How to Find a Corporate Tax Lawyer
Creating a tax strategy takes teamwork among legal, finance, and accounting professionals. Many companies trust an independent corporate tax lawyer as an advisor to the tax strategy team. When you are ready to add a corporate tax lawyer to your team, how do you find one? The search starts the old-fashioned way and ends with a list of interview questions.
Ask for a Referral to a Corporate Tax Lawyer
This is a case when “Googling it” is not a good first step. You will not see many listings for “corporate tax lawyer.” You probably will have better success by asking your professional network if they will refer you to a corporate tax lawyer. Inquire with your banker and accountant, and the lawyers you work with on other matters. Most of us trust recommendations from respected colleagues, which is why this is the best way to find a lawyer you will trust from day one.
If you do not get a referral from someone you know, check with the bar associations in your area; for Missouri, those include the Federal Bar Association and the Eighth Circuit Bar Association, the bar for the St. Louis area. (You can also learn about our own Taxation Law capabilities here at Swiecicki & Muskett.)
Check Their Credentials for Practicing Taxation Law
The practice of taxation law requires a minimum of a Juris Doctor degree, known as a J.D. The attorney also must be licensed by the state bar. Many corporate tax lawyers expand their expertise and earn a Master of Laws in Taxation degree, known as an L.L.M.. Some are certified public accountants and others have served in corporate finance positions.
Christopher Swiecicki, founder and managing attorney at Swiecicki & Muskett, L.L.C., practices taxation law with the insight of decades of experience in law, finance, and accounting. During his career he has:
- Earned a J.D. in 1990 and an L.L.M. in 2005, both from the Washington University School of Law, one of the top law schools in the nation.
- Taught a course in Business Acquisitions as an adjunct professor at the Washington University School of Law since 2011.
- Worked as a tax accountant at one of the Big Four accounting firms.
- Served as inside tax counsel to a Fortune 500 Company.
- Worked as inside tax counsel to a regional financial institution.
- Served as a chief financial officer and general counsel for a $40 million private company.
- Been recognized as an expert in the field by the Association of Corporate Counsel and the American Bar Association.
Today, Christopher Swiecicki provides personalized service to business owners and executives at major corporations. He keeps his client roster small enough to respond quickly to every client. When he meets with clients, he has in-depth knowledge of their needs. (To begin a conversation, you can find his contact information here.)
Ask If the Corporate Tax Lawyer Has Applicable Experience
A corporate tax lawyer might have impressive credentials but lack experience related to your situation. Ask them about it before signing a contract with them. In some cases, you may need to meet with them to explain your situation. If you learn they are not experienced in the area you need help with, ask them for a referral to another corporate tax lawyer.
Learn What the Corporate Tax Attorney Will Do for You
When hiring a corporate tax attorney, find out what they will do for you. Christopher Swiecicki has decades of experience advising companies on the federal tax-related aspects of acquisitions and dispositions, mergers and financial structures and products, and corporate governance. If you are seeking counsel in one of these areas, contact Swiecicki to discuss your situation and see if there is a good fit.
In other situations, consider asking the following questions, or variations of them, depending upon your business:
- What is your experience with a business like ours?
- How do you see our business interests intersecting with tax law?
- How will you apply your knowledge of taxation law to help us manage our business functions more effectively?
- Will you help us decide whether to set up a C-Corp or an LLC?
- What skills and resources do you have to help our company manage tax exposure and risk?
- How does your team stay current on IRS rulings and government programs affecting business taxes?
- Will you advise us on the tax ramifications of current operational and business decisions?
- Do you provide counsel related to e-commerce and cloud-based services?
- Do you have experience litigating cases before the IRS?
At Swiecicki & Muskett, we serve businesses in many industries with varied structures and sizes. We are constantly gaining new insights, thanks to the diversity of our clientele.
When you are ready to increase profits with a sophisticated tax strategy, contact us. We will serve you with the strength of our experience combined with constant attention to changes in taxation law. Contact Christopher Swiecicki at 636-778-0209 or email Chris@SwiecickiLaw.com.
Understanding Sandbagging in M&A Transactions
In the context of buying a business, a “sandbagging” Buyer is one who is (or becomes) aware that a specific representation or warranty made by the Seller is false—but instead of telling the Seller this fact, the Buyer completes the transaction. The Buyer then seeks post-closing damages against the Seller for the breach.
Sandbagging is a frequent occurrence in acquisitions. It happens so often that transactional planners have made a “sandbagging playbook” that tells people how to handle the issue, depending on which side of the deal they’re on and whether the state law governing the agreement is “pro-sandbagging” or “anti-sandbagging.”
Competing Interests When it Comes to Sandbagging Clauses
More importantly, the Buyer and Seller in a deal have different competing interests, and so each has their ideas on handling the sandbagging clause.
So, while there are many different ways to prepare for sandbagging, most strategies boil down to three essential elements:
- Including a clause in the acquisition agreement that says the Buyer can seek a claim even if the Buyer knew ahead of time that the Seller’s representations and warranties were false (i.e., sandbagging is permitted)..
- Including a clause in the acquisition agreement that says the Buyer can’t seek compensation for a breach of the Seller’s representations and warranties if the Buyer knew the representations and warranties were false ahead of time (i.e., sandbagging is explicitly forbidden).
- Saying nothing about the issue. In this case, the contract defaults to whatever state law says.
When the Buyer wants a sandbagging clause, and the Seller wants an anti-sanding clause, a typical compromise is to leave both clauses out of the purchase agreement. However, in certain states, if the agreement makes no mention of a sandbagging clause, sandbagging is permitted. So from the Seller’s perspective, mentioning the clause is only sometimes considered an equal compromise.
As seen in Arwood v. AW Site Services, LLC In the Court of Chancery of Delaware, the state respects contracting parties’ right to enter into good and bad contracts. The Delaware Supreme Court has yet to decide if a party can win a settlement for a broken promise if both parties knew some of the promises weren’t true at the time of signing.
Sandbagging in the Context of Due Diligence
Due diligence is expensive, so parties to contracts in mergers and acquisitions often try to ensure a Buyer doesn’t have to check every detail of a Seller’s business.
A pro-sandbagging clause enables a buyer to pursue compensation for a violation of a representation or warranty even if the Buyer had previous knowledge that the statement was untrue. The right to a remedy, for instance, is not affected by any knowledge acquired (or capable of being acquired) before or after the execution and delivery of the agreement or the closing date with respect to the accuracy or inaccuracy of such representation [or] warranty.
In the Buyer’s eyes, a pro-sandbagging clause helps assure that it will benefit from its bargain. Based on the Seller’s promises and warranties, the Buyer assumed that its target had a particular worth. Buyers claim that if the statements are untrue, they overpaid and should receive compensation. Additionally, buyers contend that pro-sandbagging agreements give the parties more assurance. They eliminate obstacles to recovery, for instance, a protracted and expensive argument over the Buyer’s prior knowledge during the indemnification process.
An anti-sandbagging clause would prevent a buyer from pursuing reimbursement in cases where the Buyer knew (or, depending on the clause’s scope, had cause to know) that a representation was untrue before closing. The contract can provide, for instance, that the Seller is not responsible for “any Losses originating from or attributable to any inaccuracy in or warranty in this agreement if the party claiming indemnification for such Losses had Knowledge of such breach before Closing.”
The parties may restrict the scope of the agreement to knowledge received by a particular group of people or to knowledge obtained before a particular date.
These days, anti-sandbagging clauses are rare. However, sellers contend that these clauses may encourage collaboration between the sale parties in specific situations. If, for instance, an executive or owner plans to stay with the acquiring company after the acquisition, the persistent danger that the Buyer may sandbag the Seller may result in conflict and distraction. Sellers might also contend that they should be allowed to fix any problems the Buyer learns about before closing.
By getting the Seller’s promises, the Buyer puts some risks on the Seller. As a practical matter of business, a Buyer doesn’t have to check and make a provision for every aspect of the company’s finances because it knows it can take legal action against the Seller if the claims turn out to be false. For example, false or misleading statements about the company’s financial health or expectations of future performance.
A Seller can’t go back on the promises it made because the Buyer’s due diligence didn’t find out they were false. Since the Seller promised in the contract that the Buyer could depend on certain statements, the Seller can’t say that the Buyer was wrong to trust the Seller’s own binding words.
Two General Rules Governing Sandbagging
In general, courts have established two separate rules—the so-called “Modern Rule” and the “Traditional Rule”— In the absence of a sandbagging clause in the M&A agreement, parties to M&A transactions and their counsel should be aware of how various states handle a buyer’s indemnity rights.
The Modern Rule
The modern rule refers to a legal principle that guides the interpretation and application of law in contemporary society. It is based on the principle that laws should evolve and adapt to changing circumstances and new situations. In other words, the modern rule emphasizes the need for a flexible and dynamic approach to law rather than a strict and rigid interpretation of outdated legal principles.
According to “Modern Rule” courts, the Buyer had the right to rely on the representations and warranties because they were negotiated contractual duties. Delaware and, generally speaking, New York are two states that adhere to the Modern Rule (as well as Illinois, Florida, Connecticut, and Indiana).
The Modern Rule is a “pro-sandbagging” rule and is thus in the best interest of the Buyer. Because purchasers are typically not required to demonstrate reliance in those jurisdictions to pursue an indemnity claim for a seller’s breach of a representation or warranty, buyers are likely to prefer the controlling law of an M&A agreement to be a state that adheres to the Modern Rule.
The Traditional Rule
According to the Traditional Rule, a buyer’s indemnification claim requires that it be proven that they relied on the representation or warranty in some way.
Most states have adopted this approach, which calls on purchasers to demonstrate that they relied on the representation or warranty that the Seller broke.
The Traditional Rule is seller-friendly since it prohibits “sandbagging.” Because a buyer would have to demonstrate that they relied on the Seller’s false representation or warranty to succeed in a claim for breach of representation or warranty against the Seller, a seller will likely prefer that a state that adheres to the Traditional Rule serve as the governing law of an M&A agreement.
The Bottom Line
Some people who disagree with modern rules think sandbagging is bad economics because it makes bargaining more like a punishment. Others believe that sandbagging is unfair or questionable from an ethical point of view. Even though it might be unsettling to let a Buyer wait until after closing to bring a breach claim against the Seller that it knew about before closing, the risk of this kind of litigation can be managed just like any other risk in the deal that the parties make.
A rule that supports sandbagging backs up the idea that representations and warranties are an essential way to share risks.
When the parties to a contract choose not to (or don’t) divide the risk of sandbagging, the Buyer can rest assured that, as part of the deal, the Seller has implicitly promised to be honest in what it says. This view of “reliance”—that is, it requires nothing more than relying on the express warranty as part of the deal between the parties—reflects the common belief that an action for breach of an express warranty is no longer based on tort but mainly on the contract.
In other words, the fact that the Buyer questioned whether the Seller would honor their promises should not free the Seller from his obligations when it agrees to do what it said it would do. Reliance, whether a good idea or not, is not a part of breaking a contract.
During the due diligence, you should keep in mind the Seller’s promises and any facts you find that goes against the promises. It is best to seek legal advice before entering into any contract.
Contact Swiecicki & Muskett, LLC for practical solutions to your business and legal issues.
Understanding Contract Law: The Implied Covenant of Good Faith and Fair Dealing
A legal contract’s basic function is to state the rights and obligations of each party. In addition, the document typically covers what will happen under a variety of possible scenarios. This list of stipulations can be quite lengthy, especially in contracts between corporate entities.
Mergers and Acquisitions: The Perils of Breaking a Stock Purchase Agreement
At Swiecicki & Muskett, LLC, we often litigate interesting cases that illustrate just how important it is to follow the terms of a contract. One recent case involved our appeal of findings in favor of the seller of a business. We aimed to prove that the company breached its Stock Purchase Agreement (SPA) with the buyer, despite the original court ruling in the seller’s favor.
C-Corps vs. LLCs: Which One is Right for My Business?
When deciding the best way to structure their business, owners are often inundated with advice. And while friends , colleagues, and even accountants can mean well, they can inadvertently steer them into a choice that is problematic and expensive.
The Importance of Due Diligence
The Court, Seller, and Buyer all agree that the $10 million of cash in the dda accounts that Seller failed to sweep belonged to Seller; Yet the Buyer was awarded the funds.
In an unpublished Opinion, on March 29, 2021 Vice Chancellor Morgan T. Zurn authored a correct, yet tough opinion.
The action arose from a stock transfer whereby plaintiff Deluxe Entertainment Services, Inc. (“Seller”) sold all the outstanding shares of its wholly owned subsidiary, Deluxe Media Inc. (“Target”), to defendant DLX Acquisition Corporation (“Buyer”).
At closing, approximately $10 million in cash remained in Target’s bank accounts. Seller alleged it failed to sweep those funds from Target before closing and Buyer does not dispute Seller had the right to sweep those funds before closing.
Seller brought three counts. Count I – Breach of SPA; Count II – Breach of the Implied Covenant of Good Faith and Fair Dealing; and Count III – Reformation of the SPA.
Under the SPA, Seller agreed to sell to Buyer, and for Buyer to purchase and pay for all of Target’s shares in exchange for a cash payment. It is a general principle of corporate law that all assets and liabilities are transferred in the sale of a company effected by a sale of stock. When Seller agreed to sell Buyer all the Target Shares, it agreed to sell all the Target’s assets. Thus, by default, Target’s pre-closing assets and liabilities transferred with its shares.
Thus, the SPA presumed all Seller’s assets were included unless specifically excluded. Seller made no argument that cash was in any way excluded or subject to being clawed back. Seller does not contend that any of the express provisions of the SPA were breached. Seller Lost on Count I
In Count II, Seller argued that the implied covenant of good faith and fair dealing required Buyer to return the cash.
The implied covenant of good faith and fair dealing inheres in every contract and requires a party in a contractual relationship to refrain from arbitrary or unreasonable conduct which has the effect of preventing the other party to the contract from receiving the fruits of the bargain.
The implied covenant cannot be used to circumvent the parties’ bargain, or to create a free-floating duty unattached to the underlying legal documents.
An essential predicate for the application of the implied covenant is the existence of a “gap” in the relevant agreement. There is no gap in which the implied covenant can operate where the subject at issue is expressly covered by the contract, or where the contract is intentionally silent as to that subject. Seller Lost on Count II
Reformation is not an equitable license for a court to write a new contract at the invitation of a party who is unsatisfied with his or her side of the bargain; rather, it permits a court to reform a written contract that was intended to memorialize, but fails to comport with, the parties’ prior agreement. A party seeking reformation admits that had they read the document more carefully, they would have noticed and corrected the mistake. Seller proffered no evidence that there was scrivener’s error in the SPA.
Rather, the “mistake” at issue was Seller’s failure to sweep the cash from Target’s bank account, separate and apart from the terms of the Purchase Agreement. Seller’s failure to sweep Target’s cash is an operations or accounting mistake, which is crucially distinguishable from a scrivener’s error in the underlying agreement itself that can be remedied by reformation. Seller’s mistake in its own preparation to perform the parties’ agreement cannot justify reforming that agreement. Seller bears the risk of that mistake. The court would not change the terms of the parties’ bargain to accommodate Seller’s error in preparing to perform under the agreement that reflects that bargain.
Seller Lost on Count III
Practice Pointer: Check and Double Check Your Preclosing Checklists
Honored to Serve Washington University School of Law
In the St. Louis area, we are lucky enough to have one of the nation’s best law schools. Washington University School of Law is one of these institutions and its rankings and numbers are currently at an all-time high being ranked 17th and the 1L class was top 10 in the nation. As a native St. Louisian and member of the law community, it’s my honor to work with and support the Washington University Law School program in several capacities.
For 9 years, I’ve served as an adjunct professor for Washington University. Throughout this time I’ve taught courses on Corporations, Business Acquisitions, and Tax, and every year I find more truth in the phrase “the more I teach the more I learn.” The intellect of the students and the tenured faculty are some of the finest in the nation. To ensure more students are able to pursue their interest in law at Washington University, I serve as Chairperson of the Law School Eliot Society. Our group works in conjunction with the university’s advancement department to increase giving and organizing special events for the alumni that give at the Eliot Level. Additionally, I’m honored to annually support the Christopher S. Swiecicki Scholarship at the Law School. This is an annual scholarship for a law student that has an interest in tax law.
Being able to assist the Law School and its students is simply a privilege and I look forward to continuing to support Washington University’s Law School and help impact the future of the law school.