Fraudulent Tax Shelters – KMPG Goes Down Hard

In the largest criminal tax case ever filed, KMPG has copped a plea to using fraudulent tax shelters to bilk the government out of 2.5 billion dollars. KMPG has agreed to pay a fine of $456 million dollars, but nine of its executives still are under indictment.

Son of Boss Tax Shelters

From 1996 to 2003, KMPG promoted a tax strategy known as the Son of Boss. This shelter was used to create phony tax losses that could be claimed by wealth individuals looking to write off tens of millions of dollars. KMPG promoted the structure despite the fact it’s own internal tax attorneys warned the structure was fraudulent and could result in criminal charges. So far, wealthy individuals participating in the scheme have paid over $3.7 billion dollars to the IRS.

There should be no mistaking the impact of the plea agreement in this case. KMPG may have enjoyed the huge fees earned from the scam, but it is paying an incredible price for pursuing this practice. The price paid includes:

1. 456 Million Dollar Fine,

2. Permanently barred from providing tax services to wealthy individuals,

3. Permanently barred from involvement in any pre-packaged tax strategies,

4. Permanently barred from charging a contingency fee for work,

5. All actions monitored by government appointee for three years,

6. Full cooperation with government in indictments of individual KMPG employees.

Remaining Indictments

While KMPG pled guilty, it left its employees out to dry. An interesting maneuver since one can assume KMPG enjoyed the millions of dollars produced from the fraudulent tax shelters. Those under indictment, who are all now former employees, are:

1. Jeffrey Stein, former Deputy Chairman of KPMG, former Vice Chairman of KPMG in charge of Tax and former KPMG tax partner;

2. John Lanning, former Vice Chairman of KPMG in charge of Tax and former KPMG tax partner;

3. Richard Smith, former Vice Chairman of KPMG in charge of Tax, a former leader of KPMG’s Washington National Tax and former KPMG tax partner;

4. Jeffrey Eischeid, former head of KPMG’s Innovative Strategies group and its Personal Financial Planning Group and former KPMG tax partner;

5. Philip Wiesner, former Partner-In-Charge of KPMG’s Washington National Tax office and former KPMG tax partner;

6. John Larson, a former KPMG senior tax manager;

7. Robert Pfaff, a former KPMG tax partner;

8. Mark Watson, a former KPMG tax partner in its Washington National Tax office.

In Closing

In the end, KMPG led clients down a very dangerous path for the apparent purpose of generating revenue. While even bad publicity is supposed to be good publicity, this situation seems to suggest the opposite.

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How to Get Involved in Real Estate – Real Estate Investment

The conventional means of how to get involved in real estate is through taking courses and classes, which earn us our license with which to pursue a real estate career. However, there’s more to all that in how to get involved in real estate… there’s a whole lot more to learn and understand that these courses just aren’t equipped to teach. These nuggets of wisdom come from basically only one method of learning – years of trial and error experience.

We see these seasoned veterans out there while we are just starting out in the field. They seem to know how to get involved in even the seemingly most complicated aspects of real estate, but accomplishing things simply, much quicker, and profiting in a much larger way than we could ever hope to accomplish. These people have earned the wisdom which comes from years of experience in the field. If only we could take one of these people on as a personal trainer, then we’d easily know how to get involved in the many aspects of real estate that are beyond our field of experience.

Unfortunately, finding a person who’s willing to give up all of their hard earned knowledge in this business is like finding a needle in a haystack. Not everyone is going to clue us in on just what makes them so freely successful, or we might just be too much competition for them, right? This is why finding such a person willing to teach us online is a much better thing for both parties involved. Distance learning is the way we can get mentoring from these keepers of wisdom, and being armed with such knowledge is how to get involved in real estate.

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Recession Data on the Value of Marketing Through Downturn

I know the anxiety is rising for many of you as the economy falters. I know it is tempting to begin the slashing process of your expenses. And, I know that marketing is one of those areas that typical gets the brunt of those budget cuts. I understand…but you must resist!

Sure, you should always be doing everything you can to maximize your marketing resources. That’s true, even in a good economy. But history shows us that now is just not the time to curb your marketing efforts.

Here are some of the facts from past recessions:

1970 recession year – American Business Press (ABP) and Meldrum & Fewsmith study showed that “sales and profits can be maintained and increased in recession years and [in the years] immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.” 1

1974-1975 recession years – ABP/Meldurm & Fewsmith 1979 study covering 1974/1975 and its post-recession years found that “Companies which did not cut marketing expenditures experienced higher sales and net income during those two years and the two years following than those companies which cut in either or both recession years.” 2

1981-1982 recession years McGraw-Hill Research’s Laboratory of Advertising Performance studied recessions in the United States. Following the 1981-1982 recessions, it analyzed the performance of some 600 industrial companies during that economic downturn. It found that “business-to-business firms that maintained or increased their marketing expenditures during the 1981-1982 recession averaged significantly higher sales growth both during the recession and for the following three years than those which eliminated or decreased marketing. 3

Cahners and Strategic Planning Institute (SPI) produced their report, “Media Advertising When Your Market Is In a Recession.” It disclosed, “During a recessionary period, average businesses do experience a slightly lower rate of return relative to normal times. However, expansion times do not generate a higher level of profits than normal periods as might be expected.” This phenomenon was explained by an analysis of changes in market share.

“During recessionary periods,” said the Cahners/SPI report, “these businesses tended to gain a greater share of market. The underlying reason is that competitors, especially smaller marginal ones, are less willing or able to defend against the aggressive firms.” The study then pointed out that businesses that increased media advertising expenditures during the recessionary period “gained an average of 1.5 points of market share.” 4

1990-1991 recession years – Management Review asked AMA member firms about spending during the 1990-1991 recession. “Fortune follows the brave,” it announced, noting that the data showed that most firms that raised their marketing budgets enjoyed gains in market share. Among the magazine’s sample, 15 percent reported “greatly decreased” ad budgets. Advertising was “somewhat cut” by 29 percent. “The keys to gaining market share in a recession,” concluded Management Review” seem to be spending money and adding to staff. Firms that increased their budgets and took on new people were twice as likely to pick up market share. 5

Beyond the statistics, why might it be more important than ever to market despite economic downturn? Strong consideration should be given to the idea that marketing plays a more critical role now than it did during previous recessions. While marketing’s role was once more informational than brand identity building, and considering that never more than today has the clutter factor been so great, relationships between customers and brands are critical. Relationship marketing has surged to the top of effective marketing campaigns as a means to keep an appropriate level of share of mind for purchase loyalty. Marketing serves to foster and maintain consumer-brand relationships. 6

The effect on profits. From the Harvard Business Review, “Advertising as an anti recession tool,” comes the effect of cutting advertising on the bottom line. “The rationale that a company can afford a cutback in advertising because everybody else is cutting back [is fallacious]. Rather than wait for business to return to normal, top executives should cash in on the opportunity that the rival companies are creating for them. The company courageous enough to stay in the fight when everyone else is playing safe can bring about a dramatic change in market position.” In addition, the article points out “Advertising should be regarded not as a drain on profits but as a contributor to profits, not as an unavoidable expense but as a means of achieving objectives. Ad budgets should be related to the company’s goals instead of to last year’s sales or to next year’s promises.” 7


“How Advertising in Recession Periods Affects Sales,” American Business Press, Inc., 1979
ABP/Meldrum & Fewsmith study, 1979
McGraw-Hill Research. Laboratory of Advertising Performance Report 5262 New York: McGraw-Hill, 1986.
Kijewski, Dr. Valerie. “Media Advertising When Your Market Is in a Recession,” Cahners Advertising Research Report. The Strategic Planning Institute, 1982
Greenburg, Eric Rolfe. “Fortune Follows the Brave,” Management Review, January 1993
Khermouch, Gerry. “Why Advertising Matters More Than Ever,” Business Week, August 2001
Dhalla, Nairman K. “Advertising as an anti recession tool,” Harvard Business Review, Jan.-Feb. 1980

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Home Equity Mortgage Loans Q&A

Home equity mortgage loans can be very helpful when you need a lot of money to pay for things like a unexpected medical expenses, college tuition or any other large expense. This type of loan is often confused with other more common types of loans, so we will try to demystify it by answering some common questions.

Question: Are there any other names for this type of loan?

Answer: Yes. They are often known as home equity loans, and sometimes as second lien loans.

Question: How does this type of loan work?

Answer: They are made against the equity of your home, reducing the equity in your home. They are always made by the same lender who holds your first mortgage lien.

Question: Do I have to make separate payments for these loans?

Answer: Not necessarily. Second lien loans can be bundled with your first lien payments. Any amount over your first lien payment will automatically be applied to your second lien.

Question: What kind of qualifications are there for this type of loan?

Answer: You must have a good credit history and a reasonable amount of equity in your home to be approved for this type of loan.

Question: How are these loans different from other types of loans?

Answer: These loans come in two varieties. The first is a closed end loan, where you receive a single payment similar to a regular loan. The second variety is an open end loan and acts more like a credit line. You can borrow money at any time up to the limit of the equity in your home.

Question: What are the specifics about a closed end loan?

Answer: You receive one payment after the loan is closed, and no more. The maximum amount you can borrow is 100% of your equity, or more if your lender offers you an over equity loan. This will be determined by your lender based upon your income level, credit history and how much equity you have in your home. The interest has a fixed rate that can be amortized up to 15 years. Depending upon the loan conditions determined by the lender, it may be possible to make balloon payments to reduce the amortization.

Question: What are the specifics of the open end loan?

Answer: Open end loans are sometimes referred to as home equity lines of credit. In essence, you have full control over when and how much you borrow from the loan. The credit limit is usually limited to 100% of your home equity and is computed similar to closed end loans. The interest has a variable rate, and the term may be extended up to 30 years.

Question: Are there any special costs associated with this type of loan?

Answer: Yes. Lenders will commonly add processing fees to home mortgage equity loans.

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