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Authored by Stephen Pazan When conducting a source of funds analysis,  consultants are required to provide proof to the EB-5 investor.  Allowing funds that where unlawfully obtained would be reason to conduct  criminal proceedings. Published by EB-5 Investors magazine, this article discusses  whether administrative fees should be sourced. The article reveals  secrets about how cases are adjudicated at USCIS, and discusses indirect  sources of funds and credibility issues.  Read the article here

Published by EB5 Investors, Baker Tilly's Stephen Pazan discusses  whether administrative fees should be sourced. The article reveals  secrets about how cases are adjudicated at USCIS, and discusses indirect  sources of funds and credibility issues.

EB-5 Immigrant Investor Program

Issues surrounding sourcing of EB-5 administrative fees

New EB-5 regulations will be effective on Nov. 21, 2019. Baker Tilly will provide additional details as guidance is communicated, however here is an overview: New investment amounts: The minimum investment increases to $900,000 for Targeted Employment Area (TEA) investments and to $1,800,000 for non-TEAs. New changes in TEA eligibility criteria will make it extremely difficult for most current projects to qualify for TEA. Modified TEA designations: TEA determinations will be set by USCIS and are more restrictive in their definition. A single tract may only be combined with directly adjacent tracts to derive the weighted average unemployment rate required to exceed the 150% threshold. Cities and towns outside of a Metropolitan Statistical Area (MSA) and with population over 20,000 may be designated by DHS as eligible for TEA. New rules for priority date retention: Petitioners who already have approved I-526 petitions are allowed to retain their priority dates if they need to file a new I-526 petition due to circumstances out of their control, such as Regional Center termination. Also, the new rules disallow gifting or transferring an investor’s priority date to derivative beneficiaries. I-829 flexibility: Derivative family members must file their own petitions at the I-829 stage if they are not included in the investor’s own I-829 petition. Effective date: The final rule will be effective on Nov. 21, 2019, which is 120 days from the date of publication in the Federal Register on July 24, 2019. Only I-526 petitions received by USCIS prior to Nov. 21 will lock in the current rules.   We anticipate a significant rush of investors and projects that wish to file prior to the Nov. 21, 2019 deadline. To ensure all cases are properly submitted, please contact us immediately to begin working on your case. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

New EB-5 regulations will be effective on Nov. 21, 2019. Baker Tilly will provide additional details as guidance is communicated, however read the overview on new investment amounts, modified TEA designations, I-829 flexibility and more.

Alert: New EB-5 regulations announced

As long as humans have been on the planet, they have needed to eat and drink. In more modern times, the business of producing and distributing food and beverages has become a global endeavor. For many, eating and drinking is a pleasurable experience, and food and beverage processors strive to have their products associated with the joy of sharing food and drink. Now, as consumer tastes and preferences continue to rapidly evolve, food and beverage companies are finding there are many opportunities and different angles they can take to be top-of-mind for consumers moving forward. During a recent panel discussion, select executives of family-owned food and beverage companies that recently faced ownership transitions shared their succession paths and views on the current opportunities for middle-market companies: The panelists included: Tom Walzer – CEO – Saco Foods, LLC Dimitri Pappas – Founder/Owner – Orchard Solutions Jonathan Del Re – CEO – Lacas Coffee Company In an excerpt from Challenges of growing and transitioning a private food and beverage company, the panelists discuss what they find attractive about today’s food and beverage industry. What do you still find attractive about the food and beverage industry? Jonathan Del Re: There is tremendous change going on, which I know can be unsettling, but I find it to be a fairly interesting environment because successful companies have to think, plan and evolve on many levels. I feel comfortable in the industry. There is a certain stability – it will always be here in one form or another. And if you can evolve enough, you will always be relevant.  Baker Tilly Capital: How are you addressing changes in consumer tastes and preferences? Jonathan Del Re: For us, it is actually quite an opportunity. For one, we are sourcing and supplying a broader array of better coffees, and certified coffees, to make sure we are on-trend. We are not going to reinvent ourselves, but if we can be more relevant in 2019 than some of our competitors, then we can go in and educate customers about something they did not already know. We did this with cold brew a couple years ago when Starbucks and Dunkin Donuts came out with cold brew programs supported by huge advertising campaigns. A lot of our operators had heard of cold brew, but did not know what it is. We were able to approach customers with products and marketing materials and show them how to make more money by including this product category. We were able to bring our traditional customers something new.  Operating independent restaurants is a tough business. All the costs are going up – real estate costs, food costs, operating costs, wages – and they are operating on small margins. Anything we can do to help these customers raise their check average or bring more profitability is good. This includes better coffees, certified coffees, product innovations, etc. In addition, social causes have become increasingly important to some consumers, and thus to companies like ours. We are currently promoting a particular coffee with a cause, sponsored by the International Women’s Coffee Alliance, which is sourced by and for the benefit of women in third world countries who are often impoverished or maybe not treated fairly. So, social causes are emerging as a market driver. Tom Walzer: As traditional grocery is going through its transformation, some would jump to the conclusion that grocery is a dying or slowing industry because of all the new platforms available. I would argue just the opposite. Innovation is right in front of us, creating speed-to-market and the ability to interact with consumers in ways we never could before. Baker Tilly Capital: With the growing change in consumer tastes and preferences, how are you approaching this at Saco Foods? Tom Walzer: From a product perspective, we are always trying to reinvent ourselves toward current trends. Current trends include: sustainable, healthy and clean ingredients with simple branding and on-the-go snack foods. There are many unique opportunities with regard to product offerings and branding strategies to address these changes in consumer habits. The best example within Saco is the creation of Saco Conscious Baking where we focus on fair-trade practices, organic ingredients and simple packaging. We teamed up with Kiva to donate 10 percent of our profits to help people create better lives for themselves and transform communities worldwide. Dimitri Pappas: First, it is really satisfying to make a tangible product people can enjoy. Many, if not most, professionals are involved in industries that sell intangible products. It’s a little old-fashioned, but it’s nice to be able to taste and touch and see the product and see the connection between what you make and the value it brings to the people who are consuming. Second, the industry requires a balance of different skills. People’s tastes are constantly changing and the ways to get food to people are evolving so you need creativity to understand and capitalize on the unfilled niches. But there’s also a certain stability to the food industry – although there are longer-term trends that can fundamentally change your business model, from year to year major customers and suppliers stay relatively constant, so you need to be able to build long-term relationships, deliver on the commitments you have made and execute. Baker Tilly Capital: Do you see the growing change in consumer tastes as a big opportunity that was not available in the not-too-distant past? Dimitri Pappas: Yes. One of the things that is nice about the food industry is the number of different angles you can take. You could aim to be a volume leader and as a result become more efficient and have a cost advantage. You could aim to go after a specific product segment to take advantage of changing consumer tastes. There are angles in terms of the nutritional characteristics of a product or attributes like non-GMO or gluten-free. There are people who want to trace the corn in tortilla chips back to the farmer, and that is an angle that, 15 years ago, nobody cared about. Download the full panel discussion For more information on this topic, or to learn how Baker Tilly Capital specialists can help, contact our team. 

In an excerpt from Challenges of growing and transitioning a private food and beverage company, panelists from our recent panel discussion share what’s attractive about today’s food and beverage industry and the opportunities the industry presents for private companies.

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The appeals of today’s food and beverage industry 

Video link Authored by Kate Crowley, Robert Nowak and Thane Hutcheson Following their unprecedented HQ2 announcement and an extensive proposal process, Amazon’s pull of the New York City project made headlines. Coupled with changes to the incentives landscape caused by tax reform, the future of business incentives for expansion projects has experienced disruptions across all industry sectors. This on-demand webinar will highlight some of the key elements of tax reform impacting incentives, and review changes to the incentives application and approval processes that are being implemented in many locations across the country in reaction to Amazon’s HQ2 search and other recent megadeals.  Download the slides > Key learning objectives  After attending this webinar, participants will be able to: Understand how tax reform impacted taxation of government incentives  Evaluate the opportunity for new opportunity zone legislation to impact investments Understand the incentives offered to Amazon for HQ2 and how those relate to offer to smaller projects Learn how state and local governments are changing their processes in this new era of incentives Who should attend?  Organizations that are planning one or more of the following would benefit from attending the presentation:  Building a new facility Expanding an existing facility Adding jobs Selecting a site for a new location For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

Businesses looking to expand should evaluate and consider available incentives as a portion of their alternative investment structure. In this on-demand webinar, learn more about how the highly publicized Amazon HQ2 project and tax reform affects business incentives. 

Dealerships

Opportunity Zones

Navigating the new era of incentives

Major U.S. indexes The first quarter of 2019  (Q1 2019) showed improved performance for the broader U.S. equity  market, as the S&P, DJIA and NASDAQ closed up 13.1 percent, 11.2  percent and 16.5 percent, respectively, for the quarter. For the 12  months ending March 29, the S&P, DJIA and NASDAQ closed up 7.3  percent, 7.6 percent and 9.4 percent, respectively. Food and beverage relative performance As  of March 29, 2019, three of the five food and beverage segments  exhibited increases on a trailing 12-month basis. As a whole, markets  rebounded from a weak end to 2018 fueled by perceived progress in  U.S.-China trade talks. Additionally, the Federal Reserve announced a  dovish stance regarding near-future rate hikes. The snack segment  performed the best of the five food and beverage segments, exhibiting  stock gains of 14.6 percent and leading the performance of the S&P  500 Index’s 7.3 percent increase during the observed period. The  entirety of the snack segment constituents experienced closing quarterly  stock prices within 90 percent of their respective 52-week highs, which  led to the segment’s gain. The natural/organic segment, on the other  hand, suffered significant declines. A key driver of the decline  has been United Natural Foods, Inc.’s (“United”) poor stock performance.  In the fourth quarter of 2018 (Q4 2018), the stock decline stemmed from  investor disapproval of the acquisition announcement of SUPERVALU.  However, in Q1 2019, uncertainty surrounding the successful  implementation of United’s SUPERVALU acquisition had investors worried  further that the competition from Amazon’s Whole Foods will be too  strong to realize future growth prospects. Amazon has shown in the past  that it has the ability to de-emphasize competitive brands and, given  the company’s scale, it has the resources to compete for SUPERVALU’s  targeted customers.  Source: S&P Capital IQ and Baker Tilly Capital research (May 2019) Read the full update  Baker Tilly Capital, LLC disclosure
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There were 51 reported food and beverage transactions that closed  during the first quarter of 2019, with an aggregate deal value of $3.8  billion. This includes four middle-market transactions with an aggregate  deal value of $515 million.

Craft Beverage

Food and Beverage M&A update: Q1 2019

Sector spotlight: Dialysis service providers The  dialysis services industry is displaying continued growth, with an  aging population and an increase in chronic conditions such as  hypertension and diabetes, which lead to end-stage renal disease (ESRD).  ESRD is the final stage of kidney failure where patients require  dialysis or a transplant. Dialysis treatment is primarily administered  in two forms: Hemodialysis, where an  artificial kidney is used to filter out toxins, fluids and salt from  patients’ blood. This treatment can be performed at an outpatient  center, or at home with the correct equipment. Peritoneal dialysis,  where a cleaning solution is used to filter out waste and fluids from  blood through the patient’s abdominal lining. This treatment is  generally performed at home, but is less time-efficient and has a higher  risk of complication than hemodialysis, making it a less commonly  administered modality. The prevalence of ESRD continues to rise by about 20,000 cases per year, reaching 726,000 cases in the U.S. in 2016. 
  While the majority of dialysis treatment have been undertaken in  outpatient centers, providers in the U.S. are increasing their focus on  home dialysis. This trend is being driven by increasing operating costs  for outpatient centers and lower Federal reimbursement rates. The  dialysis services landscape has been historically dominated by a few  large players. However, the industry has been adapting to combat  financial challenges, which leads to potential drivers and opportunities  for investment, including: Increased demand for ESRD treatment:  The prevalence of ESRD has continued to increase in the U.S., with a  rise in the median age of the population and co-occurring diseases such  as diabetes. In addition, mortality rates for dialysis patients are no  longer decreasing, which is a factor that should lead to higher focus on  treatment. Falling reimbursement rates: With increased adoption of Medicare and Medicaid due to increased Federal funding 
  for these programs, dialysis providers could see reductions in  revenue-per-customer moving forward. Medicare payment plans are  typically responsible for payment of ESRD patients’ treatment from  initialization, unless they are covered by commercial insurance, in  which case Medicare becomes the primary payor after 33 months. Medicare  plans tend to have lower reimbursement rates than private health plans,  resulting in lower revenues as patients’ reliance on Medicare rises. Increasing costs for outpatient treatment centers: Profitability  of outpatient dialysis centers is expected to decline from 14.8 percent  of revenue currently to 13.9 percent by 2023, due to a) the effect of falling reimbursement, and b)  increasing industry wage levels as the demand for technically trained  and skilled workers rises due to government mandates on staffing levels  and quality control. Dialysis providers are increasingly looking for  revenue-boosting and cost-cutting measures, including integrating drug  therapies, increasing utilization of healthcare information technology  and increasing home dialysis offerings. Growth in adoption of home dialysis services: With  decreasing margins for outpatient hemodialysis centers, home dialysis  is becoming an increasingly attractive method of treatment. According to  Medicare cost report data for 2017, providers paid an average of $256  for a single in-center hemodialysis treatment versus $217 for a home  dialysis treatment. Technological advancement in home-based treatment  methods and equipment will accelerate the migration from outpatient to  home-based treatment. Read the full update  Baker Tilly Capital, LLC disclosure
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There were 334 reported healthcare M&A transactions that  closed during the first quarter of 2019, with an aggregate deal value of  $36.9 billion. Of these transactions, 54 were middle-market  transactions with a reported aggregate deal value of $8 billion.

Healthcare & Life Sciences

Healthcare M&A update: Q1 2019

There were 150 transactions that closed in the Philadelphia regional  market during the first quarter of 2019 (Q1 2019), an increase of  approximately 1.4 percent from the 148 closed transactions in the prior  quarter. The 150 closed transactions mark an increase from the 144  closed transactions during the same period in 2018. Additionally,  aggregate reported transaction value decreased approximately 9.7 percent  from the first quarter of 2018 (Q1 2018). Following a strong 2018, North America’s overall Q1 2019 M&A activity slowed. M&A aggregate deal value decreased 2.6 percent and deal volume decreased 36.4 percent compared to Q1 2018. However, M&A activity is likely to sustain momentum driven by megadeals, with six deals closing at a value above $10 billion in Q1 2019 and several others announced. Median deal size in North America rose to a record $101 million in Q1 2019, a dramatic increase from $57 million in 2018. A competitive bidding market has led to many deals in recent years closing at double-digit EV/EBITDA multiples, which had risen near all-time highs in 2017 due to ample private equity dry powder reserves and readily available debt financing. The median valuation/EBITDA multiple for M&A transactions rose slightly to 10.5x in Q1 2019, up from 9.4x in 2018.  Source: S&P Capital IQ, PitchBook and Baker Tilly Capital research (May 2019) Read the full update  Baker Tilly Capital, LLC disclosure
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There were 150 transactions that closed in the Philadelphia regional  market during the first quarter of 2019, of which 22 were middle-market  transactions with a median transaction size of $47 million.

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Philadelphia regional M&A update Q1 2019

There were 47 transactions that closed in the Pittsburgh regional market during the first quarter of 2019 (Q1 2019), up from the 40 closed transactions in the prior quarter. The 47 closed transactions were in line with the 48 closed transactions during the same period in 2018.  Following a strong 2018, North America’s overall Q1 2019 M&A activity slowed. M&A aggregate deal value decreased 2.6 percent and deal volume decreased 36.4 percent compared to 2018. However, M&A activity is likely to sustain momentum driven by megadeals, with six deals closing at a value above $10 billion in Q1 2019 and several others announced. Median deal size in North America rose to a record $101 million in Q1 2019, a dramatic increase from $57 million in 2018. A competitive bidding market has led to many deals in recent years closing at double-digit EV/EBITDA multiples, which had risen near all-time highs in 2017 due to ample private equity dry powder reserves and readily available debt financing. The median valuation/EBITDA multiple for M&A transactions rose slightly to 10.5x in Q1 2019, up from 9.4x in 2018.  Source: S&P Capital IQ, PitchBook and Baker Tilly Capital research (April 2019) Read the full update  Baker Tilly Capital, LLC disclosure
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There were 47 transactions that closed in the Pittsburgh regional  market during the first quarter of 2018, of which six were middle market  transactions with a median transaction size of $85 million.

Pittsburgh regional M&A update: Q1 2019

There were 48 transactions that closed in the central Pennsylvania regional market during the first quarter of 2019 (Q1 2018), in line with the 48 closed transactions in the prior quarter. The 48 closed transactions marked a large increase of 54.8 percent from the 31 closed transactions during the same period in 2018. Following a strong 2018, North America’s overall Q1 2019 M&A activity slowed. M&A aggregate deal value decreased 2.6 percent and deal volume decreased 36.4 percent compared to 2018. However, M&A activity is likely to sustain momentum driven by megadeals, with six deals closing at a value above $10 billion in Q1 2019 and several others announced. Median deal size in North America rose to a record $101 million in Q1 2019, a dramatic increase from $57 million in 2018. A competitive bidding market has led to many deals in recent years closing at double-digit EV/EBITDA multiples, which had risen near all-time highs in 2017 due to ample private equity dry powder reserves and readily available debt financing. The median valuation/EBITDA multiple for M&A transactions rose slightly to 10.5x in Q1 2019, up from 9.4x in 2018.  Source: S&P Capital IQ, PitchBook and Baker Tilly Capital research (April 2019) Read the full update  Baker Tilly Capital, LLC disclosure
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There were 48 transactions that closed in the central Pennsylvania regional market during the first quarter of 2019, of which four were middle-market transactions with a median transaction size of $66 million.

Central Pennsylvania regional M&A update: Q1 2019

Food and beverage companies are facing sweeping industry changes as consumer preferences shift to more local, specialized products. This evolution impacts all aspects of running the business, including supply chain, account management and manufacturing practices. Food and beverage processors must adapt to keep up with the needs of both their consumers and retail partners.  During a recent panel discussion, select executives of family-owned food and beverage companies that recently faced ownership transitions shared their succession paths and views on the current opportunities for middle-market companies: The panelists included: Tom Walzer – CEO – Saco Foods, LLC Dimitri Pappas – Founder/Owner – Orchard Solutions Jonathan Del Re – CEO – Lacas Coffee Company In an excerpt from Challenges of growing and transitioning a private food and beverage company, the panelists discuss the unique challenges their companies have faced and how those complexities have shifted over the last few decades.  What are some of the unique challenges you have seen in the food industry, and how are they different today versus 10-20 years ago? Jonathan Del Re: Decades ago, our company had restaurant and diner customers, which would buy 300 or 400 pounds of coffee per week. But now, most of our larger street accounts – DSD accounts – are roughly half that size. The average sales in pounds of coffee per account has shrunk. Furthermore, there is an industry saying that “less coffee now goes down the drain” because there is a lot of technology, soft heat, air pots and even K cups that extend product life and reduce waste. While all this leads to more efficient use of coffee, which is favorable to the customer, the trends require roasters like us to produce and sell less coffee to our traditional customers. More recently, the trend of a smaller slice of the population demanding premium products with a story is driving industry thought leadership. Millennials are driving broad market interest in where things are from, ethical and sustainable sourcing, fair trade, and organic products. All of these concepts used to be, I wouldn’t say fringe issues, but not mainstream issues. They have now become mainstream issues and they’ve changed the way our customers buy and what they ask from their vendors. There has also been a proliferation of micro roasters and very small operators that are good enough to service one or two accounts here and there, but they don’t have the scale to really do much more even though they make a good product. They are capitalizing on the market demand for local, niche products. And consumers are willing to spend $6 for a sustainable coffee product when a similar uncertified product could be had for half the price. This is not what my generation did, but it is what the millennials are doing – and it appears to be an enduring trend. Dimitri Pappas: An area where there is a challenge, but also an opportunity, is that there is more market segmentation and channel proliferation. Consumers are demanding different items – ethnic foods, organic foods, more convenient foods, more authentic foods (i.e., farm-raised, local) – and retailers serve different customer bases. Wegmans’ customer, for example, is very different than Dollar General’s. This introduces complexity from a manufacturing and a supply chain standpoint, but it also provides an opportunity for smaller, more nimble food companies that can customize their offerings to reflect what retailers and consumers are demanding. Tom Walzer: Retailers are demanding more just-in-time inventory, and thus requiring smaller case sizes. Therefore, we have more logistic costs per case with this strategy and need to figure out how to wring out efficiencies in these demands to make sure there is less product on the shelf that turns quicker and gives the retailer a greater ROI while finding ways to maintain or grow our margins. A revolutionary change in the marketplace is a traditional grocery retailer is no longer just a brick-and-mortar, on-the-shelf retailer. Consumers can now order online, pick up in store or home deliver. We have to adapt our product’s value proposition to win in-store, online and in-home delivery. There is also the challenge of figuring out how to get consumers to pick up products that tend to be more impulse purchases off the shelf in an electronic manner. How do we get into the basket, not only in the store, but via e-commerce. This is a new challenge that we are working through. Today, one of the biggest challenges is taking a specialty food CPG company and repositioning it to be successful not only in traditional grocery channels, but in non-traditional grocery channels, such as: drug, club, DIY/home goods, dollar and convenience channels of trade. Those are all new amazing channels for us, with tens of thousands of doors that traditional grocery manufacturers like Saco Foods had never considered before. What channels are best for our products? How do we reposition our product offering to be successful in that given channel? Where do we make investments for the best ROI? If we answer these strategic questions and execute with excellence, we will create transformational growth for Saco Foods.  Download the full panel discussion > For more information on this topic, or to learn how Baker Tilly Capital specialists can help, contact our team.  Baker Tilly Capital, LLC disclosure > 

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In an excerpt from Challenges of growing and transitioning a private food and beverage company, panelists from our recent panel discussion address the unique challenges their companies have faced and how those challenges have shifted over the last few decades.

Shifting challenges unique to the food industry

The first quarter of 2019 showed some modest but nonetheless interesting movements in the metrics monitored in Baker Tilly’s banking industry key performance indicator (KPI) report. Generally, the first quarter of 2019 results reflected a sustained strength in the community bank sector of the banking industry. Capital and earnings remained at continued high and increasing levels. Likewise, credit quality remained encouragingly strong throughout the sector, with little to suggest reversing trends in the near term. Of note, however, are some modest shifts in lending volumes and net interest margin that may be indicative of some softening of the favorable performance community banks have enjoyed for the past three years. Both Tier one capital and the return on average equity increased modestly in comparison to the fourth quarter of 2018. The increase in capital levels appears to be principally a result of the favorable earnings trend in that there was only a limited level of capital sourcing completed by community banks during the first quarter of 2019. Further, it appears that the benefits of the trend in consolidation that began over three years ago are beginning to be reflected in both the capital ratios and earnings levels. In many instances, the premiums paid to complete the acquisitions have been effectively absorbed and the efficiencies in operations are beginning to take hold. Also contributing to the continued favorable earnings was the sustained high levels of credit quality. Both non-performing asset and allowance for loan and lease losses remained at historical lows, which reflect the current strength of the economy served by community banks. Although banks continue to enjoy strong credit quality, it appears the demand for loans in this sector may be subsiding. Despite there not appearing to be any systemic contributors to the reduction in both the loans and leases to assets and loans to deposit KPIs, both of these metrics declined slightly during the first quarter of 2019 in comparison to the fourth quarter of 2018. Some indicators suggest this is the result of continued and growing concerns over global trade issues and/or uncertainties as to the ability of community banks to continue to access funding at favorable pricing levels. The recent communications by the Federal Reserve indicates it to be more likely to decrease than increase the benchmark rate in the near term. The first quarter of 2019 reflected a slight decrease in net interest margin, most likely due to the continued high levels of competition for core deposits being precipitated by the emergence of more readily accessible mobile banking solutions led by the large and regional banks.   Insights on Mergers & Acquisitions In comparison to 2017 and 2018, the current year is off to a relatively slow start with regard to mergers and acquisitions within the community bank sector. This slowdown is believed to be a function of a decline in the overall market value of community bank stocks, which is inhibiting buyers to pay the desired acquisition prices and the current favorable earnings landscape which is allowing potential sellers to “wait-it-out” until acquisition multiples return to the levels experienced during 2017 and 2018. If the factors noted above with regard to lower lending volumes and declining net interest margins persist, we anticipate sellers will be faced with the critical decision of taking a lower price in the face of the potential of decreased profitability and a decline in credit quality. For more information on this topic, or to learn how Baker Tilly banking specialists can help, contact our team. 

Understand the metrics included in our banking industry benchmarks key performance indicator (KPI) report more thoroughly with our insight into some of the current KPIs.

Community Banks 

Credit Unions

Banking KPI insights: 2019 first quarter metrics of note

Video One of the most talked about tax incentives to come out of the Tax Cuts and Jobs Act is through the opportunity zones (OZ) program. Despite all the talk, the program was slow to gain traction with investors due largely to questions surrounding certain aspects of it. But after two recent batches of proposed regulations, investors are finally getting a full picture of what investing in a qualified opportunity fund could mean for them. Listen as professionals from our tax and real estate teams give an overview of the program, including what changed with the latest set of regulations. The webinar also covers: The tax benefits offered for investing in any of the many designated low-income communities within the United States and certain territories  The life cycle of an opportunity zone investment and the associated tax compliance A high-level look at guidance issued by the IRS and Treasury since the program’s inception Download the presentation  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

Listen to our tax and real estate professionals discuss the two rounds of proposed regulations have better clarified the benefits of the opportunity zones program.

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Multifamily Housing

Federal Tax

Tax Advocacy & Controversy Services

Overview of opportunity zones

In April, the Department of Treasury released a second set of proposed regulations covering opportunity zones. For our first impressions of the recently issued guidance, please see our previous Tax Alert. The regulations resolved several issues that remained open after an initial tranche of proposed regulations was released in October 2018. This alert focuses on clarifications the new regulations provide to operating businesses on how to take advantage of the program’s benefits.   Key takeaways Three safe harbors and a facts-and-circumstances test are provided to assist businesses in determining whether income is sufficiently derived from a qualified opportunity zone (QOZ) business. The “active conduct of a trade or business” requirement a QOZ business’s activities must meet is generally defined. Specifically, the ownership and operation (including leasing) of real property will meet this standard, however, “merely entering into a triple-net-lease” will not.  A working capital safe harbor introduced by the October 2018 round of regulations is expanded to allow taxpayers 31 months to deploy raised capital to develop a trade or business and avoid penalties.  Background In an effort to redirect capital from the stock market into economically distressed communities, the Tax Cuts and Jobs Act created the opportunity zones provisions, which offer taxpayers three tax benefits in exchange for reinvesting their capital gains into an investment vehicle called a qualified opportunity fund (QOF): Deferral of tax on the invested gains, generally until the earlier of the disposition of their QOF investment or 2026, Forgiveness of tax on 10% of the invested gains if the QOF interest is held for at least five years, an additional 5% (for a total of 15) if held at least seven years, and Potential permanent gain exclusion on any appreciation in the QOF investment if it’s held at least 10 years. For more information on the fundamentals of the opportunity zones provisions, please see our December 2018 Tax Alert and our earlier Tax Reform Progress Report.   Income sufficiently derived from a QOZ business A business must receive at least 50 percent of its gross income from the active conduct of a trade or business within a QOZ in order to qualify as a QOZ business. The original legislation provides no means to determine the source of the income-producing activity for this purpose, and the previous set of regulations do not offer any guidance. As such, prospective ventures with designs to sell to customers or locate any of its operations outside the QOZ were left with a significant logistical uncertainty. The new proposed regulations feature three safe harbors for making this determination. A business will meet this requirement if: At least 50% of the business’s services based on employee and independent contractor hours are performed within the QOZ, At least 50% of the business’s services based on amounts paid for those services are performed within the QOZ, or The tangible property located in the QOZ and the management functions performed within the QOZ are each necessary to generate at least 50% of the business’s gross income. If these safe harbors cannot be met, a business can demonstrate that it passes the gross income test based on facts and circumstances. In all, a business now has significantly more information and flexibility needed to determine whether it can participate in the program and still target customers and deploy its resources in manners and geographies that best suit its general operations’ needs. Active conduct of a trade or business defined The regulations rely on a large body of existing case law and administrative guidance in determining whether a trade or business exists for QOZ business purposes. In general, the business must engage in its activities with continuity and regularity, for the primary purpose of making a profit. The real estate industry is given helpful clarity, as the regulations specify that the ownership and operation (including leasing) of real property will be considered a trade or business under the opportunity zone program.  However, the regulations further state that “merely entering into” a triple net lease does not rise to the trade or business standard. It is important to note that triple net lease is undefined for these purposes. As such, while the presence of this language is unfavorable, it will be critical to examine all facts and circumstances, particularly the property owner’s level of activities under any arrangement resembling a triple net lease to determine whether a trade or business exists.  Expansion of working capital safe harbor Among the many significant issues potential investors and practitioners faced in light of the original legislation was how a QOF could timely redirect its funding into qualifying assets to avoid onerous penalties. Broadly, 90% of a QOF’s assets, based on an annual test, must be in either:  Tangible property the QOF: acquires by purchase, satisfies certain original use or substantial improvement requirements with respect to the property, and uses in a QOZ for the substantial duration of its holding period, or An equity investment in a QOZ business subsidiary. For a QOZ business subsidiary to qualify as such, 70% of its assets must be in tangible property described above.  As the first testing date is no later than six months after the QOF receives its first investment, whether these asset tests could be satisfied as a practical matter was of great concern.  The construction and real estate industries were provided some relief when the first round of regulations provided a safe harbor to allow QOZ business subsidiaries only the use of working capital to acquire, construct or substantially improve tangible property within 31 months pursuant to a written plan without failing an asset test. However, this was of little help to commercial enterprises. The new regulations extend the safe harbor to cover working capital used to develop a trade or business over the same 31-month period. Examples in the regulations provide qualifying expenditures to include scouting favorable locations for the new business within the QOZ, leasing real property for the business, acquiring or leasing equipment or other furnishings for the space, making security deposits, obtaining franchises and permits, hiring and training staff, and research and development costs. The determination of whether other expenditures will qualify under the expanded safe harbor will likely be dependent on the taxpayer’s facts and circumstances as well as the aforementioned written plan that it must adhere to.  Separately, the safe harbor was also updated to provide that businesses: Will not be penalized for failing to meet the 31-month timing requirement on account of government delays in processing applications, and May apply the safe harbor to multiple instances of capital investments, so long as the above-mentioned requirements are met (for example, if during the 31-month window to reinvest capital received on date 1, a business received additional funds on date 2, it would have 31-months from date 2 to acquire, construct or substantially improve property or develop a trade or business pursuant to a written plan using the date 2 funds).  Conclusion The clarifying provisions in these regulations took down several barriers of entry to operating businesses participating in the opportunity zones program. It remains critical to note that businesses should still heavily scrutinize the analysis of whether investing in an opportunity zone makes sense from an economic perspective, despite the clarity provided with respect to compliance.  Please reach out to your Baker Tilly advisor with questions on how you may benefit from the OZ program. For more on opportunity zones, please see our investment opportunities page. For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.  

The second set of proposed regulations for opportunity zones clarifies some of the unresolved issues that surfaced after the first batch was released last October.

ALERT: Opportunity zones – second set of proposed regulations provide clarity for operating businesses

With the second set of proposed regulations for Opportunity Zones released, learn more   on how they may impact the construction industry.     Read the article.  For more information on this topic, or to learn how Baker Tilly specialists can help, contact our team.

With the second set of proposed regulations for Opportunity Zones  released, learn more on how they may impact the construction industry.

Opportunity Zones update for contractors

Taxpayers with capital gains reported on a 2018 Schedule K-1, or that have net capital gains on all 2018 sales of section 1231 property (property used in a trade or business), have until June 28, 2019, to take advantage of potentially significant tax deferral by reinvesting those gains into a qualified opportunity fund (QOF). If you have not yet discussed this deferral and savings strategy with your tax advisor, we encourage you to do so soon. Investing in a QOF potentially defers payment of the capital gains tax until 2026, plus a 15 percent permanent exclusion of the original gain if the QOF investment is held for seven years. It then allows for tax-free gains on any appreciation of the QOF investment if held for 10 years. It is critical to note that once the original deferred gain is recognized, it will be taxed at the federal capital gains rates in effect at the time of recognition (2026 assuming full deferral), not at the time of deferral. As an illustrative example, a $250,000 2018 capital gain would result in a current federal tax liability of $59,500. By reinvesting the gain in a QOF, payment of tax is deferred. Assuming the investment is held for seven years, 15 percent of the gain is excluded from income and 85 percent of the remaining gain, $212,500, would be subject to tax in 2026 at capital gains rates that are applicable at that time. Once the QOF investment is held for 10 years, any gains realized from any QOF are tax-free.  If you’re interested in possible gain deferral from reinvesting 2018 gains into an opportunity zone, we encourage you to contact your Baker Tilly advisor for additional details. The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.

If you have capital gains on your 2018 K-1 or on 2018 sales of section 1231 property, you only have until June 28, 2019, to reinvest those in a qualified opportunity fund.

Deadline approaches to defer 2018 capital gains tax using opportunity zone reinvestment

Look at every opportunity to finance projects by evaluating their eligibility for tax credit financing through the New Markets Tax Credit (NMTC) and Low-Income Housing Tax Credit (LIHTC) Programs, which are designed to support investment in communities and meet the housing needs of residents. The NMTC Program provides tax credits for investment into operating businesses and development projects located in qualifying "distressed" communities by certified Community Development Entities (CDEs).  Projects closed between Oct. 31, 2017 and Oct. 31, 2018 may use either 2006-2010 ACS data or 2011-2015 ACS Low-Income Community eligibility data applied to the 2010 census tracts for determining Low-Income Community eligibility. Projects closed on or after Nov. 1, 2018 must use 2011-2015 ACS Low-Income Community eligibility data applied to the 2010 census tracts for determining Low-Income Community eligibility. This mapping tool can help you determine if a project may qualify within eligible census tracts under either the 2006-2010 ACS data or the 2011-2015 ACS data through the edit data function on the map. For a housing project, this map will allow you to quickly determine if your project lies within a qualifying census tract or difficult development area for LIHTC purposes. Qualifying may be beneficial to application scoring and boosting eligible basis based on US Department of Housing and Urban Development (HUD) 2013 data. Please review the project’s respective state Qualified Application Plan (QAP) for basis boost policy. Use the interactive tax credit mapping tool   Submit your project to our tax credit specialists for additional qualification analysis. Disclaimer: The data presented in this map are provided as a reference and the validity cannot be guaranteed. All data should be verified with HUD and the CDFI Fund before using it in your decision making process.

New Markets Tax Credit and Low-Income Housing Tax Credit mapping tool

Businesses often face opportunities and challenges in their day-to-day activities. When those activities affect the financial position of the company, we provide support in each stage of the transaction from pre-planning to execution. 

From pre-planning and execution to post-transaction requirements, our team provides specialization for these business events that are not part of your everyday activities.  There are many opportunities within a business that require navigating a complex transaction, including:

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We work with you to identify and execute the critical success factors of  a transaction to meet your business goals.  With specialists in mergers,  acquisitions, project finance, due diligence, valuation, capital  sourcing, corporate finance, capital markets, and incentives advisory,  we help you navigate those unique business events that arise as your  business changes.

Throughout the process, we are able to create a foundational relationship in which we are entrusted with helping our clients accomplish their financial goals. 

Our panel discusses the challenges private and family-owned food and beverage companies face on the path to sustained growth, and the growing interest from strategic and private equity buyers.

Challenges of growing and transitioning a private food and beverage company

With this presentation, manufacturers interested in growth or transition will gain understanding of how their company is valued, while learning about key areas buyers look for in a potential acquisition and growth drivers that impact a business’ overall valuation.

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Listen to North Central Group’s Director of Finance, Shawn Swenson, talk about how the company first learned about PACE, why it continues to be a valuable tool for them and how Baker Tilly Capital has helped them navigate the process.

Using PACE financing for hotel development

Baker Tilly works with clients on mergers, acquisitions, capital sourcing and markets, project finance, due diligence, valuation and transactions

Baker Tilly works with clients on mergers, acquisitions, project finance, due diligence, valuation, capital markets, capital sourcing, and everything around a business transaction. 

Wisconsin manufacturer finds buyer with shared values

Grocery store chain saves $1 million in property taxes

Festival Foods secures New Markets Tax Credits for new store openings

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Baker Tilly’s energy team, lead out of Texas, works with oil and gas, upstream, midstream, downstream, power and utilities, renewable energy

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Baker Tilly has helped companies in a wide range of industries.

Funding corporate growth requires a holistic view of the financial and operational goals of a business. Having strong relationships with capital sources can help you meet your objectives.

The ever-changing needs of middle-market businesses require a specialized team of advisors to help you identify and evaluate strategic and financial opportunities as they arise.

Whether it is for an acquisition, sale or refinancing, Baker Tilly provides due diligence services tailored to meet your specific needs.

At Baker Tilly Capital, we realize the challenges middle-market business owners face as they decide to grow, finance, or exit their business.

Middle-market business owners, investors and corporations rely on our sell-side, buy-side and financing solutions to execute their growth strategy.

We take a comprehensive view of available federal, state and local tax credit and incentive programs and loan programs when developing a project’s capital stack.

New asset classes and sophisticated financial instruments bring complex  regulatory compliance, risk management, and operational challenges.  Count on Baker Tilly to provide confidence and clarity to the financial  markets.

Baker Tilly can advise on complex regulatory capital issues and has experience in the mechanics of RMBS, CMBS, CLO, CDO, and whole loan pool transactions, as well as in the valuation of a wide range of structured, alternative, and illiquid assets and products.

Baker Tilly’s transaction advisory services team provides straightforward advice to clients on every critical business decision before, during and after a transaction.

Our transaction advisory team focuses on your deal needs. Whether it is a sale, buyout, carve-out or refinancing, our team can support your process every step of the way.

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Baker Tilly provides a wide range of companies with information on a broad range of valuation matters that are critical to their strategic and financial decisions.

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Food and Beverage M&A update: Q1 2019

Healthcare M&A update: Q1 2019

Philadelphia regional M&A update Q1 2019

Pittsburgh regional M&A update: Q1 2019

Central Pennsylvania regional M&A update: Q1 2019

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Banking KPI insights: 2019 first quarter metrics of note

Overview of opportunity zones

ALERT: Opportunity zones – second set of proposed regulations provide clarity for operating businesses

Opportunity Zones update for contractors

Deadline approaches to defer 2018 capital gains tax using opportunity zone reinvestment

New Markets Tax Credit and Low-Income Housing Tax Credit mapping tool

Manufacturing & Distribution

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More Industries

Businesses often face opportunities and challenges in their day-to-day activities. When those activities affect the financial position of the company, we provide support in each stage of the transaction from pre-planning to execution.

Throughout the process, we are able to create a foundational relationship in which we are entrusted with helping our clients accomplish their financial goals.

Featured insights

Challenges of growing and transitioning a private food and beverage company

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Using PACE financing for hotel development