New York State And The IRS Put The Hammer Down On Business Development!

By | March 19, 2018

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There are many ways to develop business relationships that vary in scope and size from the low-end of running into someone by chance, all the way to expending great amounts of money to curry favor with specific people!

Of course then, as in most business efforts, there is the somewhere in the middle describing the actions of the majority.

Unfortunately, however, often government regulatory and lawmaking authorities don’t see issues in the context of the majority of as having the potential to impact businesses and ultimately job and livelihoods in a color scheme that range from black to white with the grey somewhere in the middle.

These decision-makers, often having had no business experience, seem to look at extreme cases of violation and then enact rules that may eliminate the problems at those extremes while at the same time imposing great and often painful unintended consequences on the remainder being impacted.

New York State

For the purposes of this article I first speak of the New York State Department of Financial Services Regulation 208 that has eliminated the ability for title insurance providers to engage in any business development activities beyond giving out a business card or possible a pen with a logo on it.

‘As a reminder the following expenses are PROHIBITED:

  1. Meals and beverages;
  2. Entertainment, including tickets to sporting events, concerts, shows or artistic performances;
  3. Gifts, including cash, gift cards, gift certificates, or other items with a specific monetary face value;
  4. Outings: including vacations, holidays, golf, ski, fishing and other sport outings, gambling trips, shopping trips, or trips to recreational areas, including country clubs…’ (Source)

Eradicated is the ability to take a potential prospect out for coffee, perhaps a lunch and maybe for drinks after work.

No consideration was given to the cost of said coffee, lunch or drinks that may be in the range of $25.

Why Regulation 208 then when the activities describe normal business development and relationship building in basically every industry and company that exists?

Because there are companies at the extremes described above who go beyond basic activities and who spend great amounts of money to curry favor with the powers that be who control where title insurance orders may go. To the DFS these actions describe ‘inducing’ the guests of the title company to send title insurance business that title company’s way.

Is that how it actually works? Perhaps in those situations it is, but denying the ability of firms who don’t have luxury boxes at Madison Square Garden to take a prospect out for a $25 lunch is the title insurance industry equivalent of ‘throwing the baby out with the bathwater’!

Also consider that with limited NYSDFS enforcement capabilities most firms will comply with Regulation 208 while others will continue business-as-usual that will take a playing field already less than level and tilt it even more towards the extremes. Stay tuned!

Federal Government and the IRS

Remember when tax reform and ‘tax simplification’ would be designed to provide the majority of Americans the ability to fill-out their tax returns on the back of a postcard? Well of course, as with most government endeavors, the actual result has been anything but simplification.

In fact there have been an enormous amount of grey area created that will keep CPA’s and tax accountants busier than they have ever been!

And, like Regulation 208 at the New York State level, the IRS has stepped-in to alter the way in which businesses can account for ‘entertainment’ expenses.

This was the headline of an article appearing this morning in Long Island’s Newsday written by Jamie Herzlich

Tax law will force changes in the way firms entertain clients, prospects, experts say

Eliminating the deduction for entertainment expenses means there will be a “complete change in mindset” about sales and business development activities, one expert says

…According to a recent report from Congress’ Joint Committee on Taxation, the new tax law “changed the rules governing the deductibility of meal and entertainment expenses to generally prohibit deductions for entertainment expenses, including meals and other items, activities, and facilities that constitute entertainment…

…Companies may be less quick to purchase sporting event tickets or corporate suites, says McWilliams, who thinks the 50 percent deductibility of business meals will stand outside of an entertainment activity if the meal includes “substantive business discussions.”

But he agrees IRS guidelines are needed.

“I think we’ll see less business done around a Yankee game and more around a dinner table,” says McWilliams.

Ken Laks, a partner at Albrecht, Viggiano, Zurek & Co. in Hauppauge, tends to agree.

“We believe at the end of the day the entertainment piece is eliminated, but there will be a carve-out for meals,” he says…

Stay tuned for IRS guidelines to be released but, until then, eat with clients and prospects at your own risk!

Michael Haltman, President
Hallmark Abstract Service
Board Chair, Heroes To Heroes Foundation
mhaltman@hallmarkabstractllc.com, (646) 741-6101

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