help to “point” you in the right direction as to what you ought to be doing next, and how you should be “thinking”. Online tax relief services can also assist you with various queries such as dependent filings, international adoption tax rebates and investment filings. In case of audit related issues, the tax experts can provide suggestions related to how much tax you’ll end up paying eventually to the IRS, and the manner of reducing your net payable dues. The basic objective of availing profession help is to cater to your inability to pay the taxes, and how to request an “extension” to “redeem”.

Getting some advice from a tax attorney is perhaps the best place to start. By consulting specialized taxation personnel, you can avail instant IRS tax relief and come up with reasonable as well as manageable solutions for the amount that you owe as your taxes. The people’s ignorance about the IRS working and their legal rights is the primary cause why tax attorneys should be “hired” out.



By: diane anderson

You may be a tax compliant, filing all your returns on time and having no issues with the tax authorities in the past. Yet one fine day you receive the dreaded certified mail from the IRS you open it and you find a 30-day notice to pay the amount the IRS says you owe it, or you receive a telephone call from the IRS. Whatever the situation you are stunned and bewildered and your first instinct is to take on the IRS. Since the case appears simple and a tax attorney seems an expensive proposition, you may decide to represent yourself.

However, such a step is fraught with danger. Remember, taxes are based on law and can be interpreted in many different ways. The IRS agents though sporting a friendly demeanor are a bunch of highly trained professionals and it is their duty to assess the maximum possible amount of tax due. You have a right to appeal the agents audit report but if you are not aware of it, it is not the agent’s responsibility to protect your rights. You stand to lose thousands of dollars. Think about it, if you had an infected ingrown toe nail, you could self medicate and remove it yourself or go to a clinic and get it removed by a doctor who would anesthetize your toe before the procedure. Do yourself a favor and hire a tax attorney. Tax laws are like a minefield and a favorite stomping ground of tax attorneys, since they know how to get around and survive the minefield.

All the contents of the discussion you have with the IRS is recorded in some form or another and agents can misconstrue any statement you make, and remember that any false statement made to a federal agent is a serious crime and can result in criminal indictment. Seemingly innocuous statements made by the taxpayers may be interpreted in different ways, causing more harm than good.

Tax laws are complex and as mentioned earlier can be interpreted in many different ways. Many a times, taxpayers are confronted with more serious and complex issues than the ones they originally attempted to fix.

A good tax attorney will act as your shield and handle all the communication with the IRS. The IRS agents are on the government’s side and are not expected to protect you, whereas your tax attorney is on your side and is well aware of your entitlements. In 1998, the Congress offered significant procedural protection to taxpayers. However, in case you choose to represent yourself you lose this first line of defense. A tax attorney will help you make the most of the protection the Congress gave you as a taxpayer.

Hiring the services of a competent attorney as your interface with the IRS will surely save you money. Hire an attorney with specialized education in taxation (L.L.M in Taxation). Look for references from other lawyers and judges. Martindale-Hubbell peer review ratings will help in evaluating and selecting the right tax attorney. The annual budget for the IRS is increasing every year and additional employees and enforcement personnel are added every year. More than a million audits are done each year and it won’t be long before you face an IRS problem. A tax attorney may seem expensive, but the tax savings will surely be more than the attorney’s fees.



By: Kris Koonar