Thursday, December 19, 2019

Abating (remove or eliminate) IRS Tax Penalties

Many clients have contacted us regarding the discharge of taxes in bankruptcy,
offers in compromise and installment agreements with IRS and recently  penalties
assessed by IRS.

The IRS offers 3 types of penalty relief:

1. Reasonable Cause-this appears to be our best chance  to abate penalties
2. Administrative Waiver and First Time Penalty Abatement
3. Statutory Exception for example a taxpayer  got bad advice from IRS


Reasonable cause is relief we may grant when a taxpayer exercises ordinary business care and prudence in determining
their tax obligations but is unable to comply with those obligations due to circumstances beyond their control.

Reasonable Cause is based on all the facts and circumstances in your situation. 
The IRS will consider any reason which establishes that you used all ordinary business care and prudence to meet your
Federal tax obligations but were nevertheless unable to do so.

Typical fact patterns involving reasonable cause for failure to file a tax return, make a deposit, or pay tax when due include:

1. Fire, casualty, natural disaster or other disturbances
2. Inability to obtain records
3. Death, serious illness, incapacitation or unavoidable absence of the taxpayer or a member of the taxpayer’s immediate family

Jim Shenwick, Esq. has an LLM in Taxation from New York University Law School


Friday, December 06, 2019

The Epic Rise and Hard Fall of New York's Taxi King from the New York Time

The Epic Rise and Hard Fall of New
York's Taxi King
By Brian M. Rosenthal
.
Dec. 5, 2019

Evgeny A. Freidman in his garage in Long Island City, Queens. Sasha Maslov
The man known as the Taxi King arrived at his 2014 holiday party in a $384,000 Ferrari, wearing a custom Italian suit. He told the guests
whom he had invited to an upscale Manhattan club - including executives, politicians and celebrities - that he had flown in from SaintJean-
Cap-Ferrat, a town in the French Riviera where he owned two villas.
Five years later, that man, Evgeny A. Freidman, stood in a mostly empty courtroom in Albany, N.Y., as a judge sentenced him to probation
for tax fraud. In a hushed voice, he said he had lost everything.
"I'm trying to be remorseful and understanding for anybody I might have harmed;' he told the judge at the hearing in October. "I'm very
humbled by what has happened."
For more than a decade, New York taxi industry leaders got rich by creating a bubble in the market for the city permits, known as
medallions, that allow people to own and operate cabs.
In several articles this year, an mvest1gat10n by I he New York limes found that government officials stood by as mdustry leaders
artmciio~tiji\laAe~~$Uiffia§atr!d5:hanneled immigrant drivers into loans they could not afford to purchase the permits. The lea(iers
reaped hundreds of millions of dollars before the bubble burst, wiping out thousands of buyers who are still mired in debt today.

And no one embodies the glittery rise, unfettered recklessness and spectacular collapse of the industry more than Mr. Freidman.

A Russian immigrant and a cabdriver's son who got his nickname by building the city's biggest fleet, Mr. Freidman was a primary
architect of some of the tactics used to build the bubble, according to records and interviews. At the height of the market, he had
accumulated $525 million in assets. He befriended the filmmaker Spike Lee, the baseball star Mo Vaughn and Mayor Bill de Blasio. His
outsize antics and lavish spending often landed him on Page Six, the New York Post's gossip column.
As a generation of cabdrivers became trapped in overwhelming debt, Mr. Freidman created offshore trusts that protected some of his
money when the bubble burst, records show. While his business partners lost millions because of his tax fraud, Mr. Freidman avoided
prison by cooperating with a federal investigation into one of his partners, Michael D. Cohen, President Trump's former lawyer.
"He hurt so many people in so many different ways;' said David Pollack, the former head of the Committee for Taxi Safety, an association
of fleet owners that once included Mr. Freidman. "Your headline could be: 'The man who brought down the taxi industry.'"
Mr. Freidman did not respond to repeated requests for comment. Government officials declined to answers questions on why they did not
intervene sooner.
This account is based on interviews with more than 20 of Mr. Freidman's former associates and a review of thousands of pages of court
records and other documents.
Mr. Freidman is now cooperating with prosecutors who started investigating the taxi industry after The Times published its series this
year on the exploitative tactics that drove medallion prices to soar past $1 million by 2014 from $200,000 in 2002. He has met with them
three times so far.
'I'm in , you 'r e out'
Mr. Freidman, 49, who is known as Gene, likes to portray himself as a scrappy fighter who rose from first-generation immigrant to
multimillionaire solely through his wits and fists.
But like everything involving Mr. Freidman, the reality is more complicated.
He was born in St. Petersburg, Russia, in 1970, an only child. Six years later, his family emigrated to New York, he has said in interviews.
His father, who Mr. Freidman said had been a thermonuclear engineer, got a job as a cabdriver but soon began buying medallions and
building a fleet, records show.
Mr. Freidman attended the Bronx High School of Science, Skidmore College and Cardozo Law School. Afterward, he has said, he moved to
Russia to work in private investing.
Mr. Freidman has said in speeches that he returned to the United States in 1996 at the request of his father, who had become a successful
and respected fleet owner. During the flight home, he crafted a plan to use what he learned in Russia to revolutionize the taxi industry.
His idea was straightforward: He wanted the industry to take more risks to increase profits.
Specifically, Mr. Freidman has said he wanted lenders to allow medallion purchasers to borrow more money, with smaller down payments
and longer repayment periods. Former associates said he believed this strategy would allow him and others to buy more medallions,
enable lenders to increase profits and, mostly, drive up medallion values. He believed that would spur more purchases, more loans, more
profits and even higher medallion values.
"I walked in and took over;' he later recalled. "I told my dad, 'I'm in, you're out.'"
Prominent - and polarizing
Mr. Freidman was 26. He was cocky, but he needed help. He turned to the small nonprofit that had lent to his father, Progressive Credit
Union, and its chief executive, who had become a family friend, Robert Familant.
Between 1997 and 2004, Progressive's loans enabled Mr. Freidman to buy about 100 medallions to expand his fleet, according to city
records and former associates.
At the same time, Mr. Freidman became a licensed broker and helped some drivers purchase medallions, mostly using loans from

Other industry leaders used similar tactics. But few were as aggressive as Mr. Freidman.
More Mr Freidman's success emboldened others, and helped encourage lenders to push low-income
drivers to take on massive loans to buy medallions.

"He changed the market:' said Ira Goldstein, a former chief of staff at the city commission that oversees the industry. "People copied him,
and it affected everybody, including the driver-owners."
Mr. Familant did not respond to requests for comment.
As Mr. Freidman expanded his fleet, he became increasingly prominent - and polarizing.
To his allies, Mr. Freidman was charming and passionate, with a perspective that improved a long-stagnant industry. He put his fleet in
several neighborhoods, making it more accessible for his drivers. He worked long hours. He embraced energy efficiency, becoming the
first to use hybrid cabs.
Others saw him as vindictive and vulgar. Lawsuits have accused him of cheating his drivers, clients and partners. Last year, he was
ordered to pay $1.3 million to an assistant who sued him for sexual harassment. On his desk, he kept a snow globe sprouting a middle
finger.
The highest bidder
Mr. Freidman unleashed his most radical idea on June 16, 2006, at an auction where the city sold new medallions.
At the time, a medallion cost $350,000 on the private market, according to a Times analysis. But at the auction, Mr. Freidman and his
associates bid $477,666.50 apiece.
They won all 54 medallions sold.
The results reshaped the small medallion market. In effect, Mr. Freidman single-handedly had increased the value of all medallions,
including ones he had owned for years - and also increased prices for everyone, making it harder for drivers to buy without enormous
loans.
Years later, Mr. Freidman admitted he had intentionally overpaid to inflate the values of medallions he owned. He said in a 2012 speech
that he used the values to persuade lenders to loan him more money.
"I would bid crazy prices. People would look at me like I'm crazy, and I wouldn't care:' he said, "because I would look at the prices and say,
'This is market value."'
Mr. Freidman repeated the strategy at three other auctions, records show. In all, he bought more medallions at auctions than anyone else
in city history.
Riches and power
The medallion bubble turned Mr. Freidman into a remarkably rich man.
His fleet had about 900 of the city's 13,587 medallions. Most were owned by others who charged him a fee for the right to operate their cabs
and keep the profits. He personally owned about 250 permits, and at the height of the market, each was worth $1.3 million, although they
were mortgaged, records show.
Mr. Freidman knew the prices would not last, according to five former associates. So he used the medallions as collateral to borrow money
that he invested elsewhere.
He bought 20 commercial properties, records show. He opened locations of a French whimsical pajama store in New York, Arizona,
California, Georgia and Washington state. He acquired medallions in Chicago and Philadelphia, helping to spike prices in those cities.
He bought a 4,000-square-foot townhouse on Manhattan's Upper East Side, an estate in the Hamptons and a condo in Chicago, in addition
to the French villas.
He also invested in politics. He donated to former Representative Anthony Weiner's 2013 mayoral campaign and to Mr. de Blasio. Later, he
bragged to associates that Mr. de Blasio placed one of his friends at the taxi commission.
Mayoral spokeswoman Freddi Goldstein rejected that notion. "Any suggestion that we hired anyone at his request is a blatant lie;• She said that "The mayor ceased contact with Gene Freidman as soon as he realized he was a bad guy."

Mr. Freidman also began managing Mr. Cohen's medallions. They became friends; during Mr. Freidman's divorce.

Several of Mr. Freidman's former associates said as he became wealthier, he stopped paying his debts.

During the bubble, when Mr. Freidman was worth millions, he was sued or otherwise accused of failing to fully pay his drivers, employees,
clients, partners, lawyers, contractors, landlords, lenders, an accountant and a car dealer as well as child support payments, association
dues, insurance premiums and taxes.
Between 2013 and 2016, the state ordered him to pay nearly $1.5 million for cheating drivers. But he has failed to fulfill that order, too,
records show.
The aftermath
Now that the bubble has burst, Mr. Freidman is awash in lawsuits and eviction notices.
A judge ruled in 2016 that he transferred more than $60 million into trusts in Belize, Nevis and the Cook Islands in order to avoid paying
creditors. Mr. Freidman had defended the transfers as part of estate planning. "It is impossible to conclude that the timing of the transfers
is merely coincidence;' the judge wrote in ordering the trusts to pay the creditors.
The tax fraud case, filed in 2017, involved two surcharges collected by cabs that Mr. Freidman owned and ones he managed for others: a
50-cent fee for regional transit improvements, and a 30-cent fee for more wheelchair-accessible taxis.
Officials initially accused Mr. Freidman of pocketing more than $30 million.
But after agreeing to cooperate against Mr. Cohen, he ultimately repaid $1 million to the state and $826,000 to the city. In addition to five
years of probation, he had to exit the industry and authorize officials to seek $4 million more in the future. (Mr. Cohen is now serving a
three-year sentence for campaign finance violations and other crimes.)
"He no longer has any involvement whatsoever in taxi operations in New York City. He's done;• said Allan J. Fromberg, a spokesman for
the city Taxi and Limousine Commission.
The city and the state have also demanded millions from the owners who entrusted medallions to Mr. Freidman's fleet, even though they
did not know about the scheme or benefit from it. The taxi commission did not respond to questions about the collections. The state
attorney general's office, which prosecuted the tax fraud case, declined to comment, citing its ongoing investigation into the industry.
"It's unbelievable;' said one owner, Robert Rosen, 72.
Mr. Rosen, who said he committed his medallion to Mr. Freidman because he knew his father, lost $30,000. "The things the government
has let this crook get away with. It's shocking!'
Susan Beachy contributed research.

Friday, November 22, 2019

A new law may fix student loan debt when filing for bankruptcy

It's almost impossible to get rid of student loan debt when filing for bankruptcy, but help may be on the way
From: Business Insider
By: Mike Brown,LendEDU
https://www.businessinsider.com/loan-debt-student-borrowers-bankrupcy-relief-act-2019-11

Tuesday, November 19, 2019

Taxi medallion owners win class-action status as reported in Cranes New York Business

"A lawsuit charging that the city sold 400 taxi medallions under false pretenses about their worth and then breached its contract by letting ride-hail operators enter the market and undermine medallion values has been certified as a class-action suit.

The suit, brought by five medallion owners and filed in early October, could now apply to more than 150 medallion owners, according to Daniel Ackman, one of the lawyers for the plaintiffs. The decision in State Supreme Court in Queens County was delivered late last week.

The disputed medallions were bought at three auctions held by the Taxi and Limousine Commission in 2013 and early 2014—when prices were still astronomically high and Uber had barely dented the market. The sales netted the city $360 million.

 Mystery buyer snaps up taxi medallions as prices fall further
 Judge rules on taxi industry lawsuit: Compete with Uber or die
 Cab drivers and owners get caught in the headlights of a troubled taxi lender
Ackman is asking for the city to take back the medallions from the auction winners and return the $360 million they paid for them. The medallions' prices ranged between $803,000 and $965,000 for independent medallions and $1.025 million and $1.259 million for corporate medallions, according to the suit.

Medallions are currently selling at private auctions for less than $150,000 apiece.

"Not once before the Auctions did the City warn prospective buyers that it was about to radically change the economics of the taxi industry by allowing a massive influx of new for-hire vehicles—principally cars hailed through electronic apps—that would decimate the value of the yellow taxi medallions," attorneys write in the suit. "Nor did the TLC disclose that it would license the e-hail taxis as “black cars” despite the fact that they did not qualify for these licenses. Instead, Defendants omitted this information which, had it been known, would have dissuaded potential Auction bidders."

Both the city and the plaintiffs have asked the court for summary judgment.

The city's law department and the Taxi and Limousine Commission did not respond immediately to a request for comment.

But in a related suit brought by Ackman that is currently before the same court, the city has argued that in its contracts with the medallion owners it made no claims "as to the present or future value of a medallion, or the present or future application of TLC rules."

The city also noted that the contracts did not imply an "obligation to protect [the medallion purchasers] from competition from app-based companies such as Uber, when their contracts explicitly said otherwise, and when Uber was already operating in the market at the time of their purchases."

A private-equity firm buying up taxi medallions could take on Lyft and Uber
The city and the TLC have a good record defending themselves from the claims of medallion owners who blame them for the plunge in medallion values. In one noted case in Queens Supreme Court in 2015, a judge ruled that an e-hail was a prearranged ride--essentially what black car services have always provided--and did not conflict with medallion owners' street-hail privileges.

Ackman maintains that his case is narrower than earlier suits, applying only to medallion owners who bought the assets directly from the city, and centers on the contractual relationship between them. It is also coming at a time when there is wider recognition of the hardships medallion owners have faced--highlighted by multiple suicides--and more interest among elected officials in taking steps to help them.

A favorable ruling "could have implications beyond this case," Ackman said. "It's possible if a judge says, 'Yes, the city's conduct destroyed the value of the medallions,' that could spur other actions by the city or the state.""


Monday, November 11, 2019

Student Borrower Bankruptcy Relief Act of 2019

MISSOURI CONGRESSMAN CLAY INTRODUCES STUDENT LOAN DEBT REFORM PACKAGE

Congressman Wm. Lacy Clay (D) Missouri has introduced two new bills to tackle America’s student loan debt crisis.

From: blackstarnews.com

http://www.blackstarnews.com/education/education/missouri-congressman-clay-introduces-student-loan-debt-reform 

Wednesday, November 06, 2019

The Failed or Closed Restaurant and its Lease


Continuing our blog posts about failed or closed restaurants,
when client’s contact us about a failed or closed restaurant, we
ask them to prepare and bring us an Income Statement and a Balance
Sheet for the restaurant.

The purpose of the Income Statement or Profit and Loss Statement is to
show the revenue and expenses for the restaurant for the current year and
to determine the profitability of the restaurant, if any.

The purpose of the Balance Sheet is to determine what money or property is
owed by the restaurant (liabilities), such as back rent to the Landlord,
sales tax, wages due to employees or money owed to suppliers.
We also want to know what property or assets the restaurant has to
satisfy the claims of creditors.

In our experience of representing  failed or closed restaurants, a couple of
 facts become apparent:

Restaurants have little to no inventory, the perishable goods must be used or
 thrown out.
-The accounts receivable are generally credit card based and collected by the
restaurant in 5 to 20 days
-The  used pots, pans and knives have little value
- Fixtures or property attached to the walls or the floor belong to the Landlord and
-The bar stools, tables and other property is generally auctioned off by the restaurant
owner  in a going out of business sale or sold by an auctioneer for 10 to 15 cents on the dollar.

There is however one asset that is often overlooked by restaurant owner and that is the lease. 
The lease needs to be reviewed to determine if the rent is below market, at market or above
market and how many years are left on the lease (the term).

A lease with less than three years remaining on its term, generally has little to no value.

Simerly a lease that is at market or over market generally has no value.
However an “under market” lease with 3 or more years on its term, 
may have a significant value.

The approach that we suggest for the under market lease  is that the assignment and
sublet provisions of the lease be reviewed, then the restaurant owner should contact
the landlord and indicate that they are considering closing their business and they
would like to assign or sublet the lease to a third party or have the landlord “by them out”
out their lease.

The restaurant owner with an under market lease, may want to contemplate hiring a
real estate broker to review the lease, to negotiate with the landlord and to market 
the lease to third parties.

The general standard in New York for the approval of an assignment or sublet of a
lease by a tenant is known as “not unreasonably withheld”. In plain English what
this means is that if a tenant finds a suitable party, that wants to take over the lease,
the landlord must be “reasonable” in approving or not approving /consenting to an
assignment of the lease or the Landlord can be sued.

The Landlord will want the lease to be sublet to a third party and not assigned, so that
the landlord will have recourse against the existing restaurant owner and the new
 restaurant tenant. If the restaurant lease is able to be assigned or sublet, then the 
tenant’s security deposit (which generally is two to three months of rent) will be
preserved and ultimately returned to the restaurant owner.

That money (sublet money & security deposit) can often times create a significant
amount of money, that can be used to pay creditors, such as sales tax, or monies due
the landlord that are guaranteed by the restaurant owner.

A number of issues related to failed or closed restaurants have been discussed in prior blog posts.
Clients with failed or closed restaurants, that have questions regarding the closing of the restaurant,
or a bankruptcy filing by the restaurant or restaurant owner or a sublet or assignment of the lease
should contact Jim shenwick at 212-541-6224 or at jshenwick@gmail.com.
Jim Shenwick has experience in workouts, bankruptcy filings and office leasing. 

Sunday, November 03, 2019

The Closed Restaurant and Guarantees and Good Guy Guarantee of the Restaurant Lease



In our continuing series of posts on failed or closed restaurants, many clients have asked us to review the custom 
and practice and the law regarding guarantees and  good guy guarantees for restaurant leases.

 Most restaurants in New York are owned by a limited liability company (“LLC”) or a Subchapter S corporation. 
That entity will set up and run the restaurant and the LLC  or S corporation stock will be owned by an  individual.

 In negotiating the restaurant lease, all Landlords will require that the owner of the LLC  or the S corporation 
guarantee the lease.

There are two types of lease guarantees in New York. A full or complete Guarantee for the payment of  rent or 
additional rent by the restaurant under the lease. Under this type of Guarantee, if a restaurant fails to make
lease payments for 6 months  or any period of time and owes $50,000 for  rent and additional rent  under the lease 
and these monies are not paid by the restaurant, the Landlord can demand that the guarantor pay those monies and if 
payment is not made, the Landlord can  sue the individual that owns the restaurant/guarantor for that sum of money. 
This is an example of an unconditional or unlimited guarantee by the restaurant owner to the Landlord.

 The second type of guarantee is what is known as a “Good Guy Guarantee (“GGG”)”, which is a specialized type of guarantee 
which limits the payment  of the guarantor under  the restaurant lease, if certain conditions enumerated in the GGG are met.  
If the restaurant performs those conditions, the guarantor is released from its  obligations under the Lease. 

An example is provided below. 

Example, many GGG require that the following conditions be performed by the restaurant in order for the GGG clause 
to come into effect and to limit the restaurant owners exposure to the Landlord for future rent. 1.  the restaurant  
must be current on its payment of rent and additional rent, when the GGG sends a letter to the landlord indicating that 
the restaurant is closing, 2 . written notice must be given to the Landlord (as specified in the lease) regarding the 
date of the  closing of the restaurant a certain number of days in advance of the closing date  (usually 45 to 60 days), 
3.the restaurant must be left in  “broom clean” condition and 4. keys for the restaurant must be delivered to the Landlord. 

Under this scenario, if all 4 conditions are satisfied, the guarantor is released from its guarantee under the Lease. 

However, the restaurant remains liable for the remaining rent and additional rent due under the Lease, unless the Landlord 
releases the restaurant from future rent (by the parties entering into a Lease Surrender Agreement) or the restaurant’s lease 
is subleased or assigned to a 3rd party in accordance with the terms of the Lease and  with the consent of the Landlord. 

As can be seen from the above examples, a GGG is a more limited form of guarantee. 

Under New York custom and practice, the guarantee whether it is a regular guarantee or a GGG can be incorporated into the 
terms of the lease,  but it must be signed and dated by the guarantor and the guarantor is usually required to give his or 
her social security number  and home address to the Landlord.

The guarantee or good guy guarantee can also be its own  separate document  and it is usually two to five pages long.

Before a restaurant closes, the lease and the guarantee, should be reviewed  by an experienced attorney to determine what 
conditions must be met. Any clients having questions regarding a closed or failed restaurant and lease guarantees or good guy 
guarantees should contact Jim Shenwick at 212-541-6224 or  email him at jshenwick@gmail.com. Jim Shenwick negotiates leases, 
practices bankruptcy law and represents failed or closed restaurants. 

Sunday, October 27, 2019

Restaurants and Workouts with Creditors

Restaurants and Workouts with Creditors

Many readers of our blog, who read last week's post titled

“Restaurant Closings in New York City and Bankruptcy”
have asked us to do a post regarding workouts with creditors
after the restaurant has closed.

Let's review a typical fact pattern,  that we see regarding failed restaurants.
The restaurant is owned by an LLC or a subchapter S corporation and the member’s
interest in the LLC or the stock in the S corporation are 100% owned by Mr. X.

The restaurant closes and the following debts are due and owing:
Suppliers or trade vendors are  owed $150,000
The landlord is owed $75,000, which amount is subject to a “guaranty” or a “good guy guaranty” by Mr. X.
$45,000 is owed for New York State sales tax.
The FICA/Futa tax penalty for the employee component (trust fund money) is $30,000 and
Former employees of the restaurant are owed $20,000 im past due wages.

For purposes of this example  the restaurant has elected to close and not
file for Chapter 7 or Chapter 11 bankruptcy.
What should the restaurant owner (Mr X) do? Let’s analyze how each debt
and how it should be treated.

First, with respect to the suppliers or trade vendors, if those debts have not been guaranteed
by Mr X. they do not have to be paid because they are the obligation of the restaurant.
If the suppliers or vendors are not paid within 30 to 45 days of the restaurants closing,
they can sue the restaurant and they will be able to obtain a judgment against the restaurant,
but not against Mr. X.

Second,  the debt to the landlord is an obligation  of the restaurant and of the guarantor, Mr X. If the landlord is not paid,
the Landlord will sue the restaurant and Mr X. Since the restaurant is closed, it does not need to  be concerned about a
judgment from the Landlord, but the judgment against  Mr. X would need to be addressed thru a  workout with the landlord
or by a bankruptcy filing by Mr. X. The debt to the former Landlord should be addressed by Mr. X after the payment or a
workout with New York State sales tax and the FICA/FUTA tax penalty, for reasons discussed below.

Third, the $45,000 owed to New York State sales tax is a trust fund or a responsible person tax and it would not
be dischargeable in a bankruptcy by Mr. X and  an arrangement should be made to pay that tax through the sale
of the restaurants furniture fixture & equipment or the collection of its accounts receivable, or from Mr. X’s savings.

Fourth, the FICA/FUTA  $30,000 tax is a trust fund and similar to sales tax it would not be dischargeable
in Mr. X’s bankruptcy filing and it should be paid or payment arrangements should be made with the IRS

Fifth,  under New York State law  past due wages due to former employees are an obligation of the restaurant and
Mr X personally. If these wages are  not paid by Mr. X  the former employees can sue him and obtain a judgment,
but the judgment will be dischargeable in a Chapter 7 bankruptcy filing by Mr. X.
With  respect to the terms of a workout there are two ways to work out a payment plan with a creditor, one is
with a lump-sum payment and the other is a series of payments over time, otherwise known as an “installment agreement”
or an “out of court settlement or workout”.

A creditor will give a larger discount for a lump sum payment, than an installment payment. For example,
if a creditor is owed $30,000, Mr. X may be able to negotiate a lump sum payment of $5,000 as a final and full payment,
with a release from the creditor to Mr. X.

In an installment payment arrangement Mr. X would agree to pay a creditor who is due $30,000, $10,000 overtime,
in ten $1000 monthly installment payments.

Restaurant owners with a failed or a closed restaurant should consult  with an experienced bankruptcy or in debtor-creditor attorney
as soon as possible in the process. Jim Shenwick, Esq.  can be contacted at 212-541-6224 or at jshenwick@gmail.com




Saturday, October 19, 2019

Restaurant Closings in New York City and Bankruptcy

Restaurant Closings in New York City and Bankruptcy

As reported by many newspapers and websites, a significant 

number of restaurants are closing in New York City. These 

closings are due to the high cost of rent, insurance,  

overhead and the increase in the  minimum wage to $15 per 

our for the  restaurant staff. A restaurant consultant who 

meet with me stated that a Ray Kroc associate told an 

individual not to open  a restaurant unless they were prepared 

to clean the bathroom and wipe the floor themselves due to 

the thin margins in many restaurants. 

At Shenwick & Associates,  we have seen a significant uptick in 

bankruptcy filings by restaurant and restaurant owners and we have 

developed a legal strategy to deal with these situations.

We focus on the financial issues related to the restaurant first 

and then to the owner of the restaurant second. Most restaurants 

are owned by LLC  or Subchapter S corporations. We first  review 

the assets and liabilities for the restaurant and a recent budget 

showing revenue and expenses for the  year to date. We review that 

information with  the owner and determining whether the restaurant 

should  close or  file for bankruptcy and we then focus on issues 

related to the owner of the restaurant.

Restaurants are eligible to file for chapter 7 or chapter 11 bankruptcy. 

Chapter 7 is a liquidation where the restaurant is closed or chapter 11 is a 

reorganization where the business can attempt to reorganize its 

debts. In the Southern and Eastern District of New York (Manhattan, 

Brooklyn, Queens and Nassau county)  historically on average only 1 out 

of 10 businesses are  able to successfully reorganize 

(file and confirm a chapter 11 plan of reorganization). There are many reasons 

for the low percentage of success, but many of those factors related to the 

cost and expense of filing chapter 11 bankruptcy and the inability to obtain 

financing and capital from third parties or banks.

The option that most restaurant owners face is  either to close the restaurant 

or file Chapter 7 bankruptcy for the LLC or S Corporation that owns the  restaurant. 

In Chapter 7 bankruptcy a bankruptcy trustee closes the restaurant and liquidates 

any inventory, furniture fixture or equipment and attempts to collect accounts 

receivable. The chapter 7 trustee then takes those monies, if any  and distributes 

them to creditors after paying legal fees and court costs.  

It's the restaurant does not have significant amounts of furniture fixture or 

equipment or accounts receivable, the owner may be better off closing the 

restaurant itself and selling or auctioning off any furniture fixture and equipment 

and attempting to collect its own accounts receivable. Additionally, 

if the restaurant lease has a term of 3 years or more and is below market the 

restaurant owner may be able to assign (sell) the lease to a 3rd party. 

A Chapter 7 bankruptcy trustee is permitted to bring lawsuits to  recover 

monies that may have been paid to third parties (preference actions) 

or recover money or property paid to a third party

(fraudulent conveyance actions)  and the bankruptcy trustee will want to 

review the books and records for the restaurant, its checking account

and tax returns. The owner of the restaurant 

will have to go to  one meeting at the courthouse (called the 341 hearing) and 

cooperate with the  bankruptcy trustee. 

These factors often affect whether a restaurant will file for chapter 7 

bankruptcy or just close.

Notwithstanding the fact that the restaurant is owned by an LLC or 

Subchapter S corporation, members of the LLC, including the officers, 

directors,  shareholders or the individuals that signed 

the checks  may be liable for certain debts of the restaurant after it 

closes (discussed below). 

Some of those debts may be “responsible person taxes” which are trust fund 

taxes such as sales tax or FICA/FUTA  taxes withheld from an employee's wages 

or the FICA/FUTA tax penalties. 

Sales tax and FICA/FUTA  taxes are not dischargeable in personal bankruptcy, so 

those debts should be paid prior to the restaurant closing or paid from the sale 

of furniture, fixtures and equipment, collection of accounts receivable or from the 

sale of the lease. 

Next, if a member of the LLC or a shareholder guaranteed a lease obligation, or 

guaranteed debts  to a supplier, they be personally liable ( discussed below). 

There are 2 types of lease guaranties, good guy guaranties and lease guarantees 

and the type of guaranty can affect the amount owed by the restaurant owner. 

If a supplier to the restaurant is not paid, the restaurant is generally liable, 

however in certain instances, the supplier will look for a “deeper pocket” and sue

the individual arguing “alter ego” or “piercing the corporate veil” and attempt to

sue not only the restaurant but the owner of the restaurant as well.

The owner of the restaurant, may also be liable personally for wages not paid to 

the restaurant staff under the New York State Business Corporation law.

A restaurant owner with significant business debts may need to file a Chapter 7 

bankruptcy or attempt an out-of-court workout with respect to the monies that it 

owes. 

To determine whether a restaurant owner should file bankruptcy or attempt to do an 

out-of-court workout with its creditors, we need to see a list of assets or property 

that the restaurant owner owns, a list of  liabilities or money or property 

owed to third parties and an after-tax monthly budget, showing what the restaurant

owner earns what it pays in personal and business expenses.

Unfortunately, in many instances after the restaurant is closed, the restaurant owner 

needs to file a Chapter 7 or Chapter 13 personal bankruptcy and

James Shenwick is available  to help address these issues.

Jim Shenwick 212 541 6224, jshenwick@gmail.com 

Pensions and Chapter 7 Bankruptcy filings



With the increase in bankruptcy filings, many clients have contacted us regarding
the treatment of their pensions in a chapter 7 bankruptcy filing and whether they should borrow from their pension prior to filing for bankruptcy, if necessary.

Under the law, both Roth and traditional IRA’s are exempt  up to $1,283,025 in a chapter 7 bankruptcy filing.

401(k)s, 403(b)s, profit sharing plans, SEP & Defined Benefit Plans are completely exempt in a chapter 7 bankruptcy.

Pension monies are also exempt from the reach of creditors (“spendthrift trust”) so they cannot be liened or levied by creditors. If those monies are withdrawn from a pension plan they are subject to the reach of creditors and therefore if possible a debtor should not borrow from their pension prior to filing for bankruptcy.

Additionally, if a person borrows money from a pension (prior to the age requiring a mandatory withdrawal from the pension plan) they will have to report that money as additional income and pay a 10% excise tax on those monies.

Anyone with questions regarding personal bankruptcy should contact Jim Shenwick at jshenwick@gmail.com

Thursday, October 17, 2019

How New York’s Taxi Titans Roiled Cities Hundreds of Miles Away from New York TImes October 7, 2019

How New York’s Taxi Titans Roiled Cities Hundreds of Miles Away

In the early 2000s, a group of New Yorkers did something unexpected.

They bought a bunch of taxi medallions that allowed them to own and operate vehicles hundreds of miles away, in Chicago. Medallions in that city were considered such an inexpensive commodity that Chicago had, at times, given them away free.

This turned out to be an early sign of a takeover of taxi markets across the country by some New Yorkers who were about to teach drivers in other cities a painful lesson.

The real taxi money wasn’t made by charging passengers; it was made by raising the price of medallions and financing loans to drivers who wanted to buy them.

The scheme started in New York.
In May, The Times’s Brian M. Rosenthal exposed the financial maneuvers that helped lead to the collapse of the taxi industry in New York City.

His series detailed potential market manipulation of taxi medallion prices and showed how some of the people who manipulated those prices also made money by providing drivers with high loan amounts, long loan lengths, steep fees and interest-only terms.

The Department of Justice and the New York attorney general soon opened investigations into the industry. The city arrested a debt collector, waived $10 million in fees owed by medallion owners and strengthened regulations.

The taxi titans expanded their operations to Chicago …
Symon Garber, a New York fleet owner, along with a group of partners, began buying medallions in Chicago and lending to other buyers. They eventually bought 800 of the city’s 7,000 medallions.

Michael Levine, a legend in New York’s taxi industry, bought more than 500 medallions in Chicago. Mr. Levine also was involved in a company that provided at least 750 loans to medallion owners.

At least 40 other New Yorkers bought Chicago medallions, including Michael Cohen, President Trump’s former lawyer, records show.

… and to Boston, Philadelphia and elsewhere.
Then some of the same people who roiled New York’s industry expanded their operations. Medallion prices soared to $700,000 in Boston, $550,000 in Philadelphia, $400,000 in Miami and $250,000 in San Francisco.

But in Chicago, New Yorkers eventually bought almost half of that city’s medallions, records showed. The average cost of a medallion there — less than $50,000 in 2006 — rose to nearly $400,000 before prices began plummeting in 2013.

Today, a Chicago taxi medallion is worth $30,000 or less.

“In retrospect, it should’ve set off alarm bells” that New Yorkers were entering Chicago’s market,” said Michael Negron, who was a policy adviser to Rahm Emanuel, a former Chicago mayor. “Outside investors were coming in to upend the industry, and everybody kind of missed it.”

The New Yorkers who bought medallions in Chicago and elsewhere said in interviews with Mr. Rosenthal that they were never accused of breaking any laws. They said that as New York medallion prices rose, it made sense to pursue new opportunities.

Pensions and Chapter 7 Bankruptcy filings

Pensions and Chapter 7 Bankruptcy filings

With the increase in bankruptcy filings, many clients have contacted us regarding the treatment of their pensions in a chapter 7 bankruptcy filing and whether they should borrow money from their pension prior to filing for bankruptcy.

Under the law in New York both Roth and traditional IRA’s are exempt  up to $1,283,025 in a chapter 7 bankruptcy filing.

401(k)s, 403(b)s, profit sharing plans, SEP & Defined Benefit Plans are completely exempt in a chapter 7 bankruptcy.

Pension monies are also exempt from the reach of creditors (“spendthrift trust”) so they cannot be liened or levied by creditors. If those monies are withdrawn from a pension plan they are subject to the reach of creditors and therefore if possible a debtor should not borrow from their pension prior to filing for bankruptcy.

Additionally, if a person borrows money from a pension (prior to the age requiring a mandatory withdrawal from the pension plan) they will have to report that money as additional income and pay a 10% excise tax on those monies.

Anyone with questions regarding personal bankruptcy should contact Jim Shenwick at jshenwick@gmail.com




jshenwick@gmail.com • Shenwick & Associates

Wednesday, September 11, 2019

Federal prosecutors probing NYC taxi industry in wake of driver suicides: report

By Stephanie Pagones | Published September 10, 2019 | Transportation | FOXBusiness
Manhattan federal prosecutors are probing possible lending fraud in the New York City taxi industry, according to a report.

The Southern District of New York has been investigating possible crimes, such as bank, mail and wire fraud, over the past month in the wake of a string of suicides involving cabbies who were bogged down by heavy debt related to the ever-increasing cost of taxi medallions, The New York Times reported, citing sources with knowledge of the inquiry.

A U.S. Attorney's Office representative declined to comment to the Times.

The cost of a taxi medallion rose from $200,000 in 2002 to $1 million in 2014, the report states, while industry heads or medallion brokers used questionable lending tactics or provided their clients “insufficient or unclear information,” according to and Executive Summary released this summer by the City of New York pursuant to a 45-day review into the industry’s methods.

As much as 95 percent of the city’s taxi drivers are immigrants, the summary states, many of whom speak English as a second language.

“For current drivers, the largest single issue they face is an unaffordable level of debt. The average median debt owed by surveyed drivers is approximately $500,000,” according to the city record. “[Fifty-one percent] of surveyed drivers stated they struggle to pay their monthly bills and 26% stated they are considering bankruptcy.”

In fact, over 900 livery cab drivers have declared bankruptcy, the Times reported.

The Times interviewed an immigrant from Bangladesh who bought his taxi medallion in 2014 and signed a loan that required him to pay $1.7 million, even though his annual income was only about $30,000. He told the Times that he did not understand the terms of his loan, according to the report.

New York Attorney General Letitia James announced in May she would be conducting her own review of the matter.

https://www.foxbusiness.com/features/federal-prosecutors-probing-nyc-taxi-industry-wake-livery-driver-suicides

Thursday, September 05, 2019

Bankruptcy Filings are on the Increase

Bankruptcy Filings are on the Increase
A recent article in Yahoo Finance noted that bankruptcy filings are on the increase (https://finance.yahoo.com/news/2019-is-the-first-time-in-in-8-years-that-bankruptcy-filings-are-projected-to-rise-abi-221249707.html ; producer is Yvette Killian).
The article states that according to the American Bankruptcy Institute, U.S. bankruptcy filings in July 2019 were up 3% from the same time a year ago. The article continued to state that “bankruptcy filings are on the rise as Americans pile up more debt. The latest ABI data pegs household debt near $14 trillion, which is $1 trillion more than the 2008 Great Recession peak.”
At Shenwick & Associates we have been extremely busy this summer with bankruptcy filings and workouts for both individuals and businesses, and we expect this trend to continue in 2019 and 2020 given the rise in debt usage.
In Jim Shenwick’s  opinion  in New York , we are seeing a “Tale of Two Cities”  in that a segment of the population is doing extremely well, but many sectors in the city are hurting and at risk.
Uber, Via and Lyft have hurt taxi medallion owners. Last month's taxi medallion sales were at approximately $130,000 per medallion, down from $1,300,000 three years ago. Politicians have not successfully addressed these issues to date.
Vanguard has hurt the hedge fund industry, with many funds closing.
Amazon is hurting retail and many retail stores in the city are closing, evidenced by the vacant storefronts we see on each block.
Restaurants have been hurt and continue to be hurt by the increase in the minimum wage to $15 per hour, which has squeezed the bottom line.   Many restaurants have closed or filed for bankruptcy as they are no longer profitable. Restaurant owners have also individually filed bankruptcy due to property lease guarantees they may have signed. 
Many young people are overburdened by student loans and have substantial credit card debt.
Bankruptcy or out of court workouts may be a solution for some of the above-mentioned problems faced by individuals and businesses, and Jim Shenwick 212-541-6224 jshenwick@gmail.com  can assist with those issues. 

James Shenwick
Shenwick & Associates
122 East 42nd St. (42nd & Lex. Ave SW Corner)
Ste 620
New York, N.Y. 10168
Bankruptcy & Creditor’s Rights
“We always appreciate referrals”
(W) 212-541-6224 ext. 113
Cell Phone: 917-363-3391
Fax 646-218-4600 
E Mail: jshenwick@gmail.com
Web: http://jshenwick.googlepages.com
Blog: http://shenwick.blogspot.com
LinkedIn: http://www.linkedin.com/in/jamesshenwick

Tuesday, August 20, 2019

Jim's NYC Office Computer

Shenwick and Associates would like to acknowledge and say thank you to Startup Stage
https://remotedesktop.google.com/access/session/07bec0c0-d606-eea2-8313-d9f7c5aaa1e3

Tuesday, July 16, 2019


Another Taxi Medallion Workout Success Story

Crains New York reported on July 11, 2019 that an auction of 16 medallions at an East Elmhurst, Queens, hotel came to an early end, with just three sales and a top price of $138,000.

Regrettably, this article demonstrates that taxi medallions continue to drop in price.  

As many readers of this blog know, Jim Shenwick has developed a niche practice representing “underwater’ taxi medallion owners.

The strategies used by Jim Shenwick in taxi medallion workouts are as follows:

First, he does asset protection planning under New York State law to make sure that if the negotiations are not successful, or the taxi medallion owner needs to file bankruptcy, as few assets or property of the medallion owner would be available to creditors or the bankruptcy trustee.

Second, he commences aggressive negotiations with the bank (that holds the medallion loan), seeking that they “take back” the underwater medallion. This is known as a “walkaway”, or a “surrender”, of the medallion and it is a form of “out of court” workout. There are tax implications regarding the take back of a medallion by a bank under Section 108 of the Internal Revenue code, and those issues have been discussed in prior blog posts by Jim Shenwick.

Third, if the out-of-court negotiations do not work, in appropriate cases Jim advises the medallion owner to file for Chapter 7 bankruptcy (also discussed in prior blog posts).

Fourth, if neither of the options described above work, Jim then seeks a modification of the medallion loan with the bank.

Recently, Jim Shenwick concluded a successful negotiation regarding a medallion loan modification and the facts and strategy are discussed below.

The facts: An individual owned one taxi medallion subject to a loan on the medallion in the amount of $650,000. The individual also owned a house in Nassau County with a fair market value of approximately $600,000 and the house was not subject to a mortgage. The medallion was being leased out by a management company and the cash flow from the lease was not covering the monthly loan payment to the bank (a common problem). For several months, the client had been using money from their savings and checking account (out of pocket) to make up the difference. However, based on the property that the client owned and their age, they would be unable to make those payments indefinitely and they were nervous and stressed about their situation.

The Strategy: Jim Shenwick was retained to begin negotiations with the bank. Based on the value of the house and the amount of equity in the house, the bank indicated that they would not accept a surrender of the medallion. He then agreed to a modification of the medallion loan so that after the modification, the cash flow generated from the leasing of the medallion would equal the monthly medallion loan payments- the loan would be cash flow neutral.

While the result was not as ideal as a surrender of the medallion, under the circumstances at that  time, it was the best solution for the client. The modification eliminated the need for litigation and a bankruptcy filing by the client. In the case of bankruptcy, based on the equity in the house, the client would have lost their house.

In a loan modification there are four variables: 1) The amount of the loan 2) The interest rate on the loan 3) The term of the loan 4) The amortization schedule for the loan. 
Once these four variables are determined, a loan amortization table can be used to determine the monthly loan payments.

Let's now discuss those factors and how they applied to the medallion loan modification.  First, Jim asked the bank to write the loan down to the value of the medallion and the they refused (the amount of the loan for purposes of the loan modification was $650,000). Second, the bank agreed to an interest rate of 3.75% for the modification. Third, the bank agreed to a two-year term for the loan. The client requested a three to five-year loan repayment term, but the bank refused. Fourth, the bank advised that the loan be interest only to lower the monthly payments- which the client agreed to.

Based on the above factors, the parties agreed to modify the loan. After the modification, the cash flow generated from leasing out the medallion equaled the monthly loan payments and the medallion owner/ borrower no longer had to “go into their pocket” to cover the monthly payments.

While the solution was not perfect, under the facts and circumstances of this case it was the best result for the client. Effectively, we have “kicked the can” down the road for two years with the hope that medallions will increase in value during that period of time. If medallions do not increase in value, the client can either do another loan modification, seek a surrender of the loan, or file for bankruptcy.

Anyone who is interested in discussing an underwater taxi medallion loan modification or similar strategy is advised to contact Jim Shenwick