EMAIL DETAILS

No closer to a resolution but Mel and Mary Beth are working on it.......I checked in with Mary Beth today and I sent her back an email with the details of the Lotito settlement so she and Mel can figure out how to treat it.


Eric D. Schwerin
Rosemont Seneca Partners, LLC
1010 Wisconsin Ave., NW
Suite 705
Washington, DC 20007
(202) 333-1880
eschwerin@rosemontseneca.com
P Consider the environment before printing this email.

Begin forwarded message:

From: "Mary Elizabeth M. Browder" <MBrowder@monlaw.com>
Date: December 6, 2010 4:25:59 PM EST
To: 'Eric Schwerin' <eschwerin@rosemontseneca.com>
Cc: 'Sara Biden' <sbiden@lionhallgp.com>, "Melvyn I. Monzack" <mmonzack@monlaw.com>
Subject: FW: 2008 return modification, payment plan and BG Equity draft

Eric,
I have not heard anything since I wrote at 9 am today.

2nd - I am familiar with the Washington First issue, but not the Lotito issue. Are Hunter and Jim also required to make payments to Lotito over time? I cut Rick's question below:
2. How should the Lotito payments be treated?
3. What is the amount of the deduction?

thanks,
mb

From: Mary Elizabeth M. Browder
Sent: Monday, December 06, 2010 9:03 AM
To: 'Rick Rowland'
Cc: 'Sara Biden'
Subject: RE: 2008 return modification, payment plan and BG Equity draft

Rick,
I want to confirm my understanding of the Paradigm issues.

We agree that the income allocations (in excess of $700,000) to our clients give them basis. We have discussed that the facts are clear that the entity is worthless in 2009 (including the letter from the NY attorney regarding the liquidation and winding down of the Paradigm business). I realize there may be assets still on the balance sheet, but the entity is clearly liquidating. We believe we can claim that loss in 2009. We believe you are correct that the loss is an ordinary loss.

In addition to claiming a loss (resulting from prior allocations of income with no corresponding distributions), there is a significant loss in 2009, approximately $500,000. The tax return allocates debt to our clients, in excess of this loss amount. I believe our clients have basis to claim this loss as well.

Payments on the personal guarantees are a separate issue. However, their deductions may be limited as a result of using the debt for basis in 2009 to claim losses (the $700k and $500k).

My prior research showed that when payments are made a guarantee, and the loan was incurred in business to make money, then the payments on the guarantee were ordinary deductions, not capital.

I am available to discuss these issues at your convenience.

Mary Beth

Mary Elizabeth M. Browder
Monzack Mersky McLaughlin and Browder, P.A.
1201 North Orange Street
Suite 400
Wilmington, DE 19801
Phone: (302) 656-8162
Fax: (302) 656-2769
mbrowder@monlaw.com


From: Rick Rowland [mailto:rowland@rowlandjohnson.com]
Sent: Sunday, December 05, 2010 10:50 AM
To: Mary Elizabeth M. Browder
Cc: Sara Biden
Subject: RE: 2008 return modification, payment plan and BG Equity draft

Here is my understanding of the issues, with some additional detail.

1. Prior to 2009, BG Equity Investors recognized approximately $700,000 of income as a result of its investment in BGPC Advisors.
2. The 2009 tax return is not filed as a final return. The balance sheet reflects assets of approximately $20,000,000, including over $1,000,000 of cash and $213,000 of fixed assets. It also reflects the mortgage payable to Washington First Bank in the amount of $598,215.
3. Discussions with Arthur Bell, BGPC’s outside accountants, indicate that there is additional activity reported in 2010.
4. Everyone seems to agree that the entity had no value as of the end of 2009.
5. Beginning in 2009, an account was established at Wachovia for the servicing of the Lotito and Washington First debts.

Here are what I believe to be the issues:

1. When can the partnership interest be written off for income tax purposes?
2. How should the Lotito payments be treated?
3. What is the amount of the deduction?
4. What is the character of the deduction?

Given the complexity of the issues and the sensitivity of our clients to be certain that our positions are supportable, I would like for you to provide code sections or case citations so that we can all be comfortable with the position being taken in the returns.

Rick

Richard D. Rowland
Rowland, Johnson & Company, P.A.
2 Read's Way, Suite 100
New Castle, DE 19720
(302)324-0780
Fax (302)324-0783

Pursuant to the requirements of IRS Circular 230, any U.S. tax advice contained in the body of this e-mail is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state and local tax law provisions.


From: Mary Elizabeth M. Browder [mailto:MBrowder@monlaw.com]
Sent: Friday, December 03, 2010 11:21 AM
To: Rick Rowland
Subject: FW: 2008 return modification, payment plan and BG Equity draft

Rick,
I want to confirm my understanding of the Paradigm issues.

Our clients have recognized in excess of $700,000 of income from the Paradigm entity, giving them basis for the income allocations. We have discussed that the facts are clear that the entity is worthless in 2009 (including the letter from the NY attorney regarding the liquidation and winding down of the Paradigm business). We believe you are correct that the loss is an ordinary loss.

In addition to claiming a loss (resulting from prior allocations of income with no corresponding distributions), there is a significant loss in 2009, approximately $500,000. The tax return allocates debt to our clients, in excess of this loss amount. I believe our clients have basis to claim this loss as well.

However, when our clients are forced to repay the bank debt (approximately $600,000) which they have guaranteed, their deductions may be limited as a result of using the debt for basis in 2009 to claim losses.

I am available to discuss these issues at your convenience.

mb

From: Sara Biden [mailto:sbiden@lionhallgp.com]
Sent: Tuesday, November 30, 2010 12:35 PM
To: Melvyn I. Monzack; Mary Elizabeth M. Browder
Cc: 'Eric Schwerin'
Subject: FW: 2008 return modification, payment plan and BG Equity draft

Let me know if you need me to do anything with this. See below.

From: Rick Rowland [mailto:rowland@rowlandjohnson.com]
Sent: Tuesday, November 30, 2010 8:09 AM
To: Sara Biden
Subject: RE: 2008 return modification, payment plan and BG Equity draft


On the BG return, we were waiting for Mary Beth’s opinion re: the write off of the $1 million paid to acquire Paradigm. Have you received anything?

Rick

Richard D. Rowland
Rowland, Johnson & Company, P.A.
2 Read's Way, Suite 100
New Castle, DE 19720
(302)324-0780
Fax (302)324-0783

Pursuant to the requirements of IRS Circular 230, any U.S. tax advice contained in the body of this e-mail is not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state and local tax law provisions.


From: Sara Biden [mailto:sbiden@lionhallgp.com]
Sent: Monday, November 29, 2010 6:16 PM
To: Rick Rowland
Subject: 2008 return modification, payment plan and BG Equity draft

Rick,

On another topic, folks are asking me about a BG equity draft return. I am around tomorrow if you want to/need to talk.

Happy Post Thanksgiving,

Sara
610-949-0476 home office