The history of American business is littered with companies that
crash and burn. Sometimes they fly so high they attract attention from
antitrust regulators. That's what happened with John D. Rockefeller's
Standard Oil, which grew so big that a federal judge ordered it broken
into pieces. Sometimes poor management or fraud are the culprit, like
when energy giant Enron imploded. And sometimes technology overtakes a
company, like when Henry Ford put the buggy whip manufacturers out of
Last week, another corporate stalwart threw in the
towel. You've heard the sad news. Hostess Brands -- maker of Wonder
Bread, Ding Dongs, Ho Ho's, Sno Balls, and the pop-culture icon Twinkies
-- filed for bankruptcy in January. But last week, citing a strike by
members of the Bakery, Confectionery, Tobacco Workers and Grain Millers
International Union, the company announced they would wind down their
operations and liquidate their assets. The move leaves over 18,000
Americans jobless just as holiday baking season moves into high gear.
and gourmets reacted immediately to the devastating news. Shoppers
across the country are quickly emptying shelves of Hostess goodies. An
enterprising class of baked-goods arbitrageurs have even taken to the
internet, offering Twinkies on Ebay and Craigslist for $100 or more per box.
(On the brighter side, dieters throughout the land are giving thanks
this week that one more temptation is disappearing from their tables!)
what about the IRS? How will the tax man make out in Hostess's
bankruptcy? Will he enjoy a delicious creamy filling? Or will he have to
settle for stale crumbs?
When debtors like Hostess go out of
business, the bankruptcy court supervises liquidating the debtor's
property and distributing the proceeds to creditors. Hostess has plenty
to sell, including 40 bakeries, 400 retail locations, and thousands of
trucks and trailers. Once those assets are liquidated, claims will be
paid according to specific priority rules, starting with 1st-priority
domestic support obligations, 2nd-priority administrative expenses,
4th-priority employee wages, and so forth.
Uncle Sam rarely
loses income taxes in corporate bankruptcies. That makes sense because
companies that can't pay their bills aren't likely to owe much income
tax to start with. But even unprofitable companies like Hostess still
make the tax man happy. Consider the property taxes they owe on those
bakeries and retail locations the sales taxes they collect on every Ding
Dong, and the payroll taxes they withhold on those 18,000 employees'
wages. The bankruptcy rules acknowledge these debts by treating
"pre-petition" taxes a debtor incurs before filing as an 8th-priority,
and "post-petition" taxes a debtor incurs after filing as a 2nd-priority administrative expense.
good news here, at least for those of us not watching our weight, is
that Twinkies might not be quite past their final expiration date.
Popular consumer brands are worth big money in today's crowded
marketplace. Hostess should be able to sell the Twinkies name and recipe
to a rival like Kellogg (owner of Sara Lee) or Mexico's Grupo Bimbo
(owner of Entenmann's). So odds are strong that Twinkies will someday
appear back on your grocer's shelf. (Rumour has it that Twinkies are
pumped so full of preservatives that they have no expiration date, which
makes them as likely to survive a nuclear holocaust as the cockroaches.
We'd hate to see them taken down by a simple bit of financial trouble!)
Our job, of course, is to help you manage your business and your finances to avoid the same fate as Hostess. We understand that planning is the key to minimizing the tax man's share of your twinkie, and we're here to give you the plan that's right for you. But time is running out to plan for 2012, and many of the best tax breaks go stale on December 31. So don't wait to call us for your plan!
Kenneth Hoffman counsels Entrepreneurs, Professionals and Select Individuals in taking control of their taxes, and businesses. Discover how I can help you overcome your tax and business challenges. To start the conversation or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday - Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or drop me a note.
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